Thursday, November 09, 2006

India's First Internet IPO: Info Edge's Naukri.com

The listing of shares in Info Edge known for its job portal Naukri.com will make history on Nov. 24 for a number of reasons. It will be the first Indian Internet firm to list exclusively on an Indian exchange. Investor demand for each available share exceeded availability by 55 times, during the pre-Initial Public Offering (IPO) auction process, which ran from Oct. 30 to Nov. 2.

Its IPO will be keenly followed by rivals information portal Indiatimes.com and matrimonial site Shaadi.com, which are planning their own stock listings.

At IndusView, we know Naukri.com’s founder and CEO Sanjeev Bhikchandani well (Sanjeev, fellow IndusView board director Rishi Sahai and I were featured in the Red Herring magazine in June this year). Back then, the Red Herring reported the Bombay Stock Exchange’s benchmark Sensex broke a record 12,000-point high. Recently, it broke 13,000 points for the first time.

Any concerns about the Indian market’s receptiveness to Internet businesses should, by now, have been silenced. That's one reason why Naukri.com opted for an Indian listing in contrast to Sify Ltd and Rediff.Com India Ltd, which trade on the NASDAQ.

Its shares had been priced in the band of Rs. 290 ($6.50) and Rs. 320 ($7.20) a share. Info Edge plans to sell 5.32 million shares, nearly a fifth of its equity base. At the top end of the price band, it will raise about Rs. 170 crore ($38 million), valuing the firm at about $190 million, half that of US-listed Rediff and Sify which have been public since June 2000 and Oct. 1999 respectively.

In the year ending March 2006, Info Edge reported revenue of Rs. 841 million ($19 million) and a net income of Rs. 133 million ($3 million).

Info Edge, via its job portal, is capitalising on the general growth of the Internet in India. A recent report from IAMAI-IMRB estimated that the country was now home to 25 million regular users of the Internet, set to grow to 43 million by March 2008.

VC Attraction

Few things excite venture capitalists more than the possibility of investing at a low price in a company with global disruptive potential that offers an exponential return. Internet start-ups offer one of the best options for high-growth, capital efficient and exitable investments. As India’s Internet user base grows at 25% each year, more Internet companies are being formed to target the online market. Consequently, more funds are being set up to invest in such companies.

After a lull between 2000 and 2004, early-stage companies received venture capital investments worth $482 million across 52 deals last year. This year, investors have taken greater risks by investing money in very early stage companies.

Consequently, they have invested a similar amount as last year in twice the number of companies. In the first six months of 2006, that resulted in $240 million invested in 49 companies in sectors such as online classifieds and travel, mobile and mobile value-added services companies, gaming and telecoms.

Silicon Valley Spearhead

Not surprisingly, Silicon Valley based VC firms are taking the lead. At last count, 44 US-based VCs announced plans to set up India-based funds of an average fund size of $100 million. If successful, that would imply about $4.4 billion in new investment capital would be available for venture investments in India over the next five to six years. That’s more than twice the $2.03 billion total in venture capital and private equity investments in India in 2005.

Taking Indian Purchasing Power Parity (PPP) into consideration, that would be equal to $22 billion worth of investment capital in the US.

Info Edge was Kleiner Perkins Caufield and Byers’ first investment in India. It invested about $5.5 million in May this year along with Sherpalo Ventures, backed by early Google, Inc. investor Ram Shriram. ICICI Venture also owns a stake in Info Edge. It had invested Rs. 7.29 crore ($1.64 million) in 2000.

Recently, Silicon Valley-based VC fund Sequoia Capital merged its India operations with VC Fund WestBridge Capital Partners based in Bangalore. The new merged entity is now called Sequoia Capital India.

Sequoia joins other Silicon Valley funds such as Norwest Venture Partners, Matrix Partners, Benchmark Capital, Draper Fisher Jurvetson, and Greylock Partners that have expanded their presence in India recently.

The Job Ahead

But it’s still going to be an uphill struggle to quickly and efficiently find skills in a country as big as India to fill the gaps opened by these kinds of opportunities. For Info Edge, diversification into other areas – such as online property site 99acres.com and matrimonial site Jeevansathi.com, was a challenge.

While Info Edge’s book building of demand for its IPO has undoubtedly been a success, the true success will lie in a sustained share price and strong after-market support in the weeks after its listing. While diversification helps de-risk its business, a small dip in its core job market business could still have a significant impact on Naukri.com.

That does seem unlikely, however. A recent study conducted by the Confederation of Indian Industry (CII) has revealed that human resource (HR) is the biggest challenge faced by India Inc., particularly at the managerial, production and marketing levels due to the widening demand-supply gap.

With multinationals grabbing Indian CXOs and Indian firms expanding their operations overseas through acquisitions or setting up new facilities, the problem of getting the right people for management, production, marketing and research posts has become an uphill task, thanks to the growing demand for the same set of people by many firms.

Competition Grows

More threatening to Naukri.com, there are a number of competitors such as JobsAhead.com, owned by Monster, Inc. and TimesJobs.com, owned by Bennett, Coleman & Co. Ltd, publisher of India’s largest newspapers The Times of India and The Economic Times. They’re already looking for a piece of the market – and there are certain to be even more aggressive now that everyone’s focused on the IPO. Info Edge’s combined revenue leapt 86% last year – who wouldn’t want a piece of that?

Given the spectacular investor enthusiasm for Naukri.com’s equity, it seems likely that it will attract long-term support beyond the flurry of speculative investment.

We’ll be staying in touch with Sanjeev and monitoring the situation closely, particularly on November 24, when the shares are listed.

The world has just witnessed a landmark moment in India’s commercial history. In fact, with the Sensex breaking its previous record and Info Edge’s IPO book-building process complete, we’ve witnessed two in as many weeks.

Bundeep Singh Rangar
Corporate Website: www.indusview.com
Corporate Publication: www.theindusview.com

1 comment:

Anonymous said...

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