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Opto Circuits: Bottomline lags topline growth

Aug 2, 2011

Opto Circuits has announced its June quarter results. The company has reported a 78% growth in consolidated topline and a 40% YoY growth in profits. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows by 78% YoY during the quarter, led by acquisition of a subsidiary which was not there during same quarter last year
  • Operating margins contract by nearly 6% as higher staff costs and admin expenses take toll.
  • Bottomline grows by 40% YoY, much lower than the topline growth, mainly on account of margin contraction

(Rs m) 1QFY11 1QFY12 Change
Net sales 2,920 5,208 78.4%
Expenditure 1,949 3,776 93.7%
Operating profit (EBDITA) 971 1,432 47.5%
EBDITA margin (%) 33.2% 27.5%  
Other income 94 49 -47.6%
Interest (net) 52 109 110.7%
Depreciation 91 150 65.3%
Profit before tax 922 1,222 32.5%
Extraordinary income/(expense) 4 (0)  
Tax 92 57 -37.6%
Minority interest 3 1  
Profit after tax/(loss) 831 1,164 40.1%
Net profit margin (%) 28.5% 22.3%  
No. of shares (m) 183.3 186.4  
Diluted earnings per share (Rs)*   14.9  
Price to earnings ratio (x)*   19.6  
*On a trailing 12-months basis

What has driven performance in 1QFY12?
  • Company's topline grew by a strong 78% YoY during the quarter on a consolidated basis. However, the numbers may not be strictly comparable as the revenues for the quarter also include the financials of its subsidiary Cardiac science, which was not there during the same quarter last year. Also, growth on a standalone basis has come in at just 19% YoY. This indicates that the company's overseas businesses have contributed much more to the overall growth than the Indian operations. The company is hopeful of clocking a revenue growth of 22%-25% for the full year on a consolidated basis.
  • Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Manufacturing expenses 1,642 2,757 67.9%
    % sales 56.2% 52.9%  
    Staff cost 122 445 264.4%
    % sales 4.2% 8.5%  
    Admin & Marketing expenses 185 574 210.3%
    % sales 6.3% 11.0%  

  • On the costs front, margins have taken a hit to the tune of 5.8%. While manufacturing expenses have come down (on a percentage of sales basis), they have been more than compensated by the huge jump witnessed in both staff costs as well as admin expenses. The company's subsidiary, Cardiac Science, did not have a very good profitability at the time of acquisition. Hence, the margins could be lower on account of the same. However, the company has expressed confidence of a turnaround in the same and the overall margins to touch 30% in the forthcoming quarters

  • With both interest costs as well as depreciation charges increasing at a much greater rate than the operating profits, PBT growth has declined further to 33% YoY. Interest expenses in particular, have more than doubled over corresponding previous quarter. This is on account of debt taken to fund its recent acquisitions.

  • Net profit growth for the quarter has come in at 40% YoY. This is greater than the PBT due to a 38% decline in tax outgo. However, the near 6% fall in operating margins has meant that profits have grown at a much lower rate than the growth in topline.

What to expect?

At the current price of Rs 291, the stock trades at a multiple of around 10 times its expected FY13 earnings per share. It should be noted that for the purpose of cost effectiveness and operational efficiency, the company has undertaken a restructuring initiative whereby investments in three US subsidiaries have been transferred a wholly owned subsidiary of the company. Also, two more subsidiaries have been transferred to another wholly owned subsidiary. We believe that the company is well on track to meeting our projections for FY13 and hence, we maintain our positive view on the stock.

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