Opto Circuits

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Suresh Rathi R E P O RT 0 8 0 9 / 0 0 7 30 JUNE 2008

Reporting-

Opto Circuits (I) Ltd. Capitalizing on theory of Inorganic Growth...

9, Parekh Vora Chambers 66 N.M. Road, Fort Mumbai - 400023

Phone: +91-22-22666178 Fax: +91-22-66344007 E-mail: [email protected]

Suresh Rathi

Opto Circuits (I) Ltd. Capitalizing on theory of Inorganic Growth Research Report No 0809/007

OPTO CIRCUITES established by Mr. Vinod Ramnani, the driving force behind Opto Circuits. Having worked with Organizations in India and abroad, Mr. Ramnani had a wealth of experience to back him, when in 1990, he along with Thomas Dietikar (the American co-promoter of Opto Circuits) decided to establish M/s Elekon Industries Pre Ltd. in Singapore. Thereafter, Mr. Ramnani initiated a move to shift the manufacturing facilities to the Silicon Valley of India (Bangalore) and Opto Circuits was formed in 1992.

30 June 2008

CMP: Rs. 290/-

At A Glance

Equity (Rs Cr.) Book Value EPS PE Ratio Market Cap (Rs Cr.) 52 Week High/Low Dividend Yield (%) Last Dividend (%)

94.17 33.91 12.63 24.10 2732.28 581/ 241 1.64 50.00

Share Holding Pattern (%) as on 31 March 2008 Foreign Institutions Non Promoter Hold Promoters Public & Others Total

Aashish Chitlangi Institutional Desk:

[email protected]

+91-9820186491

Rahul Bhandawat Research Desk:

[email protected] +91-9321413828

Overview

34.69 4.50 10.83 30.39 19.59 100

It manufactures products like Optical Sensors, Medical Electronics, Security Systems and Chip-on-Board Assemblies. The company has two manufacturing units located in Bangalore which have 100% EOU status and it is also listed with Federal Drug Authority, USA. It manufactures two categories of optoelectronic components and assemblies, namely, the standard products and customized products, the products are customized critical care medical sensors used in operation theatres, ICU, X-Ray Machines and CAT Scans. From initial stage of design and development of prototypes, the company works closely with its customers to the testing and completion of the finished products. The company executes projects and services, for clients in USA through its associate company & channel partners. It is catering to worldwide customers like - Agilent Technologies Inc., USA, (formerly known as Hewlett Packard), Criticare Systems Inc., USA, Logitech International, S.A., Switzerland, Nellcor Puritan Bennett, Nonin Medical Inc., USA, EPIC Medical Equipments Inc., USA, etc. It is the sole manufacturer of opto - electronic based medical equipment in the country. On a standalone basis, OCIL manufactures non-invasive electronic patient care products and markets them through its business associates in Europe and the US and subsidiaries in India and the US. OCIL has adopted an Inorganic Business Model (growth in the operations of a business that arises from mergers or takeovers, rather than an increase in the companies own business activity. Firms that choose to grow inorganically can gain access to new markets and fresh ideas that become available through successful mergers and acquisitions) for gaining better market access for its products and increasing its product lines in the growing health care segment. It acquired a majority stake in the listed Advance Micronic Devices (AMDL) in 2001 for marketing its products in the country. In 2002, the company acquired the patient monitoring system of US-based Palco Labs, later renamed Mediaid and now a 100% subsidiary of the company in US. Currently Mediaid is responsible for selling OCIL’s products in the US and other parts of the world. The company came out with an initial public issue in 2001 for 27.02 lakh equity shares with a face value of Rs 10/- at a premium of Rs 40/- per share to finance the cost of enhancing the infrastructural facility of the company, meet the cost for completion of additional building at the existing site, set up marketing office in London, UK, at an estimated total project cost of Rs 15.50 cr. The company has been maintaining strict quality control by benchmarking the facilities and the products to the international standards. Accordingly the company has been accredited with ISO 9001 certification since 1995 by RVA, Netherlands, through STQC Directorate, Govt. of India. In 2004, OCIL acquired a 100% stake in Altron, an electronic manufacturing concern in Bangalore. The company recently diversified into invasive healthcare products by purchasing the Germany-based stent manufacturing company EuroCor.

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Opto Circuits (I) Ltd. Interesting: ü The board of directors in their meeting on 27-05-08 have recommended to issue bonus shares of 7 shares for every 10 shares held.

Price Chart

ü Company is all set to acquire the US-based Criticare Systems in a USD 70 million deal Criticare Systems is in the business of manufacturing vital sign monitors, anesthesia monitors and pulse Oximeters.

ü Opto Circuits (India) is targeting revenues of over Rs 8 billion in 2008-09 Revenues are likely to get boosted by the growth of the company’s product business. ü

Has acquired EuroCOR GmbH in Germany. Deal valued at €11 million; gives access to 26 countries globally.

ü Company has huge expansion, R&D and Acquisitions plans. ü Opto products approved for American defense supplies. FDA approved Spo2 Sensors and Patient Monitoring Devices awarded access to America’s Defense healthcare business. ü Opto Circuits is accorded 2-Star Trading House status. ü Opto Circuits keeps on breaks new ground in healthcare technology by it’s products in-house R&D develops world-class Thermal Printer, MultiParameter Monitor, Waveform - enabled Pulse Oximeter at economical prices. ü On a consolidated basis, OCIL has a focused presence in the growing healthcare market and has a global marketing presence through its associate companies. ü Due to its EOU status (valid till 2009) and manufacturing presence in India, OCIL enjoys better-cost advantages compared with its global competitors. This ensures growing manufacturing outsourcing by global peers as well. In this context, the R&D expansion to supply products as per the needs of the original equipment manufacturers is a positive step.

Pulse Oximeter

Digital Thermometer

Multi parameter Monitors

Cholesterol Monitors

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Opto Circuits (I) Ltd. Equity History:

Photo Sensor, Detector and Emitter Assemblies

Infra Red Detectors

Management of the Company is clear about the growth of company. It has given an excellent return to the share holders. It has declared minimum 30% dividend & Bonus Issue every year since 2001. According to simple calculation if any one bought 100 shares in 2001 at Rs. 50 per share (31st March 2001) (Investment Equivalent to Rs. 5,000) has now become 768 shares till 25/10/2008 and current value (768*304) is near about Rs. 2, 33,472. Company has one more Bonus Issue in the pipeline; the boards of directors in their meeting on 27-05-08 have recommended a bonus issue of 7 shares for every 10 shares held.

R.D.

Equity Capital

Purpose

Premium

Ratio

Dividend (%)

T.B.A. 25/10/2007 30/10/2006 19/04/2006 16/08/2005 20/10/2004 10/11/2003 14/01/2003 31/03/2002 31/03/2001

94.17 94.17 61.62 30.81 26.81 17.88 13.75 11.48 10.44 10.44

Bonus Issue Bonus Issue Bonus Issue Public Issue Bonus Issue Bonus Issue Bonus Issue Bonus Issue -Public Issue

0 0 0 260 0 0 0 0 0 0

7:10 1:2 1:1 1:2 3:10 02:10 01:10 -00:00

50 50 40 35 30 30 30 30

Concerns: ü Due to the typical characteristic of its products and the batch manufacturing process, the company has to maintain high inventory level. ü None of the products of the companies or subsidiaries acquired are patented and will have to fight it out on cost and service. Stents

ü OCIL’s strategy of inorganic growth increases its risk profile. ü EuroCor, OCIL’s recent acquisition, is a loss-making company and its cash flow has been negative since the past five years.

Synopsis:

Pulse Oximeter Sensors

Opto Circuits India operates in a niche area of manufacturing of healthcare equipment in India. It has got near monopoly in the field of medical electronic devices and monitoring products that employ sensing and detection techniques. Its recently launched DIOR, a unique drug eluding catheter, which can be used in the treatment of coronary disease in stent promises to be a potential winner. Its strong distribution network through its subsidiaries has proven & will continue to prove a boon in this competitive industry. It has received a formal approval from the central government to set up a SEZ (special economic zone). Opto`s net sales and profits are expected to grow at CAGR of 45% and 40% respectively from FY08E to FY10E.

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Opto Circuits (I) Ltd. Results

Particulars Sales Other Income PBIDT Interest PBDT Depreciation PBT Tax PAT

LATEST RESULTS (Rs in Cr.) Quarter Ended Year Ended Mar-08 Mar-07 % Var Mar-08 Mar-07 % Var 95.39 64.19 48.6 328.69 201.64 63 10.75 0 11.83 2.67 343.1 40.25 26.61 51.3 130.58 79.72 63.8 3.02 1.41 114.2 8.77 4.98 76.1 37.23 25.2 47.7 121.81 74.74 63 1.19 0.44 170.5 2.59 1.59 62.9 36.04 24.76 45.6 119.22 73.15 63 0.39 0.89 -56.2 0.43 0.97 -55.7 35.65 23.87 49.4 118.79 72.18 64.6

Key Financial Ratios: (Based on audited results of 31-03-2007) Ratios

0703

Return on net worth (RONW) %

50.57

Return on capital employed (ROCE) %

39.80

Cash profit margin %

36.59

Current Ratio %

2.07

Debt Equity Ratio %

0.38

Interest Cover %

15.69

Long Term Debt-Equity Ratio % APATM %

0.11 35.80

Stock Return (%): -Exchange Closing Price BSE 304.15 Average Volume NSE 304.25 Average Volume

30 Days -9.69 51442 -9.52 99791

3Months -6.79 51174 -6.70 97393

6 Months -37.71 44338 -37.23 94973

1 Year 18.72 63965 18.51 118313

Quarterly Results at a Glance (Rs in Cr) Particulars Net Sales Other Income PBIDT Interest PBDT Depreciation Tax PAT

200712 90.43 1.05 34.34 2.29 32.05 0.48 0.02 31.55

200612 55.23 1.68 21.21 0.89 20.32 0.42 0.05 19.85

VAR % 63.7 -37.5 61.9 157.3 57.7 14.3 -60 58.9

200709 81.28 0 30.84 1.94 28.9 0.47 0.01 28.42

200609 51.12 1.38 19.73 1.18 18.55 0.39 0.02 18.14

VAR % 59 0 56.3 64.4 55.8 20.5 -50 56.7

200706 61.6 1.09 25.16 1.52 23.64 0.46 0 23.17

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200606 31.1 0.16 12.18 1.51 10.67 0.34 0 10.33

VAR % 98.1 581.3 106.6 0.7 121.6 35.3 0 124.3

KEY LOCATIONS -: REGISTERED OFFICE :-

Lalit Mundra 11 & 12 ‘A’ Mithila C.H.S. J.B.Nagar, Andheri (E), Mumbai – 400059. Tel: 022-28354000, 28216446 Fax: 022-28205533 Email: [email protected]

-: CORPORATE OFFICE :-

Kailash Sarda Mahesh Hostel Complex, Opp Bombay Motors, Chopasni Road, Jodhpur – 342003 Tel: 0291-2654000 Fax: 0291-2430913 Email: [email protected]

-: INSTITUTIONAL SALES :-

Aashish Chitlangi 9, Parekh Vora Chambers, 66 N.M.Road, Fort, Mumbai – 400023. Tel: 022-22666178, 22691103 Fax: 022-56344007 Email: [email protected] For details visit our website at www.srspl.com

Report Prepared by: Rahul Bhandawat Research Department

Disclaimer: This document has been prepared and distributed by SURESH RATHI SECURITIES PVT LTD. The information in the document has been compiled by the research department. Due care has been taken in preparing the above document. However, this document is not, and should not be construed, as an offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or published, in whole or in part, without prior permission from the SURESH RATHI SECURITIES PVT LTD.

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