For the past few days something is going on in the Indian online space. You can see that the two Indian companies listed on NASDAQ, Rediff(REDF) and Satyam Infoway(SIFY) have just exploded. Since last earnings of Rediff where they tripled their earnings till about tuesday (July 10th) Rediff was hovering between 16 to 19 for months. And similarly Sify was hovering between 7 to 9 after they had a bad last quarter. Sify even got a downgrade from Kaufman Brothers in January. But since Wednesday (July 11th) around midday Rediff started on the upside with increasing volume. And now helped with today's rally, and almost 25 times the average volume for the past 3 months, it sits with a gain of about 40%. That in less than 2 days.
That is just incredible. I am pretty sure there is something going on there. And my blog entry will try to speculate on it. I will concentrate on Rediff and leave Sify by the side. At least for Rediff I don't see any piece of public information that has come which justifies a 40% jump in valuation. There is a news about it's iShare platform. But I don't think that is so great and there are better competitors like Dekho Na. But then people (somebody) suddenly had an unravelling and thought that Rediff was worth much more. And volume tells that this somebody is somebody with deep pockets. Cause 10 times volume on day 1 as compared to previous day and then 3 times that volume the next day pushing the stock up 40% won't come just like that. So I am a little perplexed with this jump. Somebody may have some insider knowledge about the company on the basis of which they are betting right now. They cannot even wait for earnings which come out in a few weeks.
So what can it be?
* Point 1: Rediff may have been approached by somebody either for a buyout or for getting in a significant stake.
* Point 2: Rediff may be in for a extremely good earnings quarter. The rupee has appreciated more than 10% and majority of Rediff revenues are in rupees not dollars. That definitely will help Rediff in terms of earnings.
* Point 3: Rediff may be thinking of listing on the Bombay Stock Exchange (BSE). Ajit Balkrishnan, CEO of Rediff, has
said that although Rediff does not need cash (it is already sitting on piles of it) the market conditions are good and an IPO does not seem a bad idea. If that is the case then no-doubt it's current investors would want a good valuation.
Now all these above points are very speculative. And they are circumstancial. As I already said there is no current public news that warrents a 40% jump in price in a matter of days. But the fact that it occured does justify some speculation about the reasons.
But what about Rediff as a company? From what I have gathered over following it for more than 2 years, Rediff has a extremely strong brand in India and abroad. Technologically they are not doing the great things that you would want them to do. But nevertheless they still have been successful in giving enough material to their users to make them stick to them. And when you tie this in with the 30% or so growth in Internet usage in India with a 9+% GDP growth, rapidly rising middle class, immediately you can see that potentially you can get a tremendous spurt in revenue and earnings from such companies like Rediff. With over 90 million internet users predicted to be there in the next couple of years what else a company would want other than to be in a position like Rediff. That obviously increases it's potintial to make deals with the major plays like Yahoo, Google and Microsoft. And who knows the Indian biggies like Reliance etc. may also jump in to buy a stake where they currently do not have any specific knowhow. Right now the possibilities in India are endless. But that does not mean Rediff will deliver. And although the recent jump may or may not be on the basis of real value, it's future earnings and growth obviously will decide whether it will head on towards the 40s and more or come back to the upper or lower teens!
Here is a little backdrop with my Rediff coverage. I gave Rediff a Smart Buy opinion in February 2006. Since then the stock was absolutely a dud. It went rapidly to about 33 and then came back below 20. It had another round till about 25 or so and then crashed to less than half of that to around 11. And today you see it sitting around 26 again. That is quite a ride. And although Rediff has been consistently giving good (not excellent) results, it's growth, revenue wise is not phenomenal. Rediff turned profitable in 2006. And it has shown very good earnings growth last quarter (earnings more than tripled last quarter from 2 cent to 7 cents).
Regardless the reasons it looks like Rediff has been found and I am sure you will hear at least some buzz about it soon!
Full Disclosure: I do own a small stake in Rediff and Sify.
