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Opto Circuits: Taxes take some sheen away - Views on News from Equitymaster
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Opto Circuits: Taxes take some sheen away
May 24, 2010

Opto Circuits Limited has announced its FY10 results. The company has reported a 32% YoY and 25% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows by 57% YoY during the quarter.
  • Operating profits grow 51% YoY as margins contract by 1.2%.
  • Lower other income and much higher tax charges take some sheen away from the robust operating performance as bottomline grows by 19% YoY during the quarter.
  • Bottomline for the full year registers a growth of 25% YoY on the back of a 32% growth in topline.
  • Board recommends a dividend of Rs 4 per share (dividend yield of 1.8%)

(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 2,131 3,345 56.9% 8,185 10,776 31.7%
Expenditure 1,398 2,235 59.9% 5,595 7,107 27.0%
Operating profit (EBDITA) 733 1,110 51.4% 2,591 3,669 41.6%
EBDITA margin (%) 34.4% 33.2%   31.6% 34.0%  
Other income 136 (23)   288 (76) -126.4%
Interest (net) 156 71 -54.3% 537 382 -28.8%
Depreciation 73 99 35.5% 138 278 101.3%
Profit before tax 640 917 43.2% 2,203 2,933 33.1%
Extraordinary income/(expense) (28) (52)   (35) (32)  
Tax 57 204 255.4% 75 299 298.8%
Profit after tax/(loss) 555 661 19.2% 2,093 2,602 24.3%
Net profit margin (%) 26.0% 19.8%   25.6% 24.1%  
Net profit/(loss) after minority interest 554 661 19.4% 2,087 2,601 24.6%
No. of shares (m)       161.5 182.9  
Diluted earnings per share (Rs)*         14.2  
Price to earnings ratio (x)**         15.8  
(* on trailing twelve months earnings)

What has driven performance in 4QFY10?
  • The consolidated topline of Opto Circuits grew by 32% YoY during the year. For the full year on the other hand, growth in standalone topline came in at a slightly lower rate of 18% YoY, thus pointing towards the fact that its international operations grew at a slightly higher rate.

  • On the margins front, courtesy a low raw material price environment and staff costs, operating margins saw a contraction of about 1.2% during the quarter. This caused the operating profits to grow at a slightly lower rate of 51.4% as compared to the topline which grew at 56.9%. For the full year though, margin actually expanded by 2.4% courtesy the robust expansion in the previous quarters.
    Cost break-up…
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Raw materials 1,209 1,881 55.6% 4,624 5,995 29.7%
    % sales 56.7% 56.2%   56.5% 55.6%  
    Staff cost 121 115 -4.7% 401 497 24.1%
    % sales 5.7% 3.4%   4.9% 4.6%  
    Other expenditure 68 239 252.1% 570 615 7.8%
    % sales 3.2% 7.1%   7.0% 5.7%  

  • With other income turning negative and operating margins contracting, quarterly PBT growth stood at 43.2% YoY, quite lower than the EBITDA growth of 51.4% YoY. The growth in the same came in at 42% for the full year and slightly higher than the growth in topline.

  • Furthermore, with tax outgo also increasing by over two times, net profits have grown at a lower rate than PBT but still a respectable 19.4% YoY for the quarter. The same factors have influenced the full year performance as well, resulting into a bottomline growth of 24% YoY.

  • Both on a consolidated and on a standalone level, the company was able to free up cash from improving its debtor days and inventory days significantly.

What to expect?
At the current price of Rs 224, 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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