Buy Zensar Technologies Ltd For Target Rs. 505 - ICICI Direct
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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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