CDR prices to remain stable in short-term

IRIS

Worries of further pressure on CDR (compact disc-readable) prices has seen

investors shying away from the Moser Baer counter over the last few months.

This, even as the management has forecast a 24-27 per cent growth in net profits

for the current fiscal, after considering the competitive scenario.

Moser Baer chief financial officer, Rakesh Govil, feels that CDR prices have

bottomed out during the current quarter and are expected to remain stable in the

medium-term.

In an interview, Govil says that Moser Baer expects to capture about 10-15

per cent of the digital versatile disk recordable (DVDR) market in the current

fiscal.

What is the company’s outlook on CDR prices during the current fiscal? Do

you foresee further pressure, especially with Taiwanese producers reported to

have gotten more aggressive of late?



The last two quarters were difficult for the industry due to multiple
factors, which resulted in price undercutting, inventory buildup and intense

competition. This was mainly triggered by the events of September 11 and the

subsequent temporary reduction in demand especially from the US markets.

The resultant, a poor off-take, created excess inventory in both the channels

and manufacturers. This excess inventory has since been depleted and channels

are now rebuilding their stocks. Prices bottomed out during the Q1 CY02 review

and are expected to remain stable in the short-term. In fact, the Taiwanese have

recently announced an increase in CDR prices.

Where do you see the main threats for your business in the medium-term coming

from, and how well equipped is MDL to tackle these threats?



The main threat could be the Taiwanese moving into China to reduce their
cost of production. However, though this has been under active consideration for

the past 18 months not much progress has been made and we do not expect any

significant capacity to come up in the near term (maybe four to five per cent of

the global market by the end of 2002).

Also, since China itself is a large market, most of this capacity will serve

China’s domestic market and will not impact the global market in terms of

pricing.

Following lowering of tariff protection in the Union budget, will there be

any significant impact on selling prices in the domestic market?



The lowering of duties in the budget has had an impact on selling prices in
the domestic market, though not significant. We still continue to have more than

a competitive edge vis-a-vis imported products.

We believe 80 per cent of your sales come from the export markets. Could you

give us an overview of the domestic operations and also the prevailing scenario

over here?



The domestic market contributes about 15 per cent to our revenues. We are
the only Indian manufacturers of these products and are also the sole licensees

for the EMTEC (formerly BASF) brand in the domestic market.

Domestic market is a significant and fast-growing market for us (especially

for CDR) and we derive better margins in the domestic market. Also, we have an

extensive distribution set up. We expect to leverage this on the back of our

understanding of the local market.

How much of an impact on the net profits do you see as a result of 10 per

cent of export profits being taxed in the current fiscal?



As we have a large capex for the current year, we may not be hit by this
amendment to the Income Tax Act.

MDL’s major strength lies in the low-speed disc segment. Are there any

plans to move into the high-speed segment? What are the opportunities and

constraints?



That is not correct. We were one of the few companies to commence shipment
of 40X write media. We are currently shipping 48X write media, again being among

the few companies to do so.

What is your outlook on the digital versatile disk recordable (DVDR) market?

What will be DVDRs’ contribution to sales during the current fiscal?



In line with the industry expectations, we expect a large volume growth in
DVDRs due to robust drive sales on the back of falling drive prices. DVDR demand

is expected to increase significantly over the next two years, providing

opportunities to Moser Baer to increase both market share and earnings. We

expect to capture about 10-15 per cent of the DVDR market in the current fiscal.

Is the company planning any aggressive forays into newer markets?



We are not foraying into new markets as we are already supplying to all the
main markets. However, we are pushing sales in the US markets and hope to

increase our market share in that market, at the same time reducing the risks of

being dependent on other markets like Europe.

Source:myiris.com