By venturing into solar cells, Moser Baer is trying to hedge against a notoriously volatile CD/DVD market.
DIVERSIFY OR BE LEFT BEHIND: (L-R) Deepak Puri, chairman and managing director; and Ratul Puri, executive director, Moser Baer
Deliverance from the commodity cycle of demand peaks and troughs is probably not as difficult as attaining nirvana — deliverance from the vicious cycle of life and death — but it takes a bit of doing as well. Companies need to reinvent their businesses from time to time to try and beat the cycle.
Moser Baer, the world’s second largest recordable CD manufacturer with a global market share of 16 per cent, is doing just that. A for-hire bulk manufacturer that uses others’ technology, the company is now trying its hand at technology research, both for its disks and for a new diversification into photovoltaic (PV), aka solar, cells and modules. Says Deepak Puri, chairman and managing director: “Moser Baer has proved itself as a low-cost, global scale manufacturer of high-tech goods. Now it is taking the natural step of venturing into intellectual property development.”
In September-October 2006, Moser Baer bought into two California-based solar power research companies. SolFocus and Solaria are developing concentrator technologies that could save on silicon usage and rare earth materials, making solar energy more affordable. Says Ratul Puri, Deepak’s son and executive director: “We invested in firms working on new technologies that will bring down the cost of producing [solar] electricity to about 10-15 cents per KWh in five years, fairly close to the 8-9 cents per KWh of mainstream power.”
Why Moser Baer should want to tweak its DNA and enter an entirely new line of business, that too research-driven, is not difficult to fathom. An increase in DVD sales in 2004 saw disk makers augment capacity in a rush, resulting in a supply glut. Then, through 2004, traders in the European Union — which accounts for around 35 per cent of the global market — piled up massive stocks of blank CDs and DVDs to take advantage of a time lag before a new tax on recordable media came into force. The simultaneous expansion of capacities and piling up of inventory in the trade channels led to a price war between the manufacturers. To further complicate matters, the price of polycarbonate, which accounts for about 40 per cent of the cost of making disks, rose sharply, increasing costs.
For the next 18 months, Moser Baer suffered. Revenues held steady, but profits plummeted. Its market capitalisation halved even as the Sensex trebled. The company was slammed for destroying shareholder value and the Puris, the toast of new Indian manufacturing at one point, disappeared from public gaze.
Now, though, things are looking up. The supply surfeit has eased as trade inventories returned to normal levels and demand caught up with supply. Compared to 2005 levels, bulk recordable CD prices have risen around 30 per cent, polycarbonate prices are down by more than 50 per cent, and bulk recordable DVD prices have come down with drops in costs and increases in volumes. Expectedly, Moser Baer’s financials have improved. In the April-June quarter of FY 2006-07, it made a post-tax profit of Rs 6.47 crore compared to Rs 4.70 crore (audited)in the whole of FY 2005-06.
The experience of the past two years instilled into Moser Baer the good sense to hedge its bets. Ergo, the move into research and PVs. To get its PV business off the ground, in 2005 the company floated a subsidiary, Moser Baer Photo Voltaic (MBPV), to develop and manufacture PV cells, modules and systems. MBPV would sell these to global brand owners and system integrators such as Sharp, Kyocera Solar, Mitsubishi Electric, Sanyo Solar and Shell Solar. Moser Baer is spending Rs 260 crore on a new plant in Greater Noida to create initial capacity for 80 MW of solar power.
Significantly, for once, Moser Baer is early on the curve with a new technology, which also gives its new business a longer shelf life. Says Puri: “We entered CD manufacturing six years after everybody else and had to scramble to catch up with the rest on technology. But we are entering the PV business at a time when solar power technology is evolving and is ripe for low-cost mass manufacturing.” A CLSA report projects the sector to achieve a pre-tax profit of at least $6.4 billion in 2010 on revenues of $36 billion (today, the numbers are $3.8 billion and $15 billion, respectively).
For such growth to happen, though, solar technology has to become cheaper than it is today. The prevalent crystalline technology, which accounts for about 90 per cent of all PV cells made worldwide, costs about five times to generate one kilowatt hour (KWh) of electricity compared to thermally generated electricity, mainly because of high silicon prices. Two new technologies — thin film and concentrator PV — promise to bring down the costs by at least 50 per cent. But these are yet to be commercialised on a large scale.
For the moment, Moser Baer’s upcoming PV manufacturing facility will also use crystalline technology. Later, it will move on to the concentrator technology from SolFocus and Solaria. The plant is scheduled to start commercial production by March 2007. “Our engineers are posted on the site of our equipment supplier in Germany even as the building to house the project is being constructed,” says Puri. Capacity will be raised to 250 MW by 2009, which compares well with the global average plant capacity of about 150 MW.
According to the company’s CFO, Yogesh Mathur, the PV project will deliver revenues of $200 million at the initial 80-MW capacity and $400 million-600 million by 2009.
All this is not to say that Moser Baer is through with disk manufacturing. In keeping with the times, it converted 15 per cent of its 2.4 million CD making capacity to making DVDs in FY 05. Then, in FY 06, it invested about Rs 400 crore to add fresh capacity for making 400 million DVDs. And this year, it will invest another Rs 330 crore, part of which will go into creating capacity for next generation HD DVDs (high density DVDs) and Blue-ray disks (BDs). Says Ratul: “The best part of disk making is that the assets are fungible. We can add or subtract modules in the traditional CD making lines to switch production to different formats by spending about one-tenth the cost of a greenfield plant.”
The gradual shift from CDs to DVDs makes sense. According to research firm Strategic Marketing Decisions, demand for recordable CDs will peak at 12.5 billion units in 2006, drop to less than 5 billion by 2010, and almost disappear after 2015. The demand for recordable DVDs, however, is likely to grow from 3.5 billion units in 2005 to 8.5 billion in 2008.
Says Ratul: “I expect to recover the entire investment in DVDs in three years, by which time DVDs will be in the position CDs are now, and BDs and/or HD DVDs will emerge as the standard data storage disk format(s).” Moser Baer appears to be well placed for that eventuality as well. Besides being part of the Blue-ray consortium, it has started producing the competing HD DVDs as well. In fact, in July 2006, the company became the first bulk vendor to ship recordable HD DVDs to the market.
Its R&D efforts are also beginning to bear fruit. This October, the company developed its own process, which has been approved by the Blue-ray Disk Association, to produce BDs at a lower cost. Only three other companies — Mitsubishi Kagaku Media, Fuji Photo Films and Taiyo Yuden — have similar approval. Says Ratul: “We will have a great advantage in the BD market as cost will be a big determinant of success.”
The stockmarket, arguably the impartial arbiter, took note as the company’s stock recovered from mid-June’s low of Rs 162 to cross Rs 200 in September. SSKI analyst Shreyash Devalkar believes that the stock is northward-bound and that the gains from the PV business will begin to kick in from December as the project nears completion.
That’s a badly-needed shot in the arm for Moser Baer. The Puris hold only 16.5 per cent in the company, and foreign and domestic institutional investors own nearly one-third. To keep the investors on their side, the diskmen must keep spinning money.
DIVERSIFY OR BE LEFT BEHIND: (L-R) Deepak Puri, chairman and managing director; and Ratul Puri, executive director, Moser Baer
Deliverance from the commodity cycle of demand peaks and troughs is probably not as difficult as attaining nirvana — deliverance from the vicious cycle of life and death — but it takes a bit of doing as well. Companies need to reinvent their businesses from time to time to try and beat the cycle.
Moser Baer, the world’s second largest recordable CD manufacturer with a global market share of 16 per cent, is doing just that. A for-hire bulk manufacturer that uses others’ technology, the company is now trying its hand at technology research, both for its disks and for a new diversification into photovoltaic (PV), aka solar, cells and modules. Says Deepak Puri, chairman and managing director: “Moser Baer has proved itself as a low-cost, global scale manufacturer of high-tech goods. Now it is taking the natural step of venturing into intellectual property development.”
In September-October 2006, Moser Baer bought into two California-based solar power research companies. SolFocus and Solaria are developing concentrator technologies that could save on silicon usage and rare earth materials, making solar energy more affordable. Says Ratul Puri, Deepak’s son and executive director: “We invested in firms working on new technologies that will bring down the cost of producing [solar] electricity to about 10-15 cents per KWh in five years, fairly close to the 8-9 cents per KWh of mainstream power.”
Why Moser Baer should want to tweak its DNA and enter an entirely new line of business, that too research-driven, is not difficult to fathom. An increase in DVD sales in 2004 saw disk makers augment capacity in a rush, resulting in a supply glut. Then, through 2004, traders in the European Union — which accounts for around 35 per cent of the global market — piled up massive stocks of blank CDs and DVDs to take advantage of a time lag before a new tax on recordable media came into force. The simultaneous expansion of capacities and piling up of inventory in the trade channels led to a price war between the manufacturers. To further complicate matters, the price of polycarbonate, which accounts for about 40 per cent of the cost of making disks, rose sharply, increasing costs.
For the next 18 months, Moser Baer suffered. Revenues held steady, but profits plummeted. Its market capitalisation halved even as the Sensex trebled. The company was slammed for destroying shareholder value and the Puris, the toast of new Indian manufacturing at one point, disappeared from public gaze.
Now, though, things are looking up. The supply surfeit has eased as trade inventories returned to normal levels and demand caught up with supply. Compared to 2005 levels, bulk recordable CD prices have risen around 30 per cent, polycarbonate prices are down by more than 50 per cent, and bulk recordable DVD prices have come down with drops in costs and increases in volumes. Expectedly, Moser Baer’s financials have improved. In the April-June quarter of FY 2006-07, it made a post-tax profit of Rs 6.47 crore compared to Rs 4.70 crore (audited)in the whole of FY 2005-06.
The experience of the past two years instilled into Moser Baer the good sense to hedge its bets. Ergo, the move into research and PVs. To get its PV business off the ground, in 2005 the company floated a subsidiary, Moser Baer Photo Voltaic (MBPV), to develop and manufacture PV cells, modules and systems. MBPV would sell these to global brand owners and system integrators such as Sharp, Kyocera Solar, Mitsubishi Electric, Sanyo Solar and Shell Solar. Moser Baer is spending Rs 260 crore on a new plant in Greater Noida to create initial capacity for 80 MW of solar power.
Significantly, for once, Moser Baer is early on the curve with a new technology, which also gives its new business a longer shelf life. Says Puri: “We entered CD manufacturing six years after everybody else and had to scramble to catch up with the rest on technology. But we are entering the PV business at a time when solar power technology is evolving and is ripe for low-cost mass manufacturing.” A CLSA report projects the sector to achieve a pre-tax profit of at least $6.4 billion in 2010 on revenues of $36 billion (today, the numbers are $3.8 billion and $15 billion, respectively).
For such growth to happen, though, solar technology has to become cheaper than it is today. The prevalent crystalline technology, which accounts for about 90 per cent of all PV cells made worldwide, costs about five times to generate one kilowatt hour (KWh) of electricity compared to thermally generated electricity, mainly because of high silicon prices. Two new technologies — thin film and concentrator PV — promise to bring down the costs by at least 50 per cent. But these are yet to be commercialised on a large scale.
For the moment, Moser Baer’s upcoming PV manufacturing facility will also use crystalline technology. Later, it will move on to the concentrator technology from SolFocus and Solaria. The plant is scheduled to start commercial production by March 2007. “Our engineers are posted on the site of our equipment supplier in Germany even as the building to house the project is being constructed,” says Puri. Capacity will be raised to 250 MW by 2009, which compares well with the global average plant capacity of about 150 MW.
According to the company’s CFO, Yogesh Mathur, the PV project will deliver revenues of $200 million at the initial 80-MW capacity and $400 million-600 million by 2009.
All this is not to say that Moser Baer is through with disk manufacturing. In keeping with the times, it converted 15 per cent of its 2.4 million CD making capacity to making DVDs in FY 05. Then, in FY 06, it invested about Rs 400 crore to add fresh capacity for making 400 million DVDs. And this year, it will invest another Rs 330 crore, part of which will go into creating capacity for next generation HD DVDs (high density DVDs) and Blue-ray disks (BDs). Says Ratul: “The best part of disk making is that the assets are fungible. We can add or subtract modules in the traditional CD making lines to switch production to different formats by spending about one-tenth the cost of a greenfield plant.”
The gradual shift from CDs to DVDs makes sense. According to research firm Strategic Marketing Decisions, demand for recordable CDs will peak at 12.5 billion units in 2006, drop to less than 5 billion by 2010, and almost disappear after 2015. The demand for recordable DVDs, however, is likely to grow from 3.5 billion units in 2005 to 8.5 billion in 2008.
Says Ratul: “I expect to recover the entire investment in DVDs in three years, by which time DVDs will be in the position CDs are now, and BDs and/or HD DVDs will emerge as the standard data storage disk format(s).” Moser Baer appears to be well placed for that eventuality as well. Besides being part of the Blue-ray consortium, it has started producing the competing HD DVDs as well. In fact, in July 2006, the company became the first bulk vendor to ship recordable HD DVDs to the market.
Its R&D efforts are also beginning to bear fruit. This October, the company developed its own process, which has been approved by the Blue-ray Disk Association, to produce BDs at a lower cost. Only three other companies — Mitsubishi Kagaku Media, Fuji Photo Films and Taiyo Yuden — have similar approval. Says Ratul: “We will have a great advantage in the BD market as cost will be a big determinant of success.”
The stockmarket, arguably the impartial arbiter, took note as the company’s stock recovered from mid-June’s low of Rs 162 to cross Rs 200 in September. SSKI analyst Shreyash Devalkar believes that the stock is northward-bound and that the gains from the PV business will begin to kick in from December as the project nears completion.
That’s a badly-needed shot in the arm for Moser Baer. The Puris hold only 16.5 per cent in the company, and foreign and domestic institutional investors own nearly one-third. To keep the investors on their side, the diskmen must keep spinning money.