Opto Circuits India Limited

Karvy Investors Services Ltd., has set aside Rs.334 lakhs towards the safety net for the original individual allottees @ Rs.50/- a share, for a maximum of 200 shares per original allottee. The safety net is open for a period of six months.

Opto Circuits (India) Limited

Issue Opens : 29th Sept., 2000 Issue Price: Rs. 50/- per share (FV Rs.10/-) Issue Size: 27,02,000 shares amounting to Rs.13.51 crore Registrars to the Issue:Karvy Consultants Ltd.	Issue Closes: 06th Oct., 2000 Minimum Application: 100 shares @ Rs.25/- each Post-issue promoter’s stake: 34.64% Lead Managers: Karvy Investors Services Ltd.
Recommendation : Good Buy

Listing on: Mumbai, Bangalore and Hyderabad Stock Exchanges

Executive Summary

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Business

Industry Scenario

Financials

Project Analysis

Critical Success Factors

Competitive Position

Market Scenario

Recommendation

Business

The company was incorporated in 1992 as Opto Circuits (India) Private Limited. It was converted into a public limited company in April 2000. The company had started off with the manufacture of Optical Sensors, Medical Electronics, Security Systems and Chip-on-Board Assemblies.

The company has two manufacturing units at Bangalore, which are 100% EOU. The company exports its entire production to North America, China and other European countries through its business associate, Elekon Industries USA Inc.

Through Elekon, the company has been supplying its products to Agilent Technologies Inc., USA (formerly known as Hewlett Packard), Criticare Systems Inc., USA, Logitech International, S.A., Switzerland, Nellcon Puritan Bennett, Nonin Medical Inc., USA, Epic Medical Equipments Inc., USA. The company has also been supplying its products directly to Hindustan Lever Limited in India.

Opto Circuits was initially promoted by Mr.Vinod Ramnani, Mrs.Usha Ramnani, and by Elekon Industries (S) Pte. Ltd. However, in 1999, Elekon sold its stake to 22 individuals at Rs.10/- per share.

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Industry Scenario

The optoelectronic industry is a subset of the semiconductor industry, which is a part of the electronics component industry. Optoelectronics is a combination of optics and electronics. It mainly involves collection, transmission, storage, display and hardcopy output of information.

According to the Optoelectronics Industry Development Association ("OIDA"), the optoelectronics industry is estimated to generate markets and services in excess of $1 trillion within the next decade.

The worldwide market is estimated at $147 billion and can be categorized into seven categories - Visible LED Lamps and Displays, Infrared LED Lamps and Assemblies, Optocouplers, Laser Diodes, Detectors, Datacom Modules and Image Sensors.

Opto Circuits is engaged in Visible LED Lamps and Displays, Infrared LED Lamps and Assemblies and Detectors, which has estimated annual shipments of over $3 billion.

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Financials

From Rs.332.64 lakhs in FY96, the total income of the company has increased to Rs.1841.07 in FY2000. The net profit during the same period increased from Rs.47 lakhs to Rs.343 lakhs. The company has reserves to the extent of Rs.612 lakhs.

Financial Performance(in Rs. lakhs)
Particulars	1995-96	1996-97	1997-98	1998-99	1999-2000
Total Income	357.48	448.67	530.24	1383.07	1938.22
Net Profit	46.89	55.58	11.94	101.11	343.16
Reserves & Surplus	92.69	155.78	167.72	268.83	611.99
EPS (Rs.)	5.86	7.03*	1.51	2.68*	14.56*
NAV (incl. share application money)	14.41	15.18	14.69	16.04	32.54
RONW (%)	15.29	12.17	2.27	14.17	38.84

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Project Analysis

The issue proceeds will be used

to finance the cost of completion of additional building at the existing site.
to finance the cost of enhancing the infrastructure facility of the company.
to set up marketing office in London and UK.
to repay high cost debt.
to augment the long term working capital requirement of the company.
to meet the expenses of the issue.
to list the shares on the specified stock exchanges.

Fund Requirements
Cost of completion of additional factory building	50.00
Cost of acquisition of plant and machinery and equipment.	550.00
Setting-up of overseas marketing office.	200.00
Repayment of high-cost debt.	290.00
Long-term working capital requirements.	350.00
Issue expenses.	110.00
Total	1550.00

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Critical Success Factors

The company is a 100% EOU registered under CEPZ and STPI. The company is also registered with the Federal Drugs Authority, US. Opto Circuit has been accredited ISO 9001 certification since 1995 by RVA, Netherlands, through STQC Directorate, Government of India.

The promoters of the company are very well experienced and have the right entrepreneur skills to run the business. The company's association with Elekon Industries is the backbone of the business.

Opto Circuit markets either through Elekon or through direct marketing. The company is preferred as a supplier by companies like Logitech, Switzerland and HP, Germany.

The company has a direct marketing agreement with Abhirami Electronics, Singapore for designing and manufacturing smart cards. The total value of the order is to the extent of 2.5 million Singapore Dollars. The company has another agreement of similar nature with Prolyx LLC, California for manufacture of laser diode, fibre optics/opto electronics, multilayers ceramic packaging and other products in India. The total value of the order is to the tune of Rs.6.5 crore per annum.

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Competitive Position

Opto Circuits has a very well established business, which is expected to pick up further considering the prospects of the industry. Moreover, the company has clients spread across the globe. However, its major drawback seems to be the dependence on one company i.e. Elekon, for its business.

The product concentration seems to be more on medical equipments. Moreover, except for HLL, the company does not have any major clients in India. While this could translate into a business opportunity, for the time being the company faces the risk of adverse changes in the global consumption patterns.

Globally, the market is dominated by producers in Japan and US. Most of the leading companies like Sharp Corp., Lucent Technologies, Philips Electronics, IBM Corp., etc either have a optoelectronic division or a subsidiary doing the same operation.

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Market Scenario

There are not many companies with this kind of a business mix in the market. However, the electronic companies are expected to have brighter prospects in the future due to the IT revolution. While the primary as well as the stock market sentiments are down, there is no looking back for strong companies. The market will only discount the premiums charged, if they are abnormal.

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Recommendation

The company's P/E multiple based on the weighted average EPS of the last three years is 4.25. However, there is no classification of an optoelectronic industry. As such the P/E cannot be benchmarked against industry standards. However, considering the strength of the company and the bright prospects it has, it can be a good buy at the IPO level.

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