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Moser Baer Q3 net seen up 219%

Data storage products manufacturer Moser Baer India Ltd (Moser) is expected to report a 219 per cent surge in its third quarter net profit, driven by mushrooming sales volumes, analysts said on Tuesday.

Moser is the world's eighth-largest manufacturer of optical media such as pre-recorded, recordable and re-writable compact discs. It will announce the results on January 24.

"I am expecting a 219 per cent rise in October-December net profit at Rs 340 million and a 122.5 per cent jump in net sales at Rs 900 million," says G Chokkalingam, a Madras-based analyst with Enam Securities.

"The company is exhibiting a strong surge in volumes in the compact disc (CD) segment, but the quarter-on-quarter results are not strictly comparable as Moser did not manufacture CDs in December 1999," Chokkalingam added.

"Rising volumes in the optical media segment will drive earnings," says Ratul Puri, general manager, Moser Baer. "These volumes have more than offset falling CD prices. But margins are substantial despite the fall."

"The operating margins are coming down close to 50 per cent this quarter, from 65 per cent in the second quarter, but they are likely to stabilise at these levels," Puri adds.

CDs were priced at 74 cents per unit in the first quarter of this fiscal (April-March 2000/01). Prices fell to 54 cents in the second quarter and are now at 35 cents. CDs were sold at $5 in 1997.

"For the full year we expect 65 per cent of our turnover to come from optical storage devices and the rest from magnetic devices such as floppies and cassettes," says Puri.

Moser is executing a $233 million expansion in two phases for its CD plant on the outskirts of Delhi, to augment capacity to 760 million units per annum from 150 million. This will help Moser leapfrog to become the world's third-largest maker of recordable CDs by March 2002.

"Its likely that the capacity will be ahead of schedule and atleast 10 per cent ahead of the actual date," Puri said.

Almost 90 per cent of the firm's turnover comes through exports, with Europe accounting for the bulk of sales. Moser sells less than 10 per cent of its produce to the US and domestic sales constitute the rest.

The firm privately placed 9.98 million shares and 1.6 million warrants last year in two tranches at Rs 337 and Rs 340 each, in return for $71 million to finance the first phase of its capacity expansion.

Shares were placed with investors such as Warburg Pincus, which owns 17 per cent of Moser's equity and with the International Finance Corporation and Electra Partners, each owning 18 per cent .

"About 40 per cent of the funds are invested in capital equipment, the bulk of the remaining are deployed in shorter term fixed deposits to avoid capital erosion," says Rakesh Govil, treasury head at Moser.

Says Sanghamitra Pati, a Bombay-based analyst with Sharekhan.com, "Moser is financing a bulk of its expansion through raising debt and this is risky because the firm is in an industry where margins are falling."

"I would like to see operating margins stabilise on a running quarter basis, once the entire production comes on stream. I am looking at a third quarter net profit of Rs 350 million and net sales of Rs 750 million rupees," Pati adds.

Moser is a strong player in the branded-niche segment of non-standard products such as CDs, which record faster and sell at a premium.

"These non-standard products contribute to 20 per cent of Moser's turnover and the firm earns an average 15 per cent extra margin on such sales," says Chokkalingam.

Moser Baer stock appreciated a whopping fifteen-fold to Rs 598.65 by March last year on the back of gravity, defying valuations at the height of the tech rally.

Moser's shares on Monday closed at Rs 226.30, 62 per cent below their 52-week high, but 24 per cent above the low of Rs 183.10 touched early this month.

"We are currently valued at about a third of the multiples compared to our international competitors," says Puri.

Moser's competitors include the Taiwanese firm Ritek Inc- the world's largest CD-Rom maker, CMC Magnetics- which is number two and Prodisc- which stands at number three.

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