Prabhudas Lilladher's research report on Zensar Technologies
Zensar reported soft revenue growth of 3.1% QoQ CC, +1.8% QoQ USD (Ple: 1.1%) led by muted performance in HiTech and Manufacturing (0.5% QoQ CC) and Consumer services (-0.4% QoQ CC). BFSI grew 8.1% QoQ CC. EBIT margin declined sharply to 7.2%, -282bps QoQ, -381bps YoY. (Ple: 8.2%) led by higher cost of hiring, lower volumes and utilization. Margins are expected to remain under pressure in Q2FY23 due to higher than normal wage hike. Headcount declined by 280 employees, -2% QoQ despite elevated attrition levels (LTM attrition at 28.1%, +20bps QoQ). Weak supply side engine coupled cut down or deferment of discretionary spends by clients in Consumer, HiTech, and Manufacturing verticals due to challenging macro environment are likely to limit earnings growth ahead. Our EPS estimates decrease by 12%/9% for FY23/24, led by cut in revenue by 3% for FY24 and cut in margin estimates by 150bps/88bps for FY23/24.
We continue to value Zensar on 13x on FY24 EPS to arrive at TP of Rs. 253 (earlier: Rs.279). Zensar is currently trading at 17x/13x on FY23/24 EPS of 14.7/19.5 with revenue and EPS CAGR of 10% and 3% over FY22-24E. Maintain ‘HOLD’.
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