Mid and small-cap IT stocks have shown significant improvement in their performances in 2023, bouncing back from their weak performance in CY22. In the current year so far, these stocks have also outperformed their larger counterparts.
One of the notable performers in the sector was Zensar Technologies, a mid-cap IT stock, which had a remarkable turnaround, gaining 65% so far in 2023, appreciating from ₹213.70 apiece to the current market price of ₹352.45.
In CY22, the stock underperformed the market, losing almost 59% of its value. However, the stock kicked off 2023 on a strong footing, surging by 8.12% in January, and it continued the same momentum into February by rallying 26%, and in May so far, it jumped by another 27.40%.
The stock also marked a new 52-week high on May 15, 2023, and at the current levels, it is 17.28% away from its all-time high of ₹587.
For the March-ending quarter, the company delivered a healthy performance, with its net profit growing 56.57% QoQ to ₹119 crore from ₹76 crore in Q3 FY23. On a yearly basis, the net profit was down by 9.16%.
The company reported a revenue of ₹1,213 crore, showing a sequential increase of 1.3% and 1.1% YoY in constant currency terms. Furthermore, the operating profit reached to ₹141 crore, indicating a substantial growth of 65% on a QoQ basis.
Its operating profit margin came in at 15% in Q4, an expansion of 350 basis points QoQ.
The strong and sustainable margin improvement during the quarter was on account of lower sub-contracting, higher utilization, better productivity and business mix (lower passthrough), and FX, said domestic brokerage firm HDFC Securities.
Softness in consumer services, banking, and emerging verticals was offset by a recovery in insurance, hi-tech, and manufacturing verticals. The management expects challenges in consumer and hi-tech verticals going ahead and cited the uncertainty in the current demand environment with delay in decision-making, it said.
While deal bookings provide growth visibility, HDFC Securities trimmed its revenue estimate by 2-3%, factoring challenges in hi-tech and consumer verticals, but increased its EPS estimates by 15%, supported by a better operational trajectory for FY24 and 25E.
Therefore, the brokerage maintained its 'buy' rating on the stock with a target price of ₹445 apiece. Similarly, Axis Securities also kept its 'buy' tag on the stock with a target price of ₹385 apiece.
"From a long-term perspective, we believe Zensar is sorting out the client-specific engagement from the verticals such as Hitech & Media as well as BFSI. However, rising concerns over the prospects of large economies along with prevailing supply-side constraints pose uncertainties over the company’s short-term growth rates," said the brokerage.
Earlier in December 2022, brokerage firm IDBI Capital raised its rating on the stock to 'buy' from 'hold' with a target price of ₹280 apiece, citing strong long-term growth and an attractive valuation. The stock achieved the brokerage target price in less than two months, in mid-February.
11 analysts polled by MintGenie on average 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.
