Moser Baer: Silver screen

Moser Baer has an edge in the home video business because of its proprietary tech

Moser Baer is trying to mitigate the vagaries of removable data storage media products on its financial performance by foraying into film content distribution.

The company's main products-CDR/RW and DVDR/RW-are commodity products and their prices keep falling over time.

Though the company benefits from volume growth, the margins keep falling. It has already diversified in the photo voltaic cells business, which is expected to be a high growth market, and now it will take its optical media one step ahead in the value chain by adding content on it.

The domestic home entertainment market (mostly film VCDs and DVDs) is estimated at Rs 500 crore, which is quite small considering the population and appetite for entertainment. There are 26 million VCD/DVD players in the country, growing at 25 per cent.

The biggest hindrance for the growth has been the price-VCDs start at around Rs 35 and go up to Rs 200, while the average DVD is at about Rs 400.

Moser Baer will sell VCDs at around Rs 28, and DVDs for Rs 34. Pirated products are easily available across the country, but they are mainly on VCD and are of dubious quality. If good quality DVDs are available at Rs 34, there is little reason to doubt the Moser Baer management, which expects the market to grow rapidly.

Sure, a large number of these movies will be from the catalogue (not the recent launches but older movies), but there can be good demand for those too at a reasonable price.

Moser Baer will acquire rights to over 7,000 movies and it plans to invest Rs 500 crore in this business over the next few years, which it will finance through internal accruals, says the management.

The company can price its products lower because of proprietary technology. The physical infrastructure to copy content on a large scale is already in place. It already reaches the audio and video software store, which sell its blank CDs and DVDs, so distribution won't be a problem either.

For film right owners, it makes sense to licence rights to Moser as the market will expand dramatically. It also plans to set up 300 own stores. On Thursday, the stock shot up 12 per cent to Rs 300, and now trades at 21-22 times estimated FY07 earnings, thanks to the excitement about the new business.

Marico: Cairo calling

Marico is expanding its presence in Egypt and neighbouring markets. In its latest move, Marico has entered into a strategic alliance with the Cairo-based Pyramids group for their hair care brand HairCode.

Marico has not disclosed the monetary value for entering into this alliance, but it will make direct investment in a company with manufacturing facilities in Egypt.

In late Q2 FY07, Marico had also purchased Egypt-based Ready Group's Fiancee brand, which was its fifth purchase over the previous 18 months, and its first international foray.

The Egyptian hair care market is valued at Rs 170 crore and with the two recent moves taken by Marico in that country, it will control nearly half the market. Marico had derived 11 per cent of its consolidated turnover of Rs 377.98 crore in the September 2006 quarter from international operations.

Meanwhile, in the September 2006 quarter, the company has grown its consolidated operating profit by an impressive 100 per cent y-o-y to Rs 60.5 crore compared with 37.6 per cent growth in net sales to Rs 377.98 crore. Operating profit margin also grew 500 basis points y-o-y to 16 per cent in the last quarter.

The company's growth in the last quarter was led by Parachute, where volume growth in rigid packs was 13 per cent, while Saffola's volumes increased by 20 per cent.

Investors, however, have become cautious about the FMCG sector's ability to protect margins and it has resulted in the Marico stock underperforming the market "" it has gained 6.8 per cent compared with 9 per cent rise in the Sensex.

Going forward, with growth in the domestic FMCG market showing no signs of slowing, it should provide the necessary stimulus to Marico.

However, with the stock trading at 22 times estimated FY07 earnings (excluding the latest alliance in Egypt), it leaves little room for further appreciation.