Business Today

Seeking succour from the sun

twitter-logo Sunny Sen        Print Edition: May 29, 2011

Ashiqua Quader, an air hostess with Jet Airways, still visits Music World and Planet M stores, as she has been doing for many years. But the Delhi resident's purchases of music and movies have fallen drastically. "I go to these stores to see what's new on the shelves," she says, with a smile. "And if I find something interesting I go home and download it." Like many people, she downloads songs and films from the Internet and stores them in flash memory drives.

Swaran Singh has been selling blank CDs and DVDs, as well as other computer related stationery at his nine square feet shop in Nehru Place for nearly a decade. He agrees sales of CDs and DVDs are falling. "This is a generation of pen drives. They are fairly cheap nowadays," says Singh.

Moser Baer, the world's second-largest manufacturer of compact discs and DVDs, is under siege. Sales are down and the company has registered losses for three years in succession. But Executive Director Ratul Puri has mentally moved on - his primary focus now is solar power plants.

Ratul and his father Deepak Puri, who founded Moser Baer, believe Moser Baer Photo Voltaic, or MBPV, a subsidiary of the parent company, will bail them out. It has so far helped set up solar power plants in the United States, Europe and India that generate 450 MW of power, which in turn is sold to customers. In solar, the Puris have one key advantage - their experience in putting films over optical discs. This helps them in manufacturing panels for solar power plants as it is also a key process in solar panel manufacturing.

Slipped disk
Moser Baer's core business has been loss making for the past three years.

MBPV has a manufacturing to increase to 1 GW (1 GW = 1,000 MW) in a couple of years. "There is growing demand for solar energy across the globe," says Ratul. "In India too, given its abundant sunlight, solar energy will play a crucial role in coming years."

MBPV had revenues of around Rs 200 crore or $44 million in the last quarter of 2010/11, selling panels to companies like Tata Power, Larsen & Toubro and Punj Lloyd, which integrate panels in solar power plants. "We expect this business to become $100 million in the same quarter next year," says Yogesh B. Mathur, the group Chief Financial Officer.

But the Puris are aware that the optical disc business is a goner. Many leading CD and DVD manufacturers in Taiwan, which dominated the space globally, were forced to shut shop during the downturn. (The world's top manufacturer, Ritek Corporation, to which Moser Baer was second, is Taiwan-based.) The biggest problem for them all has been the falling cost of alternative storage solutions, specially the ubiquitous flash-memory drives (also known as pen-drives or USB sticks) that plug into the Universal Serial Bus (USB) port of computers.

Today, an average flash-memory drive with four gigabytes of storage costs Rs 300-400, which is still a lot more than a recordable DVD which retails for Rs 30. But a flash-memory drive works on almost every computer and does not require a special 'burner' drive which can write on it, can be reused thousands of times, is more durable and easier to carry.

Worse, the emergence of highspeed broadband services and storage on the 'cloud' (online storage) liberates users from carrying any storage at all, accessing their files from anywhere with an Internet connection. And with such services becoming increasingly popular in developed markets such as the United States and Japan, a company such as Moser Baer, which exports close to ninety per cent of its production, is particularly vulnerable.

Moser Baer's own margins have taken a hard hit over the past few quarters as sales declined. Revenues fell from Rs 2,344 crore in the financial year 2008/09 to Rs 2,300 crore in 2009/10 with a net loss of Rs 36 crore (see Slipped Disk). The poor performance of the company continued in the quarters to follow. Revenues for the December quarter have fallen by a third compared to two years ago. Sequential quarteron-quarter growth is a thing of the past, with revenues seemingly falling off a cliff.

Back to the future

The Puris are then almost starting all over again. But it is not that this is unfamiliar terrain. After all, the father-son duo had painstakingly built their optical media business from scratch over the past couple of decades. Ratul was still in school, at Delhi's prestigious St. Columba's, when his father Deepak Puri established Moser Baer India in 1983 as a maker of time recorder devices. The company borrowed its very un-Indian name from its then joint venture partner, Moser Baer Sumiswald of Switzerland.

The joint venture, though, did not last long. Within two years the partners parted ways and Deepak Puri bought out the 49 per cent stake held by the international firm. The senior Puri also made another tactical move. Aware of the limited market for time recorder devices - used in factories - he switched to manufacturing discs, then the 8-inch floppies. The first wave of personal computers had just started to enter homes across the world. Still, the company remained an obscure player in an industry dominated by Japanese and Taiwanese manufacturers.

Sunrise for Moser Baer?

A snapshot of the company's solar venture.

Began in: 2005
Solar panel manufacturing:
Rs  1,700 crore invested;
Rs  3,500 crore planned
Solar power generation:
Rs  7,500 crore investment planned
Average annual revenue (Solar manufacturing):
Rs  1,000 crore
Current production capacity:
200 MW crystalline silicon,
50 MW thin films
Planned capacity expansion:
1,000 MW in two and half years
Current revenue from domestic business (rest from exports): 5%
Domestic business target: 70%

It was left to Ratul to change the direction of the company after he joined the family business in 1994. As general manager for business development, he took a calculated gamble in 1999 by investing Rs 600 crore in a CD and DVD manufacturing plant in Greater Noida. In 2004, he invested another Rs 3,500 crore, largely funded through debt, to expand capacity to 2.5 billion discs. This heralded a tectonic shift in the fortunes of the company. Moser Baer become the second-largest manufacturer of recordable optical discs in the world by the end of the last decade. Its revenues soared to Rs 2,124 crore and its profit Rs 110 crore in 2006/07. The proliferation of pirated music and videos over a rapidly expanding Internet and the high-cost of other storage options played a major role in its success.

But the road ahead will not be easy for Moser Baer. Its power business, including solar, is capital intensive and it will be a challenge funding its ambitious expansion plans. MBPV has raised Rs 1,700 crore from a mix of private equity money and debt from banks. For a company which has been loss making for three years that is quite an achievement.

It will also have to invest another close to Rs 2,250 crore, or $500 million to get to the proposed 1 GW capacity and that comes with attendant risks. "We have seen what has happened to Suzlon and Indo Solar," says independent stock analyst Ashwini Gujral who has tracked Moser Baer for several years. The wind turbine supplier is choking under huge debts and is desperately trying to raise funds, improve liquidity and undertake refinancing measures.

Project execution will also remain a big challenge for the Puris. Says Gujral, "Planning and execution are two different things." In 2007, the company set an ambitious agenda to build a solar plant with 1 GW capacity in just three years. However, they have fallen well short of the target and 250 MW is the current manufacturing capacity. The reason behind the delay, according to Ratul, was the economic slowdown.

There are other problems. Moser Baer is a late entrant in solar energy. "Tata-BP (a joint venture between Tata Energy and British Petroleum) is the only company which has been investing into solar for a long time and companies like Moser Baer are new players," says V. Subramanium, former secretary, Ministry of Renewable Energy. The company will also face stiff competition from European and Chinese companies.

Moser Baer Projects, a subsidiary of the group, is finalising business plans across three other verticals as well: thermal and hydel power generation, apart from coal mining. For now, though, the Puris remain convinced that the solar business will emerge as the next big opportunity for the company.

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