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Accumulate Rediff: Merrill

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CIOL Bureau
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MUMBAI: Merrill Lynch on Wednesday began coverage of leading Indian consumer

Internet portal Rediff.com with an intermediate and long term accumulate rating.

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"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.

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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.

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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."

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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.

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