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Portfolio future-ready; execution cadence the key monitorable

We interpret management commentary from ZEN as strategically constructive, with a clear emphasis on building a future-ready portfolio across anti-drone systems, interceptor drones and next-generation combat solutions. We believe ZEN is well-aligned with evolving global warfare dynamics, where rising geopolitical tension is accelerating the demand for cost-efficient, technology-led defence systems. While this significantly expands ZEN’s long-term opportunity set, we note that order finalisation timelines remain inherently uncertain, impacted by procurement processes and budget cycles. Accordingly, we moderately recalibrate our FY27–28E assumptions on the basis of slower conversion of the pipeline despite strong demand.

Looking ahead, we continue to view ZEN as a structurally well-positioned player, in an emerging, scalable, high-priority segment globally. The expanding product suite and focus on indigenisation strengthen its competitive positioning. However, revenue visibility remains closely linked to order inflows and execution cadence, which can bring periodic volatility. As such, while the medium- to long-term growth narrative remains intact, near-term performance is forecast to remain lumpy, making execution visibility the key monitorable.

Management misses guidance significantly, leads to a miss on our Q4 projection

* Revenue for Q4FY26 down by 45.2% YoY and flat on a QoQ basis at INR 1,781 Mn (vs CIE est. INR 4,875 Mn)

* EBIDTA for Q4FY26 down by 63.0% YoY and down by 23.7% QoQ at INR 510 Mn (vs CIE est. INR 1,879 Mn). The EBITDA margin stood at 28.6%, contracted by 1,382 bps YoY (vs CIE est. of 38.5%)

* PAT for Q4FY26 down by 58.5% YoY and down by 15.2% QoQ at INR 472 Mn (vs CIE est. INR 1,462 Mn). PAT margin contracted by 849 bps YoY, reaching 26.5% (vs CIE est. 30.0%)

View & Valuation: We maintain a constructive stance on ZEN, balancing strong long-term prospects with near-term execution uncertainties. In light of inconsistent guidance delivery and limited visibility on order conversion timelines, we adopt a more conservative valuation approach and reduce our target multiple to 30x FY28E EPS (vs. 35x earlier).

We revise our FY27E and FY28E EPS estimates by -32.6% and +0.1%, respectively and now expect Revenue/EBITDA/PAT to grow at a CAGR of 67.3%/67.3%/66.0% over FY27–29E. Based on the revised multiple, we arrive at a target price of INR 1,850 and maintain our ‘BUY’ rating. Our valuation is further in line with a DCF-based approach (used as a sanity check), which yields a similar outcome. We believe sustained improvement in order inflows and execution consistency will be key triggers for any future re-rating.

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SEBI Registration no.: INZ 000160131