Opto Circuits (OCIL) is expected to register a strong 56.7% and 43.7% compounded growth in revenues and earnings, respectively over the next two years.
For FY09, we expect revenue growth of 73.9% to Rs.8.1 billion and net profit growth of 43.5% to Rs.1.9 billion.
The key growth drivers for topline would likely to be stents business which is expected to growth at about 80% while non-invasive segment is expected to grow at 77% mainly due to Criticare acquisition.
For FY10, the revenue growth is pegged 41.1% higher at Rs11.5 billion while net profit is expected to grow at 43.9% at Rs.2.7 billion.
We have assumed EBIDTA margin at 29% levels mainly due to initial pressure from Criticare acquisition. However, management is expecting EBITDA margin in excess of 30%.
Net profit margin is likely to decline to 23.8% in FY10 as against 28.3% in FY08 mainly due to higher interest cost. The company has raised $52 million debt to fund the Criticare acquisition.
We expect 43% and 44% growth in EPS in FY09 and FY10, respectively. In FY09, we expect EPS of Rs20.2 while in FY10 we expect EPS of Rs29.
At the current market price Rs.295, the stock is trading at 14.6x FY09 and 10.2x FY10 earning estimates.
We believe valuations are very attractive considering the strong market positioning, potential introduction of new products, front end R&D set up (with the Criticare acquisition) and strong management.
We maintain BUY recommendation with target price of Rs463 over a period of 6-9 months time horizon. At our target price, the stock will be valued at 15.9x FY10 price to earning multiple and 14.9x FY10 EV/EBIDTA.