When Pratip Kar, the longest serving Executive Director at the Securities and Exchange Board of India (SEBI), called it a day after nearly 14 years with the market regulator, the Mumbai financial grapevine was abuzz with possible reasons for his departure. Were "personal reasons"-as reportedly cited by Kar the provocation, or is there more to it? One school of thought is that Kar, who headed the surveillance department and was also in charge of secondary market operations, might have got frustrated because of the restricted growth prospects at the regulator (Kar could not be reached for comment). And there may be some truth in that theory. For Kar to climb up to whole-time director-the next logical move upward-was proving to be difficult, point out observers in the know.

Yet, some might consider Kar lucky for being the only SEBI hand from the ranks to reach the post of ed. Nobody else has had that privilege. Current Chairman (M. Damodaran), the three whole-time Directors (T.C. Nair, G. Anantharaman and V.K. Chopra), and three eds (R.K. Nair, R.S. Loona and M.S. Ray) are all from outside. Why, even a couple of Chief General Managers (CGMs) are outsiders. One CGM who was an insider, Dulal Chanda, recently faxed in his resignation from the US, reveal sources. Interestingly, most of SEBI's current bunch of honchos have either been bankers or are from the income-tax department. So far there hasn't been one senior post that has been occupied by a securities market person, which comes as a bit of a shock when you consider that tackling frauds like price-rigging and insider trading calls for highly specialised skill sets. Of SEBI's 350 officers of the total 450-odd SEBI employees, is it difficult to find a few good men (even one) to climb the ranks? SEBI insiders counter that the organisation is young and there isn't enough experience that's needed at the top positions; another hazard is the low remuneration, which results in a high attrition rate. Says a merchant banker: "A manpower shortage is the main reason why PSU officials take the top positions. However, this slows things down as it takes them time to understand the securities market." However, it's for the powers that be to decide whether SEBI should have personnel trained in securities trading at the top levels, or whether it should continue to depend on outsiders.

-Mahesh Nayak

Seductive No More
India is no longer the darling among the emerging markets.

India has been the worst performing market among the BRIC (Brazil, Russia, India and China) countries. The Morgan Stanley Capital Index (MSCI) India index has recorded a 9.8 per cent rise in the January-August 4 period. The MSCI BRIC Index, on the other hand, has surged 23.4 per cent. Says Amit Rathi, Director, Anand Rathi Securities: "Rupee depreciation, higher price to earning (p-e) ratios and the high base effect of the Indian index have contributed to the lower return of the Indian markets."

The Indian rupee has depreciated nearly 3 per cent against the dollar between January and August. Meanwhile, the higher component of oil producing companies in Russia and higher GDP growth in China has managed to draw attention away from Indian markets. The MSCI Russian Index has been the biggest gainer in the BRIC Index, registering a 42.2 per cent spurt. Amongst emerging markets, the Russian market is second only to Venezuela, another oil producing country that has shown a 50.5 per cent appreciation. Clearly rising crude oil prices has been the main reason for money flowing into the Russian market. So far in 2006, the oil prices have risen over 25 per cent.

That the Brazilian and Chinese markets look cheap has also contributed to their appeal (so far in 2006, the MSCI Brazilian and the MSCI Chinese indices have given a return of 20 per cent and 24.3 per cent, respectively. Says Andrew Holland, Head (Strategic Risk Group), DSP Merrill Lynch: "Going ahead, I don't think there will be a p-e re-rating in the Indian market till the interest rates cool off. However, with fundamentals remaining intact, the interest will continue among foreign funds." The appetite may not be as huge as before.

-Mahesh Nayak

A Hazy Big Picture
Multiplexes are growing. But are the stocks keeping pace?

Mushrooming multiplexes: But there may be too many of them in pockets

The numbers are captivating: Some 900 movies in a year yielding cumulative revenues of Rs 7,800 crore in 2005-06 (according to FICCI's report on the entertainment industry). Those movies are watched on an estimated 12,900 screens. Just 328 of those are multiplex screens which, according to Edelweiss Securities, will go up to 1,035 in two years. Now for the clincher: Multiplexes, which account for just around 2.5 per cent of the total screens, rake in 35-40 per cent of collections.

The multiplex industry is going all out to grab the opportunity. The major players-PVR Cinemas, Adlabs Films, Inox Leisure and Shringar Cinemas-have chalked out aggressive plans to roll out new sites. To support their expansion plans, the multiplex companies have been aggressively raising capital: PVR raised Rs 38 crore in 2003 from ICICI Ventures and in December 2005 another Rs 128.25 crore through an initial public offering (IPO). Inox raised Rs 144 crore through a public float in February this year, while Shringar followed up its Rs 45 crore ipo in April 2005 with a recently completed $20 million (Rs 94 crore) issue of foreign currency convertible bonds (FCCB). Adlabs, now in the Anil Ambani fold, raised $100 million (Rs 470 crore) through an FCCB issue in December 2005.

With so much going for them, why are multiplex stocks 30-50 per cent off their 52-week highs, although they still quote at high price-earnings multiples, in the 30-40 region on forward earnings? The answer, it would seem, is that investors have already factored in expectations of high growth in revenues and profitability for the next two-three years. The question, to which few have an answer, is: What happens after that?

The uncertainty brewing revolves around three-four crucial areas: Delays in rollouts of new sites, a long list of approvals needed, a high entertainment tax (as high as 50-60 per cent in some states), and a fear of an oversupply situation in the medium to long term. Consider the issue of delays, triggered by real estate developers who can't deliver on the promised D-day. Sanjay Malhotra, CFO, PVR Cinemas, says his company has chosen to hedge the risk by following a portfolio approach of locking in multiple properties. Inox has forged a longer term relationship with Future Group by obtaining a first right of refusal on all the latter's properties. Once the sites do get delivered, the battle shifts to securing approvals and clearances. Over 41 approvals are needed to get a multiplex going. Says Shravan Shroff, Managing Director, Shringar Cinemas, whose four-screen Kandivali multiplex in Mumbai was delayed by five months due to delays in approvals. "We have learnt from the Kandivali experience to first get all approvals and then do the fit-outs so that properties can begin operation as soon as they are ready." Tushar Dhingra, CFO, Adlabs, agrees: "Delays are a major pain area all multiplexes face." Adlabs' Kanjurmarg multiplex in Mumbai was delayed due to approvals for nearly four months.

The other sticky area is entertainment tax, which results in 10-20 per cent lower margins, if not waived (currently eight states in the country provide an exemption). Says Manoj Bhatia, CEO, Inox, which enjoys exemptions at all its sites (11 in all) except Bangalore: "Entertainment tax is a challenge for the sector. If it doesn't start coming down, things will become difficult. The industry should be treated at par with other industries. In states where entertainment tax has been reduced, collections have gone up."

Then there's the risk of oversupply in pockets. Gurgaon's mg Road with its four multiplexes (and 15 screens) and the Andheri Link Road in suburban Mumbai are arguably examples of irrational expansion. "Each of us will have to be cautious not to build in places that already have a supply of multiplexes," says Shroff, who isn't yet troubled by overcapacity-not in Mumbai. "The Andheri Link Road in Mumbai, which has three multiplexes and 15 screens, has seen gross average weekly ticket sales rise from Rs 45 lakh when there were two multiplexes, to Rs 57 lakh when the third multiplex, Cinemax, came up," he reasons. Adlabs' Dhingra does not see a situation of oversupply in the next eight to 10 years. "There might be certain areas of overbuild, but India's population moving out of home entertainment coupled with the retail revolution means there is enough room for growth beyond the metros in 400 cities and towns in the next eight to 10 years," he says. The show is on-not just on mg Road and Andheri Link Road, but on Dalal Street too.

-Shivani Lath

Primary Recovery
IPO success could signal a revival. But what about retail?

M&M's Mahindra: Speeding away

Is a revival in the primary markets on its way? After a bleak period, during which initial public offerings (IPOs) of companies like Deccan Aviation never climbed beyond the offer price (instead the Deccan stock was 50 per cent off the offer price)-some IPOs like those of Shirdi Industries, Vigneshwara Exports and Bluplast Industries failed to get subscribed in the first place-two high-profile issues got oversubscribed last fortnight. Tech Mahindra created a record for the year by getting oversubscribed 70 times. GMR Infrastructure & Power also had few problems, sailing through with an oversubscription figure of 6.7 times.

Tech Mahindra was clearly the star of the market. At the institutional and high net worth individual levels, oversubscription was 100 times. Foreign institutions accounted for 60 per cent of the institutional bid in the GMR issue. However, retail interest has been tepid: Just an 8-9 times subscription in the Tech Mahindra issue; the GMR issue was undersubscribed on the retail front. GMR's pricing might have had plenty to do with that. The company offered its shares at a price earnings multiple of 84-100 (at the two ends of the price band). Tech Mahindra on the other hand was less aggressively priced at a P-E of 13.9-16 times. Says Gurunath Mudlapur, Managing Director, Atherstone Institute of Research, "At the end of the day common investors only understand simple valuations basics." Let's keep it that way.

-Mahesh Nayak