Initiating Coverage | July 2016 Zensar Technologies...2016/07/04 · revenues (50% of Digital) from Oracle Commerce implementation, and the balance from other Digital and cross-over

Sagar Lele ([email protected]); +91 22 3982 5585

Enabling Digital Transformation

Zensar TechnologiesInitiating Coverage | 4 July 2016

Sector: Technology

Ashish Chopra ([email protected]); +91 22 3982 5424Investors are advised to refer through important disclosures made at the last page of the Research Report.Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Zensar Technologies

4 July 2016 2

Zensar Technologies: Enabling Digital Transformation

Summary ............................................................................................................. 3

Story in charts ...................................................................................................... 5

Story in charts ...................................................................................................... 6

Shift in business model to Digital .......................................................................... 9

Restructuring well in progress ............................................................................. 15

Execution of new strategy underway .................................................................. 17

Expect revival in performance ............................................................................. 19

Initiating coverage with a Buy; TP of INR1,300..................................................... 23

Company description .......................................................................................... 28

Key management personnel ............................................................................... 29

Key risks ............................................................................................................. 31

Financials and Valuations ................................................................................... 32

Zensar Technologies

4 July 2016 3

Enabling Digital Transformation Dual force of Digital prowess and IMS/Cloud expertise

Zensar (ZENT) is a technology services provider with a portfolio spread acrosstraditional to transformational solutions: Applications, Infrastructure, Digital andIndustry-specific solutions. It is part of the USD3b RPG Enterprises and USD40bAPAX portfolio of companies. ZENT has core strengths in Oracle implementations,eCommerce enablement and IMS & Cloud.

Digital forms 27% of ZENT's revenues (v/s 10-15% for peers), with a prime focuson Oracle ATG (a leading eCommerce enabling software product). YoY growth inall areas of Digital was in the range of 21-37% YoY in FY16, which offers potentialfor above-industry growth going forward.

Pruning of non-core businesses has weighed on growth over the past few years,leading to organic revenue decline of 1.7% in FY14, growth of 4.2% in FY15 and afall of 0.7% in FY16. Restructuring efforts are nearing completion, with ROWexposure down from 10% in FY13 to 5% in FY16, IMS maintenance revenue downfrom 15% in FY13 to 8% in FY16, and a cap on product revenue.

The company has hired a new CEO, Sandeep Kishore (ex. Corporate VP and GlobalHead of Life Sciences & Healthcare and Public Services at HCLT) and has sincemade substantial progress in the implementation of its new strategy, whichnarrows company’s focus on (1) Digital, (2) IMS, (3) Oracle and (4) Account mining.

In USD terms, we estimate 2% revenue growth in FY17 and 12% in FY18, a 240bpEBITDA margin improvement over FY16-18E and 20% earnings CAGR over FY16-18.With most issues behind, (as the thrust from new areas starts materializing), weexpect an improvement in CQGR from 1.1% in FY16 to 1.9% in FY17 and 3.4% inFY18, and re-rating from the current levels of 9.7x FY18E earnings.

Rapid shift in business model to Digital Zensar has been shifting its focus from traditional IT services to Digital,

where the traction has been evidently moving the needle in its overallperformance. Contribution of Digital, as a % of revenue, has increased from5% in FY14 to 27% in FY16, half of which was added because of theacquisition of Professional Access. The company expects it to reach 30% inFY17.

YoY growth in all areas of Digital (Big data & Analytics, Cloud, DesignExperience, Digital Marketing Services, Cyber Security) was in the range of21-37% YoY in FY16. The high contribution of Digital to overall revenueshould further boost performance, in our view.

In Digital, the key focus area is eCommerce (enhanced through theacquisition of Professional Access in Aug-14). The company derives 15% ofrevenues (50% of Digital) from Oracle Commerce implementation, and thebalance from other Digital and cross-over services. This positioning putsZENT in a sweet spot, as (1) Oracle ATG has the highest market share (20%)among eCommerce platforms for online retailers and (2) Professional Accessis among the top three Oracle ATG implementation specialists.

Initiating Coverage | Sector: Technology

Zensar Technologies CMP: INR979 TP: INR1,300 (+35%) Buy BSE Sensex S&P CNX

27,145 8,328

Stock Info Bloomberg ZENT IN Equity Shares (m) 44.6 52-Week Range (INR) 1,120/650 1, 6, 12 Rel. Per (%) 1/-14/49 M.Cap. (INR b) 44.4 M.Cap. (USD b) 0.7 Avg Val, INRm 76.7 Vol m 0.1 Free float (%) 52.2

Financial Snapshot (INR b) Y/E Mar 2016 2017E 2018E Net Sales 29.6 31.4 36.2 EBITDA 4.3 4.8 6.1 PAT 3.1 3.5 4.5 EPS (INR) 68.2 77.6 98.2 Gr. (%) 17.0 13.7 26.6 BV/Sh (INR) 314.4 373.8 448.3 RoE (%) 24.0 22.5 23.9 RoCE (%) 28.5 27.2 28.9 P /E (x) 14.4 12.2 9.7 P / BV (x) 3.1 2.5 2.1

Shareholding pattern (%) As On Mar-16 Dec-15 Mar-15 Promoter 47.8 47.9 47.7 DII 0.5 10.2 0.5 FII 14.1 4.5 13.0 Others 37.5 37.5 38.8 FII Includes depository receipts

Zensar Technologies Enabling Digital Transformation

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Zensar Technologies

4 July 2016 4

Restructured business aligned for growth ZENT has been restructuring its business over the past few years by

implementing its 3x3x3 strategy, sharpening its focus on (1) Manufacturing,Retail and Insurance; (2) the US, Europe and Africa; and (3) on service offeringsof Application Management, Infrastructure Management and Digital.

Significant cutting down of the flab over the past few quarters has led to: (1)increased leadership bandwidth, (2) sharper targeting in the market, (3) loweroverhead costs proportionate to sales, and (4) lower focus on non/less-profitable areas, which have helped improve overall margins in FY16. We expectthis to yield similar results going ahead.

Pruning of business and client-specific issues have led to subdued organicrevenue growth (-1.7% in FY14, 4.2% in FY15 and 7.0% in FY16), but hasimproved the quality of revenues. Focus geographies now comprise 95% ofrevenues. Contribution of IMS maintenance (non-core) has reduced to 8% ofrevenue in FY16 from 15% in FY13, while the number of focus clients hasreduced from 75 in FY15 to 66 in FY16.

Time for growth engines to start delivering With the flab cut post the leadership change (appointment of Sandeep Kishore

as CEO), ZENT has now redefined its growth strategy, which is based on thefollowing pillars.

[1] Digital: To grow Digital to 30% of revenue in a year (from 27% currently).[2] IMS: To grow the IMS & Cloud business to 20% of total revenue in a year.[3] Oracle: The Oracle ecosystem currently contributes 33% of ZENT’s revenue and

should continue to be a focus area. ZENT is an Oracle Cloud Partner, and there isa shift in focus to cloud and as-a-service models for both Oracle and ZENT.

[4] Account mining: Identified 65 high-potential accounts for mining, where thefocus is on implementing dedicated sales, delivery and Digital teams.

Valuation and view0 Expect revival going forward: On account of its ongoing restructuring, we

expect revenue growth of 2% in FY17 (1.9% CQGR v/s 1.1% in FY16). However,with the implementation of its growth engines well in progress, we expect arevival in revenue growth to 12% in FY18. Revenue growth pick-up, profitabilityimprovement in the IMS business and current investments should lead to 230bpEBITDA margin expansion over FY16-18E. EBIT margins in the IMS business (18%of revenue) can improve from 6% in FY16 to 14% in FY18, led by higher revenuesfrom ‘IMS and Cloud’ and the restructuring in the MVS business. This alone hasthe potential to improve overall margins by 150bp. We expect an EPS CAGR of20% over FY16-18.

Buy, 35% upside: Discounting FY18 earnings by 13x – at a discount to peers suchas PSYS and MTCL (which have demonstrated consistency in performance andpotential in newer services) but at a premium to peers such as MPHL, KPIT andNITEC (given strong positioning in Digital, potential improvement inperformance, and prospects of industry-leading growth); and at a premium tohistorical median given improved performance, sharper positioning and definedexpertise – would lead to a target of INR1,300, implying a 35% upside.

Key risks: Inability to rotate the ERP business to as-a-service, client-specificissues, and near-term margin pressure on account of elevated investments.

Stock Performance (1-year)

Zensar Technologies

4 July 2016 5

Story in charts

Exhibit 1: Expect organic revenue growth to pick up

Source: MOSL, Company

Exhibit 2: 3x3x3 strategy results in improved focus


Exhibit 3: Cutting down on non-core geographies…


Exhibit 4: …and non-profitable/scalable clients


Exhibit 5: IMS: Reviving Services and reducing Maintenance…


Exhibit 6: …thus, correcting the IMS revenue mix


389 383 399 427 462 518

4.9

(1.7)

4.2

(0.7)

2.0

12.0

FY13 FY14 FY15 FY16 FY17E FY18E

Organic revenue (USDm) Growth (YoY, %)

72 75 76 77

9 10 10 10 9 9 8 8 10 6 6 5

FY13 FY14 FY15 FY16

US Europe Africa ROW

40

52

75 66

FY13 FY14 FY15 FY16

USD1m+ clients

-16% -15%-17%

-21%

-13%

-2%

2% 4%

1QFY16 2QFY16 3QFY16 4QFY16

Maintenance Services

46% 54% 39% 35%

54% 46% 61% 65%

FY13 FY14 FY15 FY16


Zensar Technologies

4 July 2016 6

Story in charts

Exhibit 7: Contribution of Digital to total revenue among the highest in the industry


Exhibit 8: 21-37% YoY growth in all areas of Digital in FY16


Exhibit 9: Expect sharp improvement in profitability…


Exhibit 10: …to the tune of 235bp over FY16-18E


Exhibit 11: …as profitability in IMS improves, among other reasons…


Exhibit 12: …leading to 20% earnings CAGR over FY16-18E


2,154 1,031 256 122 104 61 59

13% 14%

36%

27% 30%

15% 12%

TCS WPRO MTCL ZENT PSYS NITEC KPIT

Digital revenue (USDm) Digital (% of total revenue)

5

29 30 34 37 25

35

21

Com

pany

Big

data

&an

alyt

ics

Clou

d

Desig

nex

perie

nce

Digi

tal m

arke

ting

serv

ices

B2C

Com

mer

ce

B2B

Com

mer

ce

Cybe

r sec

urity

FY16 Growth (YoY, %)

13.7

14.7

13.9 14.4

15.4

16.7


EBITDA margin (%)

98 99

(81)

52

100 135


EBITDA margin change (YoY, bp)

4.7 5.3 5.3 5.3

10.0

7.4 8.2

5.6

FY13 FY14 FY15 FY16

IMS revenue (INRb) IMS PBIT margin (%)

1.7 2.4 2.6 3.1 3.5 4.5

10.0

36.1

11.4 17.0

13.7

26.6


Net profit (INRb) Growth (YoY, %)

Zensar Technologies

4 July 2016 7

FOUR GROWTH ENGINES TO DRIVE OUTPERFORMANCE

Source: MOSL

ENCOURAGING PROGRESS IN EXECUTION

Source: MOSL

To grow to 30%of revenue in ayear

Presence acrossecommerceenablement,Cross-Over andEnterpriseDigital

Largest OracleCommercepracticeglobally

To grow to 20%of revenue in ayear

Focus on theareas of[1] Hybrid IT,[2] Net-genend-userexperience,[3] Networksecurity and[4] Unified ITmanagement

33% of revenuecurrently fromthe Oracleecosystem

Betting onOracle CloudSaaS and PaaSsolutions

Focus on 65High-PotentialAccounts

Focus on dealsizes ofUSD10m+ TCV

DIGITAL IMS & CLOUD ORACLE CUSTOMER APPROACH

Carved out a team of 300+people to focus on Digital

Launched CMO-ledsolutions

Internalized Digital in the organization Training all employees on Digital

technologies 250+ client-facing professionals trained

on Digital

Industry experts hired in thefocus areas in InfrastructureManagement

Solutions in IMS & Cloudlaunched

Laying focus on resurrection ofprofitability in the MVS business

Shift in focus to cloud andas-a-service models forboth Oracle and ZENT

Paused on the goal to attain Platinumpartnership with Oracle

Instead focusing on the better-alignedmanaged cloud partner program

New team put in place for largestrategic deals

Starting to deal with third-partyoutsourcing agents

Reallocated resources to high growthaccounts

Dedicated sales anddelivery team for 30accounts

Mirroring this for therest of the accounts

DIGITAL

IMS & CLOUD

ORACLE

CUSTOMER FOCUS

Zensar Technologies

4 July 2016 8

ZENT’s DIGITAL SOLUTIONS STACK SPREADS OVER THE FOLLOWING AREAS

3x3x3 strategy results in improved focus

Big Data & analytics Data wrangling, data science and analytics & visualization in the verticals of Retail, Insurance and Manufacturing.

Cloud Services of migration, integration and development in the areas of SaaS, IaaS, PaaS; focus on hybrid application and infrastructure

Design experience Customer journey mapping, UX, CXM, augmented reality, wearables, and delivering E2E customer experience across

Digital marketing services Business outcome driven engagements across Web ops, Data ops, Marketing ops, Social ops (Adobe, Oracle, Marketo, SFDC,

B2C Commerce Implementation of omni-channel experience; eCommerce, Mobile Commerce, Data Analytics, UX, CX (Oracle Commerce, SAP Hybris & Magento).

IoT/Industrial internet Extensive domain expertise in discrete manufacturing & SCM; outcome-based delivery model and a strong partner ecosystem with proprietary frameworks.

B2B Commerce Customer acquisition to service; implementation, integration & development; focus on E2E customer success (Oracle, SFDC, SAP).

Cyber security Zensar’s proprietary compliance and risk assessment tool; threat & vulnerability management, DLP, threat discovery & analytics

X Manufacturing Retail Insurance

Application Management

Infrastructure Management

Digital Enterprise

X

X X

X X

USA Europe Africa

Zensar Technologies

4 July 2016 9

Shift in business model to Digital Digital revenue increased from 5% in FY14 to 27% in FY16

Scaling up Digital business ZENT has been shifting its business model from traditional IT services to Digital, by realigning its focus on Digital transformation/enterprise. Traction in Digital has been evidently moving the needle in its overall performance. Contribution of Digital, as a % of revenue, has risen from 5% in FY14 to 27% in FY16, and the company expects it to reach 30% in FY17. The contribution of Digital to total revenue is among the highest in the industry, and thus could potentially help the company to record industry-leading growth.

Exhibit 13: Leading the Digital shift among Tier-II


In Digital, ZENT’s key focus areas are eCommerce (enhanced through the acquisition of Professional Access in Aug-14). The company derives 15% of revenues (50% of Digital) from Oracle Commerce and Magento, with the balance coming from other Digital and cross-over services.

ZENT’s Digital solutions stack spreads over the following areas:

[1] Big Data & analytics: Data wrangling, data science and analytics & visualizationin the verticals of Retail, Insurance and Manufacturing.

[2] Cloud: Services of migration, integration and development in the areas of SaaS,IaaS, PaaS; focus on hybrid application and infrastructure clouds with cloudarchitecture.

[3] Design experience: Customer journey mapping, UX, CXM, augmented reality,wearables, and delivering E2E customer experience across multiple channels anddevices.

[4] Digital marketing services: Business outcome driven engagements across Webops, Data ops, Marketing ops, Social ops (Adobe, Oracle, Marketo, SFDC, Sitecore).

2,154 1,031 256 122 104 61 59

13% 14%

36%

27% 30%

15% 12%

TCS WPRO MTCL ZENT PSYS NITEC KPIT

Digital revenue (USDm) Digital (% of total revenue)

Zensar Technologies

4 July 2016 10

[5] B2C Commerce: Implementation of higher-performance omni-channelexperience; eCommerce, Mobile Commerce, Data Analytics, UX, CX (OracleCommerce, SAP Hybris & Magento).

[6] IoT/Industrial internet: Extensive domain expertise in discrete manufacturing& SCM; proven solution framework with an outcome-based delivery model and astrong partner ecosystem with respective proprietary frameworks.

[7] B2B Commerce: Customer acquisition to service; implementation, integration &development; focus on E2E customer success (Oracle, SFDC, SAP).

[8] Cyber security: Zensar’s proprietary compliance and risk assessment tool;capability across GRC, SEIM, HIPPA, PCI DSS, threat & vulnerability management,DLP, threat discovery & analytics.

Exhibit 14: In line with the shift in the industry spending mix (USD b)

Source: Company, Gartner, IDC

Boosting capability via acquisition of Professional Access In August 2014, ZENT acquired Professional Access (PA), which is one of the largest Oracle ATG and Endeca partners in the world (implementation and maintenance). It is an Oracle Platinum partner with presence in the US, the UK, Latin America, Middle East and Africa. The company works with several large and mid-sized retailers in these geographies to build and implement their eCommerce strategies.

Zensar Technologies

4 July 2016 11

Exhibit 15: Revenue break-up of PA (by service line and vertical; % of revenue)


The acquisition puts ZENT in a sweet spot as: Oracle ATG has the highest market share (20%) among eCommerce platforms

for online retailers. PA is among the top three Oracle ATG implementation specialists.

Betting on success of Oracle ATG Oracle ATG has the highest market share (20%) among eCommerce platforms for online retailers. The other dominant players in the market are IBM WebSphere and SAP Hybris. In-house software accounts for the majority of the market (~40%). Other players in the market with a lower share include Digital River, Magento, Elastic Path, Apttus and CloudCraze.

Some of the largest retailers using the Oracle Commerce platform are Neiman Marcus, Walgreens, Macy’s, Express, CVS, Kohl’s, Blue Nile, American Eagle, OfficeMax and Chico’s.

Implementation, 53.7

Maintenance &

support, 46.1

Others, 0.3

Retail and telecom,

90.8

BFS and public

sector, 5.2

Others, 3.9

Zensar Technologies

4 July 2016 12

Exhibit 16: Oracle – A leader in Gartner's Magic Quadrant for Digital commerce platforms

Source: Gartner

Digital commerce platforms facilitate transactions over the web. They supportthe creation and continuing development of online relationships withconsumers across multiple channels, including mobile, direct and indirect sales,digital and call center.

Digital commerce platforms enable organizations to build B2B, B2C or B2B-to-consumer (B2B2C) commerce sites and support a continuum of businessobjectives, from generation of incremental revenue to enablingtransformational business change.

Oracle is a leader based on its Oracle Commerce product, which combines ATGand Endeca capabilities. Oracle Commerce can be implemented on-premises orhosted by Oracle or a third party. The product supports both B2C and B2Bbusiness models, and has several global, multi-language and multi-siteimplementations. In mid-2015, Oracle released a multitenant SaaS commerceplatform called Oracle Commerce Cloud.

Zensar Technologies

4 July 2016 13

Strengths and weaknesses assessed by Gartner STRENGTHS Core capabilities and advanced features: Oracle Commerce has a strong set of

native features, including support for digital products, data-rich productsrequiring customer information, and an in-store sales clienteling solution. Thisfunctionality can also take advantage of a wide ecosystem of Oracle CustomerExperience (CX) products, including Oracle Marketing Cloud, Sales Cloud, ServiceCloud, CPQ Cloud and other Oracle enterprise applications. Oracle is also in theprocess of productizing integrations between Oracle Commerce and other CXapplications.

Search and complex commerce capabilities: On-site search continues to grow inimportance, and the integration of ATG and Endeca capabilities in OracleCommerce 11 is a differentiator. Oracle Commerce has strong capabilities insupport of complex product lines and organizational hierarchies in B2Boperations; it enables personalization of a storefront by both B2C and B2B users,and supports multiple selling channels in both B2C and B2B operations.

Multisite, global functionality: Oracle Commerce provides a scalable, flexibleand globally deployable digital commerce platform. Reference customerscommended its ability to easily generate multiple storefronts, deploy globallyand handle the sale of complex products.

CAUTIONS OM and multichannel capabilities: Oracle Commerce does not come with

prebuilt integration with Oracle's Order Management module. So clientsexpecting to integrate this module with Oracle Commerce are required todevote some development resources to this task. Oracle Commerce also lackssome native functionality for multichannel commerce: enabling buying onlinewith pickup or return in a store requires integration with an OM or DOMapplication, such as Oracle Order Management, or with a third-party OMsystem.

WCM functionality: Oracle Commerce's WCM capabilities are not competitivecompared to those of best-of-breed WCM products. However, Oracle has addedbase-level WCM features which should address segments of the market that donot require best-of-breed WCM capability.

Evolving cloud roadmap: Oracle is placing strong emphasis on shifting productsto the cloud. With the release of Oracle Commerce Cloud, on-premises-onlycustomers should check that the Oracle Commerce roadmap does not focus onthe development of Commerce Cloud, which is currently not suitable for mostenterprise-level customers.

Source: Gartner

Among the top implementation partners for Oracle ATG There is limited competition in Oracle ATG implementation with only around 10 companies globally, including Accenture, Cognizant and EPAM. Other players are significantly smaller in size, employing between 100 and 500 people. PA is the only Oracle Platinum partner in Oracle ATG implementation.

Zensar Technologies

4 July 2016 14

PARADE launch ZENT recently launched PARADE (Professional Access Rapid Application Deployment Environment), a preconfigured accelerator for deploying Oracle Commerce. It is designed to deploy the Oracle Commerce suite, including the Oracle Commerce platform, Oracle Guided Search and Oracle Experience Manager.

PARADE comes with all standard eCommerce capabilities, including shopping cart, stream-lined checkout process, along with industry-leading search and guided navigation from Endeca. The solution offers powerful tools for multi-site management, merchandising and promotions with an extensive focus on customer experience and personalization. Processes for PARADE-based implementations are tailored to accelerate the overall deployment while bringing most granular level of visibility and transparency at each step.

Scaling up Digital business While eCommerce implementation comprises 50% of ZENT’s Digital revenue, the balance comes from other Digital and cross-over services. The company’s perspective on Digital is divided into two parts:

Enterprise Digital – (1) Digital agility (front-end), (2) cross-over of Digital and IT/business processes (cloud and hybrid infra/IT) and (3) stability of the core systems (ADM, back-end systems with APIs built in).

CMO-led Digital solutions – ZENT launched CMO-centric services on April 1, 2016. It sees a massive opportunity in tapping CMO budgets, with solutions around marketing analytics, digital analytics, content and creative solutions.

The company has seen strong growth across services in Digital, and is poised for further acceleration in FY17 given the progress it has made in building and launching new solutions over the current year. In FY16, the entire solution stack for ZENT grew by above 20% YoY, which was much higher than the total company growth rate of 5%. Given the 27% contribution of Digital to overall revenue, organic growth has the potential to accelerate further.

Exhibit 17: Strong growth across Digital solution stack


5

29 30 34

37

25

35

21

Company Big data &analytics

Cloud Designexperience

Digitalmarketing

services

B2CCommerce

B2BCommerce

Cybersecurity

FY16 Growth (YoY, %)

Zensar Technologies

4 July 2016 15

Restructuring well in progress Solid pruning of business over the past three years

ZENT has been actively making efforts to restructure its operations over the past three years. A major exercise carried out to aid this process was cutting down of the excess flab and hence sharpening its focus on selected verticals, geographies and service offerings.

3x3x3 strategy The premise of the 3x3x3 strategy was to sharpen its focus on (1) the Manufacturing, Retail and Insurance segments, (2) on geographies of the US, Europe and Africa and (3) the service offerings of Application Management, Infrastructure Management and Digital. This would, in turn, result in (1) increased leadership bandwidth, (2) sharper targeting in the market, (3) lower overhead costs proportionate to sales and (4) lower focus on non/less-profitable areas, thereby improving overall margins.

Exhibit 18: 3x3x3 strategy

Source: Company, MOSL

Improved vertical focus In line with its strategy, ZENT sharpened its focus on the verticals of Manufacturing, Retail and Insurance. Accordingly, several of the company’s customers in the areas of government, healthcare and utilities were churned out. During FY13-FY16, this resulted in a reduction in business to the tune of USD30m, which was 8% on the revenue base in FY13.

Exhibit 19: Vertical focus


67 64 60 54

6 8 15 22

22 23 21 19 5 5 4 6

FY13 FY14 FY15 FY16

Manufacturing Retail Financial Services Emerging

Zensar Technologies

4 July 2016 16

ROW down to 5% in FY16, from 10% in FY13 Similarly, ZENT realigned its focus on the geographies of the US, Europe and Africa. It was operational in several other countries across the globe, but the business there was sub-scale. Additional investments were necessary to sustain/grow the business in these geographies, which would imply a cost increase that was disproportionate to revenue. Accordingly, revenue from ROW declined to 5% in FY16, from 10% in FY13.

Exhibit 20: Geographical focus


Products down to 6% in FY16, from 11% in FY13 ZENT has been de-focusing from the products business in infrastructure management. The company intends to include the products bit only where it is integral to the services portfolio of the organization. Revenue from Products has gradually inched lower to 6% of total revenue in FY16 from 11% in FY13.

Moreover, the company’s focus is on IMS & Cloud, which would mean the Services business in infrastructure management would grow.

However, the focus in the MVS business would be on profitability improvement and not top-line growth. The reduction in Maintenance revenue contribution to 8% in FY16 from 15% in FY13 reflects the change in effort within the Services business.

Exhibit 21: Putting a cap on Product revenue


72 75 76 77

9 10 10 10 9 9 8 8 10 6 6 5

FY13 FY14 FY15 FY16

US Europe Africa ROW

432 2,193 2,373 2,307 1,872 1,756

3.8%

12.3% 11.2%

10.0%

7.1% 5.9%

FY11 FY12 FY13 FY14 FY15 FY16

Product revenue (INRm) Composition (% of total revenue)

Zensar Technologies

4 July 2016 17

Execution of new strategy underway With the clean-up almost done, it’s time to execute

From sorting to growing – a WIP Given the sharpened focus of the company as well as the streamlining of operations to ensure profitable growth, the company witnessed a reduction in business across verticals, geographies and service lines. Sandeep Kishore’s appointment came in at the fag end of this restructuring exercise. With the flab cut-off, ZENT has now defined its growth strategy post the leadership change (appointment of Sandeep Kishore as CEO). The growth strategy is now based on the following pillars.

Digital: The aim is to grow Digital to 30% of revenue in 12 months (from 27%currently). Around 50% of Digital revenue comes from Oracle Commerce andMagento. The balance comes from other Digital and cross-over services. Thecompany’s perspective on Digital is broken into two parts:

Enterprise Digital – [1] Digital agility (front-end), [2] cross-over of Digital andIT/business processes (cloud and hybrid infra/IT) and [3] stability of the coresystems (ADM, back-end systems with APIs built in).

CMO-led Digital solutions – ZENT launched CMO-centric services on April 1,2016. It sees a massive opportunity in tapping CMO budgets with solutionsaround marketing analytics, digital analytics, content and creative solutions.

Execution progress: Launched CMO-led solutions on April 1, 2016. The company is in the process of

developing a new set of propositions which can be taken to existing clients. Carved out a team of 300+ people from all over the company to increase the

focus on Digital. Internalizing Digital in the organization by focusing on making all of ZENT’s

processes digital. The company has launched six apps for internal use over thepast 90 days.

Training all employees on digital technologies; have made it compulsory for newhires to go through a two-week training program.

250+ client-facing professionals were also put through an intense three-daytraining to align sales to offerings and customer needs.

Strategic deals: ZENT will be focusing on deal sizes with TCV of USD10m+ using its differentiation in automation frameworks, multi-service focus and digital prowess.

Execution progress: Changes have been made to the sales incentive plan in line with the new

strategic focus. A new team has been put in place to focus on large strategic deals. The team is

bringing in expertise around bidding, pricing and structuring of large deals. Initiatives to deal with third-party outsourcing agents are being undertaken for

increased participation in large deals.

Zensar Technologies

4 July 2016 18

Infrastructure business: ZENT’s infrastructure business comprises of (1) MVSand (2) IMS & Cloud, which are run separately as focused businesses. Thecompany intends to grow its IMS & Cloud business to 15% of total revenue overthe next 12 months. The key focus areas in this business are:

(1) Hybrid IT: Automated and orchestrated provisioning and management of public,private and on-premise infrastructure. ZENT’s focus is on an integrated platformacross technologies and hosting models that will enable it to target the G-1000.(2) Next-gen end-user experience: Focusing on predictive analytics and mobility;ZENT combined Aternity, Nano Heal, Lakeside and Service Now to build a predictiveend-user management solution, which spans over user interface and backendsystems.(3) Network security: Design, implement and manage comprehensive IT securityframeworks.(4) Unified IT management: Driven by automation, orchestration and analytics.

Execution progress: Industry experts hired in each of the focus areas of ZENT. All solutions in the focus areas in IMS and Cloud are now up and running. Focus on resurrection of profitability in the MVS business; increased focus on

direct clients and revamping of the product mix.

Oracle: The Oracle ecosystem contributes 33% of ZENT’s revenue and willcontinue to be a focus area. ZENT is an Oracle Cloud Partner, and there is a shiftin the focus to cloud and as-a-service models for both Oracle and ZENT. Thepartnership with Oracle has been strengthened after the acquisition of PA,which is one of the largest partners globally for Oracle Commerce.

Farming: Identified 65 high potential accounts for mining, where ZENT has beenrated highly in account delivery. There have been changes in the organizationstructure to achieve improved results from farming efforts. ZENT is adopting athree-in-a-box approach to aid this process, by hitting accounts through itssales, delivery and practice expertise.

Execution progress: Cut down in the number of strategic accounts to half, thus sharpening focus on

mining. Reconstituted the team to make the organization more nimble; relocated

resources to high-growth accounts. 30 of the strategic accounts have dedicated sales and delivery teams. The

company is in the process of mirroring this for the rest of its key accounts.

Zensar Technologies

4 July 2016 19

Expect revival in performance Led by revenue growth acceleration and margin expansion

Expect revenues to continue growing Due to its restructuring exercise over the past three years, organic revenue growth has remained subdued and subpar relative to peers. However, organic revenue growth has been inching up as a result of the reduction of the non-core businesses and the increasing focus on high-growth areas. The business undergoing pruning has now reduced to lower single digits, reflecting the dominance of growth areas in overall portfolio.

We expect this upward trajectory to continue through FY18. Although this implies 7% revenue CAGR over FY16-18E, which is lower compared to the industry, it signifies a substantial improvement compared to the 5.6% revenue CAGR over FY14-16; which is more evident from the improvement in CQGR from 1.1% in FY16 to 1.9% in FY17E and 3.4% in FY18E.

Exhibit 22: Upward trajectory in revenue likely to continue


Our confidence stems from the following: (1) The portfolio of revenues for ZENT has been set right after three years ofrestructuring. Its 3x3x3 strategy has been well executed and most of the pain is nowbehind. Although some consolidation is still expected in the portfolio, this shouldonly improve the revenue growth momentum.

(2) Digital accounts for 27% of ZENT’s total revenues, which is higher compared tothe industry average. Among mid-cap peers, MTCL (36%) and PSYS (30%) fare betterthan ZENT in terms of their exposure to Digital. Both these companies havedemonstrated strong growth in Digital, as well as in their overall performance drivenby an outperformance of this segment. Given the fact that all sub-segments inDigital for ZENT grew by 21-37% YoY in FY16, the potential for additional impetus tooverall revenue growth appears high, in our view.

389 383 399 427 462 518

4.9

(1.7)

4.2

(0.7)

2.0

12.0



Zensar Technologies

4 July 2016 20

Exhibit 23: Healthy growth in Professional Access since acquisition


(3) In Infrastructure Management, ZENT’s focus is on IMS & Cloud, which is runseparately as a business. The company intends to grow its IMS & Cloud business to15% of total revenues over the next 12 months. It has already put a large deals teamin place for this area, and any incremental addition here would positively impactboth revenue growth and profitability.

For mid-sized companies like ZENT, which has an IMS business of USD70m per annum, scaling up in IMS does not have a large negative impact on existing revenues or pricing pressure in renewal deals and hence easier rotation to newer areas. ZENT’s focus in the IMS space is on the areas of hybrid IT, next-gen end-user experience, network security and unified IT management. The focus on newer areas, combined with management’s rich IMS background and the creation of sales/large deals teams, should bode well for ZENT going forward.

Exhibit 24: De-focus on products and emphasis on IMS & Cloud resulting in change


(4) Renewed client focus at ZENT has led to consolidation of accounts with revenuesabove USD1m to 66 in FY16, from 75 in FY15. The company has relooked at the waythese accounts are mined, and has allotted dedicated resources to get deeper intothem. This is likely to translate into a sharper focus and stronger growth fromexisting accounts going forward.

The impact of this move was witnessed in FY16, when revenue growth was strong across top client buckets. This has higher probability of maintenance/getting better given the increased focus.

6.5

12.6 12.0 12.5 15.3 14.7 14.6

2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16

Revenue - Professional Access (USDm)

-16% -15%-17%

-21%

-13%

-2%

2% 4%

1QFY16 2QFY16 3QFY16 4QFY16


Zensar Technologies

4 July 2016 21

Exhibit 25: Strong growth across top client buckets in FY16


Significant levers for margin expansion ZENT has been able to maintain EBITDA margins in the 13-15% range over FY13-16, despite the organic revenue growth pressure. This has been a function of the improved mix of business.

In FY16, several investments were made to aid strategy execution. These investments ranged from building capabilities, launching of new solutions, completing the service breadth in strategic areas, hiring of new sales personnel, increased account managers, and addition of the large deals team, among others. Despite these investments, margins expanded by 50bp YoY in FY16.

Going ahead, we expect margins to be driven by: [1] Continued improvement in the portfolio mix, and full impact of a better revenuecomposition.[2] Investments made in FY16 should start bearing fruit in FY17/18 and lead tobenefit on profitability.[3] IMS margins are likely to improve significantly due to the dual focus of thecompany: profitability resurrection in Products, and revenue growth in IMS & Cloud.EBIT margins in the IMS business (24% of revenue) could improve from 6% in FY16to 12-14% in FY18. This alone has the potential to improve overall margins by150bp.

Exhibit 26: Expect further margin expansion…


Exhibit 27: …with the help of multiple available levers


8%

28% 27%

-3%5%

Top 5 Top 6-10 Top 11-20 Non Top 20 Overall company

FY16 revenue growth (YoY, %)

13.7

14.7

13.9 14.4

15.4

16.7


EBITDA margin (%)

98 99

(81)

52

100 135


EBITDA margin change (YoY, bp)

Zensar Technologies

4 July 2016 22

Exhibit 28: Focus on Products profitability and scaling up of Services in IMS to be major drivers


Exhibit 29: Portfolio mix and scale economies to give more leverage than traditional levers


4.7 5.3 5.3 5.3

10.0

7.4 8.2

5.6

FY13 FY14 FY15 FY16

IMS revenue (INRb) IMS PBIT margin (%)

82%

80%

79%

81%

FY13 FY14 FY15 FY16

Utilization (%)

Zensar Technologies

4 July 2016 23

Initiating coverage with a Buy; TP of INR1,300 Valuations driven by rebound in growth and positioning in Digital

Execution for next leg of growth is in progress: Post the leadership change atZENT, execution has become fast-tracked, with several steps taken towardrealigning the organization with its growth engines. In line with this, severalservices/solutions have been launched, sales function has been augmented andthere is a renewed focus on client mining and large deals. These initiatives arecurrently in the investment mode and likely to start adding to growth along withDigital and IMS.

Digital; the key trigger: Digital accounts for 27% of ZENT’s revenue and has beenseeing growth of 21-37% YoY. Half of Digital is constituted by eCommerceimplementation, where capabilities have increased post ZENT’s acquisition ofProfessional Access, which in FY16 grew by 25% YoY. The rest of Digital revenuecomes from other Digital and cross-over services. Moreover, with increasedemphasis on Enterprise Digital and CMO-led solutions, Digital will only get afurther boost from current levels.

Re-constitution to continue for the better: ZENT had earlier laid focus onachieving the Diamond partnership with Oracle. However, elevation fromPlatinum partnership is a function of the work around Oracle’s installed base,and not cloud services. Oracle has a managed cloud partner program, on whichZENT has turned its attention as this better aligns with changing marketdynamics, Oracle’s strategy and ZENT’s focus areas. Moreover, the realignmentof focus in infrastructure management toward IMS & Cloud too marks a step inthis direction.

Expect rebound in revenue growth: On account of ongoing restructuring, weexpect revenue growth of 2% in FY17. However, with the implementation ofgrowth engines well in progress, we expect a revival in revenue growth to 12%in FY18.

Margin comfort for FY17-18E: Revenue growth pick-up, profitabilityimprovement in the IMS business, and current investments should lead to a230bp EBITDA margin expansion over FY16-18E. EBIT margins in the IMSbusiness (18% of revenue) can improve from 6% in FY16 to 14% in FY18, led byhigher revenues from ‘IMS and Cloud’ and the restructuring in the MVSbusiness. This alone has the potential to improve overall margins by 150bp. Weexpect an EPS CAGR of 20% over FY16-18.

Exhibit 30: Revenue growth expected to continue


Exhibit 31: …coupled with margin expansion


389 383 399 427 462 518

4.9

(1.7)

4.2

(0.7)

2.0

12.0



13.7

14.7

13.9 14.4

15.4

16.7


EBITDA margin (%)

Zensar Technologies

4 July 2016 24

Value ZENT at INR1300 per share ZENT warrants a premium: We believe ZENT warrants a premium to its peers

considering: (1) its positioning in Digital, especially in eCommerceimplementation, (2) potential growth driven by Digital and IMS, and (3) ahealthier portfolio mix and a sharpened focus driving improved performancerelative to the past three years.

Premium to historical P/E justified, given: (1) a pick-up in revenue and earningsCAGR over FY16-18E, (2) focus on Digital and IMS & Cloud leading todifferentiated positioning v/s being a me-too player earlier, and (3) focusedapproach opposed to chasing of growth in multiple dimensions earlier.

We value ZENT at 13x forward EPS to arrive at a fair value of INR1300 pershare (35% upside), at a 10% discount to peers such as PSYS and MTCL (whichhave demonstrated consistency in performance in the past and have developedstrong capabilities in newer services), 30% discount to INFO, but at a 20%premium to peers such as MPHL, KPIT and NITEC, given strong competitivepositioning, well-defined niche and a strategy to drive the next leg of growth.

Exhibit 32: Valuations attractive, given revenue growth revival

Source: MOSL, Company, Bloomberg

Exhibit 33: Valuations attractive, given earnings CAGR


Exhibit 34: Currently at lower valuations for strong performance

CMP (INR) Reco. TP

(INR)

Revenue CAGR

(FY16-18E)

EBITDA margin

expansion (FY16-18E,bp)

Earnings CAGR

(FY16-18E)

PE (FY17E)

PE (FY18E)

EV/ EBITDA (FY17E)

EV/ EBITDA (FY18E)

Dividend yield

(FY17E)

Dividend yield

(FY18E)

TCS 2,500 Neutral 2,650 11% (116) 12% 18.5 16.1 14.2 12.1 1.8 2.1 INFO 1,172 Buy 1,350 13% 36 14% 17.5 15.3 11.3 9.4 2.5 2.5 WPRO 558 Neutral 600 10% (12) 7% 15.4 13.5 9.7 7.9 2.4 2.4 HCLT 731 Buy 900 31% (225) 24% 13.3 11.9 9.0 7.5 2.4 2.5 TECHM 506 Neutral 550 11% 54 11% 13.8 11.8 8.3 6.9 1.6 1.6 MPHL 568 Neutral 520 6% 174 11% 15.1 13.4 8.3 6.7 7.5 4.5 HEXW 229 Neutral 230 9% (131) 6% 17.5 15.6 12.1 10.3 4.0 4.2 PSYS 690 Neutral 775 21% (99) 18% 16.3 13.4 9.4 7.4 1.7 1.7 KPIT 157 Neutral 180 7% 81 11% 9.9 8.6 5.7 4.5 1.1 1.1 MTCL 674 Neutral 750 15% 82 18% 16.1 13.4 11.4 9.1 1.6 1.6 NITEC 515 Neutral 560 9% (86) 11% 9.9 9.1 4.8 4.1 2.3 2.3 CYL 485 Buy 550 12% 101 19% 13.7 11.5 9.0 7.1 2.2 2.6 ZENT 980 Buy 1,300 7% 235 20% 12.6 10.0 7.7 5.7 1.6 2.1


MPHL HEXW

PSYS

KPIT

MTCL

NITEC

CYL

ZENT

6.0

8.5

11.0

13.5

16.0

0% 5% 10% 15% 20% 25%

MPHL

HEXW

PSYS

KPIT

MTCL

NITEC

CYL

ZENT

6.0

8.5

11.0

13.5

16.0

0% 5% 10% 15% 20% 25%

Zensar Technologies

4 July 2016 25

Scenario analysis – Upside potential outweighs downside risk

Exhibit 35: Scenario analysis suggest >60% upside in bull case v/s 6% downside in bear case Bear case Base case Bull case

FY17 FY18 FY17 FY18 FY17 FY18 Revenues (USDm) 453 498 462 518 471 537 Revenue growth (%) 0 10 2.0 12.0 4 14 Revenues (INRm) 30,799 34,887 31,414 36,232 32,030 37,601 EBITDA 4,582 5,417 4,831 6,062 5,086 6,704 EBITDA margin (%) 14.9 15.5 15.4 16.7 15.9 17.8 Dep/int/other income 84 153 84 153 84 153 PBT 4,666 5,570 4,914 6,214 5,169 6,856 Tax/minority interest 1,396 1,760 1,396 1,760 1,396 1,760 PAT 3,270 3,810 3,518 4,454 3,773 5,096 EPS 72 84 78 98 83 112

Target PE (x) 11 13 14 Target price (INR) 925 1,300 1,575 Potential return (%) -6 35 61


Bull case suggests >60% upside from current levels Our sensitivity analysis suggests that in the bull case, ZENT could generate EPS of ~INR112 (v/s INR98 in base case). Valuing ARBP at 14x forward earnings (in line with peers like MTCL and PSYS v/s 13x in base case – 10% discount to peers) yields a fair value of INR1,575 (v/s TP of INR1,300), implying upside of >60% from CMP.

Faster than expected growth in Digital: The current traction in ProfessionalAccess (25% YoY growth in FY16) and faster growth in Other Digital Services,given the recent launch of solutions by ZENT could lead to higher growth inDigital (27% of total revenue) and move the needle in terms of overallperformance, leading to higher than anticipated growth over FY16-18E.

Strong execution of account mining/large deals: Now that ZENT has identified65 high-potential accounts, it has started changing the approach towards miningthese customers. It is in the process of deploying dedicated sales and deliveryteams for these accounts (and Digital evangelists in some cases). This processcould lead to strong growth in top accounts that leads to improved overallperformance on the revenue growth front. Similarly, its focus on large dealscould result in some big wins, which can be a game-changer over the next twoyears.

Valuation multiples in line with peers rather than at discount: In our base case,we have assumed target multiple of ~13x (10% discount to peers like MTCL andPSYS). MTCL and PSYS have been commanding higher multiples amongst mid-cap peers on account of their presence in new-age services, and the fact thatthis expertise has led to outperformance to industry, and holds the potential forit to continue going forward. The successful execution of the laid-out strategycan result in earnings CAGR of 28% over FY16-18E, which would result in aconvergence of the valuation gap that currently exists.

Zensar Technologies

4 July 2016 26

Bear case analysis indicates limited downside from current levels Our bear case sensitivity analysis shows that ZENT could generate EPS of ~INR84 (v/s INR98 in base case). Valuing ZENT at 11x forward earnings (30% discount to peers like MTCL and PSYS and in line with MPHL/NITEC v/s 13x in base case) yields a fair value of INR925 (v/s TP of INR1,300), implying downside of 6% from CMP.

Slower ramp-up in growth engines: ZENT is currently making investments toenable the successful execution of its strategy. In the process, it has launchedseveral solutions, beefed up teams, added capabilities, etc. If the bearing-of-fruit of these investments takes longer than anticipated, revenue growth mayremain subdued for longer than we currently estimate.

Clean-up overpowers growth engines: While the company is focusing on 65accounts for mining, it is simultaneously cutting out low-yield customers. If theletting-go of business is more than the growth stemming out of the strategymeasures undertaken, revenue growth could lag.

Valuation multiples discount to broaden to 30% discount to peers: In this case,we have assumed target multiple at 11x v/s 13x in the base case. This multiple,we have witnessed for peers with sub-par revenue growth, margin pressuresand a recovery lifecycle.

Exhibit 36: Premium to historic valuations…


Exhibit 37: …reflecting improving business mix


Exhibit 38: Return ratios better than most peers


Exhibit 39: Dividend payout ratio of 20%


11.6 8.6

7.2 6.2

0

10

20

30

40

Jun-

01

Aug-

02

Oct

-03

Dec-

04

Feb-

06

Mar

-07

May

-08

Jul-0

9

Sep-

10

Nov

-11

Dec-

12

Feb-

14

Apr-

15

Jun-

16

P/E (x) 15 Yrs Avg(x)5 Yrs Avg(x) 10 Yrs Avg(x)

2.5 1.6 1.6

1.5

0.0

1.0

2.0

3.0

4.0

Jun-

01

Aug-

02

Oct

-03

Dec-

04

Feb-

06

Mar

-07

May

-08

Jul-0

9

Sep-

10

Nov

-11

Dec-

12

Feb-

14

Apr-

15

Jun-

16

P/B (x) 15 Yrs Avg(x)5 Yrs Avg(x) 10 Yrs Avg(x)

12.

7

28.

0

19.

3

20.

6

26.

8

18.

6

16.

3

23.

0

14.

1

31.

1

21.

5

19.

5

26.

7

17.

6

17.

0

24.

2

MPH

L IN

HEXW

IN

PSYS

IN

KPIT

IN

MTC

L IN

NIT

EC IN

CYL

IN

ZEN

T IN

RoE (FY17E) RoE (FY18E)

12% 9%

12%

19% 20% 18% 18% 18% 20% 21%

0.5 0.3 0.4

0.7 0.8 1.1 1.2 1.3

1.6 2.1

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

Dividend payout ratio (%) Dividend yield (%)

Zensar Technologies

4 July 2016 27

High composition of Digital: Digitalconstitutes to 27% of ZENT’s revenue,v/s 10-15% for peers. Higher proportionof revenue from Digital enables ZENT topotentially outperform peers.

Well-defined niche in Digital: Post theacquisition of PA, ZENT has gainedcapability in eCommerce enablement,for a product that has 20% market share.This bodes well given the high-growth ofenterprise spend on eCommerce.

Strong partnership with Oracle: ZENT gets 33% of its revenue from the Oracleecosystem. The relationship has onlystrengthened post the PA acquisition.ZENT has been focusing on the managedcloud partnership with Oracle, whichfocuses on SaaS/cloud-based solutionsinstead of legacy implementation.

Leadership: Several initiatives have beentaken up since the leadership change.The new CEO has made the organizationmore nimble, and laid the foundation forsuccessful execution of strategy. Clarityof vision and strong execution bode wellfor organizational performance.

Portfolio composition: In the past,ZENT has been spread out in terms ofits presence in verticals andgeographies, resulting in a lack of afocused approach. Although it has beenexecuting a clean-up exercise, it stillcarries the baggage of some non-core verticals and geographies.

Yield on customers: The lack of afocused approach on customeracquisition led to multiple customersthat are low on profitability and aren’tscalable, resulting in a drag on overallscalability of the organization.

Infrastructure Management business:ZENT’s IM business is comprised ofServices, Maintenance and Products.Maintenance and Products have beenweighing on profitability of thebusiness, despite a much lowerquantum compared to three years ago.Profitability resurrection and presencein non-focus areas has been leading tosubdued overall performance andconsumption of bandwidth in multipleareas.

Expansion of Digital services: Of theUSD122m Digital practice of ZENT,50% is comprised of PA. The restcomes from Other Digital Services andCross-Over Services. The company hasrecently launched solutions in theareas of IoT, data analytics, and front-end capabilities aimed at tapping theCMO budget. This opens up a wholenew area of spend for ZENT.

Large deals: ZENT has set up a newteam for large deals (USD10m+). It hasalso started engaging with third-partyoutsourcing agents, enabling anopportunity to scale up significantly.

IMS & Cloud: ZENT’s focus in the areasof IMS & Cloud is well aligned withchanging industry dynamics. The CEO’srich experience in IM, and efforts toreorganize the company to tap thisspace lead to opening of new doors.

Customer focus: The company’s focuson increasing wallet share withinexisting customers and tapping otherareas of spend have the potential todrive growth in a more focused andorganized manner.

Cloud migration in ERP: ZENT has asizeable exposure to legacyimplementation and maintenance.These areas have been under pressurebecause of pricing and cloud migration.The shift poses a threat to ZENT’sexisting revenue, if it isn’t able torotate its business with agility.

Client concentration: ZENT gets 37% ofits total revenue from its Top-5customers. Any issues in the customercould result in lower spend,consequently impacting the overallperformance of ZENT.

Costs overshooting revenue in thenear-term: The company is currently inan investment-mode as it gets ready tocapitalize on new opportunities. Thisrequires investments in the form ofpeople, capabilities, solutions andreorganization. Investments may leadto margin pressures if revenue growthfollows with a lag.

Zensar Technologies

4 July 2016 28

Company description

Zensar (Bloomberg: ZENT) is a provider of technology services and has a solutions portfolio spread across Traditional to Transformational - Applications, Infrastructure, Digital and Industry-specific solutions. It is part of the USD3b RPG Enterprises and USD40b APAX portfolio of companies. Digital forms 27% of ZENT’s revenue and comprises of Oracle Commerce & Magento, as well as other Digital and cross-over services.

Exhibit 40: Revenue composition by services and verticals


Application Management Services,

76%

IMS - Maintenanc

e, 8%

IMS - Services,

16%

Manufacturing, 54% Retail and

consumer services,

22%

Financial services,

19%

Emerging, 6%

Zensar Technologies

4 July 2016 29

Key management personnel

Mr Sandeep Kishore, CEO & MD Prior to Zensar, Sandeep was Corporate Vice President and Global Head of Life Sciences & Healthcare and Public Services at HCL Technologies. He was responsible for a USD1.1b business. He has over 25 years of experience in the IT industry, spanning across IT, Engineering and Business Process Outsourcing.

Mr Nitin Parab, Chief Executive – Enterprise Transformation Services Whilst based in US for almost 2 decades, Nitin has deep experience in managing operations (Business Development, Marketing, Solution Design, Service Delivery, Technology Practices, Alliances and Partnerships) in several countries across all continents.

Mr Pinaki Kar, Chief Executive – Infrastructure Management Services Pinaki Kar joined Zensar as the Infrastructure Business Unit Head. In his last role, Pinaki was CEO & President of Wipro Infocossing. His responsibilities included transformation of the business to a higher growth path, incubating Cloud Computing, expanding into Europe and APAC, synergizing with Wipro’s Global Infrastructure Services business.

Mr S Balasubramaniam, Chief Financial Officer With over 28 years of experience in finance and commercial functions, S. Balasubramaniam is the Chief Financial Officer of Zensar. He joined Zensar in 2005.

Mr Syed Azfar Hussain, Global HR Head Azfar has over 21 years of experience in Human Resources at global, regional, country, business and site levels in organizations such as Alcan, Hewlett Packard, Deloitte & Touche, and Flextronics.

Mr Ajay Bhandari, Chief Corporate Development Officer Ajay has been associated with ERP Implementation, Funds & Investments Management, and Corporate Finance for over 17 years. He began his career at Zensar as a senior consultant in the year 1999 and is now responsible for all Strategy, Marketing and Quality functions.

Mr Krishna Ramaswami, Delivery Head, Digital Enterprise Services Krishna heads the India operations as well as Digital Enterprise at Zensar. With over 25 years’ experience, he has successfully run the Healthcare vertical. Krishna has also been responsible for the Infrastructure Management business globally.

Mr Harish Gala, Global Head, Enterprise Application Services Harish Gala is the Global Head of Enterprise Applications and Zensar’s Hyderabad Center. He has over 25 years of experience in Management Consulting and IT services (enterprise applications and ERP) and driven ERP enabled transformation engagements across diverse industry sectors for transnational clients.

Zensar Technologies

4 July 2016 30

Ms Prameela Kalive, Global Head, Custom Application Services Prameela has been with Zensar Technologies for over 15 years now and has led multiple portfolios ranging from Software Delivery, Global Strategy and Marketing to Global HR and managing Emerging Markets. She now Heads Zensar’s India (Pune) operations in addition to heading the Strategic Services Organization and multiple other global business enabling portfolios.

Mr Chakri Vaddi, Head, Enterprise Business, US Chakri is Senior Vice President and Head of the Enterprise Transformation Services business for Zensar in US and in this role he is responsible for Manufacturing, Retail, Insurance and Banking Industry vertical businesses. His responsibilities include end to end P&L management, Strategy, Business Development, Marketing, Service Delivery, Alliances and Partnerships.

Mr Chaitanya (Chai) Rajebahadur, Head, Enterprise Business, Europe Chai is an experienced business leader with significant success in the Industry having built a strong base in Manufacturing, Retail, CPG, Telecom, Media, Banking & Financial services and Logistics & Transportation. He has experience in managing business in Europe, US, India, Middle East, Singapore and Australia with over 21 years of experience in the IT Outsourcing Industry.

Mr Deepanjan Banerjee, Head, Client Assurance Services Deepanjan has been with Zensar since 1998 where he has, over the years, successfully juggled multiple roles – from delivery to consulting to sales.

Mr Krishna Kumar, Delivery Head, Digital Commerce Services KK heads the Retail Practice and Deliveries globally. In the 14 years that he has been with Zensar, P. Krishna Kumar has worked in various capacities and across various geographies - as delivery center head, practice head and onsite engagement manager. His work experience has been mainly across manufacturing, supply chain and retail.

Mr Mohan Hastak, Head, Strategic Business Function, Custom Application Solutions Mohan is head of the Financial Services and Insurance vertical at Zensar Technologies. He has over 30 years’ experience in the Information Technology sector, and has largely concentrated on the Insurance vertical over the past 15 years.

Mr Harish Lala, Head, Enterprise Business, Africa Harish was involved in setting up Zensar’s Africa operations with its starting base in South Africa and since then has been working with many Blue Chip companies across Banking, Insurance, Retail and Mining across Africa by helping them implement transformational business solutions using technology as enabler.

Zensar Technologies

4 July 2016 31

Key risks Client concentration ZENT, like other mid-cap peers, has high client concentration, with top five clients contributing 37% of revenues and top 10 contributing 45%. A good example of client-specific dynamics affecting the overall performance was in 4QFY15, when ZENT had to give an exceptional discount to a client, which affected both revenue and profitability. The extent of the discount was USD5m, which translated to a 4.3% negative impact on a sequential basis. Client-specific issues, spend changes, requirements and challenges have the potential to impact its overall revenue growth given the high concentration. Dependency on Oracle ZENT is a Platinum partner for Oracle, and the ecosystem contributes 33% of its total revenue. This partnership has further strengthened post the acquisition of Professional Access, which is an implementation partner for Oracle’s eCommerce platforms. Any hindrance to the success of Oracle’s products in the market would reflect in the flow of business to ZENT. Pressure of reinvestment eroding margins ZENT’s foray into Digital and efforts to realign business to growth engines require investments in capabilities, people, sales teams, reorganization and solutions. This could result in near-term margin pressure as revenue would follow investments made.

Zensar Technologies

4 July 2016 32

Financials and Valuations

Income Statement (INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Profit & Loss Sales 11,383 17,825 21,145 23,156 26,277 29,643 31,414 36,232 Change (%) 19.5 56.6 18.6 9.5 13.5 12.8 6.0 15.3

Cost of Services 7,906 12,337 14,809 15,957 18,329 20,366 21,400 24,284 SG&A Expenses 1,948 3,224 3,444 3,803 4,307 5,015 5,183 5,886

EBITDA 1,529 2,263 2,892 3,396 3,641 4,262 4,831 6,062 % of Net Sales 13.4 12.7 13.7 14.7 13.9 14.4 15.4 16.7 Depreciation 294 333 332 383 415 454 471 543 Interest 39 93 100 109 112 106 159 129 Other Income 305 527 332 290 364 181 411 603 Forex 0 0 -187 205 181 407 303 223

PBT 1,502 2,364 2,606 3,399 3,659 4,289 4,914 6,214 Tax 184 777 861 1,023 1,013 1,169 1,376 1,740 Rate (%) 12.3 32.9 33.0 30.1 27.7 27.3 28.0 28.0 Minority Interest 0 0 0 0 -1 -26 -20 -20PAT 1,318 1,587 1,745 2,375 2,646 3,094 3,518 4,454 Extraordinary 0 0 0 0 0 0 0 0 Net Income 1,318 1,587 1,745 2,375 2,646 3,094 3,518 4,454 Change (%) 3.3 20.4 10.0 36.1 11.4 17.0 13.7 26.6

Balance Sheet (INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Share Capital 433 434 436 438 443 446 446 446 Reserves 4,027 5,325 6,853 9,017 11,127 13,812 16,506 19,887 Net Worth 4,460 5,759 7,289 9,455 11,570 14,258 16,952 20,333 Minority Interest - - - 11 12 39 39 39 Loan 2,392 2,755 2,353 2,032 1,396 1,878 1,628 1,378 Capital Employed 6,852 8,514 9,642 11,498 12,977 16,175 18,619 21,750 Applications Gross Block 5,480 6,045 6,341 6,503 8,201 8,889 9,289 9,739 Less : Depreciation -2,007 -2,269 -2,372 -2,287 -2,728 -3,182 -3,653 -4,197Net Block 3,473 3,776 3,969 4,215 5,474 5,706 5,635 5,542 CWIP 50 27 25 21 14 17 13 9 Other LT Assets 744 583 545 608 617 517 619 721 Curr. Assets 5,558 7,869 8,035 10,015 11,240 13,989 17,815 21,678 Current Investments 246 468 417 1,478 931 1,016 1,116 1,216 Inventories 836 950 1,049 1,288 1,226 1,259 1,205 1,290 Debtors 1,876 2,911 3,354 3,581 4,539 5,427 5,752 6,634 Cash & Bank Balance 1,100 1,745 1,420 1,458 1,960 2,823 6,072 8,311 Loans & Advances 916 1,142 856 817 880 1,072 1,136 1,310 Other Current Assets 584 654 937 1,392 1,704 2,392 2,535 2,918 Current Liab. & Prov 2,973 3,741 2,931 3,361 4,368 4,054 5,462 6,199 Current Liabilities 997 1,337 1,059 1,507 1,305 1,643 2,185 2,480 Other liabilites 1,682 1,884 1,556 1,385 2,426 2,118 2,913 3,306 Provisions 294 521 315 468 637 293 364 413 Net Current Assets 2,585 4,128 5,104 6,654 6,872 9,935 12,352 15,479 Application of Funds 6,852 8,514 9,642 11,498 12,977 16,175 18,619 21,750 E: MOSL Estimates

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Financials and Valuations

Ratios (INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Basic (INR) EPS 30.5 36.6 40.2 54.7 61.0 68.2 77.6 98.2 Cash EPS 31.2 51.0 42.3 67.7 66.6 84.6 158.5 210.0 Book Value 103.3 132.7 167.9 217.9 266.6 314.4 373.8 448.3 DPS 3.5 7.0 8.0 10.1 11.2 12.0 15.5 20.2 Payout % 11.5 19.1 20.0 18.4 18.4 17.6 20.0 20.6

Valuation (x) P/E 17.9 16.1 14.4 12.2 9.7 Cash P/E 14.5 14.7 11.6 6.0 4.5 EV/EBITDA 12.2 11.2 9.9 7.7 5.7 EV/Sales 1.8 1.5 1.4 1.2 1.0 Price/Book Value 4.5 3.7 3.1 2.5 2.1 Dividend Yield (%) 1.0 1.1 1.2 1.6 2.1

Profitability Ratios (%) RoE 34.0 31.1 26.7 28.4 25.2 24.0 22.5 23.9 RoCE 23.4 26.2 30.3 30.8 28.6 28.5 27.2 28.9 RoIC 39.7 22.1 24.4 25.8 25.1 24.7 26.4 33.6

Turnover Ratios Debtors (Days) 79 73 74 78 86 96 96 96 Fixed Asset Turnover (x) 3.3 4.7 5.3 5.5 4.8 5.2 5.6 6.5 E: MOSL Estimates

Cash Flow Statement (INR Million) Y/E March FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E CF from Operations 1,014 2,281 2,212 2,720 2,823 3,805 4,148 5,127 Cash for Working Capital 392 -546 -1,152 -625 382 -1,218 831 -887 Net Operating CF 1,406 1,735 1,060 2,094 3,206 2,587 4,980 4,239 Net Purchase of FA -272 -263 -334 -323 -372 -423 -396 -446 Free Cash Flow 1,134 1,472 726 1,771 2,834 2,164 4,584 3,793 Net Purchase of Invest. -3,129 -190 87 -961 -1,448 1 -102 -102 Net Cash from Invest. -3,401 -452 -247 -1,284 -1,819 -422 -498 -548 Proc. from equity issues 11 10 16 59 62 42 0 0 Proceeds from LTB/STB 1,886 -320 -776 -422 -395 -375 -409 -379 Dividend Payments -138 -329 -379 -411 -542 -969 -824 -1,073 Cash Flow from Fin. 1,759 -640 -1,139 -774 -874 -1,302 -1,233 -1,452 Exchange difference 36 6 8 10 0 0 0 0 Net Cash Flow -200 649 -318 46 512 863 3,248 2,239 Opening Cash Bal. 1,299 1,096 1,739 1,413 1,448 1,960 2,823 6,072 Add: Net Cash -200 649 -318 46 512 863 3,248 2,239 Closing Cash Bal. 1,100 1,745 1,420 1,458 1,960 2,823 6,072 8,311 E: MOSL Estimates

RECENT INITIATING COVERAGE REPORTS

REPORT GALLERY

http://ftp.motilaloswal.com/emailer/Research/BOS-20150921-MOSL-IC-PG034.pdf

http://ftp.motilaloswal.com/emailer/Research/SRF-20150910-MOSL-IC-PG028.pdf

http://ftp.motilaloswal.com/emailer/Research/INDIGO-20151210-MOSL-IC-PG056.pdf

http://ftp.motilaloswal.com/emailer/Research/Eveready-20151218-MOSL-IC-PG042.pdf

http://ftp.motilaloswal.com/emailer/Research/MUTH-20151006-MOSL-IC-PG030.pdf

http://ftp.motilaloswal.com/emailer/Research/SKSM-20151228-MOSL-IC-PG032.pdf

http://ftp.motilaloswal.com/emailer/Research/ALKEM-20160121-MOSL-IC-PG042.pdf

http://ftp.motilaloswal.com/emailer/Research/PG-20160425-MOSL-IC-PG038.pdf

http://ftp.motilaloswal.com/emailer/Research/MANB-20160624-MOSL-IC-PG036.pdf

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4 July 2016 35

N O T E S

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4 July 2016 36

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