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We initiate coverage on Opto Circuits with an Outperform
rating and price target of Rs310.
Acquisition is a key to business strategy given single digit
growth in key segments; managed and turned-around six
acquisitions in past five years contributing Rs16bn of
sales.
Unique presence in medical equipment as well as
interventional devices segment; cost management,
geographical expansion, new product introductions and
clinical trials to further the growth of the company.
We expect 22% sales CAGR (17% organic growth) led by
interventional sales growth and inorganic initiatives of
FY11.
Successful acquisition-led strategy in mature segments.
OPTC’s acquisition-led strategy (6 acquisitions in the past 5
years) in mature segments (medical equipment and
intervention devices) has been successful, generating Rs16bn
of revenue (37% of sales in FY07-11) and Rs2.9bn of profit in
the past five years with improvement in sales and profitability.
Ex FY11 acquisitions, we expect organic revenue growth of
17% over FY11-14E, against industry growth of 3-8%.
Product differentiation to drive interventional sales.
Geographical expansion, higher penetration of existing doctors
through clinical trials, new product introductions and ramp-up in
value added segments including DIOR are likely to drive 28%
CAGR in the segment (25% of FY11 sales) over FY11-14E.
Higher interventional growth aids OPTC’s margins given higher
margins in the segment.
Inorganic initiatives drive medical equipment segment. The
medical device segment (73% of FY11 sales) is likely to post
20% CAGR (11% organic growth) over FY11-14E, led by
recent acquisition of Cardiac Science. Focus on consolidation
with cost reduction, expansion in non-US markets and
improved profitability in Cardiac Science remain short-term
goals for OPTC.
Valuation. 12-month PT of Rs310, valuing OPTC at 10x
forward P/E, the lower range of FY09-11. 19% earnings CAGR
over FY11-14 support our valuations. Potential acquisitions are
not in our estimates. Proposed listing of Eurocor Healthcare is
aimed at unlocking value in intervention business, but not
currently built in given low visibility on timing and price.
Key risks. R&D volatility has margin impact; high earnings
sensitivity to US/EU markets; potential intangibles write-offs for
prior capitalized R&D; high working capital requirements.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We initiate coverage on Opto Circuits with an Outperform
rating and price target of Rs310.
Acquisition is a key to business strategy given single digit
growth in key segments; managed and turned-around six
acquisitions in past five years contributing Rs16bn of
sales.
Unique presence in medical equipment as well as
interventional devices segment; cost management,
geographical expansion, new product introductions and
clinical trials to further the growth of the company.
We expect 22% sales CAGR (17% organic growth) led by
interventional sales growth and inorganic initiatives of
FY11.
Successful acquisition-led strategy in mature segments.
OPTC’s acquisition-led strategy (6 acquisitions in the past 5
years) in mature segments (medical equipment and
intervention devices) has been successful, generating Rs16bn
of revenue (37% of sales in FY07-11) and Rs2.9bn of profit in
the past five years with improvement in sales and profitability.
Ex FY11 acquisitions, we expect organic revenue growth of
17% over FY11-14E, against industry growth of 3-8%.
Product differentiation to drive interventional sales.
Geographical expansion, higher penetration of existing doctors
through clinical trials, new product introductions and ramp-up in
value added segments including DIOR are likely to drive 28%
CAGR in the segment (25% of FY11 sales) over FY11-14E.
Higher interventional growth aids OPTC’s margins given higher
margins in the segment.
Inorganic initiatives drive medical equipment segment. The
medical device segment (73% of FY11 sales) is likely to post
20% CAGR (11% organic growth) over FY11-14E, led by
recent acquisition of Cardiac Science. Focus on consolidation
with cost reduction, expansion in non-US markets and
improved profitability in Cardiac Science remain short-term
goals for OPTC.
Valuation. 12-month PT of Rs310, valuing OPTC at 10x
forward P/E, the lower range of FY09-11. 19% earnings CAGR
over FY11-14 support our valuations. Potential acquisitions are
not in our estimates. Proposed listing of Eurocor Healthcare is
aimed at unlocking value in intervention business, but not
currently built in given low visibility on timing and price.
Key risks. R&D volatility has margin impact; high earnings
sensitivity to US/EU markets; potential intangibles write-offs for
prior capitalized R&D; high working capital requirements.
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