Saturday, May 03, 2014

Opto Circuits (I) Ltd: Stretched working Capital Cycle is being Addressed
CMP: Rs.33
Company Overview: Opto Circuits India Ltd (OCIL) is a multinational medical device Company headquartered out of Bengaluru, India. The Company is into designing, developing, manufacturing, marketing and distributing a range of medical products that are used by healthcare establishments in more than 150 countries. It is a vertically integrated group that specializes in primary, acute and critical care products for the global markets.
Opto’s Group companies such as Cardiac Science, Criticare, Eurocor, and Unetixs Vascular are leaders in emergency cardiac care equipment, vital signs monitors, sensing technologies and vascular treatments.
OCIL run facilities and o†ces in North America, Europe and Asia. The Company’s USFDA listed and CE marked products are marketed in - European Union, North and South America, Middle East, Asia and Asia-Pacific through a set of approximately 1,300 distributors which indicates a Strong Global Distribution network of the Company. The Company also sells through direct and indirect sales channels across many emerging and developing economies.
The Company has almost 100 certified products, over 20 internationally recognized brands, which together have an addressable market opportunity of over US$ 20 Bn.
Company’s competitive strength lies in its strong business model, low cost structure, strong IPs, wide product portfolio, highly respected internationally recognized brands, diversified geographical presence and de-risked manufacturing in three countries.
The Company acquired 11 companies in last decade which not only added to the revenue streams and contributed to growth but has increased the addressable market significantly and gave extremely lucrative opportunities to leverage the global distribution network.

Subsidiaries: As on 31st March 2013, the Company had nine direct subsidiary companies, listed as under:

Financials: On a consolidated basis, Opto Circuits (India) Ltd  reported net loss of Rs.6.79 crore in Q3 December 2013 compared with net profit of Rs.113.26 crore in Q3 December 2012.
Net sales fell 42.7% to Rs.354.33 crore in Q3 December 2013 over Q3 December 2012. However, in FY15, the fundamentals of Opto Circuits is expected to improve, as the company plans to focus on both developed and emerging economies with its diverse product portfolio and organic growth initiatives, supported by its R&D team designing products for the developing economies. 

(i) The company has an excellent order backlog that it enjoys from its loyal customers inspite of acute competition. 
(ii) The stretched working capital cycle is being addressed through aggressive debtor collections. Also, Opto Circuits (India) Ltd informed BSE that a meeting of the Board of Directors of the Company will be held on May 06, 2014, inter alia to discuss various options like FCCB/GDR/Preferential Allotment/Private Placement/issue of Convertible Debentures offering and any other form of raising funds for OPTO Circuits (India) Limited and/or for its Indian/Overseas Subsidiaries for its future expansion, growth, joint ventures, acquisition of technologies and Research and development activities. The funds thus raised will not only help in addressing the debts but will also help in completing the pending orders. Though on the flip side, it is expected to dilute the equity. 
(iii) It is  aggressively rationalising its distribution network to improve the working capital cycle further. The asset portfolios are actively reviewed to divest divisions which are not so profitable.
(iv) One of the positive side for the accumulated debts on the books is that, its  bankers have been extremely supportive through this diffi†cult phase and they working closely with the company management on the various short term and long term solutions to address the issues.
(v) Its R&D team in Bengaluru along with its global R&D team in the U.S are developing innovative low cost products, suitable for the developing economies. Since the low cost economies like Africa, parts of Asia, parts of Middle East & the Indian subcontinent are the fastest growing markets; these low cost products will bring in the highly sophisticated products at affordable prices to these markets. The management sees yet another avenue of growth in the new product launches in the Invasive and Non-Invasive segments of its business. Going ahead, its priority would be to consolidate and grow. 
(vi) In the last fiscal, one of its subsidiaries, Eurocor GmbH had entered into a licensing agreement with a leading manufacturer of stenting products to sell its Drug Eluting Balloon range of products through their distribution channels, thereby widening its footprint in these markets. Eurocor's partner - Micell Technologies has received CE Mark Approval for MiStent® SES - Sirolimus Eluting Absorbable Polymer Coronary Stent System. It is a thin - strut stent that features elimination of the coating from the stent in 45-60 days and the complete absorption of the polymer coating within 90 days.
(vii) The company has a robust business model backed by over 100 certified products and over 20 internationally recognized brands, which together have an addressable market opportunity of over US$ 20 Bn (Rs.120000 crores). This is likely to help the Company grow organically for the next few years and regain its past glory.
(viii) Going forward, the Company is aggressively working on cost cutting measures by integrating operations and relocating manufacturing to low cost centers like India and Malaysia. It has also tightened the credit policies to its distributors to shorten the working capital cycle

Conclusion: Buy the scrip at the CMP of Rs.33.30, for a  short term to medium term targets of Rs.37-45-50. Kindly keep a SL of Rs.30.70 for any short term trade. 
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