Cholamandalam Securities is bullish on Zensar Technologies has recommended buy rating on the stock with a target price of Rs 307 in its research report dated May 07, 2019.
Cholamandalam Securities' research report on Zensar Technologies
In 4QFY19, Zensar consolidated revenue grew by 2.1% QoQ to INR 10,574mn (CSEC estimate of INR 10,483mn). Revenues grew 4.5% QoQ to USD 150.1mn (+4.1% QoQ in CC terms) led by a 5.2% QoQ growth in core business. Total Digital services were up 7.7% sequentially and 37.7% YoY in CC terms and contributed 44.7% to FY19 revenues. The recent acquisitions of the company- Keystone, Indigo Slate, Cynosure and Foolproof grew by 16%/6.5%/18.3% and 10% QoQ respectively contributing to the top-line growth. The EBITDA margins of the Core business (93.5% of revenues) stood at 14.1% and the overall margins at 12.3%. The overall margins expanded by ~162bps QoQ on account of improvement in utilization, lower sub-contracting costs and absence of furloughs. The company aims to increase its core business margins to 15% through improvement in utilization, reduction in subcontracting costs, focusing on margin accretive cloud infrastructure deals and improving realizations from digital business. The non-core business would also be gradually wound down which would further aid margins.
Outlook
We expect Zensar’s top-line to grow by ~15% in FY20E on account of strong deal wins and robust growth of digital revenues. At CMP, the stock is trading at a P/E of 15.8X/12.6X over F20/21 EPS. We maintain our target price of INR 307 based on P/E of 16.0x FY21 EPS with a BUY rating on the stock.
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