Opto Circuits (India) Ltd. - GEPL Capital

Q3FY12 – Impressive growth in top line; but high tax outgo and interest pull down margins

- Opto Circuits (India) Ltd. (Opto) reported a 46% Y-o-Y growth in top line at Rs.6,113 mn in Q3FY12 against Rs.4,177 mn in Q3FY11 led by a robust 38% growth in Interventional Devices and Tools. Although top line was better than street estimates, it was lower than the 60% plus growth reported for the past 4 quarters. This could be attributed to a high base.

- EBITDA showed a 39% Y-o-Y increase to Rs.1,710 mn in Q3FY12 against Rs.1,229 mn in Q3FY11. EBITDA margin was lower by 143bps at 28% in Q3FY12 against 29% in Q3FY11. This was due to a 41% increase in Manufacturing Expenses and a 167% increase in Admin & Marketing Expenses.

- Net profit at Rs.1,251 mn was 31% higher on Y-o-Y basis. However, net profit margin dipped 245bps to 20.5% in Q3FY12 against 22.9% in Q3FY11. This was due to higher interest at Rs.168 mn in Q3FY12 against Rs.88 mn in Q3FY11. Other income was -ve Rs.42 mn vs Rs.105 mn in Q3FY11.

Result Highlights

EBITDA margin suppressed due to high admin & marketing expenses

Opto reported EBITDA margin of 28% in Q3FY12 against 29.4% in Q3FY11, a decline of 143bps. This is mainly due to a whopping 167% rise in admin & marketing expenses. However, this can be attributed to expenses related to trade shows and conferences during the quarter. H2 of every fiscal year is expected to be heavy on admin & marketing expenses due to these reasons.

High interest and tax outgo and negative other income bring down net margin

During the quarter, Opto reported negative other income of Rs.42 mn against a positive other income of Rs.105 mn in Q3FY11. Most of this other income is attributed to forex losses suffered during the quarter. Tax outgo at Rs.109 mn was more than 3 times on a Q-o-Q basis. Interest cost at Rs.168 mn was 90% higher on a Y-o-Y basis. Interest cost has been rising continuously for the past 8 quarters due to a spate of acquisitions. With no acquisitions in sight currently, we expect interest cost to come down in the next couple of quarters.

Addition of Airbus to vendor list expected to open up huge opportunity going forward

Opto's subsidiary, Cardiac Science (CSC), has partnered with Germany-based Innovint Aircraft Interior GmbH to distribute CSC AEDs on aircraft worldwide. Its Powerheart AED was included in the global Airbus Buyer Furnished Equipment catalog. This opens up a potentially huge opportunity for CSC to fit a Powerheart AED in each of Airbus's planes.

Valuation & Viewpoint

At the CMP of Rs.261, Opto Circuits is trading at 10.59x and 8.64x its consensus FY12E and FY13E earnings estimates. Although it has no comparable listed peer in India, Opto is cheaper on valuations compared to its global peers; viz., Medtronics, Boston Scientific and Johnson & Johnson.

Source : Equity Bulls

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