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You are here : IndiaNotes >> Research & Analysis >> Companies >> Opto Circuits India Ltd. >> Research

Opto Circuits: Strong quarter, sustainable growth ahead

Reliance Securities | 17 Aug, 2012  | Follow Author | Add to my Favourites 

Key highlights of the result

- Impressive quarter: Opto Circuits delivered a robust top-line growth (up 37.3% YoY) in Q1FY13 buoyed by the non-invasive segment (up 38.2% YoY) and partially aided by rupee depreciation. Recent acquisitions i.e. Cardiac Science and Unetixs (in the non-invasive segment) grew by a healthy 48% YoY, thereby contributing heavily to the top-line. Excluding the currency benefit, the top-line grew by strong 20% YoY, which Reliance Securities believes is encouraging and sustainable.

- OPM expands, PAT restricted by higher tax: Strong top-line growth led the OPM to expand by 450bp QoQ (OPM contracted 90bp on a YoY basis) to 26.6% in Q1FY13. Expensing the R&D costs led the gross margins to shrink by 260bp YoY. Despite higher tax rate (one time advance tax payment for Malaysian facility) the Net Profit grew by 18.6% YoY, ahead of Reliance Securities' estimates.

- Guidance: For FY13E, top-line – to increase by 15-20% (on constant currency basis in US$ terms); operating margins – to remain in the range of 25-29%; tax rate – to remain in the range of 8-10%; capex – US$40mn and R&D expense – US$15-17mn. Management has also guided to turn free cash positive in FY2013E.

Stock Valuation and Recommendation
Opto has delivered strong performance in Q1FY13. Reliance Securities believes the management is adopting prudent measures to cut the flab from its balance sheet. They highlight that: (1) Expensing the R&D costs is a good practice, thereby, providing true picture of the operating performance. (2) Setting up of manufacturing facility in the 10 year tax free zone of Malaysia (Just in Time (JIT) supply benefit). The JIT benefit will help reduce the working capital cycle to a more acceptable level. (3) Cardiac Science developments further enhance our confidence in the management’s ability to identify right assets / product portfolios and bring them in their basket.

The management aims at annual revenue of US$1bn by FY15 and a top-line growth guidance of 20-25% CAGR over the next few years. Though the FY15 target looks tough organically, in Reliance Securities' view, the future growth is likely to be driven by the non-invasive segment owing to favorable market dynamics, diversified product offerings, high penetration and low base. Ramp up at new facilities of Vizag, Hassan and Malaysia would provide further impetus to margin improvement going ahead. They like Opto’s niche business model with high margins, strong capital efficiency and high entry barriers. Thus, they maintain their Buy recommendation on Opto with a target price of Rs189.

Risks to the view
- High working capital cycle could impact future cash flows
- Delay in Uquifa integration could impact revenues

  Read full report Click here to read the full report

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About Reliance Securities

Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses. Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.


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