Opto Circuits (India) Ltd. | Is It Going To Make Upper Circuits | When And Why?

Company Name: Opto Circuits (India) Ltd.


Industry: Meditech (Medical Technologies)

Sector: Hospitals & Medical Services

CMP NSE: 9.95

CMP BSE: 9.96

It was the year 2012, the month Aug and the date 17. Motilal Oswal Securities have given a neutral rating to ‘Opto Circuits (India) Ltd. The target price was Rs.173 at the then market price of Rs.147.55. It was the call given after the knowing  fact that the  balance sheet was under the stress and indicating its negative future cash flows. That’s what is called,  the power of goodwill, Opto Circuits (India) Ltd., has had on its records.

Opto Circuits (India) Ltd. – A Victorious Beginning

This 1700 Crore company, Opto Circuits (India) Ltd, started its journey in 1992, as a manufacturer of Sensors. These Sensors as a peripheral components were supplied to the large scale medical equipment manufacturers. Since from then the company has been operating under two segments – The health Care and Information technology. The motto was and is clear – Guaranteed Quality And Innovation.

‘Products and Business’ – The Brand of Quality Assurance

Opto Circuits (India) Ltd., is a multinational medical device company. It designs, develops, manufactures, markets and distributes a range of medical products that are used by healthcare establishments in more than 180 countries. The company specializes in vital signs monitoring, vascular treatments, emergency cardiac care and sensing technologies.

Their other products include optical sensor, security systems, medical electronics and chip-on-board assemblies. These high quality peripheral products are provided by them for many reputed companies around the globe.  All are high in demand.

Proved Marketing Expertise

Apart from manufacturing, OCIT has an efficient marketing wing too. Highly reputed brands like MED Aid, Critical Care Systems, Euro care, Unetixs and Cardiac Science are marketed by Opto Circuits. All these are, USFDA listed and CE marked products and gained reputation in a very short span of time.

List of Prestigious Awards – A Symbol of Repute

If, bagging a single award is a hallmark of purity and prestige  for any business, what we can say about the list of awards that ‘Opto Circuits (India) Ltd., has in its basket?!!!
  • Annual Export Award (2011)
  • Best Performer I Electronics (2007 – 2008) & (2008 – 2009)
  • Overall Best Performance in VSEZ (2009 – 2010)
  • Forbes’ 200 ‘Best Under a Billion Asian Companies (For 2011der)

Why, Dr. Vinod Ramnani, CMD, Opto Circuits (India) Won the Prestigious ‘NextGen Entrepreneur of the Year Award?

For methodically moving up the value chain from non-invasive medical products to high-tech branded devices. For building a research-driven cross-border organization.

These are, a very few of very renowned awards that Opto Circuits India has bagged. There are many others too, try to add here asap.

But Why the Free-Fall

Apart from  such an astonishing and winning history, the stock value has been falling from its all time high of 262 to the recent all time low of Rs.8.12 is a matter of big concern. Sometimes one small (wrong) aggressive step may lead to destruction. That’s what happened in the case of ‘Opto Circuits India Ltd.”. Aggressive expansion. This is the common mistake done by many businesses that led to their devastation. That’s what happened in the case of Opto.

Since from 2oo1 Mr. Romania started to acquire many small and big companies in India, Europe and United States. Paid up sums were very huge. As a result, the Bangalore based and headquartered Opto Circuits India Ltd., turned in to a fairly formidable healthcare products company. The profits that were generated were distributed back to the investors in the range of 30% -40%.

Mr. Ramnani, supposed to stop there itself. But he couldn’t. In the year 2010 he spent $60 million towards 3 acquisitions, which is, a quarter of the company’s $245 million annual revenue. This, finally anyway, led to a huge fall in the stock price from Rs.222.91 in 2012 Feb’ 22nd to 143.35 in June 2012. And, the company couldn’t digest the acquisitions, and the fall continued to the year 2013 to the recent low of Rs. 8.1 on Feb’11, 2016.

Fundamental Analysis

Pros

Current Asset Base

Total current Assets of around Rs. 1700 Crores, against the total equity share capital of Rs. 242.32 Crores is a very good concern and safety net for its investors.

Book value

The current book value of Rs.69.67 against the Current Market Price of  9.96 is saying that it’s a value pick and just buy for a long hold.

Cons

EPS

Its current Zero EPS is not a big concern, once the company receives all the benefits and seed capital for its proper functioning. Once the business picks up, the EPs starts to appear and grow quarter to quarter.

Contingent Liabilities

These a contingent liabilities figure on the balance sheet. An around Rs 689. 95 Crores of contingent liabilities, the company has to overcome in the future. For a well established business like OCI, this number is not so big. I have a hope and trust in the company’s return-to-back future prospects.

Technical Analysis

As a technical analyst I’m sure that the chart is on its bullish trend. If not so promptly, but will move forward very soon.

Why I Recommend To Buy

PMO Push – A Great Hope for Its Future Performance

After PMO push, Dept of Pharmaceuticals fast tracks formulation of medical devices policy

In order to attract FDIs, The Prime Ministers Office has been pushing the ‘Department of Pharmaceuticals’ to fast tract the ‘Medical Devices Policy’. In a meeting convened by the Prime Minister, this issue has been discussed in detail. According to the department of Pharmaceuticals (DoP), the work on this policy has been expedited and will be released soon.

India imports its 80% of its medical device requirements. The police assumed much significance in this regard too.

According to sources, there is an understanding that a robust medical devices policy is required to help realize the full benefit of the relaxation of the FDI policy. FDI up to 100 per cent through the automatic route is permitted for the manufacturing of medical devices in the country

Along with Opto Circuits, the other companies engaged in manufacturing of medical devices include Siemens, Poly Medicure and BPL. There is a need for FDI in the sector as the domestic medical device industry is fragmented into small and medium enterprises and primarily manufactures products such as disposables. The draft National Medical Device Policy, 2015, had proposed incentives for both new and existing medical device firms. It had asked for interest subsidy to MSMEs, concessional power tariff, seed capital, viability gap funding, tax benefits to the sector, minimum or zero duty on raw materials and incentives for exports.

*** There was an order of Rs.91 Crores, from PHILIPs Health care, in December 2016, for the supply of various Medical Devices. And, this will definitely strengthen the business in future. A sure-shot hope.

  • All these are my concerned points about the business, that made me to suggest to buy this value pick for your long-term portfolio. The rest is all your will and wish.

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Thank you for reading. Happy investing!

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Hedging With Derivatives | An Advanced Stock Investment Strategy

This article is of little use to those investors who are expert derivative traders and know, how to use hedging for their portfolio against market risk. But, of utmost know to factor to the investors, who are away from the derivative segment and are likely to know about. Let’s read.


What is Hedging and Who is a Hedger

A strategic trading strategy in the derivative market, to protect the value of equity portfolio against price fluctuations is called hedging. When there is an uncertainty in the price movement of any stock, stock investors can hedge the price of a stock from a fall, by participating in the derivatives market. And, such investor is then called to be a Hedger.

Hedging is nothing, but securing the price of a stock by speculating market movement. In other words, it’s an advanced equity investment strategy, where the equity investments are protected in the market fall /fall in the price of a stock scenario. Hedging gives a sort of ‘peace of mind’ to the equity investors, by ensuring a more predictable outcome.

Hedging of a Stock doesn’t give more outcome, but it definitely gives a more predictable outcome.

What Are The Types Of The Risks Associated With Any Stock

While buying a stock every investor thinks and hopes that, it will move forward and there will be a hike in the stock price. But, nobody can make sure that the price hike is definite. There are certain risk factors, that may restrict the stock price, and push it down.

The stock price is always a function of many risk factors, which will decide its future. Some are specific to the particular stock and sector. And some are global. Market risk is considered as an external risk factor that will equally affect the entire industry. For example, currently the Diamond Industry, is facing such a type of Market Risk. Which is unavoidable by all the stocks of various companies that belong to this industry.

How To Hedge A Stock

Hedging is an art of ensuring the return of an equity investment apart from market risk. This is done by participating in the derivatives market, and execute exactly the opposite trade. That means, the trade which  opposite to the trade in equity segment. By doing so, one can ensure the return from either the equity /derivative market, as the two segments move in opposite directions. In this form, one can bypass the risk to those who are willing to bear it.

There are two types of derivative contracts, that help the investors to hedge their investments in the cash segment, that is equity. They are Futures and Options.

For example Mr. A holds 100 shares of a company XYZ. If the buy price is Rs. 10 per share, and the stock price is hovering around Rs 10 and Rs.12, for a month. Then Mr. A speculated the price movement towards negative direction. And, he decided to liquidate his holding predicting its future fall. But, his advisor and friend, Mr. B suggested him to hedge his holding  to ensure his future earnings at the cost of the premium to be paid to buy a contract in the derivatives segment. So, Mr. A postponed the idea of selling the shares at the current market price. And, decided to sell the stock at the expected Rs. 15 after 3 months.

Even though there are many contracts to hedge the stock value in derivative segment, the best one is the PUT Option, which he can utilize to sell his stock after 3 months and at the strike price.

Put Option gives the buyer to sell the stock  during a predetermined period and at the predetermined strike price, which is usually above the market price.

The cost of buying a Put Option increases with strike price. That means, higher the strike price, the higher the cost. So, it is always advisable to choose the strike price moderately to hedge the stock.  So, Mr. A chose to buy the 1 ATM Put of 100 shares with the 3 month expiration period.  He paid Rs. 100 towards premium and his strike price was Rs.11

As per his expectation the price of his stock fell to Rs.10. And, Mr.A exercised his option to Put his quantity of 100 shares at Rs. 11 each. The amount he received was Rs. 1100. So, the loss is only the amount that was paid towards commission while buying the stock. In India the Futures and Options, of all the listed stocks expire on the last Thursday of the contract month. If that Thursday is declared to be the holiday, the expiry day will be the preceding Wednesday.

If you like my article, leave your comment. I value your comments, and try to rectify my defaults.

Happy Investing!

 

Value Stocks | Hidden Gems For Value Investing

Good Management and Coprporate Governance. Hopeful Sector. Upcoming Industry. Analysis Says – The Company Fundamentals are Strong. Excellent future prospects. Technicals are suggesting to buy. Yes. Definitely the stock falls in the ‘Value Stocks’ category.


The secret of many people to become millionaires! The success mantra of many Mutual Funds to out-perform! Value investing is nothing but chasing those hidden gems to own. Just invest and forget to hug your future fortune. That’s what ‘The Value Investing Is!

What Are ‘The Value Stocks’

All those stocks that tend to trade much below their intrinsic value can be considered as ‘Value Stocks‘. These stock’s current market price don’t match with either the fundamentals of the company or its earning levels. And, thus considered to be an undervalued stock by the ‘Value Investors’.

How To Spot A Value Stock

If the company is paying good dividend, earning levels are excellent and sales growth rate is OK, but the stock is available at low price. We can exactly say that the stock is a value stock.

Other characteristics would be, high dividend yield, low P/E (low price to earnings ratio) and low P/B (low price to book value)

Why To Invest In Value Stocks

As the value stocks /securities are trading at a lower price than how the company’s performance may otherwise indicate, there will be a breaking down point in the near or the far future of every value stock. Difficult to guess, but sure to be assessed. The target price will be at least its intrinsic value.

Investing in a value stock is an attempt to capitalize on market inefficiencies. By investing in a value stock, we can make sure that, we are going to encash the inefficiency of the market to recognize the stock’s underlaying value.

How To Invest In Value Stocks

Just spotting a stock with the required ratios is not enough to decide upon that the stock is undervalued and can invest without any further investigation. Of course, this would be the first step to develop a rough list of stocks – that may be our best choice of value picks. So, just the screen test and making a list of stocks that we expect to be undervalued is over.

Apart from this there are two more steps of analysis required to be done before investing. They are ‘Qualitative Analysis’ and ‘Quantitative Analysis’.

What Is Qualitative Analysis

The entire analysis of the company, side stepping the financial ratio analysis (quantitative analysis) is called the qualitative analysis. Here there are no financial ratios not their analysis. But, it involves analyzing the company in the vague light of distinctive practical matters, which directly or indirectly affect the company’s performance  and its stock value anyhow.

Factors like industry to which the company directly /indirectly related to, future scope of that industry, company management, corporate governance, company competitiveness with its competitors, government subsidies, quality of the goods produced, climatic conditions and finally the demand for its products /services etc, need to be analyzed in depth before deciding upon the stock to be a Value Stock. Unlike quantitative analysis, qualitative analysis needs more attention and is very time consuming.

Qualitative Analysis is best made by the investors, that is relevant to them. The companies they worked for, goods they sold once or well known with the products and their demand are best to be chosen for analysis.

It’s wise to buy companies, that you understand better

– Warren Buffet

What Is Quantitative Analysis

There is a myth among the common investors that ‘The Quantitative Analysis, is a little bit difficult ratio analysis performed by the expert analysts. But, the existed IT tools made it a crazy one minute analysis done by any common people. No financial expertise is required.

Once the ratio analysis is over, the next step is to analyze the impact of their values. All the investors with basic knowledge of how these financial ratios should be for the company’s out-performance in the near future, are said to be in good position in value stock picking.

Other Strategies To Invest In Value Stocks

Few value investors opt to invest in stocks of companies whose products or services have been in demand for a long time and are likely to be continued.

Innovation‘ – This sounds like a synonym of development. And of course the stepping stone of true development. But, this would be a great threat to certain companies and sometimes the whole industry too. History witnessed a few long-standing companies and industries victimized by new innovations. Their products /services became obsolete and the companies lost forever. Here, what we need is critical thinking skills. If there is a proof that, the company has been in the business for a longstanding period and has the ability to fast adapt the new changes and innovations, then we can be free to choose such businesses for further analysis. At this point it may be worthwhile to analyze management and the effectiveness of corporate governance to determine how the company reacts to new innovations and changing environments. Investment in such a business is considered to be always safe and  fruitful.

That’s all. Thank for reading this topic.

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