Opto Circuits short-circuits again

Stock loses 50% in a week; Street not convinced of management's view on rejig

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Medical equipment maker Opto Circuits’ share price slumped 23 per cent to Rs 21.85 on Monday on continuing working capital issues and a poor March quarter result. This is the second time in 10 days the stock has seen such a sharp fall with the earlier fall of 38 per cent on May 31.

For the March quarter, the company saw its bottomline fall 94 per cent to Rs 12 crore against Rs 209 crore in the year-ago quarter.

“There were serious concerns among investors about the company’s performance and management and those fears came true after the company announced their results for the March quarter,” says an analyst.

While the March quarter numbers were disappointing, the key issue has been on the working capital front. ICICI Direct analysts, in a recent report, said a more worrying factor was further slippages in the working capital cycle from 209 days at the end of December 2012 to 298 days at the end of March 2013, due to a sharp increase in receivables from 165 days as on December 2012 to 241 days as on March 2013.

The company had to raise more money to tide over the shortfall in cash.

“The debt-equity has also increased from 0.48 times as on December 31, 2012 to 0.67 times as on March 31, 2013, as the company raised Rs 435 crore of net debts in Q4FY13,” they added. The company management has, however, said they were putting in place steps to overcome the situation and should sort the working capital issues over the next year.

“There have been delays, given the slowdown in Europe, especially Germany and Italy, but we have tightened our credit norms. Receivable days, 241 currently, will come down to 160, prevailing in the September quarter last year, said Vinod Ramnani, the company’s chairman and managing director.”

While the company has indicated it would take at least three-four quarters to sort the working capital issues, it is also looking at cutting internal costs by restructuring its product lines by withdrawing products with lower margins and rationalising research and development costs.

However, analysts are not convinced. S P Tulsiyan said given serious corporate governance issues, investors should stay away from the stock instead of bottom fishing. Most brokerage houses have either withdrawn their coverage, or have a sell or neutral view on the stock.

The issue for the company has been fast-paced growth through acquisitions. It was unable to handle the increase in distributors and products and lacked the management bandwidth. “Business had overgrown the management,” said Ramnani.

While admitting there hadbeen slip-ups on the company’s expansion strategy and a perceived lack of corporate governance among investors, Ramnani added the company was learning from the same and was putting in place a framework to ensure it does not recur.