Hold Zensar Technologies Ltd For Target Rs.875 by Axis Securities Ltd
Steady Performance; Digital Transformation to Lead Growth
Est. Vs. Actual for Q1FY26: Revenue: INLINE; EBIT Margin: INLINE; PAT - BEAT
Recommendation Rationale
* Macro Headwinds: The quarter began with considerable macro uncertainty with slowing growth in both the US and Europe. Clients paused net new spending due to uncertainties related to tariffs. However, GenAI continues to remain in demand.
* Wage Hikes & ESOPs: The company's wage hikes and ESOPs implementation will impact margins in the next quarter. However, the management is committed to maintaining a midteens EBITDA margin range in the long run.
* AI Implementation: AI is central to Zensar's strategy, driving 30% of its active pipeline, with over half of its talent upskilled in AI and GenAI. 20% of order bookings are AI-influenced. The company launched "Zen's AI," a GenAI accelerator platform, which has been praised for connected intelligence, multimodal search, and enterprise-grade agentic AI models.
Sector Outlook: Cautiously Optimistic
Company Outlook & Guidance: The management remains cautiously optimistic on performance for the rest of the year due to macro uncertainty, relying on core operational foundations.
Current Valuation: 24x FY27E P/E
Current TP: Rs 875/share
Recommendation: Over the years, the company’s focus has been on reskilling and upskilling in next-gen tech, which has resulted in healthy utilisation levels, and this is expected to continue further. We resume our coverage with a HOLD rating on the stock.
Financial performance
In Q1FY26, Zensar Technologies reported revenue of Rs 1,385 Cr vs Rs 1,288 Cr (Q1FY25), up 7.5% YoY and 1.9% QoQ on account of growing traction in AI-led deals and impactful solution delivery. EBIT stood at Rs 188 Cr vs Rs 172 Cr, reporting growth of 9.3% YoY, but fell 0.6% QoQ. Net income stood at Rs 182 Cr vs Rs 158 Cr, up 15.3% YoY and 3.2% QoQ, supported by higher other income. Moreover, in CC terms, revenue grew by 3.8% YoY and 1.9% QoQ. Attrition rate fell by 80 bps to 9.8% vs 10.6% YoY.
Valuation & Recommendation
The demand outlook across most verticals remains uncertain, impacting revenue growth momentum in the near term. However, given the company's stable performance supported by favourable business deals and enhanced customer retention, we resume over coverage with a HOLD rating on the stock and assign a 24x P/E multiple to its FY27E earnings to arrive at a TP of Rs 875/share, implying an upside of 8% from the CMP.
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SEBI Registration number is INZ000161633
