Moser Baer reported a net loss of Rs 11.15 crore in the April-June quarter of 2005-06 (it showed a profit for the full year, though). Severe global pricing pressures coupled with competition from other low-cost producers and rising raw material prices eroded the exceptional returns that the industry was known for. Though the downturn was not unexpected, its duration and severity came as a rude shock.
Ashish Dhawan, Senior Managing Director of private equity firm ChrysCapital, which invested in Moser Baer during this downturn, says: "The downturn lasted longer than any of us had anticipated." Cost efficiencies helped sustain Moser Baer during this phase. It was also a period of learning, and the lessons were immediately implemented. Ratul recounts that despite the downturn, the company continued pumping funds into the business. Over the last four years, Moser Baer has invested over $1 billion (Rs 4,300 crore) and a large chunk of this has been spent on climbing up the technology curve.
As the downturn began petering out in early 2006, the hugely capital-intensive blank optical storage business again showed promise of generating massive amounts of free cash. "A year ago, we felt that over the next three years, the blank optical business would generate around $500 million (Rs 2,150 crore) of cash," says Ratul. So, an expansion and diversification was clearly in order. The big question was: in which industries? "Part of that free cash will be deployed in businesses that are adjacent to our existing business. Synergies will have to come from marketing, distribution, manufacturing and research and development," says Ratul.
THE MOSER BAER MATRIX
The company's business portfolio will look very different in a few years.
BUSINESSES: Optical storage
REVENUE SHARE: 30-33%
STRATEGY: It is a volume business and MB will leverage its position as one of the lowest-cost producers in the world.
STRATEGY: To acquire 10,000-12,000 movie titles and price them low.
STRATEGY: It is betting on 4-5 already proven technologies.
BUSINESSES: New businesses
STRATEGY: not disclosed.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.