Buy Opto Circuits India for target of Rs 250: ShareKhan

ShareKhan in its February 02, 2010 research report has recommended a buy rating on the stock Opto Circuits India with a price target of Rs. 250.
ShareKhan cites the following reasons for the recommendation:

Result highlights
•Results in line with estimates: Opto Circuits (Opto) has reported a top line growth of 21.8% to Rs257 crore for Q3FY2010. The revenue growth was driven by a 33.5% growth in the non-invasive segment. The invasive segment, however, continued to languish on account of a slowdown in the global stent business and intensifying competition (down by 15.4%). Criticare Systems (Criticare) contributed revenue of Rs42 crore during the quarter (due to lower realisation of the dollar). On excluding Criticare?s contribution, the organic growth stood at 26%.
•Non-invasive business the key growth driver: Opto introduced three new products in this quarter under the Criticare brand coupled with an agreement with an European player for anesthetic gas delivery products in the key markets. We expect the products to gain traction from FY2011-12 onwards and anticipate a compounded annual growth rate (CAGR) of 21% over FY2010-12 for the non-invasive segment.
•Strong operating performance: Opto?s operating profit margin (OPM) expanded by 540 basis points yoy to 34.3% in Q3FY2010. The margin expansion was driven by improved gross margin (up 220 basis points) and lower promotional expenditure (down 350 basis points).
•Adjusted net profit grows by 64.6%: Opto incurred a foreign exchange (forex) loss of Rs6.1 crore during the quarter owing to the rupee?s appreciation (as 78% of its revenues are dollar denominated). Adjusted for the same, the net profit grew by 64.6% to Rs71.8 crore, in line with our estimate of Rs70.7 crore. A lower interest cost (substantial debt had been retired at the end of Q2FY2010 through qualified institutional placement) aided the profitability in Q3FY2010.
•Revised estimates; introducing FY2012 numbers: In order to factor in the lower than expected revenues from the invasive segment we have tweaked our current estimates for FY2010 and FY2011 by 5% each, taking our revised earnings per share (EPS) estimates for FY2010 and FY2011 to Rs13.5 (vs Rs14.3) and Rs17.7 (vs Rs18.8) respectively. We are introducing our FY2012 numbers in this note and forecast EPS of Rs21.1 for the year.
•Maintain Buy: Opto?s growth is likely to be driven by the non-invasive businesses in the near to medium term. We expect the non-invasive segment to continue to dominate the revenue mix, with its FY2012 revenue share expected at approximately 84%. We expect multiple factors, including the decline in the global stents market and the dominance of the larger players, to keep the invasive segment?s growth tepid (we expect this business to grow at 5% CAGR over FY2010-12). The approval for DIOR in the USA could trigger a re-rating of the stock. At the current market price of Rs218 Opto is trading at compelling valuations of 16.1x FY2010E fully diluted earnings and of 12.3x FY2011E fully diluted earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs250.