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Opto Circuits: Other income boosts profits - Views on News from Equitymaster

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Opto Circuits: Other income boosts profits
Aug 10, 2010

Opto Circuits Limited has announced its 1QFY11 results. The company has reported a 27% YoY and 40% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows by 27% YoY during the quarter.
  • Operating profits grow 26% YoY as margins remain almost the same as 1QFY10.
  • Significantly higher other income along with much lower interest costs give a fillip to profits as bottomline grows by 40% YoY during the quarter.


Consolidated financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 2,304 2,920 26.7%
Expenditure 1,533 1,949 27.1%
Operating profit (EBDITA) 770 971 26.0%
Operating profit margin (%) 33.4% 33.2%  
Other income 4 94 2024.5%
Interest 135 52 -61.5%
Depreciation 44 91 105.0%
Profit before tax 596 922 54.8%
Tax 3 92 3032.3%
Extraordinary gain/(loss) - 4  
Profit after tax/(loss) 593 834 40.6%
Net profit margin (%) 25.7% 28.5%  
Minority interest (0.1) (2.6)  
Profit after minority interest 593 831 40.2%
No. of shares 161.5 183.3  
Diluted earnings per share (Rs)*   15.5  
P/E ratio (x)*   18.3  
* On a trailing 12 months earnings

What has driven performance in 1QFY11?
  • The consolidated topline of Opto Circuits grew by 27% YoY during the quarter. Growth in standalone topline on the other hand came in at a slightly higher rate of 30% YoY, thus pointing towards the fact that its domestic operations grew at a slightly higher rate, thus leading the company’s overall revenue growth. On a consolidated basis, 27% of the company’s turnover came from its invasive segment, while another 71% came from the non-invasive segment.

  • On the margins front, while raw material and staff costs saw a decrease as a percentage of sales, other expenditure consisting of administration and marketing costs saw a rise relative to sales. Overall, operating margins saw a marginal contraction of about 0.2% during the quarter. This caused the operating profits to grow at a slightly lower rate of 26%.

    Cost breakup…
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 1,306 1,642 25.7%
    % sales 56.7% 56.2%  
    Staff cost 125 122 -2.0%
    % sales 5.4% 4.2%  
    Other expenditure 102 185 80.6%
    % sales 4.4% 6.3%  

  • The company's other income saw a sharp rise during the quarter. Further, interests costs also nosedived by 61% YoY. Due to these two positives, the net profits saw a growth of 40% YoY during the quarter, much higher than the 26% growth in operating profits. However, depreciation charges doubled and tax expenses also saw a big spike during the period. If not for these significant increases the bottomline growth would have been even higher.

What to expect?
At the current price of Rs 284, the stock trades at an earnings multiple of 13.1 times our estimated FY12 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 not very expensive right now from a medium term perspective.

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