Buy Opto Circuits, target Rs 350 says JPMorgan

Initiate with Overweight, price target of Rs350: Our price target
implies a potential upside of 15% from the current levels. Opto Circuits
is a niche medical devices player with a presence in invasive (coronary
stents) and non-invasive patient monitoring devices. The global market
for patient monitoring systems is expected to increase to US$8B by 2015
from US$7B in 2008, while the global coronary stents market is
expected to grow to US$6.5B in 2016 from US$4.9B in 2009.
• Enhancing product offerings and distribution to capture larger
share of global pie: Opto Circuits has built a wide product range and
global distribution reach through acquisitions. Its recent acquisition of
Unetixs Vascular in the US provides it with further cross-selling
opportunities for its products to large US hospitals, while distributing
Unetixs’ products in the US. We forecast sales CAGR of 26% and
earnings CAGR of 29% over FY10-FY13E.
• Potential regulatory approvals, improving working capital profile
bode well for valuations: Potential USFDA approval to sell stents in the
US and CE certifications for Unetixs’ products in Europe are likely to be
positive stock triggers. In addition, Opto’s new plant being
commissioned in Malaysia is close to its key raw material suppliers,
which should help cut inventories and lower working capital, boding
well for valuations.
• Price target, valuation, key risks: Our March-11 price target of Rs350
is based on 15x FY12E P/E, which is in line with global peer group
valuations. Key risks include potential large ticket acquisitions, increase
in working capital intensity, failure to get accreditation for products in
new markets and adverse foreign currency fluctuations.