Emergic: Rajesh Jain's Blog

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Low Valuations of Sify and Rediff – Why?

October 2nd, 2008 · 2 Comments

It is a reflection of the slow growth of the Indian Internet that the two companies which had listed on Nasdaq nearly 8-9 years ago today trade at very low valuations. Excluding the cash they have on their books, Sify and Rediff are trading at about $50-60 million valuation each. Both companies have a significant customer base (Sify in enterprises, and Rediff on the consumer side), and yet investor are putting a very low value on both of them. Part of the story can be the general market fall, but there has to be more.

I think that both companies have not exploited their early market leadership to create dominant and defensible positions in the Indian market. Sify faces competition in the enterprise market from the telcos (wireline and wireless) who have immense scale of operations. Rediff has not been able to position itself as the gateway to the Indian Internet, and is facing a rapidly growing Google that is capturing ad revenues with its performance-based model.

The Indian Internet story is not over by any means. There are others like Naukri who have now become the domiant players in terms of market cap. Given the market downturn and the cash crunch that companies are likely to face, I think we can expect to see some consolidation in this space so we get larger companies with $100 million in revenue. All the incumbents have plenty of cash to make some bold moves in this sector. And make the right investments in services to make the Internet a utility in our daily lives.

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2 responses so far ↓

  • 1 Atanu Dey // Oct 2, 2008 at 11:05 am

    Are these low valuations accurate or are they undervaluations?

    Would it be fair to say that the low valuations are a recognition by the market that there are major roadblocks to rapid web growth in India?

    Off the top of my head, these are the limiting factors. First, the cost of terminal equipment. PCs are still too expensive for the average Indian. Second, broadband connectivity is expensive. The high price of connectivity is certainly not due to high costs. Technically, there is no reason for Indian connectivity costs to deviate significantly from, say, South Korea’s costs. The high prices in India are perhaps a combination of imperfect competition and/or imperfect regulation.

    Finally, the rate and volume of adoption of a technology depends on how useful it is. Lack of compelling services (killer apps) could be part of the story.

  • 2 Sanjay Mehta // Oct 4, 2008 at 9:05 pm

    Rajesh,
    I quite agree. Sify, being largely in the enterprise space, I am unable to comment much about them. But I believe that the two companies who had the best chance of dominating the Indian Internet space, viz. rediff and indiatimes, have both messed up their opportunities.

    Neither has become a default gateway for the Indian Internet user. They have not delivered any serious value to take that position. Likewise in the verticals that gained strength in the space, such as matrimonials, recruitment, real estate, etc. also, they did not emerge as leaders of any kind. In fact, indiatimes had its best opportunity there, on account of their offline leadership in the spaces. And yet they have not been able to achieve leadership in any of these verticals and continue to play the game of catching up!

    As regards Atanu’s comments, well, with whatever be the state of the rate of growth in India, there have been dominant players who have emerged such as Naukri and Shaadi. These were places available for the taking for these two, and they did not grab them. Nor have they offered any seriously differentiating value offerings within the mobile world. Irrespective of the PC penetration, the mobile opportunity was always on offer. And with the cash reserves that both have, investing into the space for a longer term returns opportunity was eminently doable for both!

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