Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities
Zensar's revenue continued to be under pressure (-3.4% QoQ CC) but its fall was in line with our estimate. The decline was broad-based with major verticals like Hi-Tech (top account), Consumer (Retail) and Banking (Project closure) registering a sequential drop in revenues. The company has been struggling to grow over the past five quarters and revenue declined by 12.0% YoY CC in FY21. Under the new CEO, the company is going through a complete strategy reset, with a clear focus on reviving growth. The emphasis will be on increasing the partnership ecosystem (hyperscalers), investing in the sales engine, and optimising talent. The company will also look for acquisitions to build capabilities in areas of engineering services and vertical- specific products and platforms. TCV stood at USD 625mn (+11.6% YoY) for FY21 but declined 50% QoQ in 4Q (TCV of USD 100mn) due to deal deferrals. Margin expansion will be limited as the company will have to invest in S&M to fuel growth. We expect the growth to resume in FY22E but expect it to be lower than the industry's growth and depend on the execution of the new strategy. We decrease our EPS estimate by 1.6/2.1% for FY22/23E. Our TP of INR 305 is based on 16x FY23E EPS. The stock is trading at a P/E of 15.4/13.8x FY22/23E EPS, a significant discount to peers.
4QFY21 highlights: Zensar's revenue came in at USD 120.2mn, -2.1/-10.9% QoQ/YoY, in line with our estimate of USD 120.1mn. Hi- Tech/Consumer/Manufacturing/BFS registered a decline of 3.8/3.8/2.1/2.7% QoQ CC while Insurance remained flat (+0.1% QoQ CC). Digital (65.9% of revenue) was down -0.8/-1.5% QoQ/YoY but the Legacy fall continues to be steep (-4.6/-24.7% QoQ/YoY). EBIT margin contracted -110bps QoQ to 14.8% vs. our expectation of 14.3%, impacted by wage hike (-100bps) and higher SG&A expenses (80bps). The company will resume the normal wage hike cycle effective 1st July'21, which could further dent its margins in 2QFY22.
Outlook: We expect USD revenue growth of +4.0/9.9% and EBIT margin of 13.8/13.9% for FY22/23E, resulting in a revenue/EPS CAGR of +7.0/+11.7% over FY21-23E.
Shares of ZENSAR TECHNOLOGIES LTD. was last trading in BSE at Rs.264.05 as compared to the previous close of Rs. 267.9. The total number of shares traded during the day was 12381 in over 526 trades.
The stock hit an intraday high of Rs. 270 and intraday low of 262.5. The net turnover during the day was Rs. 3288801.