Stock Idea Opto Circuits (India) Ltd.

1
Bajaj Capital Centre for Investment Research



Vol. 19 / 12-13 Aug 10, 2012

Buy (Initiated Coverage on Aug 7, 2012) CMP: 155.80 Target: 178.0
OPTO CIRCUITS (India) LTD. Upside: 14.3% Horizon: 1-3 M


Analyst: Atul Kanwar
Phone: +91 11 41693000 Ext: 675
Email: atulkanwar@bajajcapital.com


Key Data (Consolidated)
Sector Medical Equipment
Face value (Rs.) 10.0
52-week high/low (Rs.) 225.4 / 139.6
Market cap (Rs. cr.) 3775.3
Book value (Rs.) 70.0
Price / book value 2.2
PE ratio (TTM) 6.6
Market cap / sales 1.6
Dividend (%) 30.0
Average daily volume (1 Y) 538250
Beta 0.9
1 year return (%) -25.8


Shareholding Pattern


Source: BSE. As on June 30, 2012.


Stock Performance


About the Company
Opto Circuits India is a multinational medical device company headquartered out of Bengaluru.
The company designs, develops, manufactures, markets and distributes a range of medical
products that are used by healthcare establishments in more than 150 countries. The companys
medical equipment include cardiac monitoring devices, vital signs patient monitors, respiratory
and anesthetic care, sensors, accessories & consumables, data management & connectivity, public
access defibrillation devices, defibrillation and veterinary care. The companys interventional
devices include cardiac stents, PTA balloons, catheters & disposables, and replacement implants.
The companys services include education & training, technical support, professional services and
turnkey projects.
(Source: Ace Equity, Reuters)


I nvestment Rationale

Huge market potential
As per a report The Future of the Patient Monitoring Market to 2015 by Global Markets, the
value of global market for patient monitoring systems was around $7bn in 2008 and is estimated to
be around $8bn by 2015. It is expected to grow at a CAGR of 3%. However, the growth is likely to
be much higher in developing nations. In these countries, the market for patient monitoring
systems is likely to grow at around 29% between 2010 and 2015. For Anesthesia monitoring
systems, the global market is expected to grow at a CAGR of 7% to around $7.3bn by 2016. The
global market for external defibrillators is expected to clock compound annual growth of 6%
between 2009-2016. According to an analysis by Frost & Sullivan, the North American Cardiac
monitoring product market is likely to grow at a CAGR of 3% between 2009 -2016 to $413.3mn.
Similarly, according to a report released in April 2010 by Global Industry Analysts, Inc., global
coronary stent market is expected to exceed $6.5bn by 2016, from $5.4bn currently.

Inorganic growth strategy
Opto has always tried offering a diverse and more sophisticated range of products to its clients.
Opto has been able to do so with continuous acquisition and successful integration of acquired
companies with the old ones. Either it acquired business units or the whole company and grew
phenomenally during the last decade. For instance, it acquired Advanced Micronic Devices Ltd in
2001. In 2002, it acquired patient monitoring division of Palco Labs, USA and digital thermometer
division of Hindustan Lever Limited. It acquired Eurocor GmbH, Germany, Devon Innovations
Private Ltd and Criticare Systems Inc in 2006, 2007 and 2008. On December 3, 2010, the company
acquired Cardiac Science Corporation. In July 2010, the company acquired Unetixs Vascular, Inc.
In April 2010, the company acquired N. S. Remedies Pvt. Ltd. Cardiac Science Corporation will
help expand Optos product portfolio in non-invasive category.

Greenfield ventures and strategy to transfer manufacturing facilities to India to save cost
Opto Circuits (India) Ltd. has a plan to shift some of its manufacturing bases to India from the US.
The process for the same has already begun. This is likely to give some cost advantage to the
company. It is going to set up a new facility in Mysore. Also, it plans to build a manufacturing unit
in Malaysia.

28.15%
35.55%
1.74%
34.56%
Promoter FII DII Others
65
70
75
80
85
90
95
100
105
110
Opto Circuits Sensex
Stock Idea Opto Circuits (India) Ltd.
2
Bajaj Capital Centre for Investment Research
Segment Mix (% of sales) - FY2012

Source: Company





Total Income (Rs Cr.) - Consolidated

Data Source: Ace Equity





PAT (Rs Cr.) - Consolidated

Data Source: Ace Equity
Diverse product portfolio with leadership position in several segments
Opto offers a diverse product portfolio across the invasive and non-invasive categories to its
clients. Its products include pulse oximeters, vital signs monitors, automated external
defibrillators, ECG systems, stress test systems, holter monitoring systems, peripheral coated
balloons, replacement implants, catheters, bare metal stents, drug eluting stents, coated balloons,
etc. Also, it has leadership position in cardiac and vital sign monitoring, emergency cardiac care,
vascular treatments, etc. This helps it to cater to a large and diverse client base.

Partnership with Innovint
Opto Circuits subsidiary and a global leader in automated external defibrillator (AED) and
diagnostic cardiac monitoring devices - Cardiac Science Corporation, will partner with Germany-
based Innovint Aircraft Interior GmbH to distribute Cardiac Science AEDs on aircraft worldwide.
Innovint is a leader in the global aircraft interior and equipment market and an approved buyer
furnished equipment (BFE) supplier for Airbus.

To supply monitoring systems to Russian hospitals
Opto Circuits (India)s subsidiary has received an order to supply patient monitoring systems to
major hospitals in Russias Tyumen Oblast province. Criticare Systems Inc, a subsidiary of Opto
Circuits, has signed a contract to supply vital signs monitors to major hospitals in Tyumen Oblast,
Russia's third-largest province. The company, however, did not disclose the value of the contract.
Under the agreement developed by Criticare's Russian distributor, Elmedica, the company will
provide nGenuity patient monitors, along with installation and training, to four hospitals, including
three regional hospitals. The hospital modernization programme represents significant business
opportunity for global medical device manufacturers.

USFDA nod for MySence Heart
Opto Circuits subsidiary Cardic Science Corporation has received US Food and Drug
Administration (FDA) clearance for the sale of MySence heart, a revolutionary wearable Holter
cardiac monitor. The device is small, lightweight and disposable, enabling patients to wear it for
an extended time. Its ECG signal quality is superior, facilitating early diagnosis of potentially
life threatening heart diseases. It is also designed to be ultralow cost, permitting a much broader
use of the Holter in the US and especially emerging markets.

Financial Highlights
FY2012 results
Opto Circuits (India) has reported a surge of 88.0% in its net profit at Rs 210.0 crore for the
quarter ended March 31 as against Rs 111.7 crore in the corresponding period last year. The
consolidated net sales from operations during the fourth quarter has increased by 21.7% to Rs
662.7 crore from Rs 544.6 crore in the year-ago period.
For the full year 2011-12, the company's profit after tax rose by 55.6% to Rs 573.4 crore from Rs
368.5 crore in the previous fiscal. The consolidated total income from operations during FY'12
increased 46.6% to Rs 2370.4 crore from Rs 1617.2 crore in FY'11.
(Data Source: Ace Equity)

Key Concerns
Currency fluctuation
Any appreciation of the Indian rupee against the US dollar will have a dampening effect on the
company's revenue.

Regulatory issues
Issues connected to the authorities such as product approval delays from USFDA and unfavourable
outcomes are negatives for the company.

Conclusion
Opto Circuits (India) Ltd. has a market capitalization of Rs 3775.3cr and is trading at a share price
of Rs. 155.80. The consolidated TTM EPS is Rs. 23.60. This translates into a TTM PE of 6.6. The
price to book value stands at 2.2. The 3-year average ROE is 34.1%. The stock is an attractive buy
considering the growth prospects of the company.

We recommend a BUY on the stock with an investment horizon of 1-3 months and target
price of Rs. 178.
79%
20%
1%
Medical Equipment Interventional Devices
Others
FY08 FY09 FY10 FY11 FY12
485
847
1081
1617
2370
FY08 FY09 FY10 FY11 FY12
131
209
260
369
573
Stock Idea Opto Circuits (India) Ltd.
3
Bajaj Capital Centre for Investment Research
Financials

Income Statement (Quarterly): Consolidated

Rs Cr.

Particulars Mar-12 Mar-11 Dec-11 Var% (YoY) Var% (QoQ)
Net Sales 662.7 544.6 611.3 21.7 8.4
Other operating income 18.0 18.7 0.0 -3.6 -
Total Expenditure 516.3 424.2 440.3 21.7 17.3
Other Income 0.6 0.1 -4.3 540.0 -115.1
PBIDT 165.1 139.1 166.8 18.6 -1.0
Interest 17.7 11.9 16.8 48.9 5.1
PBDT 147.4 127.3 150.5 15.8 -2.0
Depreciation 14.6 15.0 14.1 -2.3 3.5
PBT 132.8 112.3 136.4 18.2 -2.6
Tax -77.2 0.6 10.9 -12347.6 -805.3
Net Profit (after Extraordinary Items) 210.0 111.7 125.4 88.0 67.4
Adj EPS 8.6 4.7 5.2 85.4 67.4
PBIDTM% 24.3 24.7 27.3 -45bps -303bps
PATM% 30.8 19.8 20.5 1101bps 1032bps
Source: Ace Equity

Financials (Annual): Consolidated

Rs Cr.

Particulars Mar-12 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 5-yr CAGR (%)
Total Income 2370.4 1617.2 1080.8 847.3 485.1 255.2 56.2
Total Expenditure 1740.4 1140.7 724.8 563.0 332.8 170.0 59.2
PBIDT 630.1 476.5 356.1 284.3 152.3 85.3 49.2
PBIT 575.4 425.7 328.3 270.5 146.0 82.9 47.3
PBT 516.2 393.6 290.0 216.8 135.2 75.5 46.9
PAT 573.4 368.5 260.4 209.3 131.3 73.3 50.9
Equity Paid Up 242.3 186.4 182.9 161.5 94.2 61.6 31.5
Net Worth 1702.9 1360.1 1015.3 514.8 304.5 212.3
Total Debt 304.6 884.4 232.8 537.9 101.0 64.5
Cash and Bank balance 174.4 234.2 122.3 91.3 68.3 38.5
Cash Flow from Operations

130.6 178.1 115.2 39.6 -8.8
Cash Flow from Investing activities -596.2 -115.9 -417.5 -49.2 -30.4
Cash Flow from Finance activities

577.4 -31.3 325.0 39.5 67.5
Free Cash flow -465.5 62.3 -302.2 -9.6 -39.2
Debt to Equity(x) 0.2 0.7 0.2 1.0 0.3 0.3
RONW(%) 37.4 31.0 34.0 51.1 50.8 50.7
PBIDTM(%) 26.6 30.1 33.0 34.7 33.0 34.7
PATM(%) 24.2 23.2 24.2 25.6 28.5 29.8
Adjusted EPS 23.6 15.2 10.9 9.9 6.3 3.6
CEPS 17.3 12.1 10.6 6.6 3.7
Dividend % 30.0 45.0 40.0 40.0 50.0 50.0
Source: Ace Equity
Stock Idea Opto Circuits (India) Ltd.
4
Bajaj Capital Centre for Investment Research
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Bajaj Capital Ltd
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