>OPTO CIRCUITS: Non-invasive business drives revenue growth on the back of CSC acquisition

Opto Circuits' 3QFY11 results were above our estimates. Key highlights of the results:


■ Opto Circuits' revenue grew 46% YoY to INR6.1b (v/s est of INR5.8b), EBITDA grew 39% YoY to INR1.7b (v/s est of INR1.6b) while EBITDA margins contracted by 140bp to 28% (v/s est of 27%). Adjusted PAT grew 30% YoY to INR1.25b (v/s est INR980m) led by better operational performance.


■ Topline growth was led primarily by acquisition of CSC. Ex-CSC, OPTC's topline is estimated to have grown 25% YoY led by non-invasive segment which is estimated to have reported growth of 27%. Invasive business reported healthy revenue growth of 24.5% YoY.


■ EBITDA growth was 39% YoY to INR1.7b (v/s est. of INR1.57b) while EBITDA margins contracted by 140bp to 28%. EBITDA growth was muted compared to topline growth because of higher staff cost and other expenses related to CSC acquisition.


■ Adjusted PAT recorded 30% YoY growth to INR1.25b (v/s est INR980m), in line with strong operational performance but tempered down by higher interest cost and forex losses.


OPTC has delivered strong revenue and earnings growth over the last few years. It has consistently maintained its high return ratios. Despite rapid growth, the company still remains a marginal player in the global medical devices industry, which gives OPTC the opportunity to sustain its high revenue growth rate for the next couple of years. However, large accumulated goodwill in the books on account of past acquisitions, increasing working capital requirements thereby rapidly rising debt and very low free cash flow generation remain our major concerns.
Further, the company is planning to raise money through equity dilution in one of its subsidiaries, which may lead to sizable EPS dilution going forward. Based on our revised EPS estimates, the stock trades at 10.6x FY12E and 8.4x FY13E EPS. We maintain Neutral with target price of INR249 (8x FY13E EPS).


To read the full report: OPTO CIRCUITS
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