>MOSER BAER INDIA: Some Recovery in PV Business But Is it Good Enough?

■ Maintain Sell — PV business showed a good recovery in Q4 with ~25MW of shipments. However, the scale of the business remains small with capacity less than 200MW. Optical media showed YoY growth after four quarters of decline but EBITDA margins at ~20% are way off peak levels of ~40%. Balance sheet remains stretched (D/E is estimated at ~2x) – growth is a challenge. Risks remain high; we await more financial details in the annual report.

■ SOTP-based valuation — Our updated SOTP ascribes a multiple of 1.0x Sep 11E EV/S for PV business (previously 1.8x) given the sharp fall in global comps, 1.0x Sep 11E EV/S for home entertainment (unchanged) and 0.75x Sep 11E EV/Capital Employed for optical media (previously 0.7x). Our new target is Rs65.

■ PV business plans lowered — Revenues were ~Rs5b in FY10 (up ~70% YoY but significantly below our estimates). Management expects to emerge EBITDA positive by end-FY11. Company plans to add ~100MW Silicon capacity in FY11, which is much lower than what was envisaged earlier. We believe risks are high, as the business is small and has significant technology /execution risks.

■ Optical media stable; Home entertainment still small — In optical media, volumes were flat while ASPs declined ~5% in FY10. Management expects prices to remain stable in the short term. Home entertainment revenues are still small – less than 10% of standalone. We expect modest improvement in optical media in the coming years on the back of changing mix towards higher priced new formats.

■ Upside risks to our stock call — (1) Successful equity raising in the PV business. (2) Sharp ramp-up in PV margins. (3) Better performance in optical media than factored in our estimates. (4) Increase in crude prices which improve alternate energy viability and drive more funding towards the same.

■ Transfer of coverage — We are also transferring coverage of Moser Baer to Vishal Agarwal from Surendra Goyal, due to reallocation of coverage resources.

To read the full report: MOSER BAER