Buy Moser Baer Target 160

th

25 May, 2009

Moser Baer

India

CMP:

Sovid Gupta +911243024840 Equity Analyst: Fairwealth Securities Private. Ltd.

Priced on May, 26th , 2009 ±% potential

66%

Target set on

Rs. 95

Target:

Rs. 160

We initiate a buy calll on Moser Baer, on basis of huge potential in its PV business, stabilizing sales in Optical discs and increasing share in high margins Blu Ray and DVD format production. Also positive Operational cash flows and stable balance sheet is a trigger for the company. Moser Baer is a potential multibagger which can give huge returns if the the technologioes company is betting on (Thin film PV vells) establishes itself as best cost PV cells. Company as well as experts expect PV to acheive Grid parity within next couple of years. Besides Moser Baer there are many other players in the country which are betting huge on this business like Videocon and Reliance, but Moser Baer, one of the ealiest entrant into the business is likely to get maximum benefit due iots manufacturing capabilities and expertise in highend technology work. We initiate a buy call on Moser Baer, with a target price of 160. We recommend Risk averse(avoiding) investors to ignore this stock.

Market Data Beta 52Wk hi/lo Marketcap, INR Crore Shares in issue (mn.)

Q4 Highlights: 1.1

194.95/41.0 1518.91 168.30

Significant increase in margins for the quarter on back of reduction in Raw Material and fuel Costs. Margins expansion was led by Optical discs divisions where margins increased to 32%. Last Quarter depreciation increased on back on capitalization of forex losses under AS-11. FCCB’s worth USD 51 million were bought back at more than 70% discount and consequently 97 crores of extra-ordinary profits were earned after writing off losses for startegic investments and provisioning forex losses for previous years.

Share Holding Pattern (%) Promoters FII Foreign Others Domestic Inst. & Corp Bod. Public & Others

17% 31% 37%

We expect further USD 25 million of buyback within this quarter at a discount of around 35%..

5% 10%

FY09 Highlighs. As of March ’08 company had a net cash of 821 crores. We expect company to have a total cash of around 750 crores at the moment. Company had Capital expenditure of USD 260 million in FY09, with majority fo it going towards PV business( USD 233 million). Company raised around USD 260 million this year through FCCB/ internal accruals- USD 22 million, USD 144 million thru debt/bridge finance and US$ 94 million thru Equity. Majority raised by PV business.

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Quarterly Result Round up: Q4 FY09

Q4 FY08

Y-o-Y Growth(%)

Q3 FY09

509.85

477.62

6.75

639.31

Operating Profit

56.48

76.53

-26.2

132.55

OPM Margin(%)

11.08

16.02

-30.84

20.73

Other Income Operating

155.46

13.36

999

25.07

PBIDT

211.94

89.89

135.78

157.62

141.7

117.9

20.19

120.08

184.65

45.08

309.61

93.32

42.95

-72.82

-158.98

-26.76

Net Sales

Depreciation PBDT PBT Extra-Ordinary

97.79

4.18

999

0

-54.84

-77

-28.78

-26.76

Tax

0.02

-1.1

-101.82

-1.11

PAT

42.93

-71.72

-159.86

-25.65

2.55

-4.26

-159.86

-1.52

PBT after EO & Min

EPS*

Source: Company Data, Capital Line

Future Estimates. Capex plan for FY10 is US$ 32 million: Optical Media – US$ 5 million, PV – US$ 22 million and Entertainment – US$ 5 million lower than guided earlier. Further capex for PV segment will be finalized in the due course of the quarter. Funding would be: US$ 18 million thru FCCB/internal accrual, US$ 14 million thru debt/bridge finance and US$ 32 million thru Equit.

Comapny has a very healthy cash Balance of around 750 crores currently, of which standalone cash in hand is expected to be around 450 crores. Going forward Company has said that it does not have any major Capital Expenditure plan for FY10E. As it is very difficult raising capital due to current business environment globally and low attractiveness towards PV business, we understand it would be a prudent move to go slow with expansion. In long term however we remain increasingly bullish over attractiveness of Non Conventional Energy secor and in particular solar energy. Company has finalised its deal to sell power to Rajasthan Government at Rs. 18/ unit st ( 21 May-Company Website)

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Company Description

Optical Media Bsuiness OM for the quarter improved to 32% against 25% in the sequential quarter on the back of lower input costs. Decrease in Net working Capital to boost cash flows.

Moser Baer, headquartered in New Delhi, is one of India's leading technology companies. Established in 1983, the company successfully developed cutting edge technologies to become the world's second largest manufacturer of Optical Storage media like CDs and DVDs. The company also emerged as the first to market the next-generation of storage formats like Blu-ray Discs and HD DVD. Recently, the company has transformed itself from a single business into a multi-technology organisation, diversifying into exciting areas of Solar Energy, Home Entertainment and IT Peripherals & Consumer Electronics.

1. 2.

PV Business: Revenue Contribution-33% The Company has current capacity of 80MW of crystalline film and 40MW of thin film. The 65MW capacity expansion has completed before schedule. Phase-I of 135MW capacity in Gujarat is on track.

3.

Around 70% revenues contributed by Optical Discs division. MBPV aims to distinguish itself as a significant player in the global photovoltaic market by leveraging its high-volume manufacturing expertise and planned investments of nearly US$ 3.2 billion in research, development and manufacturing of products dedicated to generating solar power. a. fully automated in-line crystalline silicon cell manufacturing facility - 40 MW already in production - this will be scaled up to 240 MW. b. A 40 MW module manufacturing facility with expansion plans to scale it up to 200 MW. c. A 200 MW thin film module plant, capable of producing the world's largest non-flexible thin film modules, is under construction. The company is the first to offer home videos in every popular language of India and it is today India's largest Home Entertainment company. It currently offers home video titles in Hindi, English, Tamil, Telugu, Malayalam, Kannada, Marathi, Gujarati, Bengali and non-film categories. Moser Baer Entertainment has acquired the rights for close to 10,000 titles in all the popular languages and has already released close to 3,000 of them in the market.

Estimates: FY10E FY09 FY08 Total Income 2650 2415 2124 Total Expenditure 1987.5 1847 1590 EBITDA Profit 662.5 568 534 Depreciation 500 500 432 EBIT 163 68 102 Interest 160 205 179 Profit Before Tax 3 -137 -77 Tax -8 2 Reported Net Profit 3 -129 -79 Extraordinary Items 90 21 Adjusted Net Profit 3 -39 -100 Earnings Per Share(Adj)-Unit Curr 0 Book Value-Unit Curr 117 Source: Company Reports, Fairwealth Research

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Buy-Sintex Industries Investment Rational Optical Media 1. 1. 2. 3. 4. 5.

High margins in the Optical Media Segment.(Above 25%) Short term Benefits from AS-11 Increased Cashflows from strong focus on Networking capital Lower Capex for FY10E(less than USD 50 million) Post FY10, depreciation costs from Optical media segment is expected to decline rapidily, which will give boost to bottomline.

Synergies in all lines of business.

Company has smartly moved across verticals, and rather than expanding its line of business vertically, it has grown across sectors horizontally with a stronger focus on topline, where one business leverages other lines of businesses. To continue selling Moser Baer Optical discs and to utilize excess capacities. Moser Baer entered Home Entertainment Business. Capacity utilization for Company’s main line of business has stabilized around 75% levels thanks to continuing sales of Optical Discs from its Home Entertainment business. Also company has leveraged its manufacturing capabilities by moving PV division. 2.

Early mover advantage.

Moser Baer has been the earliest mover in manufacture of PV cells. Company currently has a capacity of 125 MW and plans to take it to one GW (1,000 MW) by 2010. With Governements across the world stressing on cleaner power even at higher costs (around Rs. 15/unit). Companies like Moser Baer will be largest beneficiaries as they have access to all the technologies( crystalline, thin film and high concentrate PV dvision).

TECHNICAL OUTLOOK: Moser Baer India Limited

Source:Meta Stock

Moser Baer is in a bullish trend when it closed above a crucial resistance level of 75.Hence we recommend to buy the stock on every declines for a price Target of 140 in coming few months.

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Key Risks: We rate Moser Baer India Limited in the high risk category. While the upsides for the company are unlimited, there are huge downside risks as well. 1.

PV still a very risky business. While the capital expenditure in PV business is huge at the moment, it is likely to fall of sharply, giving late entrants a huge advantage in term of lower capital requirement. Moreover for existing Photo Voltaic units company is putting unit life at 20 years which we beleive is high.

2.

Optical media business is loosing attractiveness quickly. Constant pressure on topline.

3.

High depreciation rates hitting bottomline.

4.

Excess Competitiona. Optical Media: i. Price competition from Chinese players is hitting domestic sales and margins ii. Decrease in both volumes and cost per unit highlights despite weaker rupee highlights unattractiveness of the business. b. PV With entry of very large players like Reliance and Videocon, smaller company like Moser might not be able to face the challenges of the business and downsides linked to oil prices. c. Home Entertainment: Company has waged a price war by lowering the prices of Optical Discs hitting the margins of other Home Entertainment players like Reliance and Shemaroo, company will face backlash as such players have stopped keelping Moser Baer labels.

We have attached Moser Baer chart since January 2008, when fall of markets began.. Moser Baer has a beta of 1.1 and movements more or less similar to the Nifty although much sharper movements tehn Nifty. Operationally Moser Baer has performed well in recessionary conditions considering that major revenues for the company are Exports. Stock prices for the company are currently down by over 70% form its 2008 high’s. Company has posted operational losses from last 6 quarters, partly due to high depreciation and interests costs.

Source: Capital Line

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Company has posted positive cash flow from oeprations and has a healthy balance sheet.

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Buy-Sintex Industries Annexure: Fund Flow Statement:

1. Income Statement: 2008 (12)

2007 (12)

Other Income Stock Adjustments Total Income EXPENDITURE : Cost of Traded Software Packages Power & Fuel Cost Employee Cost Other Man. Expenses Selling & Admin. Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Total Tax Net Profit before Minority Interest Minority Interest EO Adj. Net Profit EPS (Adj) Adj Book Value (Unit Curr.)

2135.62 106.89 128.79 2303.85 949.04

2079.93 76.61 63.71 2123.07 802.19

Share Capital

561.25

111.6

Reserves Total

1639.5

1935.49

2200.75

2047.09

0

1.23

Secured Loans

2066.9

1838.93

787.37

Unsecured Loans

1117.3

11.3

Total Debt

3184.2

1850.23

5384.95

3898.55

1731.91 60.4 55.47 1779.53

135.57 237.96

105.95 144.38

82.25 101.45

77.9

67.01

28.78

128.08

148.86

117.47

1846.04 457.81 207.48 250.33 445.84 -195.51 -0.11

1550.49 572.58 126.33 446.25 358.22 88.03 0.02

1376.39 403.14 93.56 309.58 316.76 -7.18 -0.64

-197.79

77.87

-6.47

1.24 1.09 -200.12 0

-0.96 -0.02 78.85 4.54

0 0.05 -6.52 0

107.46

183.43

178.35

Source: Company Report, Capital Line

Total Shareholders Funds Minority Interest

Total Liabilities

APPLICATION OF FUNDS Net Block

2850.93

2496.95

Capital Work in Progress

530.38

389.21

Investments

376.85

89.93

Current Assets, Loans & Advances Inventories

724.75

613.88

Sundry Debtors

376.75

334.17

Cash and Bank

821.04

269.73

Loans and Advances

298.07

162.06

Total Current Assets

2220.61

1379.84

509.59

408.26

75.07

40.25

Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Net Deferred Tax

2. Cash Flow Statement:

Cash and Cash Equivalents at Beginning of the year Net Cash from Operating Activities Net Cash Used in Investing Activities Net Cash Used in Financing Activities Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year Source: Company Report, Capital Line

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200703

SOURCES OF FUNDS :

INCOME : Operating Income

200803

2006(12)

584.66

448.51

1635.95

931.33

-9.16

-8.87

Total Assets

5384.95

3898.55

Contingent Liabilities

1654.08

450.39

Source: Company Report, Capital Line 2008

2007

2006

243.89

283.72

458.99

306.28 -632.64

706.99 -653.02

183.15 -308.23

721.22

-93.8

-50.19

394.86

-39.83

-175.27

638.75

243.89

283.72

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Disclaimer This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.

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