Moser Baer Has All But Shut Down
Image: Amit Verma
atul Puri, 39, is a charismatic young man. It is impossible not to like him. He is polite to a fault, coolly analytical—a computer engineering degree from Carnegie Mellon helps, no doubt—almost always impeccably dressed in a business suit and smokes Marlboro Lights. He has no hobbies and is a workaholic. No wonder then, that he is usually in office by 10 am and is often the last to leave. If you are an investor you would want someone like Puri to be at the helm of affairs.
Akhil Gupta, senior managing partner and chairman of the Indian arm of Blackstone, one of the world’s largest private equity firms, believes that Puri is one of the best entrepreneurs he has met. Gupta invested $300 million (about Rs 1,650 crore) in a company Puri founded: Moser Baser Projects Private Ltd. This company is an independent power producer and an energy company. “Ratul has reached every milestone before time,” says Gupta, pausing to deliver one of the highest praises an Indian entrepreneur can hope to get, “He reminds me of a young Mukesh Ambani.”
That’s Gupta. Now let’s talk about another investor, Rajesh Khanna. Khanna was the managing director of Warburg Pincus, another blue-blooded private equity firm, who invested heavily in Moser Baer India Ltd, the magnetic storage and solar panel manufacturing company. This is a company where Puri has been a key decision maker. He became the executive director in 2001. While Khanna did not talk to Forbes India for this story, his actions spoke quite clearly.
Warburg Pincus recently sold a major portion of its stake in Moser Baer, taking a substantial haircut on its original investment. It is estimated that the fund invested almost $220 million (Rs 1,210 crore) in the company. It sold about 24.5 percent of its stake in an off-market transaction to a Seychelles-based entity called Global Town Investment for about $11 million (Rs 61 crore). And then in June, Rajesh Khanna resigned from Moser Baer’s board. Investing in Moser Baer is possibly one of the worst investment decisions that Khanna must have made at Warburg Pincus.
Moser Baer India Ltd, the listed entity, is down for the count. Its sales have stagnated and its cash reserves are totally depleted. Its market capitalisation is merely 5 percent of what it was five years ago. It is unable to service its massive domestic debt. Moser’s cash flow is about Rs 241 crore. And its debt is a towering Rs 3,267 crore as of March 2011. “Either the cash flows or the value of the assets should support the debt. But in Moser Baer’s case both are not adequate,” says a board member of Moser Baer. He requested not to be named.
The company also has foreign debt. Foreign Currency Convertible Bonds (FCCB) issued by the company in 2007 are up for repayment but it doesn’t have the money to redeem them. FCCBs worth $88.5 million (Rs 487 crore) are now being restructured with the help of lenders. Lenders like State Bank of Hyderabad and Central Bank of India have started a corporate debt restructuring programme.
Puri himself has little time for this company where Moser built its equity. “You know there was a time five years ago when Ratul would go wild if the plant was shut even for a few hours. Over the years [in the last three] that has changed to a situation when the plant is often shut down because there are no raw materials and he is fine with it,” says a former Moser Baer senior manager who did not want to be identified.
So, which one is the real Ratul Puri? Is he the phenomenal entrepreneur that Gupta makes him out to be, or a bad businessman who has destroyed capital and almost beggared his shareholders and lenders?
The easy answer is both, but it is also the wrong answer. Business isn’t sport. For entrepreneurs there is no recognition for making a hundred on a viciously turning track the way Sachin gets. If you are in a bad business, you are often portrayed as a bad entrepreneur. This is what happened to Ratul Puri. He is stuck with a business whose best days are behind it.
He is the first Indian entrepreneur of size to be tested and bested both by changes in technology as also the Chinese manufacturing juggernaut.