ZensarTechnologies (ZT) is a Pune-based IT company
promoted by RPG group. ZT’s strategy of not following the herd mentality is paying off. When every other software firm was depending upon North America for its growth, ZT focused on the emerging markets to drive its growth. When other IT companies were trying to tie a knot with leading American investment banks, ZT focused on insurance companies. According to its latest quarterly results, North America constitutes only 56 per cent of the business and BFSI sector has improved its share in overall revenue as compared to same quarter last year, increasing to 17 per cent from 10 per cent. This helped the company to clock in revenue growth of 12 per cent and profit growth of 85 per cent in Q1FYO9 compared to Q1FYO8.
Business:
ZT has divided its business into five verticals and three geographical territories. The five verticals in which company operates are BFSI, manufacturing, retail, utilities and others. The company has witnessed growth in each segment in FY08 compared to previous year. The maximum growth came from the retail sector which was up by 56 per cent, followed by BFSI which grew 55 per cent. The three territories in which company operates are the US, UK and rest of world. ZT saw maximum growth coming from rest of world, where it grew 63 per cent over previous year. Emerging markets contributed most in this rise, South Africa grew 88 per cent and India and Middle East grew 143 per cent.
Performance:
According to the latest quarterly results for Q1FYO9, the company posted topline of Rs 211.07 crore and bottom line of Rs 24.73 crore. The topline increased 12 per cent and bottom line by 85 per cent, as compared to last year same quarter. For FY08, the company had revenue of Rs 783 crore, up by 29 per cent from last year, and profit of Rs 65 crore, up by 12 per cent. The sluggishness in the margin was due to appreciation of rupee vis-à-vis US dollar and the write-off the company had to do for restructiring one of its acquisitions. The write-off was to the tune of Rs 9.8 crore in FY08 for its acquisition of Thought Digital.
Valuation:
The company operates in three different segments, viz. GTS (global transformation services), EAS (enterprise application services) and others, which mainly include BPO services. Its order book covers 18 month for BPO services, eight month for GTS and five months for E.AS. If we include projects in the pipeline, it will cover 11 months for EAS. This gives good earning visibility for the company. Currently, the company is trading at Rs 144.5 which discounts FY08 earning by 5.4 times. Its bottoniline is expected to improve by 26 per cent and give an EPS of Rs 35. Even if it maintains the current PE of 5.4 times, we expect minimum 25 per cent increase in the price from its level. Hence, we recommend our investors to enter the scrip with a one year time horizon.
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