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Key Takeaways
Guidance: Reiterates FY12 top-line growth of 40%
Opto Circuits' (OPTC) management reiterated its top-line growth guidance of 40% for
FY12. The growth will be partly driven by full-year consolidation of Cardiac Science
Corp (CSC). We estimate that net of CSC, the implied growth guidance for core revenue
is 20%. FY12 EBITDA margin guidance is 28% led by a turnaround in CSC operations
and we estimate capex of INR1.8b.
Management expects USD140m revenue, 10-12% EBITDA margin for CSC in
FY12
The management guidance is for flat ~USD140m revenue for CSC in FY12 since the
focus will be to improve CSC's profitability through internal restructuring. The
management guidance is for CSC's EBITDA margin of 10-12% in FY12, led by operational
consolidation of all the three US subsidiaries (CSC, Criticare and Mediaid), rationalization
of marketing spend and a reduction in the number of employees.
Invasive business to lead organic growth
The management expects 30% growth of the invasive business to be sustained in future.
This will be led by strong sales growth across product lines, the launch of new products,
expansion in emerging markets, greater acceptance for Dior and expansion in distribution.
Concerns include high debt, goodwill, deteriorating working capital
OPTC's total debt on the books is ~INR8.84b. The management guidance is not for debt
reduction in FY12. Goodwill stands at INR5.95b, ~45% of OPTC's net worth. The
management expects to take a one-time hit for goodwill after the implementation of
IFRS. Working capital cycle deteriorated in FY11 due to a shift of production from the
US to OPTC's Indian and Malaysian facilities. The management guidance is for a cut in
working capital requirement from FY13.
Valuation and view
OPTC delivered strong revenue, earnings growth and return ratios over the past few
years. Despite rapid growth OPTC is a marginal player in the global medical devices
industry, which gives it the opportunity to sustain its high revenue growth over the next
couple of years. However, an early financial turnaround of CSC, large goodwill and debt
on books along with high working capital requirements and very low free cash flow
generation are concerns. The stock trades at 12.8x FY12E and 10.2x FY13E EPS. Maintain
Neutral with a target price of INR318 (12x FY13E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Guidance: Reiterates FY12 top-line growth of 40%
Opto Circuits' (OPTC) management reiterated its top-line growth guidance of 40% for
FY12. The growth will be partly driven by full-year consolidation of Cardiac Science
Corp (CSC). We estimate that net of CSC, the implied growth guidance for core revenue
is 20%. FY12 EBITDA margin guidance is 28% led by a turnaround in CSC operations
and we estimate capex of INR1.8b.
Management expects USD140m revenue, 10-12% EBITDA margin for CSC in
FY12
The management guidance is for flat ~USD140m revenue for CSC in FY12 since the
focus will be to improve CSC's profitability through internal restructuring. The
management guidance is for CSC's EBITDA margin of 10-12% in FY12, led by operational
consolidation of all the three US subsidiaries (CSC, Criticare and Mediaid), rationalization
of marketing spend and a reduction in the number of employees.
Invasive business to lead organic growth
The management expects 30% growth of the invasive business to be sustained in future.
This will be led by strong sales growth across product lines, the launch of new products,
expansion in emerging markets, greater acceptance for Dior and expansion in distribution.
Concerns include high debt, goodwill, deteriorating working capital
OPTC's total debt on the books is ~INR8.84b. The management guidance is not for debt
reduction in FY12. Goodwill stands at INR5.95b, ~45% of OPTC's net worth. The
management expects to take a one-time hit for goodwill after the implementation of
IFRS. Working capital cycle deteriorated in FY11 due to a shift of production from the
US to OPTC's Indian and Malaysian facilities. The management guidance is for a cut in
working capital requirement from FY13.
Valuation and view
OPTC delivered strong revenue, earnings growth and return ratios over the past few
years. Despite rapid growth OPTC is a marginal player in the global medical devices
industry, which gives it the opportunity to sustain its high revenue growth over the next
couple of years. However, an early financial turnaround of CSC, large goodwill and debt
on books along with high working capital requirements and very low free cash flow
generation are concerns. The stock trades at 12.8x FY12E and 10.2x FY13E EPS. Maintain
Neutral with a target price of INR318 (12x FY13E EPS).
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