MOSL downgrades Zen Technologies to ‘Neutral’ on expensive valuations; shares drop 2%

MOSL downgrades Zen Technologies to ‘Neutral’ on expensive valuations

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26 Aug, 2025 12:21

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Zen Technologies shares dropped about 2 percent in opening trade after Motilal Oswal Financial Services (MOSL) downgraded the stock to 'Neutral' from 'Buy', citing stretched valuations. The company had reported Q4FY25 earnings, wherein its revenue rose 116 percent year-on-year to Rs 2,900 crore and net profit jumped 177 percent to Rs 849 crore, beating Street expectations. Despite the solid earnings beat, came in the downgrade.

In its latest report, MOSL acknowledged Zen’s strong fundamentals and upbeat long-term outlook, but noted that the current stock price already factors in much of the optimism around upcoming defense orders.

Zen’s Q4 performance was driven by solid order execution and a favorable tax outflow. Absolute EBITDA rose 109 percent YoY to Rs 944 crore, though margins compressed 100 basis points to 32.2 percent due to lower-than-expected gross margins. PAT margins, however, expanded 630 basis points YoY to 28.9 percent. The company received fresh orders worth Rs 1,500 crore during the quarter, ending FY25 with an order book of Rs 6,900 crore.

MOSL remains constructive on the business trajectory, supported by a healthy EBITDA margin profile and has also upgraded its earnings estimates for FY26/27.

The outlook for Zen remains positive given the fast-tracking of defense procurement amid heightened geopolitical tensions and continued government focus on indigenous defense solutions. The company expects order inflows of Rs 8,000 crore in 1HFY26, largely from simulator contracts. While visibility is strong, MOSL notes that actual tender finalizations may get deferred beyond the first half of FY26. Export opportunities, particularly in anti-drone and simulator segments, are also being pursued, with potential inflows from the US expected by FY27.

Despite the strong fundamentals and growing pipeline, MOSL believes the current valuation leaves limited upside in the near term, prompting a more cautious stance until the next leg of growth is better priced in.

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