Thursday, October 27, 2005
Froth in Indian ADRs?
I understand that outsourcing boom and growth of internet usage in countries like india is creating powerful local players that capture a lot of the value into their businesses.
I understand why Infosys (INFY), Wipro (WIT), Satyam (SAY) ADRs are booming and in some cases showing growth rates like an internet company.
Spotting a mega trend and validating it with few big players like above, often leads to investor irrational exuberance. For example, Rediff.com (REDF). This company does not seem to be trading in india, but just in US & Germany. I wonder if these are the same ADRs or different ADRS offered in different countries.
In any case, last quarter they had revenues of US$4.35M and their US ADRs are worth about $425M. I like rediff.com as a website and i use it occasionally. However, I am not going to pay 100 times revenue for this company. They are not demonstrating revenue growth deserving that.
Comments:
raju garu, tell us a little more about rediff ADR. the latest run-up seems to come on the back of the company raising a lot of money from institutions who believe their story and holding the stock, not just retail.
First off - to that first comment: NSLT is a company that is barely selling anything and has actually run a negative gross margin in the past year. Nuff said there.
As for Indian outsourcing, it seems to be a popular hot button, as I just read another article about the same thing. There are many concerns to have with investing in companies that provide outsourcing from India - probably the biggest is whether the cost advantage will hold up over the long run and make these companies truly viable. A few of these companies, though, based on their financial profiles and growth (I would name specifically SAY and CTSH) seem to be relatively undervalued. In the case of SAY, it seems that Wall Street has not really picked up on the story yet either, which can be good for people looking to invest now.
I haven't really done much research to date on the Indian companies, but I will be looking into that and will hopefully come up with more insight into which companies are worth investing in there. As for Rediff, unless I'm reading something wrong, it looks like that ADR is trading in the US under REDF and is currently trading around $19/share. With trailing revenue of $12m this puts it at about ~45x revenue. Forget the fact that this company is burning cash, it's not even making money on the operating line. Past growth has been questionable and the dot-com-esque offerings from this company make it particularly questionable. I'd stay far away.
Stick with the Indian companies with established business models like SAY and CTSH. In fact, I'm going to try to get something up on my site about these two companies (and investing in Indian in general) in the next few days. Keep an eye out - www.theaveragejoeinvestor.com
-AvgJoe
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As for Indian outsourcing, it seems to be a popular hot button, as I just read another article about the same thing. There are many concerns to have with investing in companies that provide outsourcing from India - probably the biggest is whether the cost advantage will hold up over the long run and make these companies truly viable. A few of these companies, though, based on their financial profiles and growth (I would name specifically SAY and CTSH) seem to be relatively undervalued. In the case of SAY, it seems that Wall Street has not really picked up on the story yet either, which can be good for people looking to invest now.
I haven't really done much research to date on the Indian companies, but I will be looking into that and will hopefully come up with more insight into which companies are worth investing in there. As for Rediff, unless I'm reading something wrong, it looks like that ADR is trading in the US under REDF and is currently trading around $19/share. With trailing revenue of $12m this puts it at about ~45x revenue. Forget the fact that this company is burning cash, it's not even making money on the operating line. Past growth has been questionable and the dot-com-esque offerings from this company make it particularly questionable. I'd stay far away.
Stick with the Indian companies with established business models like SAY and CTSH. In fact, I'm going to try to get something up on my site about these two companies (and investing in Indian in general) in the next few days. Keep an eye out - www.theaveragejoeinvestor.com
-AvgJoe
