Target: ₹605

CMP: ₹543.90

Zensar Technologies Q3 revenue growth was impacted by furloughs in Hi-Tech. Going forward, we expect the company’s revenues to improve, led by the reversal of furloughs and improving deal win trajectory (up 28 per cent y-o-y, book to bill of 1.2x). This, coupled with the company’s intention to invest in capability building, sales, and large deals, means we expect 12 per cent y-o-y growth each for FY25 and FY26.

In addition, considering 9MFY24E performance, we have revised margin estimates for FY25 upwards by 52 bps, leading to an EPS upgrade of 2.2 per cent. However, considering the recent run-up in price, we maintain a Hold rating on the stock with a revised target price of ₹605 (18x FY26E EPS, introduced FY26 estimates, previous target price ₹530).

Long-term growth prospects remain strong, with technologies like data, cloud computing, and Gen AI expected to drive growth. In terms of margin, Zensar aims to maintain EBITDA margin in the same range of mid-teens(14-16 per cent) despite softness in demand.

The company plans to focus on levers like utilisation, pyramid optimisation, control of attrition, and reduction in subcontracting costs to drive margins. We believe the key trigger for further re-rating will be sustaining growth for the next few quarters.