Buy Zensar Tech; target of Rs 240: Sushil Finance

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Buy Zensar Tech; target of Rs 240: Sushil Finance

Sushil Finance is bullish on Zensar Tech and has recommended buy rating on the stock with a target of Rs 240 in its August 3, 2011 research report.

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Sushil Finance is bullish on Zensar Tech and has recommended buy rating on the stock with a target of Rs 240 in its August 3, 2011 research report.

"Zensar delivered a decent Revenue growth of 6.6% QoQ during Q1FY12. However, its net profits fell on higher tax provision and lower other income. Its Revenues grew by 6.6% QoQ & 65.1% YoY to Rs. 3,987.8 mn, mainly due to 6.2% QoQ growth in volume. The Revenues from application management services grew by 7.6% YoY to Rs. 2,414.8 mn, while its infrastructure management services (IMS) business grew by 818.3% YoY to Rs. 1,573 mn (including Rs. 1,314.9 mn from Akibia). The company is currently chasing about 8 key deals in both the segments and is expected to close some deals in coming quarters."

"During Q1FY12, its EBITDA margins grew by 90 bps QoQ to 10.8%, and its EBITDA increased by 16.5% QoQ & 12.3% YoY to Rs. 430.7 mn. Its PBT (excluding of other income of Rs. 57.1) grew by 28.1% QoQ & 5% YoY to Rs. 328.1 mn. However, with sharp decline of 40.3% QoQ & 32.9% YoY in its other income and higher tax provisioning at 29.7% of PBT (against 21% in Q4FY11 & 18.3% in Q1FY11), its APAT declined by 28.4% QoQ and 16.7% YoY to Rs. 270.7 mn. Q4FY11 Profits included deferred tax asset amounting to Rs. 100.2 mn pursuant to the expiry of tax holiday under section 10A of Income Tax Act. Going forward, Zensar expects margins to expand further with closing of some low margins accounts and aims for Rs. 15.5 bn of Revenues & Rs. 1.5 bn of APAT for FY12."

"During Q1FY12, Akibia, which is a key player in the Infrastructure Management (IM) space with service offerings of Data center and Network & security solutions, contributed Rs. 1,314.9 mn to Zensar's consolidated Revenues against Rs. 1191.8 mn in Q4FY11. Zensar is on-track with respect to its plan to sell integrated IM solutions to the customers of both Akibia & Zensar and crossselling of non-IM solutions to Akibia's customers to accelerate growth in FY12. It also plans to close some of its non profitable projects both in Zensar & Akibia. Overall, Zensar expects to achieve Revenues of about Rs. 15,500 mn during FY12 (including Rs. 4,000 mn contribution from Akibia), which in our view, is achievable, given its decent Revenues growth in Q1FY12 and strong deals pipeline in both of its Application management & IMS business."

"Zensar has restructured its businesses on vertical lines with six global profit centers for the verticals of Manufacturing, Media, Retail, Banking and Financial Services, Insurance and Connected Services (Healthcare, Government, Utilities and Transportation) to bring significant consulting expertise on the domain and focus on integrated offering to enable customers leverage best in class technologies and processes for their competitive advantage. This strategy should augur well for Zensar in long run. Considering its Q1FY12 performance, business strategy and its vertical focused approach, we have slightly reduced our FY12E & FY13E Revenues estimates, while have largely maintained our FY12E & FY13E APAT estimates. Going forward, we expect its consolidated revenues (including Akibia's Financials) to grow by 33.8% & 15% in FY12E & FY13E respectively and its APAT to decline by 4.4% in FY12E, but to grow by 18.4% in FY13E. At CMP of Rs.140, the stock is trading at attractive valuation of 4.8x & 4.1x its FY12E & FY13E EPS of Rs.29 & Rs.34.3 respectively. We maintain our "Buy" rating on the stock with a target price of Rs.240," says Sushil Finance research report.

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