Zensar Technologies Ltd. share price target

The demand scenario from the majority of the verticals remains sceptical, which will impact revenue growth momentum in the near term. Given the company's strong recovery potential, supported by good business deals and improved customer retention, we maintain our HOLD recommendation

Given the company's strong recovery potential, which is supported by good business deals and improved customer retention, we maintain our Hold recommendation for the stock.

Given the company's strong recovery potential, which is supported by good business deals and improved customer retention, we maintain our Hold recommendation for the stock.

Zensar reported a strong EBITDA margin expansion of c.425bps QoQ, while the revenue growth was soft (+1.3% QoQ in cc terms). The strong margin improvement for the second consecutive quarter was on account of SG&A rationalization, higher utilization, better productivity & business mix and a c.100bps one-time benefit.

Company Outlook & Guidance: The management has increased revenue growth guidance for FY24 to double-digit in CC terms. Margins are likely to expand in near term.

Zensar reported a strong EBITDA margin increase (331bps QoQ), while revenue remained flat (+0.4% QoQ in cc terms). The healthy margin improvement was on account of lower sub-contracting, higher utilization, business mix & better productivity.

Zensar does have a patchy execution track record and the turnaround thesis will not be without certain quarters of misses (as seen recently in H1 FY23). That said, valuations at <1x FY24 EV/Sales and 24% of market cap in cash adequately facto that a healthy cash buffer of US$ 179m (24% of M.Cap) also provides support to its valuation.

Given the company's strong recovery potential backed by strong deal wins and improved client engagement, we maintain our BUY recommendation on the stock

We recommend a HOLD on Zensar, aided by strong revenue growth momentum and better recovery. We assign a 10x P/E multiple to its FY24E earnings of Rs 22.1 per share to arrive at a TP of Rs 230/share, implying an upside of 6% from the CMP.

Zensar Technologies reported revenues of US$155mn, down 0.5% QoQ USD, largely in line with our estimates.