Zensar Technologies Ltd. share price target

While ZENT's revenue performance in FY21 (down 12% YoY in CC terms) was among the weakest in our IT Services coverage due to hit from both COVID19 and restructuring in its top account (over 20% of revenue), it reported an impressive PAT growth (33% YoY), led by 6pp EBITDA margin improvement. The company's low valuation (13x FY23E P/E) is on account of its weak topline performance over the last two years. With a new leadership (Mr. Ajay Bhutoria took over in Jan'21), refreshed strategy (Exhibit 1), and...

The new CEO has highlighted its strategy to drive revenue growth in the current quarter. The key focus areas are: 1) grow its core capability like in data, experience, application services and platform, 2) invest & expand in sales, 3) invest in cloud hyper-scalers, 4) do acquisition to build capabilities, 5) to drive sustainable & profitable growth. We believe this strategy should help the company in driving growth in the long term. Going forward, we believe bottoming of large clients in hi tech, green shoots in BFSI business, improvement in cloud, retail & insurance revenues (hired a new leader) and...

We recommend HOLD and assign 12x P/E multiple to its FY23E earnings of Rs. 22.7 per share which gives a TP of Rs. 263 per share, an upside of 9%.

Rising adoption of smartphones, high internet speed and social distancing (due to Covid-19) has changed consumer behaviour. Consumers now prefer to transact (buy a product) virtually over the smartphone via an app instead of physical transaction. This has led to virtualisation of business models. In addition, to keep business up and running in a work from home scenario, technology is gaining traction. As a result, new age technologies like cybersecurity (to protect business from work from home scenario), app development (to help customer transact virtually) and Cloud (to enable...

Zensar reported Q2 FY21 results much in line with expectations. Revenue for the period of Q2 FY21 stood at Rs. 979 cr decline by 1.2% QoQ. Operating margin reported a strong growth of 340bps and stood at 18.8%. Net income grew by 21.7% QoQ and stood at Rs. 89.2 cr.

Background: Zensar is a leading digital solutions and technology services company that specialises in partnering with global organisations across industries on their Digital Transformation journey. A technology partner of choice, backed by strong track-record of innovation; credible investment in Digital solutions; assertion of commitment to client's success, Zensar's comprehensive range of digital and technology services and solutions enable its customers to achieve new thresholds of business performance. Zensar, with its experience in delivering excellence and superior client satisfaction through myriad technology solutions, is uniquely positioned to help them surpass challenges around running their existing business most efficiently, helping in their legacy transformation, and planning for business expansion...

While Zensar's (ZENT) 2QFY21 revenue performance impacted by restructuring at its top client was in line with our expectation, it was meaningfully below growth seen at its mid-cap peers. With the drag in top...

The company expects weakness in the top client to continue in the next two quarters. Coupled with a significant dip in H1FY21 & sale of third party maintenance segment, we expect FY21E revenues to decline 12.0% YoY. In the longer term, we expect the company to register healthy growth in core revenues (i.e. excluding third party maintenance revenues) mainly led by improving order book (increased 16.7% QoQ in Q2FY21), deal pipeline (US$1.5 billion), net new wins and conversion ratio. This, coupled with bottoming out of retail vertical, improvement in cloud revenues and ramp...

Background: Zensar is a leading digital solutions and technology services company that specialises in partnering with global organisations across industries on their Digital Transformation journey. A technology partner of choice, backed by strong track-record of innovation; credible investment in Digital solutions; assertion of commitment to client's success, Zensar's comprehensive range of digital and technology services and solutions enable its customers to achieve new thresholds of business performance. Zensar, with its experience in delivering excellence and superior client satisfaction through myriad technology solutions, is uniquely positioned to help them surpass challenges around running their existing business most efficiently, helping in their legacy transformation, and planning for business expansion...

Zensar reported better than expected results in Q1 FY21. Revenue for the period of Q1 FY21 stood at Rs. 991 cr decline by 2.6% QoQ and 4.8%QoQ in CC terms. Operating margin reported a growth of 11bps and stood at 9.9% aided mainly by INR depreciation, lower utilization.