Zensar Technologies Ltd. share price target

Maintain BUY with a TP of Rs 300 based on 16x Dec-20 EPS. Zensar delivered robust revenue growth but margin performance was subdued. Revenue stood at USD 143.7mn (+4.0% QoQ, +4.5% CC) higher than our estimate of USD 141mn led by core business (+6.0% QoQ). Growth was led by sustained recovery in Cloud and Infrastructure Services (CIS) business (+16.9% QoQ, 17% of rev). EBITDA margin was below our estimate, contracted 204bps to 10.8% led by large deal transition impact, higher sub-con expenses and drop in utilisation.

Revenue grew 17% YoY (our +30% YoY) to INR1,104m, while PAT declined 2% YoY to INR565m (1.5% miss). CC revenue growth of 4.5% QoQ (+17.6% YoY) was above our estimate 22 January 2019 of 3.2%. Excluding revenues from the full-quarter integration of IndigoSlate, revenue growth stood at 2.3%, implying that the beat to our estimate came from 59% QoQ growth in the acquired entity. For 9MFY19, USD revenue/EBITDA/PAT grew 17%/30%/39.5% YoY. 210bp QoQ to 10.6%, well below our estimate of 13.3%. Management attributed this to (i) transition costs in large deals (~120bp), (ii) furloughs (~50bp), (iii) margins contraction in non-core business (~40bp) and (iv) lower utilization (~50bp), partly offset by gain from INR depreciation. While management expects margins in the core business to revert to 15%, we are conservative in our estimates and expect overall EBITDA margin of 12.

Led by Q3 revenue beat, we upgrade Zensar USD revenue growth assumption Change in Estimates | Target | Reco USD/INR assumption are at 70/70.5/72.5 for FY19/FY20/FY21E. With tepid...

We attended Zensar's analyst meet where it highlighted the progress on its strategy and initiatives taken for future growth. Zensar emphasized its focus on Digital through its RoD Next platform. It outlined the digital spend across the verticals and why Zensar is well positioned to capture the opportunity. The company took a bold and aggressive decision about 2.5 years ago to become a 100% digital company before taking the platform to its customers. Company's digital enterprise is built on 34 digital platform having 650+ releases with over 1.5mn downloads. The company is building...

We attended the analyst meet of Zensar Technologies (Zensar), a digital solutions and technology services company. The company highlighted its focus on digital revenues (8.8% CQGR in Q2FY18-Q2FY19), increase in deal wins, higher focus on large deal wins (typically US$20 mn plus) and an improved deal pipeline. Further, the company highlighted that its four acquisitions in the past 20 months and re-skilling of workers has enabled it to bridge its capability gap. Also, TCV wins of US$800 million+ over the last 18 months are expected to bode well for Zensar....

Within the regions (US, UK and South Africa) and the verticals (BFSI, Retail and Manufacturing) relevant for ZENT, the market size stands at USD510b, which is expected to reach USD580b by 2022. The company is focused on growing its Digital business (44% of revenue), the size of which is currently USD170b (addressable market) and expected to reach USD410b (24.6% CAGR) by 2022. Winning larger deals (USD 20M+) Differentiating itself by continuously investing in new capabilities and practices Inducing automation and AI in delivery by developing delivery factory model and Transforming client organizations various business processes like finance, HR, legal and marketing by demonstrating capabilities within ZENT Focus on growth than margins and continue inventing in pricing premium Focus on building technology around customer experience, which has been assigned highest priority across verticals ZENT had trademarked its Return on Digital (RoD) framework, which it used to win majority of the key accounts.

Zensar's 2Q revenue grew by 2.3% QoQ in USD terms to USD 138mn (de growth of 0.7% sequentially without Indigo Slate), marginally below our estimate of USD 139mn. The lower growth can be attributed to lower than expected organic growth. EBITDA margins shrank by ~70bps QoQ to 12.9%...

Maintain BUY with a TP of Rs 320 based on 16x Sep-20 EPS. Zensar delivered decent revenue growth but margin performance was subdued. Revenue came in at USD 138.1mn (+2.3% QoQ, +4.1% CC) lower than our estimate of USD 140.7mn due to client issues in Retail (-8.7% CC). Growth was led by sustained recovery in Cloud and Infrastructure Services (CIS) business (+4.0% QoQ, 15% of rev) and Indigo Slate integration (USD 4mn).

Stable Set of Numbers: Results were broadly in line with estimates with a beat in PAT due to higher thanexpected forex gain and lower than expected G&A; expenses. Zensar reported revenue growth of 2.3%/16.5% QoQ/YoY in USD terms; inconstant currency terms reported growth of 4.1%/17.5% QoQ/YoY; in INR terms reported growth of 7.1%/27% QoQ/YoY.

ZENT reported USD revenue growth of 2.3% QoQ (4.1% in CC terms) to USD 138mn (DCMe: USD 140mn) primarily led by inorganic growth (Indigo Slate revenue of USD 4mn) and healthy growth in Digital Services. INR revenue grew 7.1% QoQ to ` 9,687mn (DCMe: ` 9,795mn) positively impacted by rupee depreciation. EBIT margin declined 48bps QoQ to 10.4% (DCMe: 11%) due to negative impact of wage hike (-170bps) which offset by the positive impact of INR depreciation. PAT improved 13.6% QoQ to ` 934mn (DCMe: ` 871mn) on back of higher forex gain during the quarter. We...