MOSER BAER: Optical Storage Mints Money

Ratul Puri has just returned to his New Delhi office with a group of

important Taiwanese delegates from Moser Baer’s state-of-the-art CD-R

manufacturing facility located at Noida Export Processing Zone, in the vicinity

of Delhi. The unit is spread over a 40,000-sq m area, and boasts of a class-A

clean room environment.

Puri

has been living out of suitcases, travelling all over the globe for more than a

month now. Not just because he loves to travel but also because he has to–Moser

Baer India, where he is GM, strategic business development, is on the fast

track. "There is no time for a breather," exclaims Puri, a software

engineer from the Carnegie Mellon University, USA. And rightly so. He is busy

spearheading the company’s growth along with his father and managing director

Deepak Puri.

Moser Baer, which today ranks among the top eight CD-R manufactures in the

world, entered the storage media market as manufacturer of 5.25-inch

floppy-diskettes in 1992, and diversified to manufacturing CDs in 1994 as the

Net era set in. The company’s present net worth is over Rs 6,800 million. And

almost 90% of its revenues are generated purely from exports, at a time when

hardware manufacturing and export are not really ‘happening’ in India.

This

ability to buck the trend is the result of a focussed strategy, carefully

pursued for the past several years. "The real growth for Moser Baer

however, began four years ago, initially on the floppy diskette front and then

in the recordable CD and recordable DVD space," says the 45-year-old Rakesh

Govil, general manager, treasury. Since then there has been no looking back.

"The management is very conscious and clear about what is happening in the

market today in terms of the PC sales, CD drive sales, emerging technologies,

and new products in the market," stresses Govil. "And all our business

strategies and maneuvers are planned accordingly," he adds.

The strategies have paid off well. Moser Baer has been witnessing an

unprecedented boom for the last couple of years, with the topline growing at

about 100%. Last year, the company surpassed its own expectations with the

optical media market picking up exceptionally–it mopped up net profits to the

tune of Rs 1,385 million, about 314% up over the previous year. "And we

have had a little luck as well," contends Puri, somewhat modestly.

Calculated gamble pays off

Set up in 1983 in technical collaboration with Baer AG, Switzerland, by the

father-son duo of Deepak and Ratul Puri, Moser Baer has been a fairly risk

averse company. "It’s only when the RoI is realistically high, when the

technology is mature that we get into manufacturing a product," says Govil.

For instance, when the CD-R market was in its nascent stage in 1996, the

management, after evaluating its resources and the high risk involved, decided

against getting into manufacturing the product.

A year later, after careful reconsideration, the company decided that the

time was ripe to get into CD-R manufacturing. Ask Puri about the risk of losing

a market space by not securing a presence in its nascent stage and pat comes the

reply, "Better safe than sorry–especially in business." He concedes

that profit realizations are high when technology is in the initial stage, but

the element of risk, the capital cost of the equipment and machinery are much

higher. "We needed to take a call on the risk-reward ratio and decided it

was better to play it safe," he elucidates.

Moser Baer has certainly leveraged this ‘calculated risk’. Call it

foresight or plain business acumen, the promoters realized that the CD-ROM (read

only CDs) market was limited and changing demand and new technologies would make

consumers opt for re-writable disks soon. Moreover, having firmly established

itself as a storage media player to reckon with, the company was also able to

gather the critical mass needed to expand into the CD space.

Currently, Moser Baer’s business model is based on manufacturing blank

media, mainly the magnetic recordable media (3.5-inch floppy diskettes) and the

optical recordable media (CD-R and DVD-R). While the floppy market is more than

stable and will continue to generate revenues, Moser Baer envisages a gradual

change in the revenue break-up. "We expect that for this FY the

contribution of floppy diskettes to the top-line will drop to about 10-12%, with

the rest coming from optical media," estimates Govil.

Spearheading manufacture

Going by industry estimates, the demand for CD-Rs is expected to skyrocket

through 2001 well into 2002. The global market for CD-R is likely to surge from

3 billion units in 1999 to 6 billion units in 2001. By 2002, the shipment is

estimated to be a whooping 9 billion units. Keeping such phenomenal growth

estimates in mind, Moser Baer earmarked Rs 220 crore for a recordable CD plant

in NEPZ in 1999 with an initial capacity of 150 million units. Later, as the

estimates were revised, the investments were scaled up to Rs 550 crore. The

facility now has a capacity of producing 380 million units. One can see 40 CD-R

lines in action at Moser Baer’s NEPZ plant, with the latency for expanding to

50 lines. In all, the company has seven manufacturing units operational.

Future plans are even more ambitious. In fact, in the spirit of the

prevailing expansion mode, Moser Baer has announced an investment of about Rs

800 crore in the current year for its operations in India. The major part of

this investment is expected to go into the expansion and setting up of a new

plant in Greater Noida. The company has already acquired 35 acres of land in the

area for the purpose. Production at the upcoming facility is expected to start

in September. The company has also set aside $20 million for acquiring companies

abroad, particularly in South America and Japan.

It’s a quest for excellence that has catapulted Moser Baer to a

front-runner position in the optical media business. "We believe in the

best and have employed the best to build the premises and supply the equipment,

all of which comes from Germany," says Puri. The company even runs a

proprietary in-house research and development process employing about 26 people.

Another 40-45 engineers support this R&D effort on a need basis. There is a

constant zeal for developing newer technologies, which fetch a premium in the

market. The team is credited with being the first in the world to develop the

12x CD-Rs, which were about 50% faster than the then existing CD-Rs.

To keep its leading edge Moser Baer also introduces non-standard products

such as business card CDs, on a regular basis. By the virtue of being

non-generic, these non-standard products sell in the market for a premium.

Today, the company has attained OEM status for international brands such as

BASF, Nashua, Boeder, Dataright and WH Smith, and is also selling under its own

brand Xydan, in the international market. It is also a supplier to companies

like Maxell, Samsung, LG and Mitsubishi. The current ratio of OEM manufacturing

versus own marketing is 50:50. Over the next couple of years, Moser Baer aims at

reducing its OEM sales to 30% with the remaining 70% coming from its own brands.

This would further strengthen the bottomline, since margins for branded sales

are higher than for OEM sales.

Expansion mode

Traditionally, the European market has been Moser Baer’ stronghold,

accounting for almost 75% of its exports. "Europe, by far, is the largest

market for rewritable storage media," says Govil. But as the manufacturing

capacity expands and also as a conscious strategy not to over expose themselves

to any one location, the company is in the process of diversifying its client

base and is now supplying to companies in Japan and Korea. "The expansion

and growth has been in a phased manner."

"Technically it made complete sense to enter the European market because

of the better pricing and because it is the biggest market for optical

media," says Govil. But at the end of the day the company realized that it

was essential to diversify into other markets and not be dependent one continent

only. "With our expanded capacity," points out Govil, "we were

looking at other markets and the US was the obvious choice." Moser Baer

incorporated a marketing subsidiary in the US earlier this year. The subsidiary–Glyphics

Media–will spearhead the company’s penetration in the key North American

markets, which together comprise 40% of the world market for removable computer

storage media.

Glyphics Media is based at New York, and is headed by industry veteran and

former Eastman Kodak senior executive Dan Kern. While the subsidiary’s initial

focus will be on the OEM and duplication market segments, it is also intended to

push the retail as well as Web-based sales. Incidentally, the move to set up a

US subsidiary came close on the heels of Moser Baer’s acquisition of Capco SA

of Luxembourg, which gave the company control of some key European brands and a

distribution channel comprising a 12% European market share.

Having established itself in the export market, the company boasts of a

marketing and distribution network in over 27 countries serviced by seven

distribution centers, marketing offices and subsidiaries. The international

sales account for almost 90% of the revenues. Today, with low-cost

manufacturing, a global distribution network, well-known brands and strong

engineering and R&D support, the company is ideally positioned in the

storage media space. The ingredients to make a market leader are all there. Who

said that hardware manufacturing in India was a non-happening sector?

Every country has its own set of problems in any business, acknowledges Puri.

"For instance, in our business a continuous supply of power is most crucial–uninterrupted

and without spikes. So we went ahead and created a facility for generating our

own power," he says. It’s all about identifying the pros and cons and

taking decisions thereafter.

"Considering the fact that there is very little hardware manufacturing

activity and also even less exports from the sector, the performance of Moser

Baer needs to appreciated," says Vinnie Mehta, director, Manufactures

Association of Information Technology. "In fact, the kind of problems that

the hardware sector is fraught with, Moser Baer is a very good example of how

one can excel even if situations are not conducive." We need a few more

such good showcases to encourage hardware manufacturing and exports to happen

from India, adds Mehta, complementing Moser Baer.

MEGHNA SHARMA in New Delhi