Buy Zensar Technologies Ltd For Target Rs.545 - ICICI Direct
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Margins impacted by wage hike…
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%)
Q2FY22 Results: Zensar reported healthy revenue growth but margins were lower.
* Dollar revenues increased 11.6% QoQ to US$141.9 million
* EBIT margins declined 310 bps QoQ to 15.3%
* Deal wins were at US$187.5 million
What should investors do? Zensar’s share price has grown by ~2.7x over the past five years (from ~| 177 in October 2016 to ~| 480 levels in October 2021).
* We continue to remain positive and retain our BUY rating on the stock.
Target Price and Valuation: We value Zensar at | 545 i.e. 23x P/E on FY23E
Key triggers for future price performance:
* Zensar is addressing key shortages of 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 bodes 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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