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Hi Tech drives topline…

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%)

Q1FY22 Results:

* Zensar reported healthy revenue growth.

* Digital revenues increased 5.8% QoQ to US$127.2 million

* EBIT margins declined 90 bps QoQ to 13.9%

* Deal wins were at US$96.7 million

What should investors do?

* Zensar’s share price has grown by ~2x over the past five years (from ~| 201 in July 2016 to ~| 403 levels in July 2021).

* We continue to remain positive and retain our BUY rating on the stock Target Price and Valuation: We value Zensar at | 505 i.e. 22x P/E on FY23E

Key triggers for future price performance:

* Zensar is addressing key shortages of the past. The new CEO has devised a strategy to focus on 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 bode well for long term revenue growth

* Expect dollar revenue CAGR of 11% over FY21-23E

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 | 3,535

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