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DiversificationWill they

deliver

Dr Amit Rangnekar

www.dramitrangnekar.com

Question
Name 3 Indian brands accepted and
used internationally

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Case coverage- Moser Baer (MB)


Corporate strategy of a consummate
Indian hi-tech player
MBs technology lifecycle management
skills
MBs related diversification into the
Indian optical storage and home
entertainment segments
Unrelated diversification into solar
energy space

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DYK?
Digitized data if expressed physically, would
cover
All the continents by 2000, the whole earth by
2006
And 1,700 planets every year by 2020!

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MB- 2008

Sales: Rs 19bn @ -6%, Loss -Rs 0.8bn (1.2bn)


Market Cap Rs 2.1bn (3.1bn), L5Y CAGR 42%
CD/DVD- Global No 2, 17%MS (Ritek Taiwan 40%)
OEM to Global Top 10- 70% revenues
4 Plants, 7,500 employees, operate in 82 countries
Capacity 3.6 bn units /annum, 114/second
Market driver, competences to ascend value chain
Strong position but industry profitability declining
Sharp, input price escalations
PV, Home entertainment, CE to drive growth
2004- Warburg Pincus PE invests $149m

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Spread

Business
Spread
Solar
PV

Geographic
Spread
Indi
a

Optical
storage
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Rest of the
World

MB Revenues (Projected in Rs
bn)
49.3
37.1
23.9
19.8
12.8

16.6

Optical Media

Solar Business
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Annual Report

Origin
1983, New Delhi, by Technocrat Deepak Puri
Founding business- Time Recorder unit
Collaboration- Maruzen, Japan & Moser
Baer, Switzerland
Bought out Swiss stake, Rare for Indian
firms
Diversified, Horology to Data storage,
retained name

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Technology chronology
ab
d
r
o
Rec

s
e
i
p
Flop

8.0"
floppies

5.25
floppies

3.5
floppies

CD-RW
DVD-R

CD-R
DVD-R

BluRay

2007
2003

1999
1993

1987

150mn
capacity

1985
6L capacity

ia
d
e
m
l
a
c
ti
p
o
le

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2bn
capacity

3.6 bn
capacity

Globalisation
Our key driver was the opportunity to
create a memory, second only to the human
brain using dyes, plastic & specialty
chemicals Deepak Puri
Focus- optical & magnetic data storage media
Enablers- Global scale, R&D capability,
liberalisation
Industry - exclusive preserve of Japanese &
Taiwanese
Initial EU exports, 25-30% MS, protectionist
policies
Forayed into new geographies
2005- Europe 35%, US 30%, Asia 35%
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Globalisation
2005- $10 mn manufacturing facility, Germany
Tap lucrative EU markets- 5% volume but 20%
value
Entry- Hi-value add, Hi-margin products- Japanese
stronghold
Strategic sourcing relationships with key vendors
Strategic JV with Imation (US) worth $ 100 mn
Long-term technology transfer, MBs US- MS
ascends
Entry- growth markets- Africa, Middle East & LatAm
1st to ship HD DVD-Rs
JVs- Media manufacturers, PC & laptop makers,
drive manufacturers & content providers

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Blu-ray Disc

2006- M&A- Philips OM&T, Netherlands, BluRay pioneer


MB- only Blu-ray disc maker outside Japan, 4 global players
Next-gen large capacity optical disc video recording format
27 GB data- R, RW & play back- on a single sided single
layer 12cm CD/DVD size disc with a 405nm blue-violet
laser
Price- 15-20 x DVDs, sustainable short term margins
Demand- 1.7 bn discs over N3Y
BluRay / HD mitigate impact of cannibalization of optical
media
BluRay / HD platform for newer applications and content
Complexity & manufacturing capabilities to mass produce
will restrict competition
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India
Indian market- 25cr (99)- 600cr (05)- 3000cr (2010)fastest
Image- country that borrowed technology
MB put Indias hi-tech manufacturing on global map
2003- World's largest optical media facility, Noida
2003 Moserbaer PRO- CD-R, DVDR, CD-RW & DVD-RW
Optical disc business commoditised, but MB brand
successful
Target- consumer, corporate and professional markets
2005- 85% exports, strong Indian presence
Academia MoUs with IIT- Delhi & BHU
'Platinum' optical media range- 200 years data
protection
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Global optical media demand


(Million units)

PWC- FICCI

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Optical Media drive (Mn units)


2005 2006 2007 2008 2009 2010
E
E
E
CD Rom

275

214

150

91

47

20

DVD Rom

164

171

178

179

170

159

CD R/RW

176

139

97

57

28

11

Combo

160

193

196

179

144

108

DVD Rec

213

381

583

788

973

1124

0.2

1.5

16.6

41.1

BluRay
Total

988

Annual Report 2008

1098 1205 1301 1379 1463

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Global Optical media


industry

22 bn units @ 7%
CDR /RW- declining but growth in Asia, LatAm &
ME
DVD/RW- growing, shifting preferences,
penetration & improving price-value proposition,
healthy margins
Blue laser formats- growth driver, high margins
Supply exceeds demand at the lower end
Price pressures, low margins, forex fluctuations
Input prices- Polycarbonate prices (crude driven)
fluctuations
Regulatory- protectionist policies in geographies
Key- managing product & technology life-cycles
& pricing
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MB Optical Media - Ramp up


plans2007
2008
2009E
2010E
Sales
($mn)

437

505

586

690

Total
Units

2674

3030

3542

3929

CD units

1795

1795

1795

1616

879

1230

1722

2238

25

75

DVD units
Others
units
ASP $

0.16

0.17

0.17

0.18

CDs

0.14

0.13

0.13

0.13

DVDs

0.20

0.18

0.17

0.16

5.00

2.00

1.50

Others

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MB Optical storage media


strategy
Short term
Global scale
Cutting edge tech
Full range, ride PLC
Leverage Blu ray1st to market
& IP position
Value adds

Medium term

Consolidate global
leadership
Adjacent expansion

www.dramitrangnekar.com

Long term

Dominate media
Industry
Emerge
technology leader

Diversification- PV Solar

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PV Global scene
Energy security- key global concern
Increasing dependence on renewable energy
sources
Solar cost significant decline- innovations to reduce
silicon content , manufacturing capacity expansion,
incentives
PV- most viable technology, potential to bridge gap,
high demand
Global PV industry 2006, $10.6 b @ 40%
Germany 50% global MS @ 16% , Spain @ 200%,
US 33%
Margins under pressure- if vertically not integrated
Solar power- electricity grid, cost parity by 2019

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Solar industry value chain

Investment
Time frame

Polysilicon
Feedstock

Ingot /
wafer

Solar
Cell

18-24m

10-12m

10-12m

Solar
Modules

System &
Installation

Semi- integrated- Sharp, Kyocera, Sanyo, BP


Fully integrated- REC, Solar World, Ersol
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Solar-Electric cost parity

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CEO speak
The global PV energy market
will be worth $1 trillion in 15
years & we can take a 10%
market share and be among the
top 2-3 global players
We can leverage our
manufacturing strength in the
Solar business as it involves
layers of a substrate just like
optical discs
Each machine has to come on
6 jumbo jets. Just the leg of the
machine is the size of our
conference room

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India- Power scenario


Tremendous scope
In 2006 per capita electricity consumption in
India was 631 Kilo Watt hours (KWhr), while in
Canada, the worlds highest per capita power
consumer, it was nearly 30 times, at 17,179
KWhr International Energy Agency
GOI- Per capita power consumption 1000 KWhr
by 2012
Difficult to double power production through
conventional methods in 4 years
Renewable energy and solar energy- alternatives
if affordable
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MBPV
2007-Moser Baer Photo Voltaic (MBPV), whollyowned
Leverage existing competences- R&D, Hi tech
proprietary manufacturing, global scale, lifecycle
management skills
The cost of generating solar power from PV
panels will drop 40% just through manufacturing
efficiencies. This steep decline will make solar
energy from thin film PV cells on par with thermal
energy
Rs 260 cr, crystalline Silicon cell manufacturing,
Noida
2008- 40MW to 80MW (2009) to 500MW (2010)
2008- PV operations revenues, $ 42 mn
2009- 40MW Thin film production
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Strategic silicon sourcing


80% sourcing from long term contracts, balance spot
markets
REC (Norway) for 8 years, cumulative $ 880m
Deutsche Solar- silicon wafers
40% stake in Solarvalue, solar grade silicon wafers
Strategic $12m tech tie-ups
Solaria- low-concentration platform reduces silicon
content
Solfocus- 1st non-silicon based PV concentration
technology
Stion- pioneer in cutting edge nano-based PV technology
Strategically positioned in global PV market
Government incentives but rising solar grade silicon
prices
Chinese & EU competition- low entry barriers

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MBPV business strategy


Short term

Rapid scale up
Leverage tie ups
Global benchmarkscost, efficiency
& yields

Medium term
Technology
verticals
Economies
Globally
competitive
Integrate value
chain

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Long term

Emerge multi
tech, integrated
& efficient,
global
PV player

Diversification- Home
entertainment

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The home entertainment


business
2007- Indian E&M industry Rs. 513 bn @ 17%
India- world's largest film producer &
consumer
Underdeveloped home video market
Rs.7.5 bn @ 15%, 8% of E&M
Rampant piracy and high fragmentation
India- DVD/VCD users, only 25% of TV @25%
pa, under penetrated
Demand drivers- Rising incomes, large
content base, growing hardware penetration,
better price value proposition

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Home entertainment
2006

India (Rs
bn)

US ($ bn)

Film entertainment

$ 1.6 bn

$ 40 bn

Theatre

$ 1.2 bn

$ 10 bn

1.6bn

1.4bn

1.5

4.8

$ 0.1 bn

$ 20 bn

Home video as % of film


entertainment

7%

50%

Home video as % of theatres

9%

200%

Theatre attendance
Theatre visits per head per year
Home video

PWC- FICCI

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MB home entertainment
strategy
2006- low-cost, high quality affordable home
entertainment
Acquired copyrights/license for 7000 movies
Regional focus- Hindi, English, Tamil, Telugu, Malayalam,
Kannada, Bhojpuri, Marathi, Bengali, Gujarati and Punjabi
Piracy busting price- VCDs Rs28 & DVDs Rs 34
Compelling value proposition hitherto unavailable
Superior quality, world-class packaging
Money back /free replacement for manufacturing defect
2007- 11,000 video titles, 1/3rd of all Indian movies made
Strong entry barriers for competition

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MB home entertainment
strategy

2007- Reach- 18 C&Fs, 450 distributors, 200,000+


outlets, FF
300 owned & branded outlets, alliances- large format
stores
We cant keep up with demand & roll out fast enough. Its
a problem, but better than having no one buying our
discs
Strategic partnership- Pyramid Saimira Theatre for home
video marketing & retailing
2008- $60m sales, largest home entertainment player
Invest $100m to acquire titles
Make low budget movies for content
VAS- DTH Video on Demand, IPTV, pay per view,
animation, gaming, merchandise
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Films market
2005

2006

2007

2008

Box-office Domestic
(Rs b)
% growth

46.5

52.8
14.4

64
21

71..5
15

Box-office- Overseas
(Rs b)
% growth

5.0

5.7
13

7.0
24

8.5
19

Home video (Rs b)


% growth

3.4

4.0
18

6.5
63*

7.5
30

Ancillary revenue (Rs


b)
% growth

5.0

5.7
13

7.0
24

8.5
19

84.5

96

Total (Rs b)
*Mb

59.9
68.1
Annual
report
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MB Home entertainment
strategy
Short term
Scale up- rights/
licenses/ languages
Penetrate rural
& overseas markets

Medium term
Dominate
Content
Alternate
distribution

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Long term

Straddle value chain


CE & infotainment

Consumer electronics
Synergies- leverage leadership, technology and
reach
Complement existing optical media business
Umbrella branding
PC peripherals in metros (Rs. 12,000 crore AI)
IT verticals (PCs and notebooks) Rs. 20,000 cr
USB drives, memory cards market, ODDS
DVD Players and digital photo frames
Home theatre system
Eight models of LCD TVs
MP3 and MP4 players
Mouse, key pad, head phones, speakers, UPS
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Competences & Competitive


advantages
Global- quality, competitiveness & cost
leadership
Integrated, proprietary world class processes
High tech manufacturing leader, single market
focus
Product & technology lifecycle management
proficiencies
Market driving, improved penetration
30% lower investment for similar scale capacities
Strong OEM alliances
Comprehensive IT enabled integrated logistics &
SCM system

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Mb coverage
Optical media

Home Video

Retail

Home
Videos

OEM

Rights

Optical
media

Content

Consumer Elec

Retail

Solar Energy

Delivery

Trade

Manufacture

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Production

Capture value
PV Solar
g
n
Lo

rm
e
T

Mi

Home
entertainment
rm
e
dT

BluRay
rm
e
T
t
Shor

Capture
Value

Rs 600 cr
in 2008

Solar
Business

DVD

Instant
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Optical
Storage

CMD speak
There is no
greater joy in
life than
dealing with
hurdles that
are thrown in
front of you in
your own
business
Deepak Puri- CMD
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Questions

DNA of Moser Baer


Use technology to get into other space
Instances in other industries
How do they sustain
Optical storage- Hive off to/ buy out Japs / Taiwanese
Strategy, if you are a PE?
Why not premium price film CDs/DVDs- no
competition
Threats
Backward integration
Competition
Can they pull it off

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