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Opto Circuits: Deferred tax boosts profits - Views on News from Equitymaster

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Opto Circuits: Deferred tax boosts profits

May 25, 2012

Opto Circuits has announced its March quarter results. The company has reported a topline growth of 21% YoY and a bottomline growth of 89% YoY for the quarter ended March 2012. Here is our analysis of the results.

Performance summary
  • Consolidated topline reports 21% YoY growth during the quarter
  • Operating margins contract marginally by 0.5%, leading to 18% growth in operating profits during the quarter
  • Bottomline witnesses a strong growth of 89% YoY on the back of decent operating performance and recognition of deferred tax asset on its books
  • Profit for the full year jumps 56% YoY on the back of a 47% growth in topline
  • Has announced a dividend of Rs 3 per share subject to shareholder approval

Consolidated financial performance
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 5,632 6,807 20.9% 16,158 23,696 46.7%
Expenditure 4,242 5,163 21.7% 11,395 17,404 52.7%
Operating profit (EBDITA) 1,390 1,644 18.3% 4,763 6,293 32.1%
EBDITA margin (%) 24.7% 24.2%   29.5% 26.6%  
Other income 1 6   2 8  
Interest (net) 119 177 48.9% 321 592 84.7%
Depreciation 150 146 -2.3% 508 546 7.5%
Profit before tax 1,123 1,328 18.2% 3,936 5,162 31.1%
Extraordinary income/(expense) - -   - -  
Tax 6 (772)   251 (572)  
Minority interest 6 6   13 15 17.3%
Profit after tax/(loss) 1,111 2,093 88.5% 3,672 5,719 55.7%
Net profit margin (%) 19.7% 30.8%   22.7% 24.1%  
No. of shares (m) 186.4 242.3   186.4 242.3  
Diluted earnings per share (Rs)*         23.6  
Price to earnings ratio (x)*         7.2  
(* annualised)

What has driven performance in 4QFY12?
  • 21% growth during the quarter was driven predominantly by the company's medical equipment and consumables segment which registered a growth of 24% YoY. Its invasive segment on the other hand witnessed a slightly lower growth of 19% YoY. Topline for the full year grew by 47% YoY, driven again by the medical equipment segment as the same grew by a strong 62% YoY. It should be noted that the company has acquired 11 companies since 2002 and this strategy is helping it grow its topline in a healthy manner year after year. For FY13, the company expects a topline growth of 20% YoY.

    Cost break-up...
    (Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
    Cost of materials consumed 2,108 3,485 65.3% 6,683 10,819 61.9%
    % sales 37.4% 51.2%   41.4% 45.7%  
    Purchases of stock in trade 719 356 -50.5% 1,671 1,300 -22.2%
    % sales 12.8% 5.2%   10.3% 5.5%  
    Manufacturing expenses 352 321 -8.7% 589 934 58.7%
    % sales 6.2% 4.7%   3.6% 3.9%  
    Staff cost 457 480 5.0% 1,101 1,866 69.5%
    % sales 8.1% 7.0%   6.8% 7.9%  
    Other expenses 606 522 -14.0% 1,352 2,485 83.8%
    % sales 10.8% 7.7%   8.4% 10.5%  

  • As far as margins are concerned, they suffered a small contraction of the order of 0.5%. Barring raw material expenses, all other cost heads formed a lower percentage of sales as compared to the same quarter last year. For the full year, margin contraction came at around 3% and this translated the 42% growth in topline to 32% at the operating level.

  • The company recognized deferred tax asset of the order of Rs 772 m during the quarter and this helped boost net profits by 89% on a YoY basis. Excluding the impact of the same, bottomline growth comes down to 18% YoY.

What to expect?
At the current price of Rs 168, the stock trades at a multiple of around 8 times its expected FY14 earnings per share. The company's performance has come in much better than our estimates. Besides, the improvement in its working capital position is also a big positive. We maintain our positive view on the stock.

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