Nuvama has initiated coverage on Zen Technologies with a 'Buy' rating and a target price of Rs 2,200, citing the company’s strong potential in India's growing defence sector. India's aim to achieve Rs 3 trillion in defence production and Rs 500 billion in exports by FY29 will drive the need for value-added manufacturing. Zen Tech is could benefit from this shift, being one of the key suppliers of defence simulators that strengthen the armed forces' preparedness.
In the previous session, Zen Tech's shares ended half a percent lower at Rs 1,621. The stock has gained nearly 90 percent in the past six months, massively outperforming the Nifty 50 index which gained 15 percent during the same period.
Zen Tech's growth strategy is driven by its in-house intellectual property, supported by over 75 patents, and its advanced anti-drone systems. Nuvama projects strong order inflows for Zen Tech, with a CAGR of over 36 percent from FY24–27, alongside an operating profit margin (OPM) of 33–35 percent. This is expected to result in more than 54 percent EPS growth and a return on equity (RoE) above 22 percent.
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Zen Tech's focus on indigenous design and development aligns with the Indian government's 'Atmanirbhar Bharat' initiative. The company's R&D spending of over Rs 1.5 billion in the past decade has given it a head start over competitors, especially in high-growth areas like Artificial Intelligence (AI) and Machine Learning (ML), where it continues to expand its addressable market.
Catalysts driving Zen Tech's growth include the new framework for simulators in the armed forces, the Agnipath Scheme, and increasing demand for anti-drone systems to counter UAV threats. Recently, Zen Tech completed a Rs 10 billion Qualified Institutional Placement (QIP).
Zen Tech is currently sitting on a record-high backlog of Rs 14 billion, which is four times its FY24 sales. The company has a pipeline of Rs 40 billion and a massive market opportunity in both simulators and anti-drone systems. In the bull case scenario, where OPM reaches 37 percent by FY27, Nuvama's target price could go as high as Rs 2,818.
Nuvama highlighted heightened competitive intensity, a potential slowdown in order momentum, or changes in government policy that may impact defense budgets, as key risks to the company's growth.
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