ICICI Direct: Hold Opto Circuit

Opto Circuit India (OCIL), continued reporting strong 29.9% growth in net sales and 31.8% in net profit on consolidated basis for Q1FY09, mainly contribution coming from acquisition (Criticare and EuroCor). EBITDA margin expanded 190 basis points (bps) YoY to 33.4% though down 100 bps from Q4FY09.

On standalone basis, the company reported 19.1% to Rs 98.1 crore and 160 bps increase in EBITDA margin to 42.7% supporting 23.8% rise in EBITDA to Rs 41.9 crore. However, higher interest outgo have broken growth trend at gross profit (GP) levels; GP de-grew 6.8% translating 5.1% de-growth in net profit to Rs 28.5 crore as against Rs 30 crore. Acquisitions, expanding product and market portfolio, and new FDA (United States Food and Drug Administration) approvals for various products, would drive growth going forward.

Valuations We are maintaining our earning estimates and price target on the back of growing core business and expanding subsidiaries’ contribution. At CMP of Rs 163, the stock is trading at 20.1x standalone FY10E EPS of Rs 8.1 and 12.9x consolidated EPS of Rs 12.7. We reiterate HOLD rating.

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