ICICIdirect has maintained 'Buy' on Opto Circuits with a price target of Rs 181 as compared to current market price (CMP) Rs 108 with potential upside of 68% in its report dated Nov. 19, 2012. The broking firm gave following investment rationale on the stock:
Opto Circuits' Q2FY13 results were way below expectations. Revenues grew just 8% YoY to Rs 6.08 billion (I-direct estimate: Rs 7.12 billion) mainly due to postponement of certain shipments from the medical equipment segment. This segment (80% of revenues) saw a growth of just 5%. Interventional segment (19% of revenues), on the other hand, grew 23%. Net profit de-grew 4% to Rs 1.16 billion (I-direct estimate: Rs 1.32 billion) on account of higher depreciation, interest and tax provision.
The overall net working capital cycle worsened to 199 days for H1FY13 from 178 days in FY12 on account of increased debtor day cycle, which got stretched, to 160 days from 131 days as on FY12. According to the management, an unfavourable macroeconomic environment caused slippages in debtor days.
We expect sales, EBITDA and PAT to grow at a CAGR of 18%, 15% and 13% (adjusted net profit base for FY12), respectively, in FY12-14E. After showing improvement in back to back quarters (Q4 & Q1) the working capital cycle once again slipped, vindicating market fears that have weighed on the stock price for quite some time. On the bright side, new product launches in various geographies are expected to keep the growth momentum going. The shift of production to the confined three locations is expected to improve the operating leverage. However, this is likely to take some time.
We have reduced our FY14E EPS to Rs 28.5 from Rs 25.9 on account of some revenue slippages and reduced the PE multiple by one notch to reflect concerns about WC cycle. We value the stock at Rs 181, 8x FY14E EPS of Rs 25.9 and maintain BUY rating with a lightweight bias.
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