Internet firms plan IPO route on high valuations.

MUMBAI: Indian Internet firms, having successfully ridden the dotcom boom-and-bust of the 90s, are now lining up to sell shares in the domestic market to take advantage of high valuations, company officials said.

Companies such as People Interactive (I) Pvt Ltd (PI), Cleartrip.com, Rediff.com, MakeMyTrip.com, Sify Technologies are among those planning to list their shares in the next two years.

"Yes we have plans to list..it will probably happen in April 2009," said Anupam Mittal, chief of PI which owns matrimonial site Shaadi.com and social networking site Fropper.com. Travel portal Cleartrip's Sandeep Murthy said he had a time frame of 12-24 months for a listing, while rival MakeMyTrip.com is also planning a share sale.

Nasdaq-listed Rediff and Sify will also sell stock to comply with a government rule requiring them to list locally within three years of reporting profits, which both did in 2006/07.

Listing will provide liquidity as well as exit options for investors such as venture funds. For the firms themselves, it means more finance and visibility to boost growth. "Presence of more companies will establish Internet as a IPO-able category in India and give more momentum to investors in that area," said Alok Mittal, managing director of Canaan Advisors Pvt Ltd, which has funded Bharatmatrimony.com.

THE WEB OF VALUATION

Valuation is crucial for a sector with few performance benchmarks.

"Naukri and Rediff will serve as comparables for the broad Internet sector - largely around earnings growth and P/E (price-to-earnings) metrics," said Mittal. At its issue price of 320 rupees a share, the only listed Internet firm, Info Edge, was valued at 28 times its March 2007 earnings.

The company, which owns Naukri.com and Jeevansathi.com, now trades between 930 rupees and 950 rupees. PI's Mittal said the high valuations had to be seen in the perspective of high growth rates in Internet businesses and over a three-four year horizon. Currently, buyers are paying a premium due to a dearth of options among Internet stocks, said Ashish Gupta, Managing Director of Helion Ventures Pvt Ltd.

As more companies start to list, valuations would get rationalised, he added. The Internet sector has differing models. Unlike Info Edge and PI, MakeMyTrip and ClearTrip are single-business entities, which would make again make a difference in valuations.

CONCERNS

For the Web-dependent sector, Internet and broadband penetration in India is an area of concern. India's broadband growth "is slow and below expected level," the telecom regulator said last month.

There are slightly over 60 million Internet users in India and close to 3 million broadband subscribers. Telecom firms would now need to market broadband with aggressive price points, the PI chief said. "But I'm optimistic most of these issues will be resolved in the next 12 months." As the domestic stock market moves higher, enabling easier access to funds, it may also fuel competition for market share among companies in the dotcom space.

However, a rush of listings in the category could well erode share prices by as much as 30 percent, cautions PI's Mittal. The BSE Sensex rose 59 per cent from November 1, 2006 to reach a life high on Jan. 10. It had shed around 16 percent till Thursday, following a global slide.

Source - The Economic Times