Opto Circuits (OCL) has delivered Q3FY09 performance in line with our FY09E expectations.
We remain upbeat on the company’s growth prospects and increase our PAT estimates for FY09E, from Rs1764 million to Rs1967.6 million, on account of lower administrative costs and higher other income.
OCL is planning a capex of Rs1 billion as against Rs250 million planned earlier for FY10E; this would result in higher depreciation. We are also lowering our estimates for other income.
Interest burden is likely to come off marginally as the company would see an infusion of Rs180 million by way of the promoter’s warrant conversion. After incorporating this in our model, we have lowered PAT estimates from Rs2593 million to Rs2558.1 million.
At Rs85, the stock is available at 5.3x its consolidated FY10E EPS. We expect the stock to perform well as it delivers growth numbers over the next few quarters.
OCL’s strong margins and high return ratios warrant a re-rating. Concerns on high interest cost and extended working capital cycle are priced in current valuations.
We maintain our BUY recommendation with a reduced DCF target price of Rs140 (8.8x its FY10E EPS of Rs15.9), an upside of 64.7% from current levels.
This is attributable to higher capex, extended working capital cycle and delay in turn around of Criticare.