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Back to 2000?

Jul 18, 2014 | Dr C K Narayan | Fundamental Twist | 2 Comments

Back to 2000?
Or, valuations, anyone?                   
One of the news items in recent papers piqued my interest. It was regarding the valuations being accorded to Flipkart, the online retailing giant (to-be?). The article stated that the company is being valued at over $5 billion! That is staggering, considering that it has been around for a short while. The article also benchmarked it to Future Retail (of Biyani) and stated that Flipkart is being valued over ten times Future Retail!

American listing is what is being talked about too. Now, all this smacks of a possible return to the heady days of 1999-2000 when Tech companies got valued ridiculous levels just because the times were such. No one paid attention to the fact that there was no business- it was all about ‘eyeballs’. Flipkart is still to turn a profit. So there is no question of a PE ratio, right? The first thing that anyone is going to look at when a company has to be listed is its PE. Now that not being available, the focus shifts to potential. We are all well aware that scope of online retailing is huge. Its all in the execution. We have the disaster of Subhiksha not too long ago, remember? And when it comes to potential and that expectation panning out, a lot of things assumed have to go the right way. History has not been too kind to those sort of assumption. The problems of 2000 were huge assumptions made on almost no evidence about future prospects. Seems to me that something like that could be happening in the case of the online retail marketing companies today.

Fortunately no damage done yet as these companies have not listed. But with the IPO market beginning to revv up and a host of issues lined up, the buoyant sentiments of the current time should not make us all get carried away by the hype and hoopla that is sure to emerge. Particularly in those where substance is less.

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  1. Shivram

  2. Aseem

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