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Moneycontrol » News Center » Markets » Expert & FII Outlook
Dotcoms: Value for money?
Published on Tue, Nov 21, 2006 at 12:42   |  Updated at Tue, Nov 21, 2006 at 19:22  |  Source : Moneycontrol.com

There have been tremendous volumes on Info Edge India, which got listed today. It has just been a blow out, having crossed 600, and is still looking strong. Mahesh Murthy, Managing Partner of Seedfund and Sandeep Singhal, MD, Sequoia Capital comment on the Info Edge issue and give a general overview on the outlook of the dotcom business.

According Murthy, Info Edge should be valued at 10 times of sales or 30 times its earnings. By and large, 10 times the sales is a fair valuation for dotcom companies. However, PE multiple beyond 25 for dotcom companies is a cause for concern.


Singhal believes that understanding the business model and future scalibilty is also important for valuing dotcoms and that it is not easy to value them in the initial stages. Singhal feels that comparison to global counterparts - monster.com for example - also helps gain perspective.

Excerpts from CNBC-TV18's exclusive interview with Mahesh Murthy & Sandeep Singhal:

Q: What's your thought on how this stock has listed and how one should value these businesses because there aren’t a lot of listed entities atleast in the Indian equity market?

Murthy: If you look at the numbers, Info Edge is an Internet company with probably more revenues than Rediff. So it is still puzzling how Rediff can command a premium 10 times or price 10 times that of Info Edge. I am not sure where that comes from.

What people are finding is Info Edge is valued with their sales estimate this year at Rs 100-120 crores. They have been guided about 10 times their sales, which is not hugely out of line for a lot of other companies on the stock markets today. Where it gets 10 times sales or 25 times sales is where you really start to worry. That’s my concern area.

Q: How do you value Internet companies - with specific reference to where Info Edge has gone on to list today?

Singhal: I do not have the liberty to comment on individual stocks. I would say that valuing internet companies varies from being an art in the initial stages of the development of the sector, to being a science as the sector develops, and you can compare it across benchmarks.

I would say that we are generally positive about the sector but are also cautious of the hype that some of these sectors tend to attract ahead of the market. There are still several bottlenecks on the infrastructure side in the Internet economy in India.

So I would say that in the short-term, one should understand the business economics of the model and its ability to scale rapidly over the coming years.

Q: Even if you can take a studied call on where the business is heading and what kind of growth one can expect? Do you have some benchmarks by which you value these companies because otherwise, you would not know what you are paying even if you are convinced of the business?

Singhal: I think it is not easy to value these companies as you would have seen in the last eight or ten years. Companies that have been big hits in the Internet space - more recently, UTube, which was acquired by Google - are not easy to value in initial stages.

I would say for Info Edge, probably the best thing would be to compare it to its global competitor, which is Monster in the US. That will probably be the easiest way to try and draw some kind of analogy and semblance of reasonableness here.

Contd on Pg 2...

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