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Buy Opto Circuits; target of Rs 181: is bullish on Opto Circuits India and has recommended buy rating on the stock with a target of Rs 181 in its November 19, 2012 research report.

November 20, 2012 / 12:12 PM IST
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More is bullish on Opto Circuits India and has recommended buy rating on the stock with a target of Rs 181 in its November 19, 2012 research report.

“Opto Circuits’ Q2FY13 results were way below expectations. Revenues grew just 8% YoY to Rs 608 crore (I-direct estimate: Rs 712 crore) mainly due to postponement of certain shipments from the medical equipment segment. This segment (80% of revenues) saw a growth of just 5%. Interventional segment (19% of revenues), on the other hand, grew 23%. Net profit de-grew 4% to Rs 116 crore (I-direct estimate: Rs 132 crore) on account of higher depreciation, interest and tax provision. We maintain BUY with a reduced target price as the Crisil rating suspense and renewed fears of stretched working capital cycle will weigh on the stock.”

“The overall net working capital cycle worsened to 199 days for H1FY13 from 178 days in FY12 on account of increased debtor day cycle, which got stretched, to 160 days from 131 days as on FY12. According to the management, an unfavourable macroeconomic environment caused slippages in debtor days. The construction work at the Malaysian facility is almost finished and the erection of machines will be finished by December. Note that this facility will be at the core of the entire restructuring process that the company has envisaged. However, the shift of work from other facilities will take place gradually.”

“We expect sales, EBITDA and PAT to grow at a CAGR of 18%, 15% and 13% (adjusted net profit base for FY12), respectively, in FY12-14E. After showing improvement in back to back quarters (Q4 & Q1) the working capital cycle once again slipped, vindicating market fears that have weighed on the stock price for quite some time. On the bright side, new product launches in various geographies are expected to keep the growth momentum going. The shift of production to the confined three locations is expected to improve the operating leverage. However, this is likely to take some time. We have reduced our FY14E EPS to Rs 28.5 from Rs 25.9 on account of some revenue slippages and reduced the PE multiple by one notch to reflect concerns about WC cycle. We value the stock at Rs 181, 8x FY14E EPS of Rs 25.9 and maintain BUY rating with a lightweight bias,” says research report.   

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment

first published: Nov 20, 2012 12:01 pm

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