Moser Baer: The Pricing Game

Moser Baer was formed in 1983. It came out with a public

issue in 1997 to part finance a facility to manufacture 5¼-inch floppy

diskettes. The company has since then ventured into 3 ½ inch floppy diskettes.

This venture was financed by a rights-cum-public issue in 1994. Keeping pace

with technology, Moser Baer has set up a plant to manufacture optical media

storage devices, which includes recordable compact disks (CDRs) and recordable

digital versatile disks (DVDs). The company had a capacity of 43.5 million CDRs

at the end of March 2000, which is expected to touch 760 million units by the

end of fiscal 2002.

Moser closed the fiscal 2001 with revenues of Rs 336.08 crore

and net profits of Rs 138.57 crore. In the first half ended September 2001, the

company reported revenues of Rs 312.02 crore and net profit of Rs 99.52 crore,

which were higher by 118% and 58% respectively over the corresponding previous

half. In the first half, the company sold 61.10 million units of floppy

diskettes and 175.83 million CDRs. The company achieves 70% of the revenues from

OEM sales supplying to players such as BASF, Sony, Mmore as well as other

European and Japanese multinationals. It also has its own brands such Xydane and

the recently acquired Luxemburg (Europe) based Capco. The company has also

set-up a subsidiary in the United States.

Moser’s expansion of CDR units is being financed by a mix

of equity and loan at a total cost of US$ 233 million or approximately Rs 1100

crore. Warburg Pincus and International finance corporation (IFC) has already

invested US$ 71 million whereas the company recently closed the debt financing

by a mix of European based banks of US$ 84 million, the balance being met

through internal accruals and debt. The expansion, once completed, would make

Moser Baer one of the major CDR manufacturing companies in the world, competing

with the Taiwanese majors. At present, Taiwan accounts for more than 75% of the

global demand with major players being Ritek and CMC Magnetics. However, Moser

Baer’s low cost of production enables it to compete with these global majors.

Moser is currently traded at Rs 279 discounting the projected

March 2002 EPS by seven times and March 2003 EPS by five times. Although the

company faces the risk of technological obsolesce, we do not expect any

replacement for the fast growing optical media storage industry. Moreover, the

low cost of production will ensure that the company would be able to compete

with the major global manufacturers. Moser’s share price has rebounded from a

low of Rs 177 in September to the current levels after the announcement of the

second quarter results. We remain positive on the company’s outlook and expect

upward movement as the company announces its quarterly results.

Sushanto Mitra

is the founder of Technology Capital Partners

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.