Buy Zensar Technologies, target price Rs 440: HDFC Securities

HDFC Securities has buy call on Zensar Technologies with a target price of Rs 440. The current market price of Zensar Technologies Ltd. is Rs 300.1. Time period given by analyst is year when Zensar Technologies Ltd. price can reach defined target.

Zensar Technologies Ltd., incorporated in the year 1963, is a Mid Cap company (having a market cap of Rs 6628.83 Crore) operating in IT Software sector.

Zensar Technologies Ltd. key Products/Revenue Segments include Software Development Charges & Other Services and Software Products for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company has reported a Consolidated Total Income of Rs 1226.10 Crore, up 8.83 % from last quarter Total Income of Rs 1126.60 Crore and up 38.87 % from last year same quarter Total Income of Rs 882.90 Crore. Company has reported net profit after tax of Rs 130.80 Crore in latest quarter.


Investment Rationale
The brokerage maintains BUY on Zensar, following a better-than-expected revenue and margin performance and healthy deal wins (+32% QoQ). Zensar delivered growth of 4.2% QoQ CC, supported by healthy growth in the BFSI (+5.1% QoQ) and consumer (+4.1% QoQ) verticals. The TCV stood at USD 165.6mn and it was the best in the last five quarters (excluding one large deal in Q2) and consisted of wins across verticals. The investments in the BFSI/retail vertical coupled with M3Bi are yielding results. The management focus remains on delivering consistent and predictable revenue growth. The EBITDA margin was stable sequentially but down 565bps YoY to 14.2%, impacted by higher employee cost and rising sub-con expenses (+55% YoY). The management expects EBITDA margin to stabilise in mid-teens; higher fresher intake and near-shore locations will reduce dependence on subcontractors and increase utilisation. It reduces EPS estimates by 3/5% for FY23/24E to factor in the 100bps margin drop in FY23E. Our TP of INR 440 is based on 20x FY24E EPS (earlier 22x). The stock is trading at a PE of 17/13x FY23/24E EPS, a discount of ~40% to mid-tier IT median.

Promoter/FII Holdings
Promoters held 49.09 per cent stake in the company as of 31-Mar-2022, while FIIs owned 16.55 per cent, DIIs 13.36 per cent.