According to reports, for Moser Baer, the solar-equipment business was meant for keeps. Six years ago, frustrated by businesses in which it capitalised and then capitulated to technology shifts-floppy disks, CDs, DVDs, blu-ray disks and USB drives-the company entered solar, warmed by its promise of stability, growth and profitability.
Today, profitability is a mirage, and it is threatening stability and growth, and pushing Moser Baer back to that every state it strived to escape from: a periodic existential crisis.
For the fifth year running, the Moser Baer has posted losses. Both its subsidiaries in the solar-equipment business are unable to generate cash flows to pay off their Rs 1,800 crore debt, and are currently in talks with their lenders for a breather.
It is also in talks with banks to refinance $88.5 million of foreign-currency convertible bonds (FCCBs) that mature in June and are unlikely to be converted by bondholders as the company’s stock has fallen 78% in the past year and is quoting 97% below the conversion price.
The one business that Ratul Puri, the 39-yearold Moser Baer scion, had pinned his company’s future and his reputation on is at a crossroads. This time, though, it’s not technology that decided to move on. It’s China that decided to move in-in its typical way.
The Chinese government handed out cash, land and power on easy terms to private manufacturers of solar equipment, which enabled them to drive down prices by 35-40% in three years and drive out other players. “I can’t fight the Chinese government,” says Puri, executive director of the Rs 3,000 crore Moser Baer, which, in 2011-12, derived about 30% of its revenues from the solar-equipment business.
Today, according to Puri, Moser Baer is operating at 40% of its capacity in the solar-equipment business. Even as the Chinese onslaught continues, even as the economics for Indian manufacturers remains unviable, even as bankers rework Moser’s debt, Puri sees a ray of hope.
“Current challenges are short lived,” he says, adding that Chinese subsidies will have to be pulled back at some point, and that will happen sooner rather than later.
Moser, he adds, is also working on a Plan B.
The company is looking to upgrade from the mass market to the high-end market. So, it wants to make solar panels that, compared to the standard ones, generate 40% more power and are capable of generating power even in dimmer sunlight.
The backbone of this idea is, yet again, that one factor that has been integral to Moser’s roller-coaster ride: technology. And, as in the past, it’s not going to be easy for Moser.
“It is theoretically possible to bet on a high-efficiency panel,” says Seshan Balakrishnan, director, infrastructure, Ernst & Young. “You go the way you intend and things can change.” Adds another consultant who did not want to be named: “If the Chinese have entered the mass market, it won’t take them long to retool.”
Mass Market To high End
A McKinsey report released earlier this year titled ‘Solar Power: Darkest Before Dawn’ has a section for solar-equipment manufacturers on ‘how to win’. It says scale will be crucial, for which companies will need strong balance sheets.
The report adds that manufacturers can also differentiate themselves by developing proprietary technologies, adopting lean production methods and low-cost approaches to manufacturing, originally developed for LCDs and computer chips.
At present, with a mountain of liabilities to meet, Moser Baer is not increasing capacity. Instead, it is re-designating its existing capacity for photovoltaic (PV) cells, which are the heart of a solar panel, at its plant in Greater Noida.
At present, the entire 215 MW comprises cells that cater to the mass market. These are of two kinds: crystalline silicon and thin film. These have an efficiency-ability to convert sunlight into electricity-of 15% and 12%, respectively.
The new plan is to upgrade this 215 MW mass-market capacity to 300 MW of cells that target the high-end market. This is expected to happen by the end of the year; the next goal is to scale to 500 MW.
The high-end cells are called MIST or (metals and intrinsic layer semiconductor technology) cells, and have a higher efficiency, of 21%.
Due to their greater efficiency, compared to crystaline cells, MIST cells reduce the land requirement for a solar plant by 30%. They can also feed off the sun’s rays around sunrise and sunset, unlike normal cells, which tend to work best only in peak sunlight. “That’s a 15% incremental output,” claims Puri.
MIST is a decade-old technology that Moser Baer obtained in 2006 when it bought a Philips subsidiary, OM&T, in Netherlands. Puri says the basic patents of MIST technology expired a few years ago, but Moser Baer holds 25 patents in the area of applications like rooftop installations. “MIST is about 8% of the total demand at present,” says Puri. “In about five years, it will be 25-30%.”
Puri says Chinese players can’t keep selling at current prices as they are losing money heavily. He cites the precedent of LCDs and rareearth minerals, where too Chinese companies backed by their government built huge capacities, flooded the market and killed players globally, before prices started rising again.
“The future is solar and I’m not getting out of it,” insists Puri. “We can be competitive in solar manufacturing.”
According to Balakrishnan of E&Y, in order to be competitive in solar equipment, manufacturers will have to deal with technology risk. “Manufacturing technologies like in thermal power are mature-boiler and steam generation efficiencies can improve only incrementally, which won’t change the level-playing field,” he says.
“In solar, technology is nascent as can be seen from the venture money flowing into solar. It’s more susceptible to change.”
Even as Moser Baer trades up, the standard cells are becoming better: their efficiency ranges from 15-20%, against 13-17% three years ago.
“We already have efficiencies climb to 20% for conventional cells; in three years, this will be 21%,” says Charlie Gay, president, applied solar, Applied Materials, which makes capital equipment for the solar industry. “Globally, companies spend about $5 billion on solar R&D and the focus is to get more out of the cells.”
James Abraham of Sunborne Energy has seen it from the other side. His company set up 18 MW of solar-power capacity in 2011, using imported panels as they were cheaper. “In solar, technology is widely available. You need scale to survive,” says Abraham, MD & CEO.
“Companies in India built plants, but the Chinese built 10 times bigger and that created a problem. Technology cannot completely insulate you from such competition.”
Banks overseeing the debt restructuring will play a part in determining whether Moser can turn in the direction it wants to and at the speed it wants to. “(Shifting to) the MIST technology involves only incremental capital expenditure, on which bank funding is envisaged,” says Yogesh Mathur, group CFO, Moser Baer India. “We expect to close the requisite funding with the support of key stakeholders.”
Adds a banker involved in Moser’s debt restructuring, not wanting to be named: “Through innovation, launch of new products and some handholding, we expect the company to turn around.”
Balakrishnan, however, feels there could be funding challenges for solar-equipment manufacturers in general, especially from banks. “Banks worry as there’s not enough precedence of solar farms running their full life cycles (25-30 years),” he says. “It’s lot of crystal-ball gazing in solar.”