Criticare, acquired by Opto over a year ago, has seen no significant top line growth since then due to a delay in product launches. However, the new products launched in early CY2010 and the agreements with three multinational companies for the manufacture and distribution of its gas-based products (the patient monitoring segment) will drive the growth rates. The revenues from these are expected to fructify in FY2011. With the non-invasive segment accounting for over 75% of growth, we expect Criticare’s revenue to grow at a compounded annual growth rate (CAGR) of 19% over FY2010-12.
The invasive business has been under pressure of late due to a slowdown in the global stent market. The management has also been focusing on promoting newer products (with unique positioning) to be launched in CY2010. This would add momentum to Opto’s tepid growth in the invasive segment. Opto recently completed successful clinical trials of its most promising product, DIOR, in Canada–the preliminary requirement to obtain the US Food and Drug Administration (USFDA)’s approval. However, the launch of DIOR (awaiting the USFDA’s approval), a drug eluting balloon catheter, in the next 18-24 months would drive the growth in the long term.
Strong growth outlook, maintain guidance: The USFDA approval for its invasive products (primarily DIOR) would be a re-rating factor for the stock. Further, the market opportunity is huge and Opto has barely scratched the surface in our view. Hence, the growth outlook looks robust. At the current market price of Rs222, the stock is trading at compelling valuations of 16.4x FY2010E fully diluted earnings and of 12.5x FY2011E fully diluted earnings. We re-iterate our BUY recommendation on the stock with a price target of Rs250.
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