The Day Ahead: Will Rediff.com be an IPO hit?

Up until recently, Latin American and Chinese portals have occupied IPO investors, but that should change as Rediff.com India Limited starts trading.

Rediff.com, a portal focusing on India and the global Indian community, will offer 4.6 million American depository shares priced at $12, the top of their expected range. Goldman Sachs is the lead underwriter with an assist from CS First Boston and Robert Fleming.

Rediff.com currently consists of 17 interest specific channels, extensive community features, local language editions, search capabilities, and online shopping. The company primarily gets its sales from advertising revenue, but does have e-commerce offerings.

The company is the first Indian company to be listed on a US exchange via an IPO. Satyam Infoway is listed but didn't have an IPO.

Although next-generation portals have been volatile, first movers targeted at a specific audience have done well. China.com, a Chinese portal firm, and StarMedia, which targets Latin America, both made impressive market debuts. Terra Networks was so well received it wound up buying Lycos.

In regulatory filings, Rediff.com said it offers two versions of its portal. The first portal targets Indian users with interviews with politicians, local sports and other events. The other version targets Indians in the United States. Rediff.com also delivers content in Hindi, Tamil, Telugu and Gujarati editions.

The company said its monthly page views have grown from roughly 13.2 million in April 1999 to approximately 70 million in March 2000.

Like its counterparts China.com, StarMedia and Sina.com, Rediff.com is targeting an early-stage Internet audience -- very early stage. International Data Corporation estimates that about one million people used the Internet in India in 1999. However, that figure is expected to jump to 17.2 million by 2004.

Usage could grow because the government is promoting Net kiosks in small towns and villages. But bandwidth is hard to come by because of shabby infrastructure. In addition, India's one million Netizens were dwarfed by a total population of 986.9 million. In the US, there are 80.8 million Internet users compared to a total population of 270.3 million.

"Alternate methods of obtaining access to the Internet, such as through cable television modems or set-top boxes for televisions, are currently unavailable in India," the company said.

But Rediff.com does have first mover advantage. The company depends on advertising, plans to market aggressively, enhance broadband and wireless offerings and grow its advertising base. Rediff.com lost $6.66m on sales of $1.9m for the fiscal year ending 31 March.

Like most companies focused on a foreign market, there are some local risks. Rediff.com is playing in an undeveloped space.

In regulatory filings. Rediff.com said it is tied to "social and economic developments in India," including taxation and foreign investment policies, currency exchange controls, and exchange and interest rates. The company also cited political unrest such as the recent sabre rattling between India and Pakistan.

The company also said it could be hampered by foreign investment rules. India constrains the issuance of equity and convertible debt securities, which means Rediff.com may not be able to raise additional funding if it needs cash.

Rediff.com said India doesn't currently restrict foreign investment in information technology or e-commerce related companies, but is considering restrictions that would limit foreign equity ownership in such companies to 49 percent.

Following its IPO, Rediff.com will be 53 percent owned by foreign institutions. "If the Government of India decides to implement a 49 percent limit on foreign equity ownership, our ability to seek and obtain additional equity investment by foreign investors will be constrained," the company said.

Aside from cash crunch concerns, the restrictions would also limit takeover potential, and prevent Rediff.com from doing deals that "would otherwise be beneficial".

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