India’s first dotcom listing on the cards

MUMBAI/HYDERABAD: After a few hiccups, Sanjeev Bhikchandani, the promoter of Info Edge India, has mustered courage to throw the gauntlet at Indian investors.

Sanjeev is offering a slice of his company that owns popular portals such as naukri.com, the jobs site, and jeevansathi.com, the marriage site, through an initial public offer.

Not that Sanjeev didn’t try earlier. He has been contemplating a local float for some years now. The company has filed a red herring document with the Securities and Exchange Board of India in the past, but the issue advisors let the filing lapse on apprehensions that investors may not be receptive to a dotcom stock.

Dotcom companies are valued more on the basis of intangible assets - they have very few physical assets to show, something that’s alien to what has been traditionally touchy-feely buyers. And when Info Edge lists, Sanjeev will become India’s first indigenous dotcom billionaire in rupee terms.

He holds 53.71% of Info Edge, which will have a paid-up capital of Rs 27.2 crore post public issue.

In September 2006, Sanjeev sold a small chunk of his holding at Rs 245 per share, netting him about Rs 10 crore. If this transaction is any benchmark, Sanjeev would be worth about Rs 855 crore.

The to-list-or-not dithering of the past has not harmed the company in any way, because Info Edge has managed to grow to a size and scale that few could have imagined when launched in 1995-96.

Info Edge has generated a total income of Rs 84.05 crore for the fiscal year ended March 31, 2006, and

has reported a net profit of Rs 13.29 crore. Revenues have ridden almost totallty on naukri.com —- the job portal contributes more than 90% of income.

So, will Indian investors take a bite of the virtual world? One global Indian already has - Ram Shriram, the man who funded Google, recently picked up a stake in Info Edge through his firm Sherpalo LLC.

But there are doubters, too.

“I can’t say that technology companies or for that matter dotcoms can go public in general. I don’t think the Indian market is mature enough in the sense that a more mature capital market is needed if tech companies need to go public,” says R Ramaraj, former managing director of Sify, the first Indian dotcom company to be listed in Nasdaq at the height of the dotcom boom in the late nineties.

Nevertheless, he thinks Info Edge has the mettle. “The company has something to it — given its strong leadership and business model and sustainable revenue stream. Naukri.com has a proven track record and thus it may still be attractive to the Indian public.”

Ramraj, who’s now mentoring a few businesses apart from being an advisor to venture capital funds such as Sequoia Capital, believes that where dotcom listings go, markets such as Nasdaq are a better bet as overseas investors are more aware of the issues involving such companies.

But what holds back Bhikchandani from peddling a foreign listing that can possibly fetch him far better valuations is that a listing in the US markets may not be possible for smaller technology companies as the cost of compliance thanks to Sarbannes Oxley Act would be prohibitive.

“A domestic listing in that respective would perhaps be more manageable then given the lower compliance costs”, reasons Ramraj.

Concurs an investment banker from a premier merchant banking outfit who preferred not to be quoted as his firm is not involved with the lnfo Edge listing. “If the underlying story is presented properly, the issue can do well. It’s the institutional investors who take the lead in taking a call on a new issue, and retail investors take the cue from them,” says the banker. The big investors will come in, if the revenue model shows promise.”

Ramraj believes that the dotcom boom is already there where venture capital funds are concerned, it is still somewhat removed from the lay investor. To that extent the market will definitely watch the Info Edge IPO and perhaps it can even be a test case for the second coming of the internet boom in India.