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Opto Circuits: Margin dampener - Views on News from Equitymaster
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Opto Circuits: Margin dampener
Nov 11, 2010

Opto Circuits has announced 2QFY11 results. The company has reported 29.6% YoY and 15.6% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated topline grows 29.6% YoY in 2QFY11.
  • Operating profits increase 16.5% YoY during the quarter. Margins declined by 360 bps due to increase in overall expenditure as a percentage of sales.
  • Net profits increase 15.6% YoY in 2QFY11 on the back of strong performance at the topline level, lower interest & tax expenses partially offset by higher depreciation expenses.

Financial performance snapshot
(Rs m)  2QFY10   2QFY11  Change 1HFY10  1HFY11  Change  
Sales 2,557 3,314 29.6% 4861 6234 28.2%
Expenditure 1,650 2,257 36.8% 3183 4206 32.1%
Operating profit (EBDITA)    908 1,057 16.5% 1,678 2,028 20.9%
Operating profit margin (%) 35.5% 31.9%   34.5% 32.5%  
Other income         3   (82)   7.44 12 62.9%
Interest    104     62 -40.8% 239 114 -52.5%
Depreciation       69  115 64.9% 114 205 80.5%
Profit before tax 736.99 799 8.4% 1333 1,721 29.2%
Exceptional items  (0) (1)   0 3  
Tax 67 23 -65.4% 70 115 64.5%
Minority Interest  0 (1)   (1) (4)  
Profit after tax/(loss) 669 774 15.6% 1,261 1,605 27.2%
Net profit margin (%) 26.2% 23.3%   25.9% 25.7%  
No. of shares (m)   183        
Basic earnings per share (Rs)   4.22        
P/E ratio (x) *   19.1        
* On a trailing 12-months basis

What has driven performance in 2QFY11?
  • Consolidated top line increased 29.6% during the quarter. Growth in standalone topline on the other hand came in at a slightly lower rate of 18.8% YoY, thus pointing towards the fact that its domestic operations grew at a slightly slower rate. On a consolidated basis, 23% of the company’s turnover came from its invasive segment, while another 76% came from the non-invasive segment.

  • Operating margins declined 360 bps YoY to 31.9% in 2QFY11 due to increase in employee and administration expenses as a percentage of sales. As a result, operating profits grew at a lower rate of 16.5%.

    Cost Break up...
       2QFY10   2QFY11   Change  
    Manufacturing expenses  1375         1,820 32.4%
    % of sales  53.8% 54.9%
    Employee Cost  125.337            182 45.1%
    % of sales  4.9% 5.5%  
    Admin & Mktg expenses  149            255 70.5%
    % of sales  5.8% 7.7%  

  • The company's tax expenses saw a sharp fall during the quarter. Further, interests costs also nosedived by 41% YoY. As a result, the net profits saw a growth of 15.6% YoY during the quarter. However, the growth in net profits was marginally lower than the 16.5% growth in operating profits due to increase in depreciation charges. If not for this significant increase, the bottom line growth would have been even higher.

What to expect?
At the current price of Rs 306, the stock trades at an earnings multiple of 10.6 times our estimated FY13 consolidated earnings per share. Both the invasive and non-invasive businesses continue to perform well during the quarter. Further, continued focus on the emerging markets is likely to drive growth in the near future. 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, we maintain our view on the stock. Furthermore, even the valuations are not very expensive right now from a medium term perspective.

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