Rediff, Sify madly priced!

Amid speculations the US-listed Indian portal Rediff.com was on takeover radar of giants like Yahoo and Google, a leading business publication said shares of India's internet firms were too expensive.

"In a world mad for internet stocks, some of the maddest valuations have gone to two Internet companies in India that trade on Nasdaq -- India's third largest portal Rediff.com and Sify, the country's largest non-government owned provider of broadband access," Barron's reported in its latest edition.

Shares of Rediff.com India dropped four per cent or by $1.05 to $25.41 at the Nasdaq on Friday, while that of Sify rose by 2.15 per cent to $10.47.

Yahoo shares were down 1.4 per cent to $26.58, while Google rose by 1.25 per cent to $552.16. With a market-cap of $740 million, Rediff trades at 115 times trailing earnings and 88 times of the forward earnings, while Sify, with a market value of $440 million, sells at a trailing price-to-earnings of 205 and a forward multiple of 60, the publication noted.

This compares with a modest price-to-earnings ratio of 29 times for Google. Besides, Rediff seems to be losing its grip in Indian market as global giants like Google and Yahoo are expanding their presence, the report said.

Noting the speculations about Rediff being a takeover target for Google and Yahoo might be true, the magazine said the Indian portal's management has recently hinted towards an IPO rather than any plans to sell out.

"Bulls contend Rediff is a takeover target of both Google and Yahoo, which may be true, but CEO Ajit Balakrishnan recently said he was considering an India IPO at some stage -- apparently hinting he had no plans of selling out," the report said.

The shares of Rediff as well as Sify have gone to sky high levels riding high on the the growth potential in the country as just 18 of 1,000 Indians have internet access, Barron's said.

Shares of both the Nasdaq-listed companies were up last week on news that Rediff may list its shares in India and that Sify would train members of its cybercafes in Microsoft Office.

"But in contrast to steadily growing Chinese portal Baidu.com, Rediff (9.7 million unique users in April) is losing its grip in India to Google (13.6 million) and Yahoo (14.6 million), and has seen its market share drop from 34.1 per cent to 25.5 per cent over the past one and half years," Barron's report said.

Besides, more than half of Rediff's 2007 pre-tax profit of $7 million was from interest on cash from its IPO proceeds, and another one-fifth came from a separate newspaper operation, it added.

Google, Yahoo may be eyeing Rediff

US-based Internet giants such as Google and Yahoo are eyeing Rediff.com India Ltd, which runs one of India's most popular consumer Internet portals, for a possible acquisition. Investment banking sources told Hindustan Times that the management of Nasdaq-listed Rediff was in talks with the global companies for a negotiated takeover deal.

Rediff, Google and Yahoo officials could not be immediately reached for their comments. Talk of the deal is emerging in the context of a general worldwide rebound in the Internet business, and India emerging as a hot story in the global economy with strong growth in both telephone penetration and the Internet in urban areas.

Leading US-based investment journal Barrons reported this month that Rediff is seeing speculation that it could be a takeover target. Rediff’s stock has witnessed a sharp jump in share price and volume on Nasdaq over the past week, when it also launched a Website to help consumers upload voice, video and photographic content for free.

The company's stock moved up to $25.41 per share on July 13 from $17.94 on July 5 and. The trading volume has increased to more than a million shares from an average of 50,000 share a day. In fact, on July 12, Rediff shares closed at $26.46 and more than 3.3 million shares traded hands. The company has a current market capitalisation of $738 million.

The sources said if the deal comes through, the valuation may be close to a billion US dollars.

The Barrons report quoted Ashish Thadani, an analyst at Gilford Securities, as saying that Rediff could fetch more than $ 25 a share in a sale and could see other suitors besides Yahoo and Google

Other suitors could possibly include AOL (America On Line), a division of Time Warner, which has a strong presence in offshore services from India, but is not a significant player in the market. Microsoft's MSN portal is also keenly stepping up its presence in the Indian market.

Rediff.com India, an online provider of news, information, communication, entertainment and shopping services, reported a net income of $2 million for the fourth quarter or $6.89 per ADS, compared with $0.53 million or $1.96 per ADS in the same quarter of the previous year.

The company's revenues increased 66 per cent to $8.48 million from $5.11 million in the same quarter of last year. India Online revenues, which include advertising and fee-based revenues, jumped 76 per cent to $6.30 million from $3.57 million in the year-ago quarter, while US Publishing revenues were $2.18 million, up 42 per cent from $1.54 million a year earlier.