Broker's call: Zensar Technologies (Buy)

| Updated on May 21, 2020

Chola Securities

Zensar Technologies (Buy)

CMP: ₹84.95

Target: ₹112

In 4QFY20 Zensar’s consolidated revenues declined by 3.7 per cent y-o-y to ₹1,017.8 crore (-0.3 per cent q-o-q in CC terms) mainly due to a decline across verticals except retail (due to lower base). EBIDTA declined by about 4 per cent y-o-y while margin for the quarter stood at about 12 per cent.

All three regions registered revenue growth in FY20 compared to FY19, US +3.3 per cent and Europe +10.4 per cent while Africa region registered growth of 26.9 per cent y-o-y; within Africa region SA accounted for 10 per cent of total revenue.

Valuation: Though management is making efforts to shift focus from retail to financial services and hi-tech, the impending weakness in these sectors remains a challenge. We believe that margin recovery guidance to earlier levels of 15 per cent in FY21 would be a challenge. Although the deal pipeline remains healthy, it has not been reflected in numbers so far.

The stock is currently trading at around a P/E of 6.6x/5.9x over F21/22 EPS. Given the challenging medium term outlook, we revise our target price to ₹112 based on P/E of 7.5x on FY22 EPS and upgrade the stock to a ‘Buy’ given compelling valuations.

Risks: Slowdowns in deal win traction and lower than expected growth in digital.

Published on May 21, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like