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http://www.kotaksecurities.com/pdf/dmb/MorningInsight29032012.pdf
ZENSAR TECHNOLOGIES LTD
PRICE: RS.180 RECOMMENDATION: BUY
TARGET PRICE: RS.220 FY13E P/E: 4.4X
q We interacted with the management of Zensar recently. The meeting reinforces our optimism on the long term prospects of the company.
q The management has not seen any cause of concern within its top clients, as yet.
q Cisco, which has been facing scale up issues over the past three quarters,
is expected to see higher revenue growth, going ahead.
q According to the management, Zensar is expected to get additional revenues as one of the large Indian vendors has been rationalized by Cisco.
q Post the acquisition of Akibia, Zensar is in a position to cross sell services
to the mutually exclusive set of clients and this is expected to help
growth rates. Order booking for combined services is at about $12mn
currently, we understand.
q Rationalization of low-margin business, focus on utilization and cost
optimisation should sustain margins in FY13, we opine.
q The management detailed the four focus areas to take the revenues to an
aspirational level of $1bn by FY16.
q We maintain our FY12E and FY13E earnings estimates at Rs.38.3 and
Rs.40.7, respectively.
q The stock is available at 4.4x FY13E earnings. We maintain BUY, with a
DCF-based price target of Rs.220.
q A delayed recovery in major user economies and a sharper-than-expected
appreciation in rupee v/s major currencies are the risks for a relatively
small player like Zensar.
We met up with the management of Zensar recently. Following are the
takeaways
No concerns at micro level; Cisco to scale up
n While accepting that, the macro scene is still uncertain, the management has
indicated that, it has not seen any major changes at the micro levels, which may
cause concern.
n The company has not seen any major delays in project ramp-ups or start of new
projects - discretionary or non-discretionary.
n A survey of the top clients in 3QFY12 had indicated a 10% - 15% increase in
budgets for 3 out of the Top 5 clients. Cisco's budget is expected to rise by about
5-7% for CY12.
n The top clients of the company continue to scale up business along expected
lines.
n Cisco, the largest client for Zensar, is also expected to start scaling up revenue
from the current quarter.
n We note that, Cisco revenues had not scaled up over the past three quarters
because of internal restructuring within the client.
n Zensar is also likely to benefit from the recent vendor rationalization exercise
conducted by Cisco.
n According to the management, Cisco has rationalised its vendor base to cut costs
(Zensar, TCS, Wipro and Accenture were the vendors).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight29032012.pdf
ZENSAR TECHNOLOGIES LTD
PRICE: RS.180 RECOMMENDATION: BUY
TARGET PRICE: RS.220 FY13E P/E: 4.4X
q We interacted with the management of Zensar recently. The meeting reinforces our optimism on the long term prospects of the company.
q The management has not seen any cause of concern within its top clients, as yet.
q Cisco, which has been facing scale up issues over the past three quarters,
is expected to see higher revenue growth, going ahead.
q According to the management, Zensar is expected to get additional revenues as one of the large Indian vendors has been rationalized by Cisco.
q Post the acquisition of Akibia, Zensar is in a position to cross sell services
to the mutually exclusive set of clients and this is expected to help
growth rates. Order booking for combined services is at about $12mn
currently, we understand.
q Rationalization of low-margin business, focus on utilization and cost
optimisation should sustain margins in FY13, we opine.
q The management detailed the four focus areas to take the revenues to an
aspirational level of $1bn by FY16.
q We maintain our FY12E and FY13E earnings estimates at Rs.38.3 and
Rs.40.7, respectively.
q The stock is available at 4.4x FY13E earnings. We maintain BUY, with a
DCF-based price target of Rs.220.
q A delayed recovery in major user economies and a sharper-than-expected
appreciation in rupee v/s major currencies are the risks for a relatively
small player like Zensar.
We met up with the management of Zensar recently. Following are the
takeaways
No concerns at micro level; Cisco to scale up
n While accepting that, the macro scene is still uncertain, the management has
indicated that, it has not seen any major changes at the micro levels, which may
cause concern.
n The company has not seen any major delays in project ramp-ups or start of new
projects - discretionary or non-discretionary.
n A survey of the top clients in 3QFY12 had indicated a 10% - 15% increase in
budgets for 3 out of the Top 5 clients. Cisco's budget is expected to rise by about
5-7% for CY12.
n The top clients of the company continue to scale up business along expected
lines.
n Cisco, the largest client for Zensar, is also expected to start scaling up revenue
from the current quarter.
n We note that, Cisco revenues had not scaled up over the past three quarters
because of internal restructuring within the client.
n Zensar is also likely to benefit from the recent vendor rationalization exercise
conducted by Cisco.
n According to the management, Cisco has rationalised its vendor base to cut costs
(Zensar, TCS, Wipro and Accenture were the vendors).
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