Result Update: Zensar Technologies Ltd - REDUCE - TP Rs.839 - Kotak

Zensar 1QFY18 revenue grew by 2.1% in dollar terms to USD114mn, below our estimates of 3.7%QoQ. This includes revenue from the full integration of Foolproof and Keystone. Excluding this we estimate the organic revenue declined by about 1.6% sequentially. EBITDA margins expanded by ~90bp sequentially to 10.20% led by improvement in margins in IMS business to 3.2% from -12.2% in previous quarter. Application margins contracted by about 370bp to 13.9% due to investments made onsite. Company would give wage hikes in next quarter which would impact the margins by 1.2-1.5%, though the management believes it has enough levers available to offset the same. Company continues with client pruning activity and it would another 2 to 3 quarters before it stabilizes. Weakness in Top five clients (35% of revenue) saw 7% decline QoQ, which was disappointing. Growth within digital was encouraging and contributed 36.3% of revenue with integration of Foolproof and Keystone. Manufacturing (~49% of revenue) declined by 4.6% in CC Terms. Management has been shifting its focus to Digital from traditional business which is encouraging. Acquisition of Foolproof and Keystone Logic in previous year does indicate the intent of the management to shift to Digital. Company continues to lag in organic growth and we would wait till it starts delivering on same. Our FY18 and FY19 EPS stand at Rs.57.7 (Rs.64.4) and Rs.75(Rs.76.4), respectively. We arrive at a price target of Rs.839 (Rs.855). We maintain REDUCE. We will become more positive on the stock only when, there is more consistency and predictability in revenues and profitability.

Shares of ZENSAR TECHNOLOGIES LTD. was last trading in BSE at Rs.809.45 as compared to the previous close of Rs. 829.5. The total number of shares traded during the day was 751 in over 65 trades.

The stock hit an intraday high of Rs. 833.5 and intraday low of 808. The net turnover during the day was Rs. 612245.

Source : Equity Bulls

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