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Execution to improve from 2HFY27

Zen Technologies(ZEN)’s 1QFY27 result was weaker than our estimates due to lowerthan-expected execution and higher other expenses, which affected its EBITDA margin. Orders started flowing in from Jul’26, and we expect further inflows from simulator orders worth ~INR7-8b, followed by anti-drone orders. We also expect the execution ramp-up to be largely visible from 2HFY27 owing to the inflows of FY26. The company is continuously adding new capabilities to widen its portfolio of offerings, and going forward, we also expect subsidiaries to witness an improvement in inflows. We largely maintain our estimates and reiterate our Neutral rating on the stock with a TP of INR1,600 based on 30x Sep’28E earnings. Order inflows and improvement in execution will be the key re-rating drivers for the stock going forward.

A weak set of results

ZEN reported a weak set of results with a miss across revenue, EBITDA, and PAT. Revenue declined 7% YoY to INR1b, missing our estimate by 6%. Gross margins surged to 65.7% (55.1% last year) during the quarter vs. our estimate of 55.0%. However, due to a spike in other expenses, EBITDA margin contracted 690bp YoY to 27.4% vs. our estimate of 28.5%. The absolute EBITDA declined 26% YoY to INR282m (9% below our estimates). Lower execution and margin contraction led to a 21% YoY dip in PAT to INR292m vs. our estimate of INR333m. The standalone order book as of the end of 1QFY27 grew 88% YoY to ~INR11.4b, whereas the consolidated order book stood at INR12.4b, indicating subsidiaries’ OB of ~INR1b

Inflow and execution to pick up in 2HFY27

ZEN's consolidated order book stood at INR12.4b as of Jun'26, comprising INR9.2b of equipment orders and INR3.2b of AMC orders. At the standalone level, the order book stood at INR11.4b, with equipment orders of ~INR8.4b (55% anti-drone, 34% simulator), and AMC of ~INR3b. Post quarter-end, the company secured an additional INR1.8b order from the Ministry of Defence for the upgradation and integration of tank and crew gunnery simulators, taking the executable consolidated order book to ~INR14.2b. The company expects to end FY27 with an order book of around INR25b, after factoring in order execution during the year, supported by a healthy pipeline across simulators and anti-drone systems. Simulator orders worth INR7-8b remain in the pipeline, with additional orders expected over the next few months as government procurement gains momentum. The company also reiterated that the current order book has a typical execution cycle of around 12 months, with execution weighted towards 2HFY27. We expect standalone inflows/revenue to clock a CAGR of 32%/60% over FY26-29.

Financial outlook

We broadly maintain our estimates and expect revenue/EBITDA/PAT CAGR of 60%/67%/54% over FY26-29E, with an EBITDA margin of ~36% for FY27-29. Subsidiaries’ contributions to consolidated numbers are also expected to improve meaningfully over the next two years.

Valuation and view

The stock currently trades at 50.3x/35.9x/28.7x P/E on FY27/28/29E earnings. We reiterate our Neutral rating on the stock with an unchanged TP of INR1,600, based on 30x Sep’28E earnings.

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