13 October, 2008
Opto Circuits India
Current market price: Rs 165.25
Brokerage: Edelweiss Securities
Opto Circuits India (OCIL) recently cancelled the proposed $100 million acquisition of a European company, with which it had signed a letter of intent in September 2008. The reason cited is that the demanded price is not justifiable from an economic value perspective. This step is positive for OCIL, as it removes any uncertainty of possible balance sheet risk in the short term.
OCIL’s revenues are expected to grow at a CAGR of 54 per cent and net profits at CAGR of 42 per cent over FY08-10E, led by strong growth in the non-invasive as well as invasive businesses. The growth in the non-invasive business will be led by the recent Criticare acquisition—focusing on patient monitoring systems (PMS) and SpO2 sensors, while the invasive business is expected to show traction through stents and DIOR, used in angioplasty procedures.
OCIL, through its 100 per cent subsidiary EuroCor, has certification to sell its invasive products in 34 countries. Until now, OCIL has traded at a premium to the market because of high growth, healthy margins and upsides from potential acquisitions. However, with the recent market fall and overhang of large ownership by foreign institutional investors, the stock price has corrected more-than-warranted, making it attractive. At Rs 203, the stock trades at a P/E of 10.3x and 7.3x its FY09E and FY10E earnings, respectively. Maintain Buy.
CMP on 10. October 2008
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