Result Update

August 10, 2010

Rating matrix
Rating : Buy Opto Circuits (India) (OPTCIR)
Target : Rs 309
Target Period : 12 months Rs 277
Potential Upside : 12%
WHAT’S CHANGED…
Key Financials PRICE TARGET ............................................................. Changed from Rs 270 to Rs 309
(Rs Crore) FY09 FY10 FY11E FY12E
EPS (FY11E) ............................................................... Changed from Rs 15.2 to Rs 15.5
Net Sales 818.5 1077.6 1236.6 1543.7
EPS (FY12E) ............................................................... Changed from Rs 18.0 to Rs 20.0
EBITDA 259.1 366.9 478.0 625.1
Net Profit 208.7 260.2 283.9 365.7 RATING....................................................................... Changed from Strong Buy to Buy
EPS 12.9 14.2 15.5 20.0
Strong performance improves outlook…
Valuation summary Opto Circuits Ltd (OCI) reported its Q1FY11 results with a standalone
FY09 FY10 FY11E FY12E topline growth of 29.7% YoY to Rs 127.5 crore on the back of newer
PE (x) 21.5 19.5 17.9 13.9 product launches. On a consolidated basis, the topline grew 26.7% YoY
Target PE (x) 23.9 21.8 20.0 15.5 to Rs 292 crore as strong growth in Medicaid and EuroCor boosted
EV to EBITDA (x) 17.5 13.1 9.9 7.5
sales. On the margins front, OCI’s standalone margins remained stable
Price to book (x) 8.0 4.3 3.8 4.0
YoY though they declined 670 bps QoQ on the back of higher inventory
purchase on the back of large orders gained in the domestic and
RoNW (%) 27.5 24.5 16.3 21.1
international markets. The company also posted a strong standalone
RoCE (%) 31.5 16.0 18.7 24.1
bottomline of Rs 57 crore (98.6% YoY and 30.3% QoQ jump) on the back
of minimal tax accounting with the shift of production bases to tax free
Stock data
zones like special economic zones in Vishakhapatnam.
Mcap Rs5073.6crore
Debt (FY09) Rs513.5crore ƒ Key highlights for the quarter
Cash (FY09) Rs81.3crore
EV Rs5505.8crore
OCI’s strategy of launching novel next generation products like DIOR has
52 week H/L 295 / 68 added nearly 30% to the consolidated topline and has helped maintain
Equity cap Rs182.9crore consolidated margins. It has won large orders for its products nGenuity
Face value 10.0 and nCompass from leading hospitals in Delhi and Trivandrum.
MF Holding (%) 2.8 OCI has shifted its production centres into tax-free zones like
FII Holding (%) 25.6 Vishakhapatnam, Mysore and Malaysia, which entailed a capital
expenditure of Rs 150 crore. The company has increased its focus on
Price movement increasing recognition among clients through various marketing activities
like participation in international conventions and holding live case
6,000 300
presentations along with organisation of symposiums. OCI also recently
5,500 acquired NS Remedies for $1.5 million. This has provided it the capability
250
5,000 to produce stainless and high grade chromium stents.
200
4,500
4,000 150
Valuation
3,500
100 The strong performance from core business along with increased traction
3,000 of new product sales has brightened the outlook of the company. At the
50
2,500 CMP of Rs 277, the stock is trading at 17.9x FY11E consolidated EPS of Rs
2,000 0 15.5 and 13.9x FY12E consolidated EPS of Rs 20.0. We have valued the
Aug-09 Nov-09 Feb-10 May-10 Aug-10 stock at 15.5x FY12 EPS of Rs 20.0 to arrive at a target price of Rs 309.
Our target price implies an upside potential of 12%. We have changed our
Opto Cir NIFTY
rating on the stock from STRONG BUY to BUY.
Exhibit 1: Key financials
Analyst’s name
(Rs Crore) Q1FY11 Q1FY11E Q1FY10 Q4FY10 YoYchg(%) QoQchg(%)
Karan Mittal
Net Sales 127.5 142.4 98.3 135.5 29.7 -5.9
karan.mittal@icicisecurities.com
EBITDA 54.4 69.3 42.0 66.9 29.4 -18.7
Nishant Vass
nishant.vass@icicisecurities.com EBITDA Margin (%) 42.7 48.7 43.9 49.4 40 bps (140)bps
Depreciation 1.4 1.5 0.7 0.9 97.2 61.5
Interest 4.0 7.5 12.8 6.0 -68.5 -32.9
Reported PAT 57.0 51.6 28.7 43.7 98.6 30.3
EPS (Rs) 3.1 3.2 1.8 2.4 74.9 30.1
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Opto Circuits (India) (OPTCIR)

Key highlights
The company has 14 subsidiaries based out of three continents, which
has resulted in an improvement in the consolidated topline by 26.7% YoY
to Rs 292 crore along with the bottomline jumping 40.6% YoY. The strong
performance has been driven by the newer product launches, which were
undertaken during the last quarter as well as in Q1FY11 leading to a 30%
contribution in sales.
The company had undertaken various marketing initiatives to improve the
reach among clients. It held live cases and symposiums at the 6th Asian
Interventional Cardiovascular Therapeutics. The subsidiary Eurocor
GmbH participated in EuroPCR 2010, Europe’s leading congress on
interventional cardiology to provide an additional push towards its
invasive products among the majors of the healthcare industry. The
company has bagged larger orders from large domestic hospitals in Delhi
and Trivandrum for nGenuity and nCompass and also from various large
healthcare organisations in Spain and France.
The company, in its standalone business, has seen a significant reduction
in the tax accounting for the quarter due to the shift in production centres
towards various tax free zones like Vishakhapatnam, Malaysia and
Mysore. These exemptions are expected to accrue tax benefits for a
period of three years.

Exhibit 2: Margins trend (%)

55 35.5 37
Margins have remained stretched with higher costs. 34.4 34.3
However, with demand pick-up in US and European 33.4 35
33.2 33.2
50
markets coupled with new product launches and value 31.8
31.5 33
addition in the product mix would lead to an improvement 49.4
in the profit 45 31
28.9
44.3 29
43.6
40 42.7 42.7
41.1 41.4
27
39.7
35 36.4 25
Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

Standalone (LHS) Consolidated (RHS)

Source: Company, ICICIdirect.com Research

Exhibit 3: Consolidated effective tax rate trend (%)

The tax rate had jumped up dramatically in Q4FY10 due to 25

full tax payment of OCI’s standalone operations though the
23.5
shift of production centre to SEZ’s has led to a reduction in
taxes 15

9.4 9.1 10.0

5 7.5
3.7
0.9 1.1 0.9 0.5
-5
Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

Effective tax rates (%)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 2
Opto Circuits (India) (OPTCIR)

Outlook & Valuations

Valuation
The strong performance from the core business along with increased
traction of new product sales has brightened the outlook of the company.
The strong performance of existing subsidiaries like Eurocor GmbH,
Criticare and Advanced Micronics along with new acquisitions like
Unetixs Vascular would lead to higher revenues and improvement in the
margins and bottomline of the company. At the CMP of Rs 277, the stock
is trading at 17.9x FY11E consolidated EPS of Rs 15.5 and 13.9x FY12E
consolidated EPS of Rs 20.0. We have valued the stock at 15.5x FY12 EPS
of Rs 20.0 to arrive at a target price of Rs 309. Our target price implies an
upside potential of 12%. We have changed our rating on the stock from
STRONG BUY to BUY.

Exhibit 4: Revised estimates

Standalone FY11E FY12E
(Rs crore) Old New % Chg Old New % Chg
Net sales 546.9 545.0 (0.4) 626.9 684.2 9.1
EBITDA 206.3 205.5 (0.4) 248.5 271.3 9.2
EBITDA margins(%) 37.7 37.7 - 39.6 39.7 (10) bps
Net profit 184.2 183.5 (0.4) 228.4 249.0 9.0
EPS (Rs) 10.1 10.0 (0.9) 12.5 13.6 8.7

Consolidated FY11E FY12E

(Rs crore) Old New % Chg Old New % Chg
Net sales 1,208.5 1,236.6 2.3 1,378.5 1,543.7 12.0
EBITDA 487.3 478.0 (1.90) 571.1 625.1 9.5
EBITDA margins(%) 40.3 38.7 (160) bps 41.4 40.5 (90) bps
Net profit 277.5 283.9 2.3 328.4 365.7 11.4
EPS (Rs) 15.2 15.5 1.9 18.0 20.0 10.8

Source: Company, ICICIdirect.com Research

Exhibit 5: Valuation metrics

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(Rs cr) (%) (Rs) (%) (x) (x) (%) (%)
FY09 818.5 67.7 12.9 -7.2 21.5 17.5 27.5 31.5
FY10 1077.6 31.7 14.2 9.8 19.5 13.1 24.5 16.0
FY11E 1236.6 14.8 15.5 9.1 17.9 9.9 16.3 18.7
FY12E 1543.7 24.8 20.0 28.8 13.9 7.5 21.1 24.1
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 3
 Opto Circuits (India) (OPTCIR)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093

research@icicidirect.com

ANALYST CERTIFICATION
We /I, Karan Mittal MBA Nishant Vass MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading
underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and
employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities
policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.

ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received
compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three
months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific
transaction. It is confirmed that Karan Mittal MBA Nishant Vass MBA (FINANCE) research analysts and the authors of this report have not received any compensation from the companies mentioned in the
report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
research report.

It is confirmed that Karan Mittal MBA Nishant Vass MBA (FINANCE) research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory board
member of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use
of information contained in the report prior to the publication thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICIdirect.com | Equity Research

Page 4