Moser Baer: Surprising spin-up

Share price has whirled northwards after the conference call with analysts

The Moser Baer scrip has jumped 29 per cent in the last six trading sessions, which is intriguing, especially after the heavy bout of selling earlier in the month owing to a fall in CD prices.

CD prices have fallen some 10 per cent in the first quarter of the current year, and this had led to a 35 per cent fall in the Moser Baer stock price since mid-January.

What seems to have done wonders for the Moser Baer stock is the conference call the company held early last week for analysts to discuss the fall in CD prices.

To say the least, fears that the fall in retail prices would impact Moser Baer severely were allayed by the management. The company said that the fall in prices was because of lower than estimated Christmas sales, which led to an inventory build-up.

This, being temporary in nature, will soon be resolves. Also, CD-drives are estimated to grow 30 per cent in CY04, while the company expects sales of CDs to grow at a lower rate of 15-25 per cent.

As a result, the excess inventory would get realigned. What's more, the company expects EBITDA margins for the CD segment to move within a five percentage point band compared to the current margin of 35-36 per cent.

On the DVD front, it expects demand to grow almost three times in CY04 compared to CY03. So far, DVD prices have been much more stable compared to CDs.

But analysts point out that major players in the segment like CMC Magnetics and Ritek are expanding capacity at a fast pace, which could lead to a supply glut and a fall in prices by the second half of this year.

With Moser Baer's fortunes largely dependent on retail prices of CDs and DVDs, it's not surprising that the stock still gets a single-digit PE.

With contributions from Mobis Philipose