Accumulate Rediff: Merrill

MUMBAI: Merrill Lynch on Wednesday began coverage of leading Indian consumer
Internet portal Rediff.com with an intermediate and long term accumulate rating.

"We like the company's brand, proprietary news content, leadership
position in traffic, customer focus, cash position ($66 million, enough for over
five years in our opinion) and generous options program," analysts Bharat
Parekh and Matei Mihalca said in a report titled "India's Yahoo!?"

Rediff's ADRs ended flat at $8-0/5 at the US Nasdaq on Tuesday. The ADR is
off its initial June listing price of $22 and a record high of $28 struck in the
same month.

Rediff.com registered page views of 109 million in June followed by Satyam
Infoway whose sify.com site had 80 million page views in the same month.

Salomon Smith Barney in a research note dated September 14 started coverage
of Rediff.com with a speculative buy rating and set a price target of $12.50.

Merrill said it expects Rediff to report net profits in the third quarter of
2001-02.

"We expect Rediff's sales to grow rapidly during 2000-02. Its gross
margin should also expand to reach a number closer to that of Yahoo! from 61 per
cent to 68 per cent by 2001-02 as the cost of content as a percentage of revenue
declines," it said.

At 39 times 2000-01 sales, the stock currently trades broadly in line with
its Asian peers except Netease compared to which it trades at a 50 per cent
premium. "We expect this premium to narrow down," the report said

Merrill, however, said it was concerned about Rediff's dependence on dotcoms
for over 50 per cent of its revenues.

"Given the current negative market mood and precarious state of finances
of dotcoms, we remain concerned on sustainability and scalability of revenues
until Rediff diversifies its revenues in favor of 'real' economy
companies."

Rediff had, however, made conscious efforts to reduce the dotcom risk by
signing longer term contracts with channel partners and choosing partners
supported by strong off-line companies, Merrill said.

It forecast India's Internet user population to jump to 45 million in 2003-04
from 3 million in 1999-2000.

Merrill said Satyam Infoway, Indiatimes.com of the Times of India group and
foreign players such as Yahoo! and Altavista were Rediff's competitors.

(C) Reuters Limited 2000.