Add Zen Technology Ltd For Target Rs.1,850 by Choice Institutional Equities Ltd
Timing-led Weakness; Structural Story Remains Firm
ZEN reported a muted Q1FY27 performance, with revenue at INR 1,416 Mn (down 20.5% YoY), largely reflecting execution phasing rather than demand weakness. Management highlighted that a significant portion of the order book – secured in H2FY26 – is yet to be executed, with revenues expected to be back-ended towards Q2 and Q3, keeping the full-year trajectory intact.
We believe ZEN’s forward outlook remains strong, supported by a robust pipeline across simulators and anti-drone systems and improving demand momentum, with management highlighting large simulator orders (INR 7–8 Bn) in the pipeline alongside rising global interest amid heightened geopolitical tensions. The company’s increasing export focus (Middle East, Africa, EU, North America) and expansion into higher-value segments such as flight simulators (C295 platform), in our view, meaningfully expand its addressable opportunity. This is further reflected in a healthy order book of INR 12,390 Mn (1.8x of FY26 revenue), supplemented by post-quarter inflows (INR 1,775 Mn), with guidance to scale this to ~INR 25,000 Mn by FY27-end, indicating strong pipeline and sustained medium-term growth visibility
Overall, we believe Q1 weakness is largely timing-driven, while core fundamentals high margins, strong pipeline, and technology positioning remain intact. Near-term performance may stay volatile, but execution pickup and operating leverage should drive recovery, keeping the medium-term growth story firmly on track.
Q1FY27 Earnings Miss; Margins Contract Sharply
Revenue for Q1FY27 down by 10.5% YoY and down by 20.5% QoQ at INR 1,416 Mn (vs CIE est. INR 1,820 Mn)
* EBIDTA for Q1FY27 down by 40.2% YoY and down by 24.1% QoQ at INR 387 Mn (vs CIE est. INR 710 Mn). The EBITDA Margin stood at 27.3%, contracted by 1,356 bps YoY (vs CIE est. of 39.0%)
* RPAT for Q1FY27 down by 40.0% YoY and down by 32.6% QoQ at INR 318 Mn (vs CIE est. INR 586 Mn). RPAT Margin contracted by 1,106 bps YoY, reaching 22.5% (vs CIE est. 32.2%)
View & Valuation: We maintain a constructive stance on ZEN even though order finalisation timelines remain inherently uncertain. Due to recent rally on the stack, we downgrade the stock to ADD (from BUY) rating on ZEN with an unchanged target price of INR 1,850, valuating it on 35x of FY28E EPS.
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SEBI Registration no.: INZ 000160131
