Buy Zensar Technologies Ltd For Target Rs.250- ICICI Direct
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Addressing growth, margin challenges
About the stock: Zensar Technologies (Zensar) offers application & IMS services to hi-tech, manufacturing, retail and BFSI.
? Zensar has grown organically and inorganically over the years
? Net debt free and healthy double digit return ratio (with RoCE of 19%)
Management meet Highlights
? Growth: The company maintains that it expects moderation in revenue growth in the next two to four quarters, especially in its key verticals of hitech, manufacturing, retail
? Margin: It maintains its aspiration to reach mid teen EBITDA margins by Q2FY24. Margin levers are a) improvement of service mix, b) pricing increase, c) utilisation improvement, d) rationalisation of subcontractor cost
? Acquisition strategy: The company is actively looking at an acquisition to enhance its capability/addition of few marquee logos. As per the management, four to five deals are on the table
What should investors do? Zensar’s share price has grown by ~1.5x over the past five years (from ~| 158 in September 2017 to ~| 232 levels in September 2022).
? We maintain our HOLD rating on the stock
Target Price and Valuation: We value Zensar at | 250 i.e. 15x P/E on FY24E.
Key triggers for future price performance:
? Zensar is addressing key shortages of the past. The new CEO has devised a strategy to focus on the experience side and build capabilities in digital engineering, data, artificial intelligence and machine learning
? Driving deal momentum, annuity revenues, increasing investment in sales & talent, leadership and tuck in acquisition to build capability bodes well for long term revenue growth
? Expect dollar revenue CAGR of 6.7% over FY22-24E
Alternate Stock Idea: Apart from Zensar, in our IT coverage we also like Persistent.
? Key beneficiary of growth in digital technologies and exposure to growth segments like healthcare & BFSI. BUY with a target price of | 4,200
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