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Growth Sensor

Opto Circuits India Limited is a leading manufacturer of non-surgical sensor equipments. The company is now looking to expand its product portfolio by acquiring other companies

Opto Circuits India Limited (OCIL) is a leading player in the non-invasive (non-surgical) sensor segment. The company designs, develops and manufactures devices that use light to sense and detect. The company also produces medical monitoring equipments and carries out the distribution of all its products as well. Opto Circuits' product portfolio includes digital thermometers, sensors, probes, pulse oxymeters and patient-monitoring systems. The company derives 95 per cent of its revenues from the overseas markets. Out of this, 70 per cent comes from the original equipment manufacturers.

In 2003, Opto Circuits acquired the patient-monitoring division of Palco Labs, USA. The same was renamed as Mediaid Inc. OCIL has an extensive distribution network spread across US, Latin America and Europe.

In India, OCIL's products are marketed by Bangalore-based Advanced Micronic Devices (AMDL), which is a listed company. In 2001, OCIL had acquired a 59 per cent stake in AMDL. OCIL, along with the distribution network of AMDL, currently has a nationwide network of 15 sales offices and over 260 stockists and distributors. The company now plans to leverage on AMDL's network to boost domestic revenues.

Growth Drivers
OCIL's core businesses encompass SpO2 (sensor oxy probe) and patient-monitoring systems. These products are the key drivers for the company's future growth. The company's SpO2 sensors have been approved by the US FDA. Furthermore, the expiry of the patent of the pulse oximetry technology offered by Nellcor (US's leading manufacturer of SpO2) has opened up the US market for companies like OCIL. The US accounts for 70 per cent of the international market for SpO2 sensors and OCIL is targeting to achieve 10 per cent of this market share in the coming years. For OCIL, as a group, non-invasive equipment accounts for around 75 per cent of its product portfolio and revenues from this segment are expected to witness robust growth as well.

Acquisitions: The Growth Ladder
Over the years, OCIL's growth strategy has been to acquire companies to widen its product portfolio and enhance its presence in different geographies. This strategy has been complemented with the launch of innovative products and focus of research & development (R&D).

In 2006, OCIL acquired EuroCor Gmbh, a German stent manufacturer which gave OCIL an entry into the invasive segment. The total current global market size of stents is US$12 billion (Rs 468 billion). U.S. is the largest market for stents, accounting for 50 per cent, and is followed by Europe. EuroCor specialises in the R&D and manufacturing of interventional cardiology products, specifically stents. Stents are of two types - bare metal stents (BMS) and drug eluting stents (DES). EuroCor, with presence in 32 countries, offers eight types of products and has acquired the CE Mark approval for stents, which enables it to market DES in 25 countries in the European Union as well as Middle East, Latin America and Asia. OCIL has acquired two more companies in the recent past: Ormed Medical Technology and Devon Innovations. These two companies are engaged in the manufacturing of catheters, stone graspers and dilator sets used in urology, gastroenterology and gynaecology.

Rapid Revenue Growth
Worldwide, 4 million patients are expected to undergo stent implants at present. EuroCor expects 8,56,000 balloon catheters to be used on these patients, which translates into a revenue stream of approximately $1.20 billion. And with the CE accreditation in place, revenues from the stent business are projected to rise at a CAGR of 41.9 per cent over FY-07-10E. However, EuroCor works on a very low net profit margin. The company is expected to earn profits of Rs 3 crore from Rs 0.7 crore, rising at an exponential rate of 62.5 per cent. Hence, for the initial few years, EuroCor will be considered only from the product portfolio enhancement perspective. Once its products are well placed and hold a comfortable market share, its bottom line should improve.

Cheaper Pricing Strategy
In the stents segment, the current major players are Johnson & Johnson, Boston Scientific, Guidant, and Medtronic. EuroCor currently has a miniscule market share but by pricing its products comparatively cheaper than the competitors, OCIL hopes to garner a larger market share. The strategy would be volumes growth.

Furthermore, EuroCor is focusing on consistent innovations to introduce a new coronary stent technology. OCIL is also planning to invest 20 million Euros in EuroCor's R&D efforts to introduce innovative cardiac products.

Financials
OCIL has performed steadily in the past. The company reported net sales of Rs 201.6 crore and net profit of Rs 72.2 crore in FY-07. Going forward, we expect standalone revenues to increase at a CAGR of 30.6 per cent over FY-07-10E. We expect EBITDA (earnings before interest, taxes, depreciation and amortization) to be at around 35 per cent. This margin will decline from 38.5 per cent due to the increasing product portfolio, where different products are sold at different EBITDA.

In the recent past, OCIL has consistently rewarded shareholders with bonus issues and currently its equity is diluted to Rs 94.7 crore. The return ratios continue to remain robust.