Rediff.com and Sify.com are Companies; REDF and SIFY are Stocks
Rediff.com and Sify.com are Companies. Remember that REDF and SIFY are stocks, and there can be a disconnect between the actual performance of companies and the prices of their stocks. In the end though, stock prices reflect company performance, and they will come in line. How does that happen, you might ask?
Companies can give out the profits they generate in various forms to the shareholders. They can buy back their own stock, or issue dividends. This happens when the companies are mature, the market is saturated, and growth prospects are dim. Think of utility stocks. In the last few years, some major tech stocks have been increasing dividends, realizing that they won't be able to grow fast anymore. MSFT and INTC are examples. Valuation measures like P/E make sense for companies in this phase of their business cycle.
Companies in growth phase, like Sify.com and Rediff.com, do not pay dividends or buy back stock. They instead invest the cash generated back into the business. This way the cash is put to work by them, by the management. In fact, they will sometimes even get more money from shareholders (as REDF and SIFY recently did, they sold shares to investors and increased the amount of cash in their coffers) if they feel that opportunities exist where a fast infusion of cash will substantially help the business.
Management decisions on how to allocate the cash are critical to company performance. Cash can be used in a couple of different ways. It can be invested in increasing the capacities of existing divisions, if they are showing good internal growth (e.g. hiring more people, buying more computers, increasing office space, etc.) . The cash can be invested into R&D, where new products are launched by the company. Internet companies do this a lot-REDF and SIFY allocate substantial capital to in-house new product development. Cash can also be used for acquisitions. Management can buy out of the house expertise by acquisitions, and then integrate the new company with the existing business.
The management of both REDF and SIFY have been around a while in the Internet business. They have also seen the dot.com boom and bust in the US. They have seen giants like GOOG, YHOO, AMZN and EBAY born. There is a lot to learn from these companies. And if REDF and SIFY can get that right, the task is so much easier.
Sometimes, giving partial equity stakes is a good idea. This brings new ideas to to the table. I, as a shareholder of SIFY and REDF, would not not want the management to sell the company entirely, but would want them to sell 5--10% stakes in a major player like the top 4 mentioned above. The stake can be non-controlling, so you get lots of new ideas on the table from a mature player, without them interfering in your strategy decisions. And given the improving relations between US and India, which will make capital flow between the two countries easier in the coming years, this is a really efficient way to learn from a mature market (US) how to best address the opportunities available in a growing one (India). I hold shares in the big 4 also (through the HHH tracking stock, see details here), and such a transaction interest me from that side also. They get to participate in this amazing Indian market and put their cash and expertise to good use!
Sanjay John G.
Companies can give out the profits they generate in various forms to the shareholders. They can buy back their own stock, or issue dividends. This happens when the companies are mature, the market is saturated, and growth prospects are dim. Think of utility stocks. In the last few years, some major tech stocks have been increasing dividends, realizing that they won't be able to grow fast anymore. MSFT and INTC are examples. Valuation measures like P/E make sense for companies in this phase of their business cycle.
Companies in growth phase, like Sify.com and Rediff.com, do not pay dividends or buy back stock. They instead invest the cash generated back into the business. This way the cash is put to work by them, by the management. In fact, they will sometimes even get more money from shareholders (as REDF and SIFY recently did, they sold shares to investors and increased the amount of cash in their coffers) if they feel that opportunities exist where a fast infusion of cash will substantially help the business.
Management decisions on how to allocate the cash are critical to company performance. Cash can be used in a couple of different ways. It can be invested in increasing the capacities of existing divisions, if they are showing good internal growth (e.g. hiring more people, buying more computers, increasing office space, etc.) . The cash can be invested into R&D, where new products are launched by the company. Internet companies do this a lot-REDF and SIFY allocate substantial capital to in-house new product development. Cash can also be used for acquisitions. Management can buy out of the house expertise by acquisitions, and then integrate the new company with the existing business.
The management of both REDF and SIFY have been around a while in the Internet business. They have also seen the dot.com boom and bust in the US. They have seen giants like GOOG, YHOO, AMZN and EBAY born. There is a lot to learn from these companies. And if REDF and SIFY can get that right, the task is so much easier.
Sometimes, giving partial equity stakes is a good idea. This brings new ideas to to the table. I, as a shareholder of SIFY and REDF, would not not want the management to sell the company entirely, but would want them to sell 5--10% stakes in a major player like the top 4 mentioned above. The stake can be non-controlling, so you get lots of new ideas on the table from a mature player, without them interfering in your strategy decisions. And given the improving relations between US and India, which will make capital flow between the two countries easier in the coming years, this is a really efficient way to learn from a mature market (US) how to best address the opportunities available in a growing one (India). I hold shares in the big 4 also (through the HHH tracking stock, see details here), and such a transaction interest me from that side also. They get to participate in this amazing Indian market and put their cash and expertise to good use!
Sanjay John G.
0 Comments:
Post a Comment
Links to this post:
Create a Link
<< Home