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Opto Circuits: Business as usual - Views on News from Equitymaster

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Opto Circuits: Business as usual

Feb 2, 2010

Performance summary
  • Consolidated topline grows by 22% YoY during the quarter.
  • Operating profits grow 45% YoY as margins expand by 4.4%.
  • Higher depreciation and tax charges take some sheen away from the robust operating performance as bottomline grows by 25% YoY during the quarter.
  • Bottomline for the nine month period registers a growth of 24% YoY on the back of a 23% growth in topline.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 2,110 2,570 21.8% 6,054 7,431 22.7%
Expenditure 1,501 1,689 12.5% 4,196 4,872 16.1%
Operating profit (EBDITA) 609 881 44.7% 1,858 2,559 37.7%
EBDITA margin (%) 28.9% 34.3%   30.7% 34.4%  
Other income 96 (61)   152 (53) -135.0%
Interest (net) 147 72 -50.8% 381 311 -18.5%
Depreciation 27 65 141.6% 65 179 175.5%
Profit before tax 531 683 28.5% 1,564 2,016 28.9%
Extraordinary income/(expense) (0) (0)   (5) (1)  
Tax 5 25 415.5% 15 95 521.4%
Profit after tax/(loss) 526 658 24.9% 1,543 1,920 24.4%
Net profit margin (%) 24.9% 25.6%   25.5% 25.8%  
Net profit/(loss) after minority interest 526 657 24.8% 1,543 1,918 24.3%
No. of shares (m) 160.1 182.9   160.1 182.9  
Diluted earnings per share (Rs)*         13.5  
Price to earnings ratio (x)**         16.1  
* on trailing twelve months earnings

What has driven performance in 3QFY10?
  • While the consolidated topline of Opto Circuits grew by 22% YoY during the quarter, growth in standalone topline came in at a slightly higher rate of 24% YoY, thus pointing towards the fact that its international operations grew at a slightly lower rate. Also, its non invasive business grew at a faster rate than the invasive business, accounting for 81% of the consolidated revenues during the quarter as opposed to 74% during the same quarter last year.

  • During the quarter, the company introduced five next generation products, three in the non-invasive category and two in the invasive category. In another important development, the company also opened up its proprietary technologies for OEM partnerships, thus ensuring an additional stream of revenue going forward. The company is firmly on track towards meeting our FY10 full year topline estimates. Infact, it could well surpass them given the new launches that it has up its sleeve.

  • On the margins front, courtesy a low raw material price environment and lower advertising and marketing expenses, operating margins have seen a strong boost of 4.4%. This has enabled the operating profits to grow at 45%, significantly higher than the topline growth of 22%. On a sequential basis however, margins are lower by 1.2%.

    Cost break-up…
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Raw materials 1,223 1,433 17.2% 3,415 4,114 20.5%
    % sales 58.0% 55.7%   56.4% 55.4%  
    Staff cost 101 132 30.0% 279 382 36.9%
    % sales 4.8% 5.1%   4.6% 5.1%  
    Other expenditure 177 124 -29.7% 501 376 -25.0%
    % sales 8.4% 4.8%   8.3% 5.1%  

  • Opto Circuits had recently raised Rs 4 bn by way of a QIP (Qualified Institutional Placement) and since a part of the proceeds from the same was used to repay debt, interest expenses fell by 51% during the quarter. However, with other income turning negative and depreciation charges mounting significantly, quarterly PBT growth stood at 29% YoY, quite lower than the EBITDA growth of 45% YoY.

  • Furthermore, with tax outgo also increasing fivefold, net profits have grown at a lower rate than PBT but still a respectable 25% YoY.

What to expect?
At the current price of Rs 217, the stock trades at an earnings multiple of 12 times our estimated FY11 consolidated earnings per share. While the stock has already breached our target price, we maintain a ‘Hold’ view on it. This is given the virtually recession proof nature of the business and the company’s ability to come up with products that help sustain strong growth in revenues and profitability. Furthermore, even the valuations are pretty reasonable right now from a medium term perspective.

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