Initiating Coverage - Moser Baer

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INSTITUTIONAL Current Price Rs.60.30 Potential Upside

Rewriting the Future INITIATING COVERAGE Industry

IT Hardware

Mr. Tarun Jaitly Senior General Manager Moser Baer Limited (O) 91-11-4059444/41406149 Stock metrics Bloomberg code Reuters code

MBI IN MOSR.BO

BSE Group

B

BSE Code

5171400

NSE Symbol

MOSERBAER

Face Value

Rs 10

Market Data Market Cap (Rs cr)

1014.80

52WeekHigh/Low

344.80/55.00

Sensex

9040.63

Nifty

2733.20

Average volume

911513

Shareholding Pattern : MFs & Insurance Cos 3% FIIs 24%

Others 13%

Public 7%

Promoters 16%

FCBs 37%

Research Analyst Denil Savla [email protected] 022-40751515 Manoj Jethva [email protected] 022-40751515 Date: 18th Nov, 2008

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RESEARCH

Target Price Rs.101.00 Time Duration

67.33%

24 Months

Moser Baer Ltd Moser Baer India Ltd (MBIL) is a global technology company with presence in over 82 countries and services through six marketing offices in India, US and Europe. It is India's largest and the world's 2nd largest Optical Storage Media (OSM) manufacturer and enjoys strong tie-ups with all major global technology brands. It is also India's largest home entertainment company. Its foray into PC peripherals in the form of ODDs (Optical Disk Drives) will further help strengthen its position in the industry. Currently the IT vertical industry (PCs and Notebooks) is pegged at Rs20,000Crs and the PC Peripheral industry is worth Rs 12,000Crs the company has transformed itself from a single business into a multitechnology organisation, diversifying into exciting areas of Solar Energy, Home Entertainment and IT Peripherals and Consumer Electronics. Strong Order Book in PV Currently MBIL has an order book of $500 million which is executable over next four years. The customers include Ralos Vertriebs & Colexon Energy, a Germany based leading company in Photovoltaic business. Acquisitions and Subsidiaries to mark global presence MBIL is making its presence in global sphere through acquisition and JV. MBIL acquisition of 100% stake in its subsidiary Moser Baer Photovoltaic Ltd and an 81% Stake in OM&T BV a highly specialized technology Company based in the Netherlands. This has started bearing fruits in terms of exploiting cutting edge technologies in both the optical and solar photovoltaic (PV) segments, which will act as a strategic operation for the solar energy which in turn would result in increasing its presence in world. Valuation: We have valued the company by P/E methodology. The stock is trading at P/E of 3.04x for its FY08 earnings. Considering the current market price of Rs.60, we have arrived at the target price of Rs 101 for the time frame of 24 months. At the CMP, the stock is trading at 2.16x and 1.39x its FY09E and FY10E earnings. We rate the stock as a Market Out performer and there is huge potential in the stock to move upwards by 67.33%.

Key Financials Year Ended March

F Y 07

F Y 08

Net Sales (Rs in crore)

1982.5

1964.0

Cash PAT Margins (%)

23.6

18.0

F Y 09E 2745.1 664.3 -68.9 435.4 24.2 15.9

EBIDTA

602.2

534.0

PBT

119.9

-76.9

Cash PAT (Rs in crore)

467.7

352.7

EBIDTA Margins (%)

30.4

27.2

F Y 10E 3733.4 956.0 88.2 656.55 25.6 17.6

Cash EPS

41.91

19.81

27.97

43.49

ROCE (%)

6.3

1.9

3.0

6.7

ROE (%)

22.9

16.0

20.4

29.5

PE

1.44

3.04

2.16

1.39

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Table of Content

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Serial No.

Particulars

Page No.

1.

Company Profile

3

2.

Segment wise Business

4

3.

Investment Rationale

6

4.

Business Overview

8

5.

Industry Overview

11

6.

Investment Concerns

15

7.

Financial Summary

17

8.

Income Statement

19

9.

Balance Sheet

20

10.

Ratios

21

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Company Profile Collaborating with global firms and has created a leadership In its business over a period of time…

MBIL India was founded in 1983 as a Time Recorder unit in technical collaboration with Maruzen Corporation, Japan and Moser Baer Sumiswald, Switzerland. In 1988, MBIL moved into the data storage industry by commencing manufacturing of 5.25-inch Floppy Diskettes. By 1993, it graduated to manufacturing 3.5-inch Micro Floppy Diskettes (MFD). In 1999, MBIL set up 150-million unit capacity plant to manufacture Recordable Compact Disks (CD-Rs) and Recordable Digital Versatile Disks (DVD-Rs). The strategy for the optical media project was identical to what had successfully been implemented in the diskette business - creating a facility that matched global standards in terms of size, technology, quality, product flexibility and process integration. The company is today the only large Indian manufacturer of magnetic and optical media data storage products, exporting approximately 85 percent of its production. Since inception, Moser Baer has always endeavored to create its space in the international market. Aiding the company in its efforts has been a carefully-planned and sustainable business model - low costs, high margins, high profits, reinvestment and capacity growth. Along the way, deep relationships have been forged with leading OEMs, with the result that today there are hardly any global technology brands in the optical media segment that MBIL is not associated with. In 2006, the company announced its foray into the Photovoltaic and Home Entertainment businesses. In 2007, the IT Peripherals and Consumer Electronics divisions were formed. MBIL is present in over 82 countries, serviced through six marketing offices in India, the US, Europe and Japan, and has strong tie-ups with all major global technology players. MBIL has the distinction of being preferred supplier to all top global OEM brands. The company stands committed to supplying highest quality fully licensed media to its customers. Its products are manufactured at its three state-of-the-art manufacturing facilities.

Professional Management The company is professionally managed and day to day management is looked after by Mr. Deepak Puri, CMD.

Professionally managed team with highly qualified and experienced people..

Name

Designation

Experience

Deepak Puri Ratul Puri Rakesh Govil

Chairman & Managing Director Executive Director Executive V P- Corporate Strategy & Business Development Group CFO COO- Blank Optical Media CE-Moser Baer Photovoltaic Ltd. CE- Entertainment Division CE- Moser Baer Entertainment Services EVP, IT peripherals & Consumer Electronics COO-Corporate

Over the years Over 14 years More than 27yrs

Yogesh Mathur V C Agerwal Ravi Khanna Harish Dayani Ram Nomula Bhaskar Sharma Girish Baluja

Source: Company

3

Over years Over 3 decades Over 10 yrs Over 32 yrs Long experience Overall 32 yrs Above 20 years

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Segment Wise Business MBIL business comprises of two main segments namely Entertainment and Energy segment. In FY08 entertainment segment contributed more than 90% of the company’s revenue and rest from energy segment.

Strategic Tie Ups and acquisition with huge potential in the business keeping the growth pace…

Segment

Growth Drivers

Tie Up

Media Storage

Innovative Development in Blu Ray Disc cater huge potential

Maruzen Corporation, Japan and Moser Baer Sumiswald, Switzerland.

Shifting of demand to clean renewable energy resources growing demand in this segment Robust demand as shifting of consumer preference from cinema halls to home video. Directly related to computer owners based which is rising day by day Change in standard of living and consumer preference of entertainment make look this segment attractive

Solar Photovoltaic Home video Entertainment IT Peripherals Home Electronics

Solaria & Stion corporation (US based Company), Solarvaiue

-

-

-

Revenue Model

8%

4%

6%

Even though the media storage demand is stagnant, contributing the major part of revenue…

82% Media Storage Source: Company

4

Photo voltaic

Peripheral & IT

Entertainment

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Partnering for growth through Joint Ventures and Subsidiary. (I) Moser Baer Photovoltaic Ltd (Subsidiary)

Leveraging its subsidiary through private equity funding driven by significant technological advancements…

Moser Baer Photo Voltaic Limited (MBPV) is a wholly-owned subsidiary of MBIL. It was set up for spearheading foray into photovoltaic products, systems and projects. MBIL is a global leader in the optical storage media industry. The company intends to utilize the core strengths, technical expertise and high volume manufacturing excellence acquired through the successful growth of their optical media business to its advantage in the PV business. MBIL vision for this sector is to enable reliable solar power as a competitive non-subsidized source of energy through competitively priced products and systems. The wholly-owned solar photovoltaics (PV) subsidiary of MBIL has entered into definitive agreements to raise US $93 million from a consortium of global investors in order to fund growth plans. In all, the wholly owned photovoltaic subsidiary has raised well over Rs. 800 crore ($193.5 million) of Private Equity funding. This investment is intended to fund the expansion of crystalline silicon cell manufacturing to 180 megawatts (MW) and amorphous silicon thin-film to 120 MW. The company currently has an annual capacity of 120 MW, including 40MW of amorphous silicon thin-film modules. Driven by recent significant technological advancements, it is estimated that the solar market will have a 43 per cent CAGR and is poised to achieve grid parity in the short to medium term. Current demand projections translate to a market value of $50-70 billion by 2010. The solar market has grown from $13 billion in 2008 to an estimated $40 billion this year.

Acquiring 81% stake in OM&T, a Philips group company, a major milestone…

(II) OM&T BV (Acquisition)

Partnering with the supplier in order to get continuous supply of raw material…

(III) JV with ‘Solarvaiue AG’

5

MBIL's acquisition of 81% stake in OM&T B.V. which was started as a ‘Optical media and technology’ development group of Philips. The core activity of OM&T is to sell disc DVD and Blu-Ray related technology to big disc replicators, has started bearing fruits in terms of exploiting cutting edge technologies in both the optical and solar photovoltaic (PV) segments. This acquisition is a major milestone for MBIL as it will facilitate strategic implementation and ensure the presence in both the optical and solar photovoltaic (PV) segments. This acquisition will complement the existing research being done at R&D facility based in India and help the company to further consolidate its leadership position. According to the agreement, all innovations by OM&T will be transferred to MBIL. The Joint venture will also focus on development of photovoltaic technologies to support Company's existing PV business. MBIL acquires 40% stake in Solarvaiue AG which will assure supply of high–grade solar wafers. The company will do significant investment as shareholder in this project. This will not only help increase the production capabilities of its silicon production plant in Ruse, Slovenia to a capacity of 4400 tons of solar grade silicon by the end of 2008. As both companies will now have a presence in the entire PV value chain.

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Investment Rationale Strong Demand Potential for Clean Energy

Five fold growth demand potential by FY10 demonstrating 43% CAGR…

Increasing reliance on clean energy and falling PV system costs are set to grow global demand by over 5x (USD 70 billion value) by 2010 which presents MBIL with an exciting growth opportunity. MBIL's core competencies along with its multi technology strategy should allow the company to differentiate itself and significantly grow its market share. Fuelled by the recent technological advancements, it is estimated that solar market would demonstrate a 43 % CAGR and is poised to achieve grid parity in the short to medium term. The current demand projections translate to a market value of $50-70 billion by 2010, according to certain estimates. The solar market has grown from $13 billion in 2005 to an estimated $40 billion this year.

Huge Capex The company would be spending $1Billion by FY10. For PV business USD 650 million, optical business is $20 million and entertainment business $45 million in FY09.

Innovative Products to Cater Growth

Separate R&D department to create innovative products in order to maintain its position in the market…

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MBIL recently acclaimed fame of being the first non-Japanese Company to innovate its own OSM Blu-ray disc technology. The demand for these blue laser based formats is expected to exceed over 12 Crore discs by 2009 from around 2.5-3 crore units at present. The concept works on blue laser, which used to read and write this type of disc. Because of its shorter wavelength (405 nm), substantially more data can be stored than on the DVD or CD formats (which uses 650 nm and 780 nm wavelength respectively). A dual layer Blu-ray Disc can store up to 50 GB; almost six times the capacity of a double dual layer DVD. The company has an advantage of being "first-to-market" and is well positioned to capture a significant share of this emerging opportunity. The intellectually strong position in the development of this next generation product provides a significant competitive edge.

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Huge Market Size Poised to Grow Even Further 100% growth on YOY basis for the demand of DVDs growing faster than industry pace…

The size of the blank optical media market in India is over one billion discs per annum. CDR (Compact Disc-Recordable) is the predominant format accounting for about 80% of the OSM market in India. DVDR (Digital Video Disc-Recordable) has grown exponentially over the last year. The overall Indian market for OSM is growing at 15% with DVD growing at a pace faster than the industry (it grew at around 100% YoY in FY 2008 and is expected to continue growing at even higher rates in future).

Embedded Value in Subsidiaries

Moser Baer Photovoltaic Ltd (MBPVL) to emerge as a technology driven by implementing a capacity of 500MW by FY10 which is currently at 40MW…

Moser Baer Photovoltaic Limited, a wholly owned subsidiary of MBIL, is in the business of photovoltaic (PV) cells and modules. MBPV is expected to emerge as a technology-driven PV equipment manufacturer in the world by implementing a capacity of 500 MW by FY 2010; through a mix of multiple technologies including crystalline silicon, concentration and thin films. The manufacturing facilities are housed in SEZ dedicated for renewable energy at Greater Noida. MBPV is in the process of setting up India's largest grid connected solar farm in Rajasthan with an investment of around Rs 100 Crore. Driven by recent significant technological advancements, it is estimated that the solar market will have a 43% CAGR over FY 2008 - 2012 and is poised to achieve grid parity in the short to medium term. Current demand projections translate to a value of US$ 50-70 billion by 2010. Another subsidiary, PV Technologies India Limited (PVTIL) has successfully completed deposition trials for Gen 8.5 a-Si (Amorphous Silicon) thin film modules at its new 40 MW facility in Greater Noida in FY 2008 and thus achieved a global landmark. The company is setting up a thin film PV plant near Chennai with a proposed 500MW annualized capacity. The Chennai and the Greater Noida plants will be manufacturing Gen 8.5 thin film panels measuring 5.72 square meters. The utility of using thin films includes savings of material, monolithic device design, use of inexpensive substrates, and manufacturing processes that need low temperature and are possible over large areas. Photo Voltaic Technologies India recently signed a MOU with a global equipment supplier to secure supply of critical equipment for an additional 565 MW phased expansion of its Thin Film photovoltaic modules manufacturing capacity, which together with the current project capacity of 40 MW will take the total manufacturing capacity to over 600 MW by 2010.

Integrating Operations through Acquisitions Acquisitions exploiting cutting edge technologies achieving the major milestone…

7

MBIL's acquisition of an 81% stake in OM&T B.V., a highly specialized technology Company based in The Netherlands, has started bearing fruits in terms of exploiting cutting edge technologies in both the optical and solar photovoltaic (PV) segments. This acquisition is a major milestone for MBIL as it will facilitate strategic implementation and ensure the presence in both the optical and solar photovoltaic (PV) segments. This acquisition will complement the existing research being done at R&D facility based in India and help the company to further consolidate its leadership position. According to the agreement, all innovations by OM&T will be transferred to Moser Baer. The Joint venture will also focus on development of photovoltaic technologies to support Company's existing PV business.

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Government Assistance Indian government would provide financial assistance amounting to Rs.12 (30 cents) per kWh in case of solar photovoltaic and Rs.10 per kWh in case of solar thermal power fed to the electricity grid. The scheme will be run by the Indian Renewable Energy Development Agency (IREDA), and solar farm developers will be able to access the subsidy by selling their energy to state-run utilities under the new tariff. The incentives are scheduled to run for 10 years and will be paid in addition to any subsidies offered by state governments. Some of the Indian states have also announced independent programs to support large size solar PV installations. However, the ministry has imposed a limit for the incentives of 50 megawatts in total, a cap of 10 megawatts (MW) within any one state and a maximum of five megawatts per developer.

Business Overview Optical Media Business:

Optical Media – signs of a definite turn around…

MBIL is the second largest manufacturer of optical media in the world after CMC Magnetic Corporation and is leader in the domestic market. The company manufactures the entire spectrum of optical storage media products including Recordable Compact Discs (CD-R), Rewritable Compact Discs (CD-RW), Recordable Digital Versatile Discs (DVD-R), Rewritable Digital Versatile Discs (DVD-RW) and blue laser discs (HDDVD and Blu-ray). The new range of Gold and Platinum CD-Rs have been developed keeping native conditions in mind in terms of enhanced durability and resistance to both environmental and human-induced hazards. In a market estimated at US$ 350 million in 2005-06, the company exports their products to over 82 countries, servicing these markets through six marketing offices in India, US and Europe. It exports 85% of its output and has a 40% share of the Indian market.

CD-R Division:

Optical Media Trends -- The Future is Blue & poised for the next format leap…

8

End consumer demand continued to remain flat for CDR with early signs of decline in developed markets. DVDR maintains a positive growth trend during the year with robust demand from developed as well as emerging markets. The industry witnessed a short term overcapacity situation with excess inventory in the supply chain due to patent licensing issues with some of the other players. This resulted in a downward pressure on prices. Strategic Marketing & Decisions (SMD) estimates global demand for blank optical media products to be over 22 billion units in 2008, representing a strong demand growth over 2007.

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Blu Ray Division:

First to market and unique IP position in the next generation BluLaser based formats…

A strong R&D thrust has enabled the company to lead the technology in the optical media industry, making it one of the few Indian companies to have contributed to the establishment of new global technology standards. With Blu-ray disc (BDR) emerging as the front runner in the high definition media format, MBIL enjoys a significant advantage, being the .first non-Japanese Company to have developed its own technology for manufacturing BDR. The company is well poised to benefit from the improved industry dynamics & high growth potential. The Company maintained its status as one of the top rung suppliers of the next generation High Definition formats through its earlier acquisition of OM&T from Philips in FY07. As per Strategic Marketing and Decisions (SMD) the demand for blue laser based formats is set to exceed over 122 million discs by 2009 from a few million units at present and the Company is well positioned to capture a significant share of this emerging opportunity. MBIL's acquisition of an 81 % stake in OM&T B.V, a highly specialized technology Company, has started bearing fruit in terms of exploiting cutting edge technologies. OM&T provided significant contribution to the development of alternate Blu-ray technology and its commercialization to enhance the leadership position of MBIL in this format.

Solar Photovoltaic Business:

Aiming a capacity…

15

fold

increase

in

Moser Baer has formed a fully owned subsidiary, having business of solar photovoltaic. In the year 2007 they made foray in to this business and as of today they have already started generating revenues from it. 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 40 MW module manufacturing facility with expansion plans to scale it up to 200 MW. The company has invested in strategic partnerships involving the entire value chain, particularly for strategic sources such as silicon ingots and wafers, glass, etc. through short-term and long-term supply agreements. The company has raised around Rs 411Crs by private equity funding diluting their 6.5% stake. The company has order book of $500 million which is executable within 4 years contract for supply of Silicon Wafers with REC of Norway - world’s largest silicon wafer manufacturer. The USD 880 million (Rs 3500 Crs) – 8year contract is the single largest contract of its kind for wafer supply. With an assured long term supply of silicon wafers through a broad based sourcing strategy, raw material sourcing risks are significantly mitigated placing MBPV with a competitive advantage against peers. Its current capacity is at 40MW and is aiming to reach 600MW by 2010 with a 15 fold increase in its capacity. The Capex for FY09 & FY10 are around $400 mn & $500 mn respectively.

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Home Entertainment Division

Largest player in this industry with copyright of above 6000 titles in all major Indian languages…

The company has established national distribution network to offer quality product at the competitive price of Rs 34/- for DVDs and Rs 28/- for VCDs which has changed the current bench mark for price value proposition to the consumers and create a standard which peers find extremely difficult to emulate. It has already acquired copyrights, marketing and distribution rights of around 6000 titles in all major Indian languages constituting over 45% of mainstream cinema in India The company has established distribution network of 450 distributors with across 2 lac outlet in the country. The company plans to invest $100 million in next three years. It has already emerged as a leader in this segment in a short span of 6 months due to its pan India presence (offering home video copyrighted titles in multiple languages) and nationwide-spread distribution reach coupled with aggressive marketing. Although it was launched in March 2007, the business has started to contribute to revenues during the Q2FY09.

I.T. Peripherals & Consumer Electronics MBIL one of India's Leading Technology Company has taken a step forward and has entered into IT Peripherals (Solid State) and Consumer Electronics. In consumer Electronics the product portfolio comprises of Ultra Advanced LCD TV's, DVD players and Digital Photo Frames. In IT Peripherals MBIL offer consumers a diverse range of products comprising of USB drives, Memory Cards, External hard drives, DVD writers, keyboards, Mouse, Headphones, speakers and U.P.S and LCD TFT monitors are soon to be launched.

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INDUSTRY OVERVIEW Media Storage:

Second largest player for DVDR/RW formats in the world…

Piracy – the main concern in the industry…

The global market for magnetic and optical storage material is expected to grow to $39.9 billion in 2010, an AAGR (average annual growth rate) of 15.1%. The primary technologies used to store information, data and images in today’s computer systems are based on magnetism (magnetic recording tapes, hard disk media, hard disk read/write heads), the optical properties of lasers (all types of CDs and DVDs), or a “hybrid” of the two (magnetooptical media). Factors that are expected to contribute to vigorous growth in the data storage market include: • Increasing demand for hard disk drives, due to a rebounding personal computer market and increasing use of hard disk drives for consumer electronic products • Continued strong growth in sales of pre-recorded DVD movies; • Increasing market penetration by high-definition TV, this is expected to spur growth in demand for high-density optical data storage media.

The optical storage media market is expected to grow much faster than the market for magnetic storage over the next five years, i.e., at an AAGR of 19.8% vs. 4.8%. At these growth rates, optical storage media are expected to increase their share of the data storage market to 77% in 2010. Emerging optical storage media such as Blu-ray and HD-DVD, holographic and near-field storage are not significant factors currently, but by 2010, they are expected to account for as much as 4% of the market.

Entertainment Industry:

The Indian Media and Entertainment (M&E) industry is poised to enter a golden era. One of the largest markets in the world, the industry is seeing strong growth and has the potential to garner US$200 billion by 2015. “The Global Entertainment and Media Outlook 2008-2012 report projects India as the fastest-growing territory in Asia during the next five years with a potential to grow at a CAGR of 18.5 per cent against 6.6 per cent globally. By then it is expected to be worth around US$ 36.331 million in volume.” Concerns: The Indian entertainment industry loses around Rs16000 crore every year due to piracy

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Photovoltaic Industry

Dependence on clean and renewable source of energy has created demand in PV segment with rising awareness…

Global energy demand is increasing at a rapid pace. Energy costs are rising globally, in line with oil prices and grid power costs are slated to rise by 8-10% annually. Energy security is a growing concern worldwide, leading to increasing dependence on renewable energy sources. Amongst the renewable space, photovoltaic technology is fast emerging as the most viable technology that has the potential to satisfy the rising demand for distributed peaking power needs of the world. The global PV industry size in 2006 grew to over 2.5 GW representing a 40% yoy growth. Globally, utilities are increasingly entering into long term Power Purchase Agreements (PPA) with the solar energy installations.

World Thin Solar Module Capacity/ Production (MW) & Growth Rate

Production growth will over take the capacity growth in the near future due to increase in demand as well as awareness…

10000

200

9000

180

8000

160

7000

140

6000

120

5000

100

4000

80

3000

60

2000

40

1000

20

0

0 FY05

FY06

FY07

FY08

Capacity (MW) Capacity Growth %

FY09

FY10

FY11

FY12

FY13

Production (MW) Production Growth %

Source: Electronics.ca Research Network

The global PV market, as measured by total PV cell production, increased from 1.2GW, in 2004 to 2.6GW in 2006, which represents a compound annual growth rate, or CAGR, of approximately 36%. During the same period, PV industry revenues grew from approximately $8.0 billion to approximately $20.0 billion. PHOTON International projects that total PV cell production, including thin-film and non-conventional production which our products do not address, will increase from 4.0GW in 2007 to 20.5GW in 2011, representing a CAGR of approximately 50%. During the same period, PV industry revenues are projected to grow from approximately $30 billion to approximately $121 billion.

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World Solar Photovoltaic Demand Japan 6%

USA 8%

Reversing of scenario in the near future in terms of solar energy demand…

Rest of World 8%

Rest of Europe 8%

Spain 23%

Germany 47%

Source: Solar Buzz LLC

Per Capita Consumption of Electricity 8365

9000 8000 7000 6000 5000 4000 3000 2000 1000 0

2980

ra ve A ld

or W

t in

ge

di a In

a ric Af

As ia

in Ch

ic er

612

563

Am

le La

id d M

a

st Ea

tr un co D EC O

a

646

Source: Key world Energy statistics (2007)

13

2596

1802

1695

ie s

Kwh

India is the lowest in term of per capita consumption of electricity of which PV is the negligible part…

World solar photovoltaic (PV) market installations reached a record high of 2,826 megawatts (MW) in 2007, Solar energy consumption in India has grown in the last couple of years and has resulted in the birth of a flourishing industry in the large, small and medium sectors. Under the renewable energy plan up to 2012 the Government of India has set target of deployment of solar water heating system in one million homes, 5 million solar lanterns and 2 million solar home lighting systems. India, being a tropical country, is blessed with plenty of sunshine. There are on an average 250 to 300 clear sunny days a year. Thus, it receives about 5000 trillion kWh of solar energy in a year. The total solar module assembly capacity is 50-55 KW in India. It is expected that the time for a major leap forward has come and in the next 10 years it should reach 20MW representing growth of 62% over the previous year.

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Source: Eurostat (Historic data), Primes Energy Model (European Commission 2006) for projections.

Indian Market & Policies

Currently India has an installed power generation capacity of about 123GW per annum. With a robust economic growth, the per capita electricity consumption is expected to rise from 435 KWH at present to 2000 KWH by 2015. However, the capacity currently lags demand with an estimated energy shortage of 8% and a peak load shortage of 11.6% at present. The current demand for PV systems in India is estimated to be 40 MW with major applications being limited to rooftop energy generation and solar thermal applications. Among other incentives, the Indian Government also directs state utilities to buy a specific part of their energy needs from renewable - of which solar is set to rapidly increase its share. Recently announced semi conductor policy provides significant benefits to the PV manufacturing sector through capital subsidies underlining the rising importance of this sector in Government policy initiatives.

IT peripherals & Consumer Electronics:

Rs.12000 Crs industry waiting for the next generation super power company…

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Currently the IT vertical industry (PCs and Notebooks) is pegged at Rs 20,000Crs and the PC Peripheral industry is worth Rs 12,000Crs. Consumer electronics products have become indispensable in today’s world. From digital cameras, PDAs, mobile phones, portable media players, camcorders and navigation systems to televisions and projectors, DVRs, home theatres and set top boxes, the consumer electronics market is revolutionizing the way we communicate and share digital media. The fast evolving consumer electronics segment is driving innovation of new technologies, standards, and products. The progress of consumer electronics from standalone, single function appliances into converged, complex, upgradeable, network-connected devices poses a serious challenge for product and application developers. Key to managing this growing complexity is the intelligent use of embedded systems. Creativity and time-to-market are the decisive factors that will aid developers sustain

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their leadership in the highly competitive consumer electronics world. Consumer electronics manufacturers are looking for new, flexible, low cost, fast development solutions that will address the consumers demand for innovative electronic products at lower cost. More Than 3 Years 17%

Within 3 years 15%

Within 2 Years 22%

Never 22%

Within 6 months 7%

within 1 Year 17%

Source: Consumer Electronic Association

The consumer electronics market is one of the largest segments in the electronics industry in India. With a market size of USD$3.89 billion in 2006, catering to a population of more than 1 billion people, the consumer electronics industry in India is poised for strong growth in the years to come.

Presents in the alternate technologies may create high risk to success…

Silicon film – key raw material having shortage of supply…

Investment Concerns: a.

Alternate technologies: Given MBIL's presence in high technology businesses, managing technology evolution and being at the forefront of the technology curve assumes prime importance. Threat of technology obsolescence and alternate technologies is a constant in the optical and PV space. However, over the years the company has evolved from a technology innovator to a developer and has also entered into strategic technology alliances in PV space to emerge as a technology driven company, thereby mitigating this threat.

b. Prices of key inputs: Polycarbonate for optical media and poly silicon for photo Voltaic are critical key raw material. These commodities are influenced by a variety of factors, including crude prices, respective demand-supply balance, etc. Any sharp increase in prices of these commodities or demand-supply imbalances could adversely impact business. The company is working on strategic

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sourcing agreements, including investments into production facilities, for critical raw materials. This should ease the impact of any pricing volatility and improve production planning.

Tendency to use anti dumping policies by government may be the cause of worry…

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c.

Anti-dumping and anti-subsidy / government policies: The Company derives a significant part of its revenues from international markets. These have seen a growing protectionist attitude and a tendency by some local governments to use antidumping and trade protection tools to provide protection to local businesses. However, the Company continues to keep a close watch on this front and take necessary steps to minimize any fallout. In the PV front, Government incentive programs and benefits to PV industry are providing strong impetus to demand growth for PV systems. Any adverse change in these policies could have a negative impact on global demand. Moser Baer's multi technology strategy in PV space is not based on the pace of incentive programs as these new technologies could deliver energy at costs comparable to that of conventional energy.

d.

Fall in product prices: As products move into the mature phase in their life-cycle, they start to emulate commodity type characteristics. Also, optical media industry has relatively high capital intensity; hence a sharp fall in prices could severely impact overall returns. The company has been consistently improving its asset turnover by installing more efficient lines, improving product mix, etc. The leadership position in high value next generation formats should further improve these returns.

INVENTURE

INSTITUTIONAL

RESEARCH

Financials Summary

Sales(YOY)

4000

3733.37 2745.13

3000 2000

1519.55

1664.12

1280.3

1982.47 1964.02

1000

10 E FY

FY

09 E

08 FY

07 FY

FY

FY

05

04 FY •

06

0

Slow down in revenue growth due to new business restructuring but expecting robust growth in the future…

Steady Growth in Net Sales

We are very optimistic about the company’s sales growth as the company is in the last stage of restructuring the business. The company has diversified its business in which the future outlook is very good. It has formed new subsidiary in its strategic diversification into Photovoltaic (PV) business which is expected to generate revenue for the company for the coming years. As the demand for PV is rising and company is planning to explore Europe and US market where the demand is high where it already has existence and exploring the Asian market as well. EBITDA MARGIN TREND(%) 50 40

43.86 30.13

30

30.38 24.89

20

27.19

24.2

25.61

10

Volatility is very high in term of EBITDA margins since past but consistency will be seen in near future due to partnering with the supplier and compensating the raw material expenditure…

17

0 FY04

•

FY05

FY06

FY07

FY08

FY09E

FY10E

EBITDA Margins

EBITDA has declined initially as there is sharp rise in raw material expenses of about 1300 bps and other expenses rose by 500bps. But after FY06 the margins are almost constant due to the cost control by introducing cutting edge technology and also increasing the efficiency. But we are optimistic about the future margins as the raw material cost would be decreasing as they has tie ups and JVs with the company supplying raw material at lowest possible price although employees expense may rise marginally.

INVENTURE

INSTITUTIONAL

RESEARCH

731.53

800.00 700.00 600.00

467.66

500.00 400.00

342.77

470.46 352.68

321.43

300.00 200.00 100.00 0.00

FY05

-100.00

159.19

109.79

60.72

4.67 FY06

-27.34 -78.91 FY09 FY08 FY10

FY07

-200.00 Cash PAT

Charging high depreciation on the basis of huge initial investment made in the new business making the PAT negative…

PAT

PAT V/S Cash PAT We can see that PAT is negative for FY08 and FY09 as company is in transformation stage. Even though the company is making profit, PAT is negative as the depreciation charged is very high due to the installation of new machinery for its Photovoltaic business. So the government has allowed subsidy in depreciation for promoting this business. There is huge difference between PAT and Cash PAT due to the charging of high depreciation. Segment Wise EBIT EBIT 1000.00 800.00 600.00 400.00 200.00 0.00 -200.00 FY04

Expecting huge contribution in margins from the new segment of solar photovoltaic business…

18

FY05

FY06

Storage Media Products

FY07

Solar Products

FY08

FY09

FY10

Other Operations

The company has already started generating income but however the EBIT are still negative due to the initial expenditure and expected to earn profit from these segments from FY09 onwards. Solar business is expected to contribute around 20% in FY10 whereas its IT peripherals, consumer electronics and home entertainment to contribute around 15% and rest from the media storage.

INVENTURE

INSTITUTIONAL

RESEARCH

Income Statement

Net Sales

FY05

FY06

FY07

FY08

FY09E

FY10E

1280.4

1664.12

1982.47

1964.02

2745.13

3733.37

29.97

19.13

-0.93

39.77

36.00

% Growth Other Income

67.49

61.35

78.77

57.68

-130.15

-158.10

Total Income

1347.89

1725.47

2061.24

2021.7

2614.98

3575.27

% Sales

53.33

59.25

51.06

49.31

44.06

41.39

Employee Expenses

72.60

103.59

143.92

189.31

301.96

466.67

% Sales

5.67

6.22

7.26

9.64

11.00

12.50

Other Expenses

206.52

221.67

302.88

329.87

439.28

607.23

% Sales

16.13

13.32

15.28

16.80

TOTAL EXPENDITURE

961.98

1311.21

1459.03

1487.71

1950.64

2619.27

% Sales

75.13

78.79

73.60

75.75

71.06

70.16

PBIDT

385.91

414.26

602.21

533.99

664.34

956.00

7.35

45.37

-11.33

24.41

43.90

% Growth Interest

73.62

93.55

124.48

179.36

200.50

220.50

% Avg Debt

4.49

5.34

4.95

5.52

5.97

6.49

PBDT

312.29

320.71

477.73

354.63

463.84

735.50

Depreciation

282.05

316.76

357.87

431.59

497.80

572.35

% Gross Block

8.84

9.07

9.05

9.08

9.52

9.75

PBT

30.24

3.95

119.86

-76.96

-33.96

163.15

% PBT

-100.79

-18.23

8.40

-2.53

19.49

2.43

Reported Profit After Tax

60.72

4.67

109.79

-78.91

-27.34

159.18

-92.31

2250.96

-171.87

-65.35

-682.22

% Growth Source: IGSL Institutional Research

19

INVENTURE

INSTITUTIONAL

RESEARCH

Balance Sheet SOURCES OF FUNDS : Share Capital

FY05

FY06

FY07

FY08

FY09

FY10

111.51

111.51

111.6

561.25

561.25

561.25

1878.64

1877.28

1935.49

1639.5

1612.16

1771.34

1990.15

1988.79

2047.09

2200.75

2173.41

2332.59

0

0

1.23

0

0

0

1603.79

1646.54

1838.93

2066.9

2120

2150

16.83

8.93

11.3

1117.3

1200

1250

Total Debt

1620.62

1655.47

1850.23

3184.2

3320

3400

Total Liabilities

3610.77

3644.26

3898.55

5384.95

5493.41

5732.59

Net Block

2447.17

2431.91

2496.95

2850.93

2831.04

2899.70

51.02

152.61

389.21

530.38

723.47

832.46

193.56

39.66

89.93

376.85

390

400

Inventories

343.54

447.43

613.88

724.75

786.11

803.59

Sundry Debtors

331.09

379.89

334.17

376.75

488.86

531.88

Cash and Bank

459.26

290

269.73

821.04

735.02

835

Loans and Advances

79.76

168.4

162.06

298.07

320

325

Total Current Assets

1213.65

1285.72

1379.84

2220.61

2329.99

2495.47

269.27

237.92

408.26

509.59

689.45

767.18

24.4

27.75

40.25

75.07

91.64

127.86

293.67

265.67

448.51

584.66

781.09

895.04

919.98

1020.05

931.33

1635.95

1548.9

1600.43

3610.32

3644.23

3898.55

5384.95

5493.41

5732.59

TOTAL RESERVES Total Shareholders Funds Minority Interest Secured Loans Unsecured Loans

Capital Work in Progress Investments

Current Liabilities Provisions Total Current Liabilities Net Current Assets Total Assets Source: IGSL Institutional Research

20

INVENTURE

INSTITUTIONAL

RESEARCH

Ratios Turnover Ratios

FY06

FY07

FY08

FY09

FY10

Net sales to total assets

0.46

0.51

0.36

0.50

0.65

Net sales to Fixed assets

0.64

0.69

0.58

0.77

1.00

Net sales to net working capital

1.59

2.04

1.15

1.67

2.16

229.82

178.88

317.98

218.13

168.97

Net sales to inventory

3.72

3.23

2.71

3.49

4.65

Net sales to debtors

4.38

5.93

5.21

5.62

7.02

5.40

3.38

4.36

3.38

3.25

98.14

113.02

134.69

104.52

78.56

Cash PE

3.16

2.17

3.05

2.16

1.39

P/BV

0.51

0.50

0.46

0.47

0.44

EV/EBIDTA

-3.14

-2.16

-2.44

-1.96

-1.36

EV/SALES

-0.78

-0.66

-0.66

-0.47

-0.35

0.61

0.51

0.03

0.37

0.27

ROCE

2.68

6.27

1.90

3.03

6.69

ROE

0.23

5.36

-3.59

-1.26

6.82

EBIDTA

24.89

30.38

27.19

24.20

25.61

EBIT

19.27

24.10

18.06

16.90

19.70

0.28

5.54

-4.02

-1.00

4.26

29.97

19.13

-0.93

39.77

36.00

7.35

45.37

-11.33

24.41

43.90

EBIT

-6.12

150.61

-58.09

62.64

130.37

PAT

4.67

109.79

-78.91

-27.34

159.18

EPS Source: IGSL Institutional Research

0.42

6.56

-4.68

-3.76

5.00

Net Working Capital Days

Liquidity ratios Current ratio Inventory Days Valuation Ratios (x)

Market Cap/Sales Return Ratios (%)

Margins (%)

PAT Growth (%) Sales EBIDTA

21

INVENTURE

INSTITUTIONAL

RESEARCH

Names

Designation

E-Mail Id.

Contact Number

Nagji Rita SALES Ravinder Kasliwal Dealing Vinit Rita Rashda Ainapore Amit Rita Research Neha Kakade Ashish Pandey

CMD

[email protected]

40751515*525

Head Institutional Sales

[email protected]

40751565/66

Institutional Dealer Institutional Dealer Institutional Dealer

[email protected] [email protected] [email protected]

40751565/66 40751565/66 40751565/66

Senior Research Analyst Research Analyst

[email protected] [email protected]

40750515*583 40751515*582

Manoj Jethva

Research Analyst

[email protected]

40751515*579

Mitesh Shah

Research Analyst

[email protected]

40751515*581

Denil Savla

Research Analyst

[email protected]

40751515*580

Sanjeev Haria

Research Analyst

[email protected]

40751515

Sibayan Banerjee

Technical Analyst

[email protected]

022 22723797

Ashok Patel

Technical Analyst

[email protected]

022 22723797

Madhu Patel

Technical Analyst

[email protected]

022 22723797

Disclaimer This Document has been prepared by Inventure Growth & Securities Ltd. The information, analysis and estimates contained herein are based on Inventure’s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only

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