Lower production impacted sales growth in Q3: Moser Baer

Moser Baer has reported a net loss of Rs 115.7 crore for the quarter ended December 2010 as against profit of Rs 3.2 crore in same quarter the previous year. It is net sales declined to Rs 435.5 crore from Rs 539.7 crore (YoY).

In an interview with CNBC-TV18, Yogesh Mathur, Group CFO, Moser Baer India, speaks about the results and gives his outlook going forward. Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: Why the numbers have disappointed? A: We have had a quarter in which cost profile has been difficult and also we have had lower production. We have actually seen fairly strong traction in the Blu-Ray market. Therefore, we have been working to convert more of our disc capacity to Blu-Ray. As a result, there has been some disruption in production and we have under sold in this quarter. The good news is that Blu-Ray is moving positively. Number two is commodity cost has been significantly increased during the quarter. That covers both plastic base raw material that form a large part of our products as well as silver and other commodities and all of these costs have certainly not been passed on in terms of pricing. We are still working on that aspect. As a result, the results for the quarter have been affected. Earnings before interest, taxes, depreciation and amortization (EBITDA) margins are down. We have also taken a one time write-off of a intangible asset. But the main impact in terms of cash flows and cost because of commodities and because of some impact on production and therefore sales. The good news is that in the PV business, we had yet another quarter of steady sales and good traction from the market. We have built a five megawatt farm which is the largest farm in the country. We have built the first of its kind, domestic manufacturing of junction boxes for the PV business which is going to be an important component going forward. We have also done some work on technology which is going to stand us good in the future the quarter as a whole. The immediate outlook being that we need to work on further measures that we are working on reducing our cost and on getting our Blu-Ray volumes up because the market looks good for Blu-Ray going forward. Q: The concern would also be on how much you can improve your margin profile to, it has got crunched down to 6% in this quarter, what do you think it can recover to over there? Do you expect it to plateau out? A: The underlying operating margin of the optical business was around about 13% mark at the EBITDA level, both in the last quarter and in this quarter. It is the variation that has taken place on account of exchange and the one time charges that has actually caused the margin to be further depressed. Despite these changes, the operating position of the underlying business has actually remained in the same place, improved. That is on account of the factors that I just described. Looking forward, I think the key drivers will be combination of easing of this cost as well as liability to pass them on, number one. Number two completion of the conversion exercise to Blu-Ray. Therefore, increase in Blu-Ray and better margins from Blu-ray which is still significantly higher in terms of margins. Number three, basically, the recovery of production volumes of disc and the CD and DVDs. So, the three factors that we see will make a difference. In the immediate further looking forward it is basically for the optical media business is still about Blu-Ray and then of course separately looking at the potential of the new technology as we look forward into some what more strategic distance the new technology on whole. Q: Your interest cost has also gone up that is Rs 50 crore a quarter now that is quite high and your cash flow also seems to have impacted this quarter because of some payment to technology partners etc. Can you take us through what you tend to do on this fronts? A: Interest cost, the average interest rate, has been kept up a little bit in this quarter. And on top of that because of the relative short-term cash flow position we have maintained debt levels. So, overall interest cost has gone up. We also paid out a one time payment which is an accumulation of what is due as per contract and the cash payout went out as a one time amount which results in a higher level of short-term borrowing. Looking forward, we see depletion in inventory as our sales pick up, so, both raw material as well as inventory coming down. Therefore, ability to reduce our interest. We also see as the margins come back incremental cash flow will continue to pay down our debt. Essentially there will not be a negative profile from increase capex because going forward there is almost no capex in Moser Baer India Limited.