Opto Circuits, which has been reeling under intense scrutiny by various stakeholders over its high cost of working capital requirements and the impact this on servicing the debt, has said they are investing for the future growth of the company.
These, according to industry analysts, will lead to pain in the near term, but will be manageable.
On Thursday, Opto’s stock slumped to its 52-week low to Rs 118.70 a share, raising concerns that the company may be facing tough situation in servicing its Rs 1,110 crore debt, under a leverage of 0.65 times.
Another aspect which compounded to the scare was the fact that credit rating agency ICRA downgraded Opto’s debt from AA to B. Opto has since opted to work with CRISIL, and has stopped services from ICRA.
Valiveti Bhaskar, Group Head, Finance, Opto Circuits told Business Standard they are investing in capital expenditure to build manufacturing base in Vizag and in Malaysia and are moving significant manufacturing from United States.
“We have outlined a capital expenditure of Rs 250 crore for this to make our manufacturing more efficient. This is for the future and the market is reading this alarmingly,” he said.
Opto Circuits had over the past few years had spent a total of $160 million to acquire two medical equipment companies in the United States and majority of the manufacturing from those two companies are being shifted to Malaysia and Vizag.
“We will continue to manufacture in the US. Nearly 35 per cent of the capacity will be retained for supply into the US,” Bhaskar said.
Nimish Desai, analyst with Motilal Oswal Securities said that there are concerns over large accumulated goodwill in the books on account of past acquisitions, high working capital requirements leading to high debt, inadequate free cash flow generation remain major concerns.
“We note that management is targeting reduction in working capital. We believe it is imperative for the company to deliver this without diluting the overall growth for the business,” Desai said.
According to Bhaskar, close to Rs 450 crore is on the books due to the goodwill from the acquisitions and there are many patents which can be commercialised in the future, “until that it will be on books or until we sell that asset.”
The company operates in two main segments – invasive medical devices such as stents and non-invasive medical devices such as patient monitors.
The non-invasive arm brings in the major 80 per cent of the revenues of Rs 715 crore, which grew by 37 per cent by end of Q1 of FY13, while net profit grew by 18.6 per cent to Rs 138 crore. Ebidta margin was at 26.6 per cent.
A favourable currency has partly driven topline growth with constant currency growth at 18-20 per cent. Topline growth was led primarily by non-invasive segment which reported growth of 38 per cent Y-o-Y to Rs 580 crore, while the invasive business reported 33 per cent revenue growth to Rs 125 crore.
“PAT growth was lower than Ebidta growth due to a 72 per cent increase in interest costs, a 55 per cent decline in other income and a more than 100 per cent increase in effective tax rate at 9.7 per cent compared to 4.7 per cent for Q1 of FY12,” Desai explained.
Bhaskar explained that the debt of Rs 1,100 crore had a blended interest rate of close to seven per cent and the interest outflow during FY13 is immensely manageable, even if they have to borrow for the Rs 250 crore capital expenditure.
It is further understood that Opto Circuits has been trying to offload equity in one of its subsidiaries in Germany — Eurocor, which is focussed on invasive devices.
“There is potential in Eurocor to unlock value, but we are not in a hurry,” Bhaskar said. Opto had acquired this company for around $11 million which specialises in stents for cardiac care.
