Forbes has a fantastic article on how Moser Baer turned dreams to dust by failing to see that the product for which they had invested thousands of crores was slowly but surely becoming obsolete.
Warburg Pincus has been a big victim of this. It recently sold a major portion of its stake in Moser Baer, taking a substantial haircut on its original investment. Warburg Pincus invested almost $220 million (Rs 1,210 crore) in the company. It sold about 24.5 percent of its stake in an off-market transaction to a Seychelles-based entity called Global Town Investment for about $11 million (Rs 61 crore). This means that Warburg Pincus’ investment is worth only Rs. 240 crores or so.
Warburg Pincus suffered a loss of nearly Rs. 1,000 crores! This was one of the worst investment decisions Warburg Pincus and it is no surprise that its MD Rajesh Khanna resigned (read: was kicked out).
Moser Baer had an early mover advatnage and a dream run. When its revenues were only Rs 154 crore, it raised about Rs 430 crore to venture into making recordable compact discs (CD-R). Between 2000 to 2004, Moser Baer’s revenues rose from Rs 154.34 crore to Rs 1,501 crore. Profits rose about eight times, to Rs 323 crore. Moser Baer grew to become the world’s second largest optical media manufacturer and one of the largest tech hardware exporters from India, shipping to 82 countries.
A true multibagger stock of the stuff that dreams are made of!
However, the problem was that while volumes were coming, the profit on each CD started declining. The price of a CD fell from about $1.20 to about 20 cents in just three years. To maintain its volume leadership, Moser Baer invested huge money in large manufacturing facilities. This was a strategic mistake because Chinese & Taiwanese competitors started manufacturing the same product at dirt cheap rates, wiping out Moser Baer.
Also, CDs & DVDs were slolwly going out of fashion thanks to flash drives and USB drives.
Moser Baer’s other disastrous investment was in the solar or photovoltaic project. It raise large sums of money (FCCB’s of $150 million (Rs 825 crore)) from marquee investors like IDFC, GIC Special Investments and CDC group to fund the project. Moser Baer’s solar business at Rs 6,350 crore. However, here again, the Chinese wiped out the compettive advantage the Moser Baer enjoyed.
Today, Moser Baer is a shadow of its former self. Its plant in Greater Noida is almost shut. Sales have stagnated and the cash reserves are totally depleted. While the cash flow is a measly Rs 241 crore, the debt is a mammoth Rs 3,267 crore. The Foreign Currency Convertible Bonds (FCCB) are due for redemption but where is the money. A corporate debt restructuring programme is being implemented.
So, it is probably only a question of time before the mighty Moser Baer goes into liquidation.
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