Zensar Technologies - IMS continues to witness more pressure - IFCI Financial Services

Weak USD revenues; forex gain leads to surge in PAT-USD revenues dipped 0.5%QoQ to USD 97mn on the back of prolonged weakness in IMS segment. EBIDTA margin remained flat at 13.2% QoQ despite increase in utilization and higher offshoring; one time consultancy expense of Rs 54mn had a negative impact on the margin. PAT surged 51%QoQ to Rs487mn led by forex gain of Rs105mn.EPS was at Rs 11.1.

Muted growth across geographies; BFSI imposes pressure - Revenues from US was flat on a QoQ basis on the back of unanticipated shut downs of one of its clients. Revenues from ROW dipped 9.5%QoQ due to closure of some non priority IT accounts and domestic BPO accounts. BFSI imposed pressure as revenues dip 5.2%QoQ; manufacturing and retail grew 1.4%QoQ whereas healthcare and government vertical reported flat growth.

IMS continues to drag growth; no growth in key clients - IMS revenues dipped 4.3%QoQ on the back of ramp down from one large client in US. Higher offshoring will make up for this loss of onsite revenue in the next few quarters. Number of USD1mn+ clients dropped from 43 to 41 in this quarter. Revenue from top 5 and top 10 clients also remained muted adding concerns for the near term.

Outlook - Zensar Tech has signed large deals worth USD 20mn in the IMS segment; there is also a strong deal pipeline of USD 105mn in data center and RIMS segments. The management expects strong double digit growth in IMS for FY14; however EBIDTA margin continues to pose concern as is stands at 13.2% with most of levers already peaked out. We do not expect any strong uptick in volumes and EBIDTA margin up to Q1FY14.

We have revised our USD/INR assumptions for FY13 and FY14; and also reduced our EBIDTA margin estimates for FY13. We maintain HOLD recommendation with a price target of Rs 308 based on 6xFY14E. earnings.

Source : Equity Bulls

Keywords