Opto Circuit: Niche Healthcare Player is a good long term bet….

Opto Circuit: Niche Healthcare Player is a good long term bet….

Opto Circuit (India) Limited (OCIL) is $4.8 billion leading medical equipment manufacturing player making sensors and patient monitors.

Some of the products manufactured by company:

1)   Pulse Oximeters

2)   Vital signs monitors

3)   Respiratory and Anaesthetic care

4)   ECG system

5)   Stress Test system

6)   Bare Metal stents

and many more…..

The company is OEM (Original Equipment Manufacturer) for players like Philips, Tyco- Nellcor, Epic medical equipments etc.

The company has 168 patents.

Strengths:

Agile Operation and management: Lower cost base and attractive pricing strategy and Crticare acquisition has further enabled it to diversify into gas monitoring system and strengthen its position in USA

Diversified Business Model: Not only provides equipments but also provides specialized education and training services.

Strong Subsidiaries and Strategic acquisitions: OCIL has 14 subsidiaries and serves the markets like USA, Europe and also had good presence in BRICS Nations.

Concerns:

Operational Risk: Having many subsidiaries can become drawback when of the subsidiary company doesn’t perform.

Corporate Restructuring: Internal mergers may create interim transitional issues. All the subsidiaries have been transferred to Opto Eurocore Healthcare Ltd and Opto Cardiac Care Limited.

Groth Plans: May go for IPO of Opto Eurocore Healthcare Ltd to raise up Rs 1000 crore.

Rising Debt: Debt of Rs 1084 crore as on Sept 30, 2011.

Goodwill:  Goodwill of Rs 629 crore on balance sheet is a concern. It represents 27% of asset side. This intangible asset has the threat of written off and it may affect financial of company.

Financials:

Net Sales has increased by 6 times in last five years (from Rs 246 crore in 2007 to Rs 1586 crore in 2011)

Profit after Tax (PAT) has increased by 5 times in last five years (from Rs 73 crore in 2007 to 369 crore in 2011)

Debt to Equity ratio has increased by 2 times in last five years (from 0.30 in 2007 to 0.65 in 2011)

Free Cash flow has increased by 3 times in last five years (from Rs 148 crore in 2007 to Rs 525 crore in 2011)

Book Value of the stock has increased by 5 times in last five years (from Rs 13.5 in 2007 to Rs 73 in 2011)

Adjusted EPS has increased by 4 times in last five years (from 4.7 in 2007 to19.7 in 2011)

ROA -20.67%, ROCE- 23.97%, ROE- 31.03% as on 2011

Valuations:

PE ratio: 11.3

PEG ratio: 0.24

Dividend Yield: 1.8%

What’s the X-factor?

Bonus History:

Year	Bonus ratio
2012	3:10
2008	7:10
2007	1:02
2006	1:01
2005	5:10
2004	3:10
2003	1:10
2003	2:10
2000	18:10

Dividend History:

Year	Dividend (in %-FV-Rs 10)
2011	45
2010	40
2009	40
2008	50
2007	50
2006	40
2005	35
2004	30
2003	30
2002	30
2001	30

FIIs Holding:

FIIs have increased their holding over the years. At present they hold 37.33% in the company.