Target: ₹380

CMP: ₹339.65

Zensar Technologies is showing visible signs of turnaround in terms of margins — the company has seen 457-basis point improvement in gross margins, which is driven by utilisation and offshoring (this seems sustainable); and 34 per cent quarter-on-quarter growth in order book (book to bill of 1.2x). In addition, the company is taking the right steps to improve revenues in the long run — like incentivising sales for large deals and cross sell; restructuring of organisation from geo focus to vertical focus; and hired COO and CBO to drive growth.

The company, over the past few years, has expanded its services from two service lines like Infra and ADM to SAAS (with Salesforce, SAP & Oracle), data, advance engineering (new tech services) and experience. These services collectively account for 35 per cent of revenues and the company plans to cross sell the same to existing clients, thereby improving growth in the longer run.

In the near term, we have lowered revenue estimates to 3.5 per cent year on year, however, we expect revenue to improve 12 per cent year on year in FY25. This coupled with improving margins and structural changes in the organisation prompt us to increase our multiple to 15x from 12x. We maintain our BUY rating on the stock with a target price of ₹380 per share.

We believe current quarter’s margins are led more by utilisation and offshoring (which seems sustainable). Going forward, we believe the company has further room in utilisation and sub con. Zensar aspires to achieve mid-teen margins by Q2-FY24. We have conservatively built 14.0 per cent and 15.5 per cent EBITDA margin for FY24 and FY25 respectively, leading to PAT CAGR of 32.7 per cent over FY23-25.

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