Target: ₹280
CMP: ₹233.65
Despite fears of recession, the global tech spend is expected to grow 11 per cent in the next year, thus providing growth opportunities for Indian IT firms. In addition, we do not expect any negative surprises in terms of furloughs despite challenging environment.
The management has also undertaken various measures to address the supply-side challenges and improve utilisation levels. This coupled with calibrated price hikes, improving utilisation rates and pyramid optimisation will drive margins. Hence, we have conservatively built in revenue and PAT CAGR of 10 per cent and 38 per cent over FY23-FY25 respectively. The recent fall in stock price prompts us to upgrade our rating from Hold to Buy with a revised target price of ₹280.
Considering the global macro challenges, we believe Zensar could see some pain in the near term. However, the company is poised well for registering revenue growth in the medium to long term. We do not expect any negative surprises in terms of furloughs and expect the tier-1 hires, inorganic growth and structural changes in organisation, to drive longer-term revenue growth.
During the last few quarters, the company’s margins were impacted due to high attrition and weakness in key verticals. However, easing of supply side, price hikes, improving utilisation rates and lower sub con cost will drive margins.
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