Indian Internet Stocks Rediff and Sify: Priced Beyond Perfection - Barron's

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In India, Internet Shares Hardly Come Cheap by Leslie P. Norton

Summary: Just 18 out of 1,000 Indians have internet access. This fact that hasn't escaped investors, who have traded up shares of two India internet stocks -- India's number-three portal Rediff.com (REDF) and its number-one private broadband provider Sify (SIFY) -- to sky high multiples. Rediff currently trades at 115x trailing earnings and 88x forward earnings, while Sify's numbers are 205x and 60x -- compared to Google's modest 29x current P/E. Shares in both were up last week on news Rediff may list its shares in India, and that Sify would train members of its cybercafes in Microsoft (MSFT) Office. But in contrast to steadily growing Chinese portal Baidu.com (BIDU), Rediff (9.7m unique users in April) is losing its grip in India to Google (GOOG) (13.6m) and Yahoo (YHOO) (14.6m), and has seen its market share drop from 34.1% to 25.5% over the past 1.5 years. Over half of Rediff's 2007 pretax profit of $7 million was from interest on cash from its IPO proceeds, and another fifth came from a separate newspaper operation. Bulls contend Rediff is a takeover target of both Google and Yahoo, which may be true, but CEO Ajit Balakrishnan recently said he's considering an India IPO "at some stage" -- apparently hinting he had no plans of selling out. Sify added just 86 cybercafes in FQ4, well below previous growth rates. At the same time, its fees are dropping due to stiff competition from Microsoft-backed HughesNet Fusion, whose planned 5,000 broadband kiosks could outnumber Sify's present 3,638 cafes.

Related Links: Sify's Alliance With Microsoft Provides A Good Exit Point • Rediff.com Continues To Bring Home the Curry • The Long Case for India

Conference call transcript: Sify F4Q06, Rediff.com F4Q07

Comments

[Asif]

I could not agree more. After featuring SIFY in my newsletter and holding on to it in my personal portfolio, I decided to use the recent spike in price to get out with handsome gains.

Sify does have a lead in cyber cafes in India and has numerous other promising initiatives such as the one with Indian Railways to handle online ticketing. I also believe it would be a great acquisition candidate for Yahoo (while Sify Finance is not exactly MarketWatch.com, it certainly has a lot of traction when compared to something like Yahoo Finance India) but the current valuation is a little too rich for my liking.

[sacsharma]

SIFY broadband has one of the worst services. People are preferring Bharti Airtel or Reliance communications for their broadband needs in India.
Its days are numbered.
SIFY finance has no traction as compared to a moneycontrol.com
sagecapital.wordpress..../

[jerry parker]

i think your comments regarding GOOG and YHOO gaining shares on REDF as reason to sell REDF could end up looking pretty silly if REDF gets bought. incidentally, at similar valuations to REDF, SINA would go for $4.5B+, or about $85/share...up from $45 today.