“BUY” This Multibagger IT Stock With A Target Price of Rs. 613: HDFC Securities

IT stocks are on a robust uptrend despite market swings. Zensar Technologies Ltd has provided multibagger returns to its shareholders over the past 5 years, with the share price rising from Rs. 187.84 in January 2017 to Rs. 524 at current levels. HDFC Securities, a brokerage company, has maintained a Buy recommendation on the multibagger stock, which has grown 115.68 percent this year (year-to-date). Zensar is valued at a target price of Rs. 613 per share with a 6-months target period by the brokerage.

Q2FY22 result of Zensar Technologies Ltd

HDFC Securities has said in its latest report that "Zensar's consolidated revenue grew by 12.1% QoQ and 7.3% YoY to Rs 1051 crore in Q2FY22. The company reported revenue of US$141.9 mn, a constant currency sequential QoQ growth of 12.3%. EBIT was down by 12% QoQ, and 18.9% YoY to Rs 114 crore. Adjusted net profit stood at Rs 94 crore in Q2FY22, it was down by 6.4% QoQ but grew 5.8% YoY. On operating metrics, revenue contribution from Digital was 71.1% in Q2FY22 vs 68% of the revenue in Q1FY22 vs. 63.8% in Q2FY21. On QoQ, the US region reported growth of 11.9%, UK region reported growth of 11.2%, and South Africa reported growth of 10.0%."

According to the brokerage "From a vertical perspective, on QoQ basis, the Banking vertical posted growth of 37.0%, while Insurance grew by 12.2%. Revenues from Hi-Tech clients grew sequentially by 3.9%, while Manufacturing posted a QoQ growth of 6.8%. The Consumer Services vertical posted a QoQ growth of 18.1%. Total active clients stood at 143, as of 30 Sept 2021 vs. 135, as of 30 June 2021. The company has 10,375 employees as of 30 Sept 2021 vs. 9,512 employees as of 30 June 2021."

The brokerage’s take on Zensar Technologies Ltd

The brokerage has noted in its report that "Zensar has seen a recovery in Hi-Tech and Manufacturing vertical, after a muted performance in last several quarters. Zensar has redesigned the Hi-Tech, Manufacturing and Emerging vertical with a dedicated focus on new logo hunting. There is strong traction in Supply chain 4.0, connected supply chain and connected experiences. The company is optimistic about the demand for digital services. Zensar continues to strengthen its go-to-market along with stated focus areas. In line with this, the company completed the acquisition of M3bi, which augments and strengthens advanced engineering and data analytics capabilities. We expect strong revenue growth momentum going ahead and expect 15.7%/17%/12.4% revenue growth in FY22E/FY23E/FY24E, respectively."

HDFC Securities has claimed that "Zensar's strong organic growth of more ~5% QoQ in USD terms for two consecutive quarters indicates that its refreshed strategy is on right track. Growth in H1FY22 was broad-based and strong revenue growth momentum is expected to continue in H2FY22, however, there could be marginal impact due to furlough in Q3FY22. We expect Zensar is focused on gaining market share which will help them in revenue acceleration going forward. Given healthy growth outlook and expectation of strong set of numbers going forward, we have now revised earnings and increased target price for the stock."

Buy Zensar Technologies Ltd Says HDFC Securities

The brokerage has stated in its latest report that Zensar reported healthy client addition in Q2FY22. Client mining and new logo additions are expected to scale up revenues further. We believe Zensar Tech will deliver long-term sustainable growth led by a healthy deal pipeline and strong execution. Zensar has grown organically and inorganically over the years. Driving deal momentum, annuity revenues, increasing investment in sales & talent, leadership and tuck-in acquisition to build capability bode well for long-term revenue growth. The company has guided for EBITDA margin in the range of 17-18%, this will be key monitorable."

HDFC Securities has further said that "We believe the base case fair value of the stock is Rs 575 (23x Dec FY23E EPS) and the bull case fair value of the stock is Rs 613 (24.5x Dec FY23E EPS) over the next two quarters. Investors can buy in Rs 514-524 band and add further on dips in the Rs 458-468 band (18.5x Dec FY23E EPS). At the LTP of Rs 518.7, the stock is trading at 20.7x Dec FY23E EPS."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.