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Wednesday, July 18, 2012

The Plight of Moser Baer!


This morning I bought stocks of Moser Baer.

Now, Moser Baer is a glaring example of what all things can go wrong with a firm. Almost everything that can go wrong has already gone wrong. Moser has been consistently making losses every year from last 5 years. And most quarters of last 5 years have been bleeding in red ink. Moser Baer is the second largest manufacturers of optical media in the world, and manufactures floppy, CDs and DVDs. Great, only that world has moved on from DVD drives to flash drives and thumb drives. 



Many leading CD and DVD manufacturers in Taiwan were forced to shut shop during the downturn. The biggest problem for them all has been the falling cost of flash-memory drives, pen-drives or USB sticks. Sales of optical drive is definitely a business in spiral of decline & saturation.

As a response, Moser Baer strategized to enter photovoltaic and solar cell business by setting up two subsidiaries in October 2005. Amazing strategy! Only problem being that Solar energy with all its greenness and greatness is a failed business idea as of today. It doesn’t make money. It hasn’t made any money for Moser Baer. It has helped them to gather debt and loads of debt with gigantic 7500 crores of investments required and more than 2000 crores already borrowed and invested. 

Other key bets of Moser Baer into Blu-Ray Disks and home entertainment hasn’t taken off as well. Thus Moser is a nothing but a synonym of failed business strategies. Almost everything has gone wrong on strategy front. Key investors like Warburg Pincus have divested and sold to new investors which are trying to sell into open market thus driving the stock price down to just Rs 8.7 per share, even below its face value of Rs 10 per share. This is 98% crash from Rs 340 per share that Moser commanded during 2007 timeframe.



Fundamentally, everything appears to be wrong for Moser Baer. Annual revenues have been stagnant and declining from past 5 years. Profits are non-existent and losses are increasing. Debt is in excess of 2000 crores and interest costs are hence significant. Balance sheet Reserves have been declining from 1985 crores in 2007 to 1099 crores in 2011. Firm hasn’t paid dividend since last 2 years. Promoter shareholding is a paltry 16.29%.



So why should one buy Moser Baer at all? At Rs 8.7 per share, the total firm is available at a market cap of Rs 146 crores. At the end of 2011 Moser Baer has cash reserves of 183 crores, which is higher than market cap!! Firm has annual revenues of Rs 2096 crores in 2012 and Gross Profit in 2012 is 66 crores which is a good 45% of market cap. Gross Profits have been in black ink in 4 out of last 5 years. Firm depreciates its assets heavily and has written off 375 crores of depreciation in 2012 itself, which brings the Net profits in red ink. Moser Baer has 2983 crores of Accumulated depreciation at the end of 2011 and hence almost every asset they have is depreciated and written off. Balance sheet size is a staggering 3482 crores. Hence the total market cap of meager 146 crores as of today is not justified. Mr Market is being too negative, again!



Technically speaking, Moser Baer is in long term decline from Rs 340 to Rs 8.7 today. It needs to break out of Rs 21 at the very least to break this death spiral. Sporadic buying from promoters have not really helped the cause.

Daily chart of Moser is a double bottom with declining volume on declines, hence selling pressure is subsiding. There is a possibility of double bottom on EoD charts, hence a probable rally is on the cards. 



All in all, this is a risk stock, lot of negatives however price has gone to the other extreme and is unjustifiably low , hence probability of a dead cat bounce until Rs 21 is taken out. Nothing more, nothing less.   

1 comment:

  1. Good article. Everyday making new lows, I suspect it may even touch 4 to 5 range. On the other side, apart from debt restructuring, the company facing quality issues with the solar plants installed in Delhi. This was unexpected. It will impact on foreign orders, and Chinese makers are price competitors at this quality. It was a disappointment for me, I believe in quality of Moser Baer CD/DVD/players and expected the same in other products. Tata power may take up that project.

    The company business fundamentals are strong, and I hope it will turn around, but may not be in solar panels. It is a risky bet, but may worth for long run. Note that even, TTK Prestige was at Rs.5 during early 2000s (I guess in 2003). But now, trading at above Rs.3000.

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