Buy Opto Circuits; target of Rs 308: Dolat Capital

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Buy Opto Circuits; target of Rs 308: Dolat Capital

Dolat Capital is bullish on Opto Circuits and has recommended buy rating on the stock with a target of Rs 308 in its November 16, 2011 research report.

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Dolat Capital is bullish on Opto Circuits and has recommended buy rating on the stock with a target of Rs 308 in its November 16, 2011 research report.

"Opto Circuits's 69.6% YoY revenue growth to Rs 5.62bn was primarily driven by the Cardiac Science Corp (CSC) acquisition (sales of Rs 1.6bn/USD 35mn). Excluding the CSC acquisition, Opto's revenue grew 21% YoY to Rs 4bn. The invasive segment saw a muted growth of 4.3% YoY to Rs 940mn. Wholly-owned subsidiaries (post reorganisation). Opto Cardiac Care Ltd. (OCCL) and Opto Eurocor Healthcare Ltd. (OEHL)- contributed 47% and 17% respectively. Operating margins declined by 440bps YoY and stood at 27.5% led by higher employee and S&D expenses on account of CSC acquisition. However, margin contraction was restricted to some extent by decline in manufacturing expenses. Interest outgo more than doubled to Rs 138mn. Gross debt increased to Rs 10.8bn as of September 2011 to fund OCCL's integration and expansion initiatives. Depreciation cost fell 4.8% YoY to Rs 109mn. Tax rate stood flat YoY at 2.7% (Q2 FY11: 2.9%). PAT grew 56.5% YoY to Rs 1.21bn during the quarter."

"CSC is well-equipped to leverage on the Japanese AED market, having signed an exclusive sales agreement with Omron Healthcare (Kyoto), Japan. CSC expects to corner around USD 4-5mn in FY12E. CSC's operational performance is expected to gradually improve with sales channel points being effectively utilised and a gradual shift of R&D and manufacturing operations to India and Malaysia. OEHL's planned IPO to raise Rs 8bn to see closure by end FY12E."

"We estimate 29% revenue CAGR and 19% earnings CAGR over FY11-13E. We expect CSC to showcase better operating efficiencies on the back of Opto's aggressive cost-cutting measures. However, rising overheads related to promotional activities and planned manpower addition at the Malaysian and Vishakhapattanam facilities will restrict margin expansion. Increased revenues from new product launches and entry into newer markets are key growth drivers. At CMP of Rs 224, the stock trades at 9.5x FY12E and 8x FY13E earnings. We recommend Buy with a revised target price of Rs 308 (11x FY13E EPS)," says Dolat Capital research report.

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To read the full report click on the attachment