Moser Baer: Screeching sound

A depreciating dollar, slack optical disc sales and shutdown at one of the captive power plants impact sales.

The vagaries of the media business caught up with Moser Baer in the quarter ended September 30, 2007. Sales declined 10.6 per cent year-on-year to Rs 447.8 crore.

Besides the depreciating dollar and traditional summer slackness in optical disc sales, a temporary shutdown at one of the captive power plants affected the company's performance.

Meanwhile, Philips cancelled the licences of some manufacturers, who in turn dumped their products in the market resulting in dirt cheap prices.

The company's operating profit fell 14.6 per cent y-o-y to Rs 113.6 crore in Q2FY08, even though costs were under control. The prices of polycarbonate, an important raw material, have remained stable. The operating profit margin was down 120 basis points to 25.4 per cent.

The photovoltaic business bought in $12 million during the quarter even as the company expects to add 40 mw capacity by year-end. The availability of polysilicon, another key raw material, is an issue but Moser has signed an eight-year sourcing deal which will bridge the deficit.

Moser Baer, which forayed into the home entertainment segment earlier in the year, has so far acquired 9,500 titles across various regional languages. The company expects to earn $60 million from the segment this year.

Optical media volumes are likely to rise but pricing may remain weak. Moser is heavy on inventory and hence vulnerable to further rupee appreciation. Trading at 35 times estimated FY08 earnings and 16 times FY09 earnings, the stock appears expensive.

GTL: A handy buy

GTL, which has picked up 100 per cent in Malaysia-based ADA Cellworks in an all-cash deal for $25 million (Rs 100 crore), has bagged a good deal.

The valuation is about the same as FY07 sales, which is not expensive. ADA reported operating margins of 17.5 per cent in FY07 as against GTL's 15 per cent.

The acquisition will help the telecom network services company to move up the value chain as it will now be able to bundle higher margin network design, planning and optimisation services.

GTL has indicated that ADA's margins will grow to over 20 per cent in FY08 on new business from China as well as India.

With network deployment throwing up major opportunities, a large chunk of GTL's revenues are likely to come from network optimisation, an area where it is absent. This is where ADA fits in.

GTL will offer ADA's expertise in network planning and design and professional services in markets where telecom penetration is low and utilise ADA's optimisation skills in mature markets.

A major chunk of the revenues is likely to flow from ADA's four largest markets - China, Indonesia, Taiwan and India.

GTL's financials improved in the September quarter. Consolidated sales grew 86 per cent y-o-y, while the operating profit margin was 250 basis points higher at 15.2 per cent.

At Rs 267, the stock is trading at 19 times its estimated FY08 EPS of Rs 14. It is close to its 52-week high and is expensive at current prices.