If $4 trillion of liquidity had not happened, would we have had so many unicorns ? I would study intrinsic value and set a long-term time horizon and only then invest, says Sanjeev Bikhchandani , Co-founder, Info Edge, in a conversation with ET Now .
How does one understand the valuations of some of these new tech companies? I am not calling them startups, because they are no longer startups now.
I really have never operated as a flipper or a short-term trader. One should look at investing for the long term. At Info Edge, we offered the share at Rs 320 in 2006. Just prior to the Global Financial Crisis it had peaked at Rs 1,400 or 4X in short. Within six-eight months’ time, it had gone down to 25% of the peak value. It was still above IPO price but only just and since then it in stop, start manner, it has been climbing.
It has been 15 years since we listed in November 2006. From the IPO price to now, it has given roughly 80X return. Many of the new age tech companies have got very good long-term prospects. Immediate euphoria may push the share prices up in a frothy market beyond their intrinsic value. If there is a crash, it will go way below but then it will come back up again because of the intrinsic value. So I would study intrinsic value and set a long-term time horizon and only then invest.
Are you a big votary of the importance of profit and cash flows? Do you think it needs to be analysed because while most of these new age tech companies may not make profits in this quarter or next two or three years, ultimately if none of these businesses do not make profit, it would be difficult for long-term investors to invest in them?
No, all businesses have to make profit eventually. That is why they are set up. In the long run, it will be the price of earning multiples and, of course, growth is a part. So earnings and growth are important. Now the question is can one postpone earnings of profit and prioritise growth, and if so, for how long? Maybe that is what the market and investors are rewarding today. That is why we are seeing some of these companies are trading at very high valuations despite making losses.
These are real investors who have subscribed. If Zomato was subscribed 38x to 40x, 75% of the issue was subscribed to by institutional investors who are smart investors. They think deep long before they make a commitment. Policybazaar has got a 30% to 40% pop on the third day, there is a reason and I am not talking about retail and HNI investors, I am talking about institutional investors who continue to support these companies. I am talking about the fact that Info Edge itself was not sold because we believe the long-term story of both these companies.
Do you think the right way of looking at these businesses is not to look at FY22, FY23, FY24, but just look at the growth and then extend the timeframe because at some point in time these companies would be profitable? In the public market, should one ignore the fact that they are loss making and if one is ready to increase the time frame from two to three years, these companies would be very different?
I would look at three-four things. Number one is the quality of the management team. Number two is a competitive position in the market. On both these fronts, Zomato and PolicyBazaar scored very well. Then I would look at what is the long term market size and what is the addressable market. In both cases, it is very large. Therefore if it is a 10-15-year timeframe, I would probably invest.
The big change is that the regulatory laws in China have changed. A lot of startup IPOs have global investors. Given how the regulatory environment in China is changing, could that have an impact on valuations and funding?
My submission is anecdotal. I have heard that a lot of asset prices in India today — whether in public markets or private markets, whether new IPOs or even older shares — is happening because of the excess liquidity coming in from overseas and that has made a huge difference as has money being diverted from China into India.
Nobody’s benchmarking these companies globally right now or very few […]
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