Neutral on Zensar Technologies, target price Rs 100: Motilal Oswal
On the brokerage’s revised estimates, the stock is trading at 7 times FY21E EPS, which is in-line with its long term average multiple..
Motilal Oswal has given a neutral rating to Zensar Technologies with a target price of Rs 100.
As expected, Zensar’s revenue in the fourth quarter was impacted by Covid-19. However, EBIT margin recovery was higher than our expectations and was encouraging. This was led by absence of one-off items (like in the third quarter FY20) and operational optimisation. Deferral of spends by clients translated into a soft deal win TCV ($110 million). Covid-19 uncertainty remained a key overhang on the management commentary.
The brokerage upgraded the EPS estimate for FY21/22E by 9%/15% as (1) it rebased its exchange rate assumptions and adjusted the margin trajectory post the beat during the quarter.
The share price moved down by -3.21 per cent from its previous close of Rs 87.20. The last traded stock price is Rs 84.40. Incorporated in 1963, Zensar has a market cap of Rs 2063.69 crore.
Investment Rationale
Barring FY19 when Zensar’s overall revenue growth (including inorganic) came close to that of its mid-cap peers (mostly organic), the stock traded at steep discount to the sector (~8-10 times one-year forward P/E). This was largely driven by its inferior growth (organic revenue CAGR of 4% over FY15-20E v/s 12%+ for mid-cap peers), pay-out ratio (20% v/s average pay-out of 40%) and return profile (RoE of 18% v/s 30%+ for most peers).
On the brokerage’s revised estimates, the stock is trading at 7 times FY21E EPS, which is in-line with its long term average multiple. Given the increased uncertainty amidst the Covid-19 crisis and the stock is valued at 7 times FY22E EPS.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1017.79 crore, down -.27 per cent from last quarter sales of Rs 1020.59 crore and down -3.75 per cent from last year's same quarter sales of Rs 1057.41 crore. The company reported net profit after tax of Rs 72.00 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 49.23 per cent stake in the company as of March 31, 2020, while FIIs held 17.65 per cent, DIIs 24.66 and public and others 8.46 per cent.
As expected, Zensar’s revenue in the fourth quarter was impacted by Covid-19. However, EBIT margin recovery was higher than our expectations and was encouraging. This was led by absence of one-off items (like in the third quarter FY20) and operational optimisation. Deferral of spends by clients translated into a soft deal win TCV ($110 million). Covid-19 uncertainty remained a key overhang on the management commentary.
The brokerage upgraded the EPS estimate for FY21/22E by 9%/15% as (1) it rebased its exchange rate assumptions and adjusted the margin trajectory post the beat during the quarter.
The share price moved down by -3.21 per cent from its previous close of Rs 87.20. The last traded stock price is Rs 84.40. Incorporated in 1963, Zensar has a market cap of Rs 2063.69 crore.
Investment Rationale
Barring FY19 when Zensar’s overall revenue growth (including inorganic) came close to that of its mid-cap peers (mostly organic), the stock traded at steep discount to the sector (~8-10 times one-year forward P/E). This was largely driven by its inferior growth (organic revenue CAGR of 4% over FY15-20E v/s 12%+ for mid-cap peers), pay-out ratio (20% v/s average pay-out of 40%) and return profile (RoE of 18% v/s 30%+ for most peers).
On the brokerage’s revised estimates, the stock is trading at 7 times FY21E EPS, which is in-line with its long term average multiple. Given the increased uncertainty amidst the Covid-19 crisis and the stock is valued at 7 times FY22E EPS.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1017.79 crore, down -.27 per cent from last quarter sales of Rs 1020.59 crore and down -3.75 per cent from last year's same quarter sales of Rs 1057.41 crore. The company reported net profit after tax of Rs 72.00 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 49.23 per cent stake in the company as of March 31, 2020, while FIIs held 17.65 per cent, DIIs 24.66 and public and others 8.46 per cent.