Buy Zensar Ltd for the Target Rs 640 by Motilal Oswal Financial Services Ltd
Moving step by step
We attended Zensar Technologies (ZENT)’s analyst meeting, where discussions were centered on AI strategy, growth outlook, pricing changes, and M&A. Key takeaways: ZENT is positioning itself as an AI orchestrator rather than a model/LLM layer with a focus on building an AI-native delivery model and creating new offerings such as AI token cost optimization. The company is also seeing improved deal momentum, supported by AI-led conversations across new buying centers, while maintaining a stance of growing above industry levels. We value ZENT at 17x FY28E EPS and reiterate our BUY rating with a TP of INR640, implying a 31% upside potential.
AI strategy: Staying away from models, focusing on the orchestration layer
* ZENT has taken a deliberate call to stay away from the LLM/model layer, citing capital and ecosystem constraints. Instead, it is focusing on ‘AI orchestration’ across delivery, client solutions, and new offerings.
* AI use cases are already live across functions such as KYC, Finance, transfer agency, marketing, CFO, and CHRO workflows.
* A new offering around AI cost optimization (token economics) is already being taken to clients. Management expects this to become a meaningful problem area over the next 6–12 months.
* We believe this positioning is pragmatic. Most mid-tier IT firms are unlikely to compete at the model layer, and AI orchestration/implementation remains the more accessible value pool.
AI token cost optimization: Early positioning in a likely pain point
* Management expects AI costs (token costs) to follow a similar trajectory to cloud - initial optimism followed by cost overruns.
* ZENT foresees a large opportunity in building a routing platform that directs queries to the most appropriate model (high-end vs. low-cost), improving cost efficiency.
* The opportunity lies in the long tail of models (including open-source/openweight), which can be significantly cheaper than mainstream models.
* We think this could emerge as a niche but relevant offering if enterprise AI adoption scales meaningfully.
Valuation and View
* With BFSI & Manufacturing providing a relatively resilient base, this shall help ZENT achieve better growth. The mega deal (~USD210m) provides better medium-term revenue visibility, though contribution will build gradually from 2Q and scale meaningfully only from 3QFY27. We have maintained our estimates for FY27/28. We expect EBITDA margins of 16.1%/16.2% in FY27/FY28. Over FY26-28, this translates into an ~8.8% CAGR in INR revenue and ~4.4% CAGR in INR EPS.
* Our TP of INR640 is based on 17x FY28E EPS. We reiterate our BUY rating
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