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Opto Circuits (Opto) is engaged in design, manufacture and marketing of
USFDA‐listed, CE‐marked healthcare equipments and medical interventional
products such as cardiac and vital signs monitoring systems, anesthesia and
respiratory care equipment, automated external defibrillators (AEDs), stents,
catheters, body implants etc. The company has grown around 11 times in terms of
turnover from FY06 to FY11 owing to its rapid acquisitions in Europe and US.
VALUE DRIVERS
Medical Devices – A Rapidly Expanding Market:
The medical equipment market which is about 50% of the world pharmaceutical market
in terms of size has been growing much faster than its drug counterpart since the past
few years. The demand for healthcare services in emerging nations, the need for
reducing hospital stays and the aging world population are the some of the key drivers.
Opto Circuits, with a strong geographical presence and diversified product portfolio, is
set to benefit from this increased focus.
Non-Invasive Business Offers Strong Revenue Visibility:
Non-Invasive segment is the key contributor (about 75~80%) to Opto’s revenue. The
recent strategic acquisitions of Unetixs Vascular (Unetixs) and Cardiac Science
Corporation (CSC) will further widen Opto’s medical devices portfolio and help to
strengthen its foothold globally, particularly in USA & Europe. The CSC transaction
will not only open many new global markets but also enhance its product offering and
presence in US. Thus, this business will continue to provide strong revenue visibility.
Invasive Business – Key Long Term Growth Engine:
The acquisition of NS Remedies will reduce manufacturing costs of bare metal stents
significantly, thereby reducing the company’s dependency on external agencies. Also,
Eurocor’s innovative product pipeline will aid Opto in achieving a deeper market
penetration in India & emerging markets over the years as minimally invasive
treatments, which save patients a lot of time and costs, are increasingly preferred over
full surgeries today.
Driving Growth through Diverse Products:
From having 49 patents and 34 trademarks in FY10 the company grew to have to 168
patents and 53 pending patent applications as on Dec., 10, 2010. Hence, through R&D
and acquisitions & alliances, the company built an extensive product range which is
most preferred by the customers as it allows them to procure everything under one roof.
This not only gives Opto better bargaining power but also translates in additional sales
of more products, thus improving the net earnings.
Extensive Marketing & Distribution Network:
The newly acquired Unetixs and CSC offers cross-selling opportunities to Opto as it
can market the products by Medaid and Criticare in key US healthcare establishments.
Also, the company has been sharpening its focus in LATAM and South Asian markets
facilitates in developing longstanding relationships with its target customers as strong
customer base remains a key strength for Opto.
VALUATION: At the CMP of INR 297.60, the P/E ratio works 15.1x based on FY11
EPS of INR 19.8. On basis of P/E ratio of 14x and FY13E EPS of INR 27.3, the fair
value per share works out to INR 382. Considering its presence in fast-growing niche
business segments and strong earnings growth, investors can buy the stock from 9-12
months perspective for a potential upside of around 28%.
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