Maintain ADD on Zensar Technologies - Getting back on track - ICICI Securities

Mr. Amit Chandra & Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities.

Zensar's fall in revenue (-4.8% QoQ CC) was in line with the estimate, while the margin performed better than expected. The revenue declined due to stressed verticals like Consumer and Manufacturing. The fall in BFS (-12.8% QoQ CC) was higher than peers, and Insurance (Cynosure) was under pressure due to the COVID-19 impact. Hi-Tech (46% of revenue) registered growth led by a top client. The recovery in TCV wins (USD 150mn, ~30% NN) is encouraging, and the deal pipeline at USD 1.5bn remains healthy. We expect a recovery in Zensar's growth in 2HFY21E and EBITDA margin will be in the range of 13-15%. Growth will be led by Hi-Tech, stability in Manufacturing/Retail and recovery in BFSI. We increase our EPS estimate by 13.0/3.1% for FY21/22E to factor in better growth visibility and margin recovery. We increase our P/E multiple to 12x (~8% discount to 5Y average) vs. 10x earlier. Our TP of Rs 170 is based on 12x June-22E EPS. The stock trades at a P/E of 13.0/10.5x FY21/22E EPS, which is ~20% discount to 5Y average. Maintain ADD.

- 1QFY21 highlights: Zensar posted a revenue of USD 130.8mn, -4.8/-12.1% QoQ/YoY CC in-line vs. the estimate of USD 130mn. Within verticals, the highest impact was witnessed in Consumer (-20.8% QoQ CC), Banking (- 12.8%), Insurance (-7.0%), offset by growth in Hi-Tech (+3.5%). Digital is now 59.5% of revenue, down 3.2% QoQ, while the Legacy fall continues to be steep (-12.0% QoQ).

- EBIT margin expanded 11bps QoQ to 9.9% in a tough quarter vs. our expectation of 8.1%. Margin expansion was led by cost control (+240bps) offset by volume and utilisation impact of 190bps QoQ. Margin will remain stable; offshoring and lower sub-con cost will remain future margin levers.

- On the positive side, Cloud Infra Services (~19% of rev) stood up 8.5% QoQ CC. Collection improved significantly; the net cash is Rs 7.63bnm which is ~24% of MCap. We expect revenue growth of -1.2/+0.8/+1.4% in 2/3/4QFY21.

Shares of ZENSAR TECHNOLOGIES LTD. was last trading in BSE at Rs.149 as compared to the previous close of Rs. 144.35. The total number of shares traded during the day was 29836 in over 1190 trades.

The stock hit an intraday high of Rs. 149.5 and intraday low of 139.15. The net turnover during the day was Rs. 4358804.

Source : Equity Bulls

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