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CMP 387.00
Target Price 425.00
ISIN: INE520A01019
JANUARY 22nd
2014
ZENSAR TECHNOLOGIES LTD.
CONSOLIDATED Result Update: Q3 FY14
BUYBUYBUYBUY
Index Details
Stock Data
Sector IT
BSE Code 504067
Face Value 10.00
52wk. High / Low (Rs.) 429.80/180.90
Volume (2wk. Avg.) 22000
Market Cap (Rs. in mn.) 16911.90
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY13A FY14E FY15E
Net Sales 21284.70 23012.02 24622.86
EBITDA 3037.00 3875.41 4356.67
Net Profit 1745.20 2281.33 2578.16
EPS 40.05 52.20 59.00
P/E 9.66 7.41 6.56
Shareholding Pattern (%)
1 Year Comparative Graph
ZENSAR TECHNOLOGIES LTD. BSE SENSEX
SYNOPSIS
Zensar Technologies Ltd. is a globally renowned
software services company that specializes in
providing a complete range of Software Services
and Solutions.
The company’s net profit registered 4.13%
increase and stood at a record Rs. 507.10 million
from Rs. 487.00 million over the corresponding
quarter last year.
The company has reported an EBITDA of Rs.
815.80 millions in Q3 FY14 as compared to Rs.
812.10 millions in Q3 FY13.
The company reported 12 new customer wins in
the quarter including over 27 million dollars of
new business in IM.
Zensar Technologies has gained a significant
number of large multiyear businesses in its
manufacturing vertical in the US.
Zensar Technologies Ltd has recommended
payment of Interim Dividend at the rate of Rs. 4
per Equity Share (40%) of the Company for the
financial year 2013-14.
Zensar Technologies Australia and Jetsar have
developed an innovative iPad Application that
allows pilots to quickly and accurately calculate
aircraft weight and balance before take-off.
Net Sales and PAT of the company are expected
to grow at a CAGR of 11% and 18% over 2012 to
2015E respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Zensar Technologies Ltd 387.00 16911.90 40.05 9.66 2.31 80.00
TCS Ltd. 2279.50 4465899.80 85.24 26.75 13.76 2200.00
MindTree Ltd. 1433.40 59846.10 103.24 13.86 4.55 120.00
NIIT Technologies Ltd 412.00 25006.20 36.85 11.19 3.25 85.00
QUARTERLY HIGHLIGHTS (CONSOLIDATED)
Results Updates- Q3 FY14,
Months DEC-13 DEC-12 % Change
Net Sales 5940.60 5255.40 13.04%
PAT 507.10 487.00 4.13%
EPS 11.60 11.18 3.79%
EBITDA 815.80 812.10 0.46%
Zensar Technologies Ltd. achieved a turnover of Rs. 5940.60 million for the 3rd quarter of the current year 2013-
14 as against Rs. 5255.40 millions in the corresponding quarter of the previous year. The company has reported
an EBITDA of Rs. 815.80 millions and a net profit of Rs. 507.10 million against Rs. 487.00 million reported
respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 11.60 for
the 3rd quarter as against an EPS of Rs. 11.18 in the corresponding quarter of the previous year.
Break up of Expenditure
Break up of Expenditure
In Rs. Millions
Q3 FY14 Q3 FY13
Depreciation & Amortization 98.20 82.50
Employees Benefit Expenses 3306.40 2945.70
Other Expenditure 1197.00 1118.60
Purchase of Traded Goods 596.40 545.60
Segment Revenue
Latest Updates
• Zensar Technologies Ltd has recommended payment of Interim Dividend at the rate of Rs. 4 per Equity Share
(40%) of the Company for the financial year 2013-14.
• Zensar Technologies has expanded its Managed Mobility Services offering, advancing from traditional mobile
device management capabilities to mobile, virtualization, network and Wi-Fi security management.
Graphical Representation
Revenue by Industry
Revenue by Geographical Segment
Revenue Mix
Head Count
COMPANY PROFILE
Zensar Technologies Ltd (Zensar) is a globally renowned software services company that specializes in providing
a complete range of Software Services and Solutions.
Zensar Technologies is among the top 15 software services providers from India. The world's first enterprise-
wide SEI CMM Level 5 Company and currently certified as a CMMI Level 3 Company, Zensar has industry
expertise that spans Manufacturing, Retail, Healthcare, Banking Financial Services and Insurance. An RPG Group
company, Zensar has near 7000 employees with sales and operations presence across US, UK, Europe, Middle
East, South Africa, Singapore, China, Australia, Canada and Japan. The Company delivers comprehensive services
for mission-critical applications, enterprise applications, business intelligence and analytics, CRM and Business
Process Management. Zensar also provides innovative Infrastructure Management solutions that enable leading
companies worldwide to optimise, secure, manage and support their mission-critical infrastructure. Using its
multi-shore capabilities, Zensar combines expert consulting, integration and support services with world-class
customer service to help IT organisations reduce costs, increase efficiencies and manage risk better. The
Company has developed tools and methodologies, including the proprietary Solution BluePrint (SBP), which
enables its clients with innovative business solutions and a rapid ‘go-to-market’ capability. The Company
supports Fortune 500 clients with software business solutions that help them compete in the digital economy.
FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March31, 2012 -2015E
ZENSAR TECHNOLOGIES LTD. FY-12A FY-13A FY-14E FY-15E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 434.10 435.80 437.00 437.00
Reserves and Surplus 5325.10 6853.20 9134.53 11712.70
a) Total Net worth 5759.20 7289.00 9571.53 12149.70
Non Current Liabilities
Long term borrowing 1858.90 1334.80 1681.85 2305.04
Trade payables 2.40 0.00 0.00 0.00
Other Long term liabilities 59.60 127.00 50.00 55.00
Long term Provisions 208.50 239.40 253.76 266.45
b) Total Non-Current liabilities 2129.40 1701.20 1985.61 2356.49
Current Liabilities
Trade payables 1337.00 1059.20 1355.78 1681.16
Other Current liabilities 2494.10 2207.70 2516.78 2818.79
Short term Provisions 360.30 315.30 362.60 406.11
c) Total Current liabilities 4191.40 3582.20 4235.15 4906.06
Total Liabilities (a+b+c) 12080.00 12572.40 15792.29 19412.24
APPLICATION OF FUNDS
Non-Current Assets
Fixed assets 1025.40 1075.80 1198.44 1318.29
Non-Current Investments 9.50 7.60 10.00 10.40
Goodwill on consolidation 2777.90 2917.30 3559.11 4270.93
Long Term loans and advances 322.70 294.10 317.63 333.51
Deferred Tax Asset 235.70 243.10 313.60 392.00
d) Total Non-Current Assets 4371.20 4537.90 5398.78 6325.13
Current Assets
Current Investment 468.20 417.40 1039.33 2130.62
Inventories 949.8 1048.90 1416.02 1798.34
Trade receivables 2910.70 3354.10 3655.97 3948.45
Cash and Bank Balances 1738.60 1412.50 1892.75 2384.87
Short-terms loans & advances 987.50 864.20 857.20 865.76
Other current assets 654.00 937.40 1532.26 1959.09
e) Total Current Assets 7708.80 8034.50 10393.52 13087.12
Total Assets (d+e) 12080.00 12572.40 15792.29 19412.24
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs. mn) FY12 FY13 FY14E FY15E
Description 12m 12m 12m 12m
Net Sales 17942.00 21284.70 23012.02 24622.86
Other Income 302.60 6.50 432.10 540.13
Total Income 18244.60 21291.20 23444.12 25162.99
Expenditure -15454.30 -18254.20 -19568.71 -20806.32
Operating Profit 2790.30 3037.00 3875.41 4356.67
Interest -93.40 -99.50 -109.31 -120.24
Gross profit 2696.90 2937.50 3766.10 4236.43
Depreciation -333.40 -331.60 -393.81 -445.01
Profit Before Tax 2363.50 2605.90 3372.28 3791.42
Tax -776.50 -860.70 -1090.95 -1213.25
Net Profit 1587.00 1745.20 2281.33 2578.16
Equity capital 434.10 435.80 437.00 437.00
Reserves 5325.10 6853.20 9134.53 11712.70
Face value 10.00 10.00 10.00 10.00
EPS 36.56 40.05 52.20 59.00
Quarterly Profit & Loss Statement for the period of 30 JUNE, 2013 to 31 MARCH, 2014E
Value(Rs. mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E
Description 3m 3m 3m 3m
Net sales 5335.40 5997.40 5940.60 5738.62
Other income 303.90 164.00 -56.80 21.00
Total Income 5639.30 6161.40 5883.80 5759.62
Expenditure -4593.50 -4972.00 -5068.00 -4935.21
Operating profit 1045.80 1189.40 815.80 824.41
Interest -26.90 -28.70 -26.20 -27.51
Gross profit 1018.90 1160.70 789.60 796.90
Depreciation -91.80 -95.40 -98.20 -108.41
Profit Before Tax 927.10 1065.30 691.40 688.48
Tax -317.70 -359.00 -184.30 -229.95
Net Profit 609.40 706.30 507.10 458.53
Equity capital 436.00 436.80 437.00 437.00
Face value 10.00 10.00 10.00 10.00
EPS 13.98 16.17 11.60 10.49
Ratio Analysis
Particulars FY12A FY13A FY14E FY15E
EPS (Rs.) 36.56 40.05 52.20 59.00
EBITDA Margin (%) 15.55% 14.27% 16.84% 17.69%
PBT Margin (%) 13.17% 12.24% 14.65% 15.40%
PAT Margin (%) 8.85% 8.20% 9.91% 10.47%
P/E Ratio (x) 10.59 9.66 7.41 6.56
ROE (%) 27.56% 23.94% 23.83% 21.22%
ROCE (%) 41.00% 39.06% 37.94% 33.85%
EV/EBITDA (x) 6.06 5.53 4.31 3.80
Book Value (Rs.) 132.67 167.26 219.03 278.03
P/BV 2.92 2.31 1.77 1.39
Charts
OUTLOOK AND CONCLUSION
� At the current market price of Rs. 387.00, the stock P/E ratio is at 7.41 x FY14E and 6.56 x FY15E
respectively.
� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.52.20 and
Rs.59.00 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2012 to 2015E
respectively.
� On the basis of EV/EBITDA, the stock trades at 4.31 x for FY14E and 3.80 x for FY15E.
� Price to Book Value of the stock is expected to be at 1.77 x and 1.39 x respectively for FY14E and FY15E.
� We expect that the company surplus scenario is likely to continue for the next three years, will keep its
growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.425.00 for Medium to Long term investment.
INDUSTRY OVERVIEW
The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-in-
hand in every aspect. The industry has not only transformed India’s image on the global platform, but also fuelled
economic growth by energising higher education sector (especially in engineering and computer science). The
industry has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the
country.
Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make
their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending
followed by automotive, chemicals and consumer products industries.
Indian organisations are turning to IT to help them grow business in the current economic environment. IT is
seen as a change enabler and a source of business value for organisations by 85 per cent of the respondents,
according to a study by VMware.
Market Size
India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion mark by
2020, according to a Confederation of Indian Industry (CII) report, titled 'The SMAC Code-Embracing New
Technologies for Future Business'.
India is expected to become world's second-largest online community after China with 213 million internet users
by December 2013 and 243 million by June 2014, according to a report by Internet and Mobile Association of
India (IAMAI) and IMRB International.
Technology firms in India are expected to reap the benefits of Internet of Things (IoT) data, considered to be a
US$ 18 billion opportunity, to help clients improve productivity and asset utilisation as well as to enhance end-
customer experience, as per networking firm Cisco.
India’s total IT industry’s (including hardware) share in the global market stands at 7 per cent; in the IT segment
the share is 4 per cent while in the ITeS space the share is 2 per cent. India's IT and BPO sector exports are
expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom.
Moreover, India plans to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7
billion will be spent on software-as-a-service (SaaS), according the latest outlook of IT research and advisory
company, Gartner Inc.
The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of
13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner.
Mumbai with 12 million internet users has emerged as the top most city in the country with highest penetration
of internet users, followed by Delhi (8.1 million) and Hyderabad (4.7 million), according to the data released by
Internet & Mobile Association of India (IAMAI).
Investments
Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments
from major countries.
According to data released by the Department of Industrial Policy and Promotion (DIPP), the computer software
and hardware sector has attracted foreign direct investment (FDI) worth Rs 54,347.88 crore (US$ 8.77 billion)
between April 2000 and September 2013.
Some of the major investments in Indian IT and ITeS sector:
• Wipro plans to acquire US-based mortgage due diligence and risk management service provider Opus
Capital Markets Consultants (Opus CMC) for Rs 465 crore (US$ 75.07 million). Opus CMC provides
comprehensive risk management solutions to the mortgage industry in the US.
• Infosys has opened a new centre in Sydney, Australia. This is its fourth development centre in Australia
and has a capacity to seat 140 employees. Further, the company plans to hire 85 people in the region.
• Hitachi has acquired a foothold in India's payment space with the acquisition of Prizm Payment Services.
The firm has entered into share transfer agreements with Prizm shareholders, including Winvest
Holdings (India), Sequoia Capital and Axis Bank.
• Dell has opened its India design centre for its storage technologies and has realigned its domestic
research and development (R&D) unit. The facility will focus on developing software, integrating aspects
involving back-up of emails and related storage.
• Tata Consultancy Services (TCS) has launched a software development facility in Ahmedabad, Gujarat.
The facility will serve global customers across industry segments.
• Cognizant Technology Solutions has acquired ValueSource, a subsidiary of KBC Group, a Belgium-based
multi-channel bank insurance group.
• Schneider Electric has commissioned a services bureau in Bengaluru as a nerve centre and a support
facility for data centres in India and the Asia-Pacific region.
Government Initiatives
IT spending by the Government of India is projected to reach US$ 6.4 billion in 2013, a growth of 7 per cent year-
on-year, according to a report by Gartner.
Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:
• After a successful first-ever international delegation to Dubai, Gujarat-based small and medium
enterprises (SMEs) in the IT sector plan to send similar business delegations to European and South East
Asian countries.
• The Government of Karnataka plans to announce a new information technology (IT) policy to boost
investments in state’s tier-II and tier-III cities. The policy would enable the sector to employ about two
million people in the state directly by 2020.
• The Government of India has fast tracked the process of setting up of centres of National Institute of
Electronics and Information Technology (NIELIT) in Northeast India.
• The Government of Brazil has liberalised the issue of short term work visas, a move which will make it
easier for Indian IT professionals to take up assignments in Brazil.
• India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of
information, communications and technology (ICT).
Road Ahead
Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a
sizeable chunk of the global market for technology sourcing and business services. Over the years the growth
drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance
and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of
IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency
and sustainable energy. Traditional business strongholds would make way for new geographies, there would be
new customers and more and more of SMEs will go for IT application and services.
Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also
extended to IT sector for software technology parks of India (STPI) and special economic zones (SEZs). Further,
the country is providing procedural ease and single window clearance for setting up facilities. The country’s cost
competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be
its USP in the global sourcing market.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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