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Recommendations India

Zensar Technologies Q3FY14 results update

January 23, 2014, Thursday, 09:15 GMT | 05:15 EST | 14:45 IST | 17:15 SGT
Contributed by Nirmal Bang

Zensar reported Q3FY14 numbers below our expectations wherein the IT services business in USD terms has de-grown by 2.6% due to client furloughs. Management expects good growth in FY15 with its Infrastructure Management (IM) business gaining momentum. From our Buy recommendation in April 2013 the stock has generated 60% returns and we had recommended partial profit booking to investors on 3rd Jan 2014. The company has been focusing on bagging larger deals and is moving out of smaller deals. We remain positive on the prospects of the company with robust order book and strong pipeline and look for revival of growth in the coming quarters. At CMP, the stock is trading at a P/E of 6.5x its FY15E earnings and we recommend investors to continue to Hold and Buy the stock on dips.
Financial Highlights:
- INR Revenues for the quarter remained flat QoQ at Rs.592 crore on the back of client furloughs. Robust growth was seen in the products business which has grown by 34% QoQ basis.
- IM business remained flattish during the quarter; however company has signed new orders worth $27mn in this business. Services business de-grew by 3% QoQ. 2 of its clients had a shutdown of 8-9 days. Company is also in the process of shutting down some data centres in onsite businesses and adding up some new technology related services in the IM business.
- EBIDTA margins de-grew 240 bps QoQ to 14.7%; however grew by 140 bps YoY. This was mainly on the back of higher onsite share of revenues and lower utilisations.
- For the quarter, Zensar incurred forex loss of Rs.8.6 crore against a gain of Rs.14.5 crore in the previous quarter.
- Tax rate fell sharply to 27%, due to benefit of deferred tax of Rs. 6 crore. Company is moving into SEZ and expects lower tax in FY15.
- Adjusted PAT de-grew by 6.5% QoQ to Rs.57 crore for the quarter.
- Management expects better demand environment in FY15.
Other Highlights:
- Company incurred 23 cr capex during the quarter.
- Free cash flow was at Rs.114 crore during the quarter.