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.