Rediff IPO faces low market, high rivalry

Rediff IPO faces low market, high rivalry
REUTERS

BANGALORE, MAY 23: Leading Indian Internet portal Rediff.com has plunged into choppy market waters with its filing to go public on the Nasdaq in the United States, and faces additional pressure from heavyweight rivals nipping at its heels.

Analysts said on Tuesday that the portal, which wowed Indians with a first-mover advantage when it launched four years ago, is now stuck with tough timing for an initial public offering (IPO) in a market where investors have traded optimism for caution.

Late comer rivals with traditional strengths in the media and deep pockets for advertising have added to the complications. The strategic context could be a crucial factor for investors fishing for value in a sector that shows potential linked to a one-billion strong nation, but for now has a small customer base of less than one million subscribers.

Signs of profitable earnings, if any, are distant. "The timing (of the IPO) is obviously not perfect. In fact, it is pretty bad to look for money in the US now," said Randhir Kochhar, senior manager at consulting firm Arthur Andersen.

Rediff.com India Ltd, whose backers include Intel Corp and General Electric Co's GE Capital Services, filed last Friday to raise $75 million by offering American Depository Shares (ADS).

The company said monthly page views (of www.rediff.com) grew to 70 million in March 2000 from 13.2 million in April 1999. Portals run by Satyamonline.com, part of Nasdaq-listed Internet service provider Satyam Infoway, have in excess of 51 million page views.

All the players are also eyeing a lucrative overseas market of ethnic Indians, estimated at about 20 million. Indiainfo.com built its brand with aggressive advertising and then staged a market coup by offering a 30 per cent stake to state-run Videsh Sanchar Nigam Ltd, India's leading ISP, and also acquired US-based India Abroad Publications Ltd.

Indiainfo.com, 7.6 per cent owned by Morgan Stanley DeanWitter & Co, plans to make a $100-150 million US IPO. Satyam stunned India last year by acquiring a string of popular portals soon after going public, and overnight added content to its traditional strengths in technology.

Rediff, a brainchild of Indian advertising ace Ajit Balakrishnan, has diversified by launching regional language versions but must face perceptions of a crowded market.

"There is very little that distinguishes the leading portals... by the definition of being horizontal portals, everyone is doing everything," said Arthur Andersen's Kochhar. Merrill Lynch Asia-Pacific Internet research head Matei Mihalca said on Tuesday that Rediff was a strong portal but faced critical challenges.

"The advertising revenues are not yet enough in India, e-commerce is going to be slow. So the issue is how are you going to find enough revenues...," he said. "Eyeballs and ads have become bad words especially after the recent US meltdown," said an analyst at Ernst & Young.

E-commerce is not easy in India, where credit cards are not common and a regulatory framework is not in place yet. However, Arthur Andersen's Kochhar said a shift from generating traffic to earning revenue and profits had happened faster than anticipated for consumer portals. "The crucial question now is how well portals can manage their channels and sustain their alliances," Kochhar said.