Buy Zensar Technologies - TP Rs.235 - Kotak

Zensar's results were largely in line with expectations. USD revenues grew by 2.7% QoQ, largely led by higher volumes.

EBIDTA margins were flattish (excluding bought-outs and exceptional forex loss) despite rupee appreciation.

A forex swing of Rs.280mn impacted headline numbers on the EBIDTA and PAT front.

Cisco revenues have stabilized and have started scaling up with 4Q seeing an 11% rise on a YoY basis. According to the management, Zensar is expected to get additional revenues as one of the large Indian vendors has been rationalized by Cisco.

The management indicated a conducive macro environment, with clients looking at growth as well as efficiencies. It is confident of out-performing the industry growth as projected by NASSCOM.

Post the acquisition of Akibia, Zensar is in a position to cross sell services to the mutually exclusive set of clients and this is expected to help growth rates. Order booking for combined services is at about $14mn currently, we understand. More than 14 clients are getting joint services from Zensar and Akibia.

Rationalization of low-margin business, focus on utilization and cost optimisation should sustain margins in FY13, we opine.

The management has detailed four focus areas to take the revenues to an aspirational level of $1bn by FY16.

We have revised our FY13E EPS to Rs.41.3 (Rs.40.7), largely on the back of a change in assumed exchange rate (Rs.50 / USD for FY13).

The stock is available at 4.7x FY13E earnings. We maintain BUY, with a DCF-based price target of Rs.235 (Rs.220 earlier).

A delayed recovery in major user economies and a sharper-than-expected appreciation in rupee v/s major currencies are the risks for a relatively small player like Zensar.

Source : Equity Bulls

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