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Steady Performance; Moderate Growth Ahead

Est. Vs. Actual for Q2FY26: Revenue: INLINE; EBIT: BEAT ; PAT – INLINE

Change in Estimates YoY post Q2FY26:

FY26E/FY27E: Revenue: 0.8%/2.8%; EBIT: 2%/3.3%, PAT: 0.5%/3.2%

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 weak demand. However, GenAI continues to witness traction.

* Deal wins: The quarterly order booking was soft, which management attributed to a timing issue and some deals being pushed to the next quarter due to market uncertainty, while the pipeline continues to be healthy despite headwind in the TMT vertical.

* AI Implementation: Zensar has launched a new AI platform and updated its website to showcase its AI capabilities. 28% of order bookings for this quarter were AI-influenced, up from 21% of Q1FY26.

Sector Outlook: Cautiously Optimistic

Company Outlook & Guidance: The management refrained from giving any broader guidance. Though the company aims to sustain operating margins at a mid-teens level. It continues to witness more priority towards innovation to drive value growth,

Current Valuation: 23x FY27E P/E (Earlier Valuation: 24x FY27E P/E)

Current TP: Rs 865/share (Earlier TP: 875/share)

Recommendation: We maintain a HOLD rating on the stock.

Financial performance

In Q2FY26, the company’s revenue was up 8% YoY and 2.6% QoQ to Rs 574 Cr on account of growing traction in AI-led deals and impactful solution delivery. EBIT stood at Rs 195 Cr, up 14% YoY and 3.9% QoQ. EBIT margins were flat at 13.7%, up 61 bps YoY and 17 bps QoQ, led by improved utilization, offshore mix, cost control initiatives, and forex gains. Net income remained flat QoQ while it grew by 17% YoY to Rs 182 Cr, up 17% YoY However, in CC terms, overall revenue grew by 3.8% YoY and 1.9% QoQ. Attrition rate stood at 9.8% on a TTM basis.

Valuation & 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. We believe management continues its effort to lower its exposure from the TMT vertical by shifting its focus to high-growth verticals, coupled with AI integration will eventually lead to healthy growth. Therefore, we continue to maintain a HOLD rating on the stock and assign a 23x P/E multiple to its FY27E earnings with a TP of Rs 865/share, implying an upside of 9% from the CMP.

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SEBI Registration number is INZ000161633