Moser Baer's Deepak Puri: He kept the faith and never looked back

Unlikely. That's the word that comes to mind as Ratul Puri says: "I have never been more excited." One isn't questioning Puri's reasons or right to be excited. He is the executive director of Moser Baer India, the world's third largest manufacturer of magnetic recordable media (micro floppy disks) and optical recordable media (compact disks, data media, and audio storage products). Moser Baer's is an unqualified success story: the company's net sales grew from Rs 333.9 crore in 2000-01 to Rs 1,069.5 crore last year. In the same period, net profit grew from Rs 138.5 crore to Rs 245.3 crore. Adding to Puri's excitement is his belief that the global market for recordable dvds will grow from less than Rs 100 crore last year to a whopping Rs 15,000 crore in two years.

The unlikely bit comes from two things. First, in theory, Puri fits the description of a corporate brat: 31 now, he studied in the United States and worked there for a year before gaining a smooth entry into the company, founded by his father, when he was just 18. In reality, he is far from it. Even as he likes to intersperse puffs of Marlboro Lights with sips of tea at meetings, he comes across as dedicated and hard working and is always quick to play down his role in the company. Puri, who assembled a computer all by himself at the age of 12 with components bought in Hong Kong, leaves his mobile phone lying on his desk for hours, but seldom misses escorting his guests to the exit door two floors below his office.

Second, the story of Moser Baer is anything but likely. A couple of years ago, few would have found it plausible.

Stranger Than Fiction

Ratul's father, Deepak, soon after he had founded the company in 1983, happened to have a chance encounter at a cocktail party on the west coast of the United States. A bunch of would-be entrepreneurs were waxing eloquent about their new product called the five-and-a-half inch floppy disk, which they claimed would revolutionise the world. Their company, Xidex, later became a billion-dollar corporation.

A few years earlier, like many other businessmen forced out by the labour unrest in West Bengal, Puri had moved to Delhi from Kolkata, where he ran an aluminium conductors and cables business.

Once in Delhi, he wanted to try his hand at something new. Floppy disks appeared to be just the right idea and he opened the first facility in 1987-88. MBI kept iterating its faith in manufacturing even as most others began to believe that India wasn't the right place for such a capital and labour intensive activity.

In 2000, as the rest of the country was trying to ride the services boom, MBI drew up a Rs 1,100-crore expansion plan. The execution started in September 2001 and the expanded capacity-1 million units a year spread over 1.5 million square feet of manufacturing space with a 45 mw captive power plant thrown in-was commissioned merely six months later at a cost that turned out to be about Rs 200 crore lower than envisaged.

MBI is counting on this fresh capacity to propel itself forward as the DVD market explodes. The success so far has come in spite of a relative paucity of capital and, consequently, technology. (Back in the early and mid-1990s, not many believed that the company had a future.) As a result, it lost out somewhat on the recordable CD boom. It came into the market in the late 1990s, much after the Taiwanese manufacturers-the two biggest players in the industry are based in Taiwan-did.

"We were late in the CD-R market. We succeeded only because we played the cost game better than the others," says the younger Puri. No amount of cost management could however compensate for the delay because, typically, 60 per cent of the earnings of a product of this nature is captured in the first three years of its life cycle. The fresh capacity commissioned last year will make sure that MBI does not miss out on the coming DVD boom. Insiders are confident that it will grow at 30-35 per cent a year.

And Some Facts

To be sure, it won't be easy. The changing global trade scenario has already dragged Moser Baer into five anti-dumping cases initiated by the European Commission. The latest was a proposal in mid-May this year to impose a 7.3 per cent countervailing duty on imports of CD-Rs originating in India.

Fortunately for the company, it has emerged victorious in all anti-dumping cases so far. In any case, global trade skirmishes are something a company like Moser Baer will have to accept as a fact of life, given that its customers can be found across 82 countries in six continents-it earns 80 per cent of its revenues from the overseas market.

Second, the company has to be careful with where its capex is going. It can't make too much product-specific investments. The life cycle of most storage media formats peters out after 10 years or so. "Technology obsolescence is an issue with data storage products," says a Mumbai-based analyst. The competition from Taiwan remains intense. The country houses 80 per cent of the world's CD capacity.

"Technology keeps changing but there is only one big mass market format at a time, sometimes two," says MBI's Head (Corporate Strategy) and Treasurer Rakesh Govil.
Besides, some formats attract a sizeable demand even late in their life cycles. The 3.5-inch floppy disk is 15 years into its life cycle and will never regain its peak global market of 4 billion units a year. But it still commands a market of 1.2 to 2 billion units annually. Why, even recordable music tapes-with C-60 or C-90 written on them-still sell, although the technology became obsolete years ago. In any case, Govil points out, a lot of Moser Baer's capital expenditure has gone into facilities common to different formats. A large portion of its CD-R capacity is fungible with DVD-R.

The other challenge is to consolidate in the domestic market, which accounts for merely 20 per cent of sales and where MBI has just launched its own eponymous brand.

The challenges pale when one looks at the fact that the company enjoys a solid backing from its strategic equity investors: International Finance Corporation, Warburg Pincus, and JF Electra. The domestic market is already proving to be a cakewalk. Three months after the launch of its own brand, Moser Baer has already exceeded its first year target of a 10 per cent share of the market.

In any case, with a 25 per cent return on capital employed against a less than 15 per cent weighted average cost of capital, Moser Baer's future success is unlikely to bring the word unlikely to the mind any more.