Accumulate Zensar Technologies; target of Rs 260: Prabhudas Lilladher

Prabhudas Lilladher's research report on Zensar Technologies

Zensar delivered steady performance in Q1FY20 with marginal miss on revenues negated by strong beat on margins. Zensar posted revenue growth of 3.1% QoQ USD at US$ 153.3mn (Ple: US$154.6mn. Cons: US$156mn) slight below our estimates but EBITDA margin came at 14.2% vs our estimates of 12%. Strong revenue growth in cloud infrastructure business(CIS) of 17.3% QoQ CC contributed to revenue growth & aided margin growth as CIS is a high margin business (Ple:19%). Zensar recorded total bookings of
~USD 160 mn+ in Q1, with (FY19 bookings at USD 750 mn+) majority of wins in CIS business. Client mining strategy is yielding healthy results with Top 5/10/20 clients growing 6.0%/5.9/6.5% QoQ. While momentum has picked up, softness in Retail (ramp-down at two clients coupled with delay in ramp-up of a deal) is likely to keep momentum in the vertical muted. We believe execution holds the key to drive strong growth, which in turn will aid margin performance. Digital (48.5% of revenues) showed a sustained growth of 6.7% QoQ & 28.3% YoY on the back of clear focus on Automation driven by Cloud & Infrastructure platforms and RPA and we believe Zensar's investment in Return on digital is showing them results. We maintain our FY20E/21E USD revenue estimate and expects USD revenue and EPS CAGR of 13.4% and 20.8% respectively over FY19-21E.

Outlook

Our TP stands at Rs 260 (13x FY21E). The stock trades at attractive multiple of 13.3x/10.8x FY20E/FY21E EPS of Rs 16/Rs 20.
Maintain Accumulate.

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