Zensar Technologies investment analysis: 12% gain after Q4 report

The world of technology is always changing, and companies that can stay ahead of the game are the ones that do well. Zensar Technologies, which is part of the well-known RPG Group, has been in the news for its 12% hike in stock prices after releasing its Q4 FY24 results last week. 

In this article, we will have a closer look at Zensar Tech’s Q4 highlights, the quarterly performance of FY24, current financials, and whether it’s a good time to invest in ZENSARTECH.

About Zensar Technologies

When it comes to digital solutions and tech services, Zensar Technologies is at the forefront of innovation. Its headquarters are in Pune, India, and it is a subsidiary of the $4.4 billion RPG Group, located in Mumbai. 

The Application Management Service and the Infrastructure Management Service are the two main areas of operation. It focuses on particular industries like banking, finance, insurance, technological innovation, manufacturing, and consumer services. Their global network of offices spans the United States, Europe, Africa, and India.

With over 10,000 employees spread across 30+ countries, they provide innovative digital solutions, encourage growth, and enable their customers to thrive in an ever-changing environment.

They are unique in their capacity to help high-growth firms by combining their understanding of engineering with their extensive experience and data. The Information Services Group (ISG) has recognised Zensar as a Top 15 Sourcing Standout, attesting to their experience-led technology and engagement services and their remarkable worldwide development.

Zensar Tech share performance:

Following the release of the company’s strong March quarter results for FY24, Zensar Technologies Limited’s stock price surged 11.6% to ₹641.75 on April 26. As of April 29, ZENSARTECH was trading at ₹622.20.

The stock price of Zensar Tech has increased by as much as 115% in the last 12 months (as of April 25). However, brokerage firms are keeping Zensar Tech’s share price target at ₹526.

Q4 FY24 highlights:

Zensar Technologies reported a 2% quarter-on-quarter increase in consolidated revenue from operations to ₹1,229.7 crore in the March quarter (Q4) of FY24, up from ₹1,204.1 crore in the third quarter of FY24. Compared to the previous quarter, net profit for the current quarter increased 7.2% QoQ to ₹1,733 crore.

The company recorded ₹4,935.58 crore ($591.3 million) in services revenue for the entire fiscal year FY24, representing a YoY rise of 1.0% in reported currency and 1.3% in constant currency. 

At 16.5% in Q4FY24, EBITDA was up 200 basis points year over year and down 70 basis points sequentially from the previous quarter. With a quarterly YoY gain of 430 basis points and a sequential QoQ increase of 70 basis points, PAT stood at 14.1% in Q4 FY24.

• The United States region’s services revenue increased by 4.3% in reported currency and 4.2% in constant currency in the most recent quarter.
• The Europe region’s services revenue fell 1.2% in reported currency and 3.1% in constant currency in the last quarter compared to the previous quarter.
• Revenue from services in South Africa fell 2.3% sequentially QoQ in reported currency and 2.0% in constant currency.

According to CFO Sachin Zute’s report, the organisation increased its EBITDA and PAT for FY24 as a result of its intense focus on operations and improvement of its margin tracks, which resulted in favourable financial outcomes. 

Zensar Tech’s quarterly performance 

Current financials

Competitors of Zensar Technologies

Shareholding pattern

The shareholding pattern (as of March 2024) of Zensar Technologies is as follows:

Source: Moneycontrol

Investing in Zensar Technologies

Pros

• Strong financial situation:

Being debt-free shows that Zensar is in excellent financial standing. Because of this, the company will have more financial flexibility to take on plans for expansion without being bound by debt payments. Debt-free businesses are better suited to withstand economic crises and interest rate changes. 

Apart from that, consistently growing revenue shows that the organisation is successful at drawing in customers while maintaining momentum. Multiple service offerings, including digital application services (DAS) and digital foundation services (DFS), contribute to the organisation’s revenue diversity. Additionally, its clients come from a variety of sectors, which leads to industry diversity.

• Cash generation: 

With a 5.4% increase over the previous quarter, the organisation ended Q4 FY24 with net cash of ₹2,184.40 crore ($261.7 million). Zensar’s consistent numbers suggest that the company generates healthy cash flows from its operations. Positive cash generation allows the company to invest in research and development, acquisitions, or expansion, which can drive future growth.

• Sector outperformance:

Zensar’s PE ratio is currently 21.11 (as of April 29, 2024), which, even when high, is still lower than the sector average of 31.63. This suggests that the stock might be undervalued compared to its peers.

Investors often seek companies trading at a discount to their industry average. Zensar’s lower PE ratio could make it an attractive investment opportunity within the sector.

Cons

• Mediocre EPS growth rate:

Zensar’s EPS growth rate hasn’t been remarkable, as you can see in the table above. Investors typically prefer companies with robust earnings growth over time. A slow EPS growth rate might lead to lower investor confidence and affect the stock’s valuation. 

• Moderate operational scale:

In comparison to several major domestic IT companies, Zensar operates on a more modest scale. When a business is on a modest scale, it may find it more difficult to negotiate favourable prices with clients. Larger competitors may have more leverage in this regard.

Conclusion

The company seems to be a promising investment opportunity due to its solid financial foundation and dominant position in the sector. But before investing in anything, investors should consider the risks. 

You can determine whether Zensar Technologies is a good match for your investing objectives and risk tolerance by carefully weighing the benefits and drawbacks.