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Small & Midcap Mantra | This defence training solutions firm spikes 159% in one month. Will the rally continue?

Incentives for making drones and their components and the outsourcing of defence training simulators were the recent triggers for the surge in this stock’s price.

September 28, 2021 / 09:36 AM IST
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Shares of Zen Technologies, a defence training solutions provider, more than doubled in the past month, unexpectedly becoming one of the top 10 gainers on the BSE.

The stock surged 159 percent to Rs 215 on September 27 from Rs 83.05 on August 24, after hitting a record high of Rs 237.35 on September 15.

Zen Technologies, with a market-capitalisation of Rs 1,709.47 crore on the BSE, was the biggest gainer and the only stock that more than doubled on the BSE SmallCap Index in the past month. The benchmark BSE Sensex was up 7.4 percent and the SmallCap Index climbed 8.5 percent in the same period.

Incorporated in 1993, Hyderabad-based Zen Technologies makes military training simulators, driving simulators, live range equipment and anti-drone systems. It has applied for over 90 patents and shipped more than 1,000 training systems around the world. It has a business development office in the US.

Reasons for rally

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The government’s recent incentive scheme for drones and the company’s healthy orderbook are the key triggers for the run-up in its stock price. The Central government on September 15 approved a Rs 120 crore production-linked incentive scheme for the manufacture of drones and their components over the next three years.

Additionally, the defence ministry has allowed increased use of simulators by the army, air force, navy and coast guard to achieve cost-effective, safe and smart training.

“The framework will provide a significant boost to Indian companies involved in the design, development and maintenance of defence training simulators,” said Ashok Atluri, chairman of Zen Technologies. “Outsourcing the operation and maintenance of simulators to Indian companies is a huge plus.”

Orders in hand

Zen Technologies secured an order of Rs 155 crore from the Indian Air Force on September 3 for the supply of Counter Unmanned Aircraft Systems over 12 months, the company said in a BSE filing. This was Zen’s first major order in the anti-drone space. With this, the company’s orderbook increased to Rs 402.61 crore, including Rs 278.16 crore in the domestic market, against Rs 191.6 crore on June 30, 2021.

As a prudent measure, the company removed a Rs 64 crore order on account of a delay in documentation by the customer.

“There is a turnaround story for Zen Technologies, where we have seen multiple positive triggers in the past few months,” said Santosh Meena, head of research at Swastika Investmart. “New drone rules and the ministry of defence’s decision to outsource operation and maintenance of defence training simulators are other positive triggers.”

Meena said most of the recent developments have been discounted and the market will now focus on execution.

Technically, Rs 230 is an immediate and important resistance level for the stock, said Meena.

“If it manages to trade above this level, then upside momentum may continue towards Rs 275, otherwise a correction towards Rs 160 can be seen. However, any meaningful correction will provide a buying opportunity,” he added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Sunil Shankar Matkar
first published: Sep 28, 2021 09:35 am

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