OPTO CIRCUITS - BUY

Opto Circuits Q3FY09 results are in line with expectations. During Q3FY09, OCL registered an operating income of Rs 211 crore, a growth of 65.7 per cent y-o-y.
However, its net profit grew by 47.4 per cent to Rs 52.7 crore, which was partly restricted due to higher interest costs that increased by a staggering 426.7 per cent to Rs 14.66 crore. The broking house Ambit Capital remains upbeat on the company's growth prospects and increases its PAT estimates for FY09E, from Rs 176.4 crore to Rs 196.76 crore, on account of lower administrative costs and higher other income. Also, the company is planning a capex of Rs 100 crore as against Rs 25 crore planned earlier for FY10E. Interest burden is likely to come off marginally as the company would see an infusion of Rs 18 crore by way of the promoter's warrant conversion.
At the recommended price of Rs 85, the stock is available at 5.3x its consolidated FY10E EPS. The broking firm expects the stock to perform well as company delivers growth numbers over the next few quarters. OCL's strong margins and high return ratios warrants a re-rating on the stock.
Also, the concerns on high interest cost and extended working capital cycle are already priced in current valuations. The broking house maintains a buy on the stock with a reduced DCF target price of Rs 140.


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