Moser Baer: Diversifying into New Areas

Amidst the continuing success story of software services and BPO
companies, it is but natural that other technology related companies get limited
investor interest. As the services sector stabilizes, the scope for significant
appreciation would actually lie elsewhere in the coming years. Investors would
need to focus on newer sectors and even start considering hardware sectors, as
the Indian economy and that of Asia Pacific reaches a critical size, enough to
build a world-class business from India.

Among the companies that have raised high hopes from investors
in a sector outside the software and services arena is Delhi-based Moser Baer.
The company has been building scale over the years and after having reached a
critical size is focusing on R&D as well as diversifying into newer areas to
improve value addition and margins. While the company operates in a difficult
market, the past track record of the management as well as the new moves have
continued to generate interest from investors both institutional and retail.
While the company may take a while to reach its promise, the market seems to be
quite gung ho about its prospects.

Incorporated in 1983, Moser Baer India is an India-based company
engaged in the manufacturing of storage media products. Headquartered in New
Delhi, it has a product range of floppy disks, compact discs and digital
versatile discs. The company has global operations with a presence in over 82
countries, serviced through six marketing offices in India, the United States
and Europe. The company's subsidiaries include European Optic Media Technology
Gmbh (Europtic, Moser Baer Photovaltaic and Moser Baer SEZ).

Set up in 1983 in New Delhi, it went public in 1987, the company's
current equity stands at Rs 111.51 crore, wherein the promoter holds 16.39%
stake followed by institutional investors holding 34.70%, the Indian public
holding 44.64% of the stake, and Custodians hold 4.26%. The promoter and
managing director, Deepak Puri, with a Masters Degree in Mechancial Engineering
from London, is also the chairman of Electronics and Computer Software Export
Promotion Council, a non-profit, autonomous organization of the Ministry of
Information Technology, government of India along with co-founder Nita Puri,
director, Administration and HR, have led the creation of a global leader in its
field.

Moser Baer's consolidated revenues for the financial year
ended March 31, 2006 amounted to Rs 1,664.12 crore, registering a 30% growth as
compared to Rs 1,280.40 crore in the last fiscal. During the period, the company
incurred a net loss of Rs 10.04 crore compared to a net profit of Rs 57.12 crore
in the same period last year.

Despite the losses, in the same period, it developed a patented
technology BDRL2H for generation of BD formats. It also added new formats in its
portfolio DVDR (DL) 1P Process, DVDR (DL) 2P Process, DVDRW 8X and LS 1.2. It
expanded its business by entering in to Solar Photovoltaic. It set up a
subsidiary, Moser Baer Photo Voltaic, for the photo voltaic cells and modules
business. It also signed a Technology MoU with the Institute of Technology,
Banaras Hindu University (BHU) to work in the R&D for optical storage media
and Photovoltaic industry, for a period of five years in the areas of organic
dye technology and the inorganic thin-film area. During the period, it added 350
employees taking the total strength to 5,013 up from 4,663 employees at the end
of the previous year.

During the third quarter ending December 31, 2006, Moser Baer's
revenues stood at Rs 501.52 crore an increase of 19.04% on a y-o-y basis from Rs
421.30 crore. Net profit jumped smartly to Rs 37.62 crore-an increase of
188.4%, from Rs 13.04 crore in the same period last year.

During the quarter, Moser Baer Photo Voltaic, a wholly owned
subsidiary of Moser Baer made a strategic investment into a Paulo Alto based
Concentration Photovoltaic (CPV) technology company, Solfocus. It also acquired
a minority stake in Stion, a nanostructures technology company based in
California, formerly known as NStructures. It signed a definitive agreement with
Philips to acquire OM&T BV-a technology company for optical R&D and a
100% subsidiary of Philips OM&T, has done pioneering work in Blu-ray, and is
the only company outside Japan shipping Blu-ray discs. Moser Baer has also
decided to enter the home DVD markets in India. It has tied up with content
providers across India to provide affordable DVDs at a price level that would
curb piracy. Among other tie-ups in this area, the company entered into a
strategic tie up with Pyramid Saimira Theatre-a theatre chain for retailing
home video at all their theatres. Moser Baer India's wholly-owned subsidiary,
Moser Baer Photo Voltaic, has also partnered with Deutsche Solar, a silicon
wafer manufacturer in Germany, for supplying silicon wafers. Deutsche Solar is
part of the German Solar World AG Group.

The company hopes that with its new focus on R&D, domestic
home video markets and its solar cell business should improve margins and
revenue growth to its earlier levels. Specifically, for its new solar cell
subsidiary generate, Moser Baer expects revenue of up to $150-200 mn in the next
fiscal.

Moser Baer currently trades at Rs 293.85, discounting the March
2007 EPS by 21 times and March 2008 by 17 times. While the company is optimistic
about its new businesses and ongoing performance, the markets are unlikely to
re-rate the company until the new business performance is visible. We,
therefore, do not expect the shares of the company to outperform its peers in
the medium term. Market Performer.

Sushanto Mitra

The author is the director, Techcap India

sushanto@techcapIndia.com

The views reflected here are of the author and not of this publication. No
liability is accepted for losses based on the information presented here