Midcap IT firm Zensar Technologies has lost over half of its investor wealth just in 2022 so far. The stock has declined to ₹231 currently from around ₹521 in December 2021, down over 55% in the current calendar year
Of the 8 months in 2022, the stock has given positive returns only in March. It has lost 7 percent in August 2022 till date. Meanwhile, for the last 1 year, the stock has shed over 40 percent.
The recent decline in the stock has been on the back of weak June quarter results. The company's net profit fell 25.64 percent to ₹75.1 crore in Q1 against ₹101 crore profit in the same quarter last year. However, its sales jumped 28.21 percent to ₹1,224.7 crore in the quarter under review versus ₹955.2 crore in the corresponding quarter of the previous fiscal.
On a sequential basis, the company's net profit declined 42.19 percent from ₹129.9 crore in the March quarter and sales fell 0.11 percent from ₹1,226.1 crore in Q4FY22.
Zensar 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 Digital and Application Services and Digital Foundation Services segments. The company also offers experience services, including product/experience research, strategy and design, experience engineering, and marketing technology services, as well as creative, content, brand, and campaign services.
Despite the poor performance of the firm fundamentally as well as stock-price wise, brokerages believe some upside is to be seen in the stock.
HDFC Securities has a buy call on the stock and a target price of ₹315, implying an upside of 37 percent in 12 months.
"We expect dollar revenue growth of 12.2/10.1 percent and EBITDA margins of 11.8/13.6 percent for FY23/24E, resulting in revenue/EPS CAGRs of 11/5 percent over FY22-24E. We maintain our BUY rating with a TP of ₹315, based on 16x FY24E EPS. The stock is trading at a PE of 16/12x FY23/24E EPS, a discount of 50 percent to the mid-tier IT median," said the brokerage.
Meanwhile, ICICI Direct and Prabhudas Lilladher have 'hold' calls on the stock.
According to ICICI Direct, Zensar has grown organically and inorganically over the years. It is net debt free and has a healthy double-digit return ratio (with RoCE of 19 percent).
"We change our rating on the stock from BUY to HOLD. We value Zensar at ₹235 i.e. 14x P/E on FY24E," the brokerage said.
Prabhudas Lilladher, meanwhile, said that a weak supply side engine coupled with cut down or deferment of discretionary spending 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 percent/9 percent for FY23/24, led by a cut in revenue by 3 percent 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 a target price of ₹253. Zensar is currently trading at 17x/13x on FY23/24 EPS of 14.7/19.5 with revenue and EPS CAGR of 10 percent and 3 percent over FY22-24E. Maintain 'HOLD', " said the brokerage.
2022 has been a weak year for most IT firms with then giving negative returns in this period. However, Zensar seems to have fallen the most in this space. Its peer Coforge shed 35 percent, L&T Tech lost 34 percent, L&T Infotech declined 33 percent, Mphasis fell 29 percent and Mindtree tanked 29 p5 percent in 2022.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
