New York-based equity research firm Kaufman Bros. has initiated coverage on Sify Ltd and has recommended a “buy’ rating with a price target of $17. Soon after the analyst’s recommendation, the company’s stock in Nasdaq flared up by 4.3 per cent to close at $13.58. This year, the stock has risen by 27 per cent. That’s good news for Sify, an Indian company present across the Internet spectrum both as an infrastructre and also as a content play. Sameet Sinha, the internet and digital media analyst at Kaufman, wrote in his report:
In our opinion, Sify is positioned to benefit from the growth in India’s Internet and connectivity markets with its businesses in corporate infrastructure development and management, online advertising, e-commerce and consumer broadband access. As top-line opportunities unfold, the company could see scale benefits, which should lead to margin expansion and bottom-line growth.
He writes further justifying his rating:
We like Sify’s strategic direction. Central to its strategy is to develop multiple revenue streams leveraging a common network infrastructure. With the Enterprise business as the cash cow, the emerging businesses are growing toward critical mass and there is significant leverage potential from these opportunities, especially Internet-related businesses. While valuations are high at EV/EBITDA of 42x fiscal 2007 estimates, our expectations for strong revenue and EBITDA growth over the next few years are based on the fact that Sify is still early in its growth potential and, in our view, the stock has significant upside potential.
Kaufman is also upbeat about Sify’s new management:
Raju Vegesna, a reputed U.S.-based entrepreneur, took a 40% stake in the company and became chairman. Mr. Vegesna is…best known for selling his previous company, ServerWorks, to Broadcom for around $1 billion in 2001…We believe that Mr. Vegesna is very hands-on with the strategic direction of the company and is driving the momentum to expand to international markets. With his reputation and contacts, we believe that Sify will benefit strategically and operationally across all three business units.
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