After reaching a 52-week high of ₹539 apiece on January 03 of this year, Zensar Technologies stock has dropped steadily to date and lost 57.08% of its value to ₹231.35. YTD, the stock has plummeted 55.60%. It is noteworthy that out of the last 11 months of the current year, the stock only managed to record two months with gains, and the rest ended up with losses.
When compared to the Nifty IT Index, which has dropped 20% so far this year, the stock has fallen more than 35.7%, outpacing the index.
However, domestic brokerage firm IDBI Capital is bullish on the stock, citing strong long-term growth and an attractive valuation.
Despite fears of recession, the global tech spend is expected to grow by 11% in the next year, thus providing growth opportunities for Indian IT firms, it says.
According to the brokerage, the company will see some pain in the near term but is well poised to register revenue growth in the medium to long term.
During the last few quarters, the company’s margins were impacted due to high attrition and weakness in key verticals. However, easing of the supply side, price hikes, improving utilization rates and lower sub con cost will drive margins, the brokerage said.
"Zensar aspires to achieve mid-teens margins by 2QFY24E." "We have conservatively built 10.7%, 13.8%, and 14.7% EBITDA margins for FY23E, FY24E, and FY25E, respectively," it said.
IDBI Capital upgraded its rating from “HOLD” to “BUY” with a target price of ₹280/share, an upside potential of 21.21% from the stock previous closing price.
Earlier, Axis Securities maintained a "hold" rating on the stock with a target price of ₹230 per share.
"The company has been witnessing strong demand across key verticals such as hi-tech and banking, backed by healthy deal wins spread across verticals. While higher onsite expenses and rising employee expenses may impact its operating margins temporarily, they will likely expand with strong volume growth moving forward," Axis Securities said.
In the second quarter of the current fiscal year, the company reported a 39.83% drop in its consolidated net profit at ₹56.8 crore compared to a net profit of ₹94.4 crore.
The revenue from operations during the quarter came in at ₹1,263 crore as against ₹1,073.5 crore, a growth of 17.07 YoY.
The operating profit fell 34.61% to ₹105.4 crore in Q2FY23 from ₹161.2 crore in Q2FY22, while the EBITDA margin contracted to 8.54% during the quarter from 15.34%, a drop of nearly 680 basis points.
On the vertical front, the HI-Tech vertical declined 5.5% QoQ owing to tepid demand across geographies. Banking grew by 8.3% QoQ, insurance by 3.9% QoQ, and consumer services declined by 2.5% QoQ. The Manufacturing segment also witnessed a de-growth of .7% QoQ. Emerging services reported better recovery at 29% growth QoQ.
In terms of the geographical, North America exhibited a robust recovery with 2.5% QoQ growth, Europe also showcased a strong growth of 3.5% QoQ, and the Africa region showed strong growth of 6% QoQ. Zensar's management is expecting robust demand backed by better deal wins across geographies, Axis Securities reported in its result update report.
Zensar Technologies is a small-cap IT stock with a market capitalization of ₹5,237 crore. The company is a digital solutions and technology services company, that provides information technology (IT) services and solutions in the United States, Europe, and internationally.
It operates through the Digital and Application Services and Digital Foundation Services segments. The company also offers experience services, including product and experience research, strategy and design, experience engineering, and marketing technology services, as well as creative, content, brand, and campaign services.
An average of 12 analysts polled by MintGenie have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.