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Opto Circuits India

Opto Circuits India -Result highlights.
Strong performance continues; concerns overdone.
Opto Circuits (Opto) has reported a top line growth of 65.7% to Rs211.0 crore for Q3FY2009. The revenues were driven by a 20% growth in the non-invasive segment (excluding Criticare Systems [Criticare]) and an 81.9% growth in the invasive segment. Criticare contributed revenues of Rs40.4 crore. On excluding the contribution from Criticare, the organic growth was ~34%.

Opto’s operating profit margin (OPM) expanded by 60 basis points year on year (yoy) to 28.9% in Q3FY2009. The margins are impressive considering the consolidation of Criticare, which has relatively lower margins.Consequently, the operating profit grew by 69.3% to Rs60.9 crore in Q3FY2009.

Driven by a strong operating performance, Opto has reported a net profit of Rs52.6 crore, up by 47.2% yoy. The net profit reported by the company is marginally ahead of our estimate of Rs49.0 crore. The net profit was aided by a foreign exchange (forex) gain of Rs9 crore on receivables and was restricted by a five-fold jump in the interest cost to Rs14.7 crore and a 3.5x jump in the depreciation charge to Rs2.7 crore during the quarter.

The stock has corrected significantly on account of the previously considered acquisition plans, lack of segmental reporting, poor accounting policies and balance sheet concerns. As explained above, many of these concerns are unfounded and/or exaggerated and more than priced into the stock.

At the current market price of Rs86, Opto is trading at compelling valuations of 7.4x FY2009E fully diluted earnings and of 5.2x FY2010E fully diluted earnings.Buy the stock with a price target of Rs216.