Opto Circuits India Ltd. (“Opto Circuit” or the “Company”) is a multinational medical device Company. The Company is into designing, developing, manufacturing, marketing and distributing a range of medical products that are used by healthcare establishments in more than 150 countries. The Company’s products are marketed in – European Union, North and South America, Middle East, Asia and Asia-Paciﬁc. For a full financial analysis: visit here – Opto Circuits Financial Statements.
WHAT’S DRIVING THE STOCK
Huge Potential in the Medical devices industry
The medical device industry consists of ﬁrms that produce a wide range of products used for diagnosis and treatment of ailments. The demand for medical devices in developed countries like U.S., Europe, Japan, Canada, and the US remains steady, while countries like Africa, China, Brazil, parts of Asia, parts of Middle East and the Indian Subcontinent are growing very fast. The populous low cost economies that are fast growing are promising target markets for medical devices.
India shows huge potential for the medical device sector due to its strong private healthcare system, change in the disease proﬁles (lifestyle diseases), greater penetration of health insurance, government focus on healthcare infrastructure development and rising awareness of personal healthcare.
Global medical device market is expected to reach U.S. $440 billion by 2018 (Source: Opto Circuit Annual Report 2013). The main factors contributing to this growth are ageing population and lifestyle related diseases which are driving medical device demand worldwide.
Opto Circuits is a leading player in the global medical devices industry. The Company has almost 100 certiﬁed products, over 20 internationally recognized brands, which together have an addressable market opportunity of over U.S. $ 20 billion. Opto’s competitive strength lies in its low cost structure, strong intellectual properties, wide and diversified product offering and highly respected brand presence. This competitive position has enabled the Company in sustaining its revenue growth rate.
Diversified product offerings
Opto has rapidly enhanced its non-invasive product offerings over the years primarily on the back of acquisitions. It offers a wide product basket, which includes re-usable/disposable sensors, pulse oximeters, anesthetic gas monitors, multi-parameter monitors, digital thermometers, cholesterol monitors, fluid warmers and infra-red emitters. The Company has developed new and value-added products such as anesthetic gas benches, which will be the next key growth drivers for this segment.
With business interest in both developed economies and emerging markets such as Brazil, Russia, India and China (BRICs); the company has wide global reach. The changing lifestyle trends in the emerging economies arising from rising middle class, increasing health insurance penetration has resulted in an increase in healthcare spending. On the other hand, the developed world, with a fast ageing population, continues to remain a lucrative market for OCIL’s product portfolio.
WHAT’S DRAGGING THE STOCK
High working capital requirement
The Company’s requirements of working capital are high as the Company operates in the highly capital intensive business. High working capital requirements often compel companies to raise capital frequently either through equity dilution or debt. As Opto Circuits’s cost of debt is already high, raising more debt in future might put pressure on its profitability margins.
Stringent regulatory and approval process continues to remain one of the key risks in the industry. The companies and their products have to go through a rigorous process of approval, clinical trials, audits, inspections and registrations for every new market and for every product type/size. This long process of taking approvals can have a huge impact on the performance of companies operating in this space.
** The stock analysis of Opto Circuits including the financial analysis report linked above, is for information purpose only. This analysis should not be taken as a buy/sell recommendation. The circumstances of the company and the economic environment may have changed since the date of this stock analysis.