zensar technologies ltd - myirisbreport.myiris.com/firstcall/fujicim_20150716.pdf · segment...
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CMP 766.45
Target Price 860.00
ISIN: INE520A01019
JULY 16th
2015
ZENSAR TECHNOLOGIES LTD
Result Update (CONSOLIDATED): Q1 FY16
BUYBUYBUYBUY
Index Details
Stock Data
Sector IT Consulting & Software
BSE Code 504067
Face Value 10.00
52wk. High / Low (Rs.) 790.00/409.35
Volume (2wk. Avg.) 22000
Market Cap (Rs. in mn.) 33992.06
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A FY16E FY17E
Net Sales 26557.80 29744.74 32719.21
EBITDA 4186.10 4866.72 5300.54
Net Profit 2645.90 3159.74 3458.48
EPS 59.69 71.25 77.98
P/E 12.84 10.76 9.83
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.
Zensar achieved a consolidated turnover of Rs.
7059.70 mn for the 1st quarter of 2015-16 as against
Rs. 6119.50 mn in the corresponding quarter of the
previous year, grew by 15.36%.
During Q1 FY16, the company has reported EBITDA
of Rs. 1227.80 mn against Rs. 905.60 mn in the prior
period of last year, an increase of 35.58%.
In Q1 FY16, net profit was up by 35.95% to Rs.
760.80 mn from Rs. 559.60 mn in the corresponding
quarter of the previous year.
EPS of the company is Rs. 17.15 for the 1st quarter
as against an EPS of Rs. 12.76 in the corresponding
quarter of the previous year.
During the quarter, PBT rises by 39.95% to Rs.
1085.90 mn from Rs. 775.90 mn in Q1 FY15.
Zensar added large deal within the international
government body based in Europe for Oracle E-
Business with critical enhancements and
customizations.
Zensar added large with a premier American home-
furnishings company for Oracle application
maintenance and support.
Net Sales and PAT of the company are expected to
grow at a CAGR of 11% and 19% over 2014 to
2017E 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 766.45 33992.06 59.69 12.84 2.94 110.00
Cyient Ltd 533.50 59944.60 31.43 16.97 3.09 160.00
MindTree Ltd 1225.05 102706.10 63.73 19.22 5.11 170.00
NIIT Technologies Ltd 487.30 29754.20 28.67 17.00 2.92 95.00
QUARTERLY HIGHLIGHTS (CONSOLIDATED)
Results Updates- Q1 FY16,
Zensar Technologies Ltd. achieved a turnover of Rs. 7059.70 million for the 1st quarter of the financial year 2015-
16 as against Rs. 6119.50 million in the corresponding quarter of the previous year. The company has reported
an EBITDA of Rs. 1227.80 million against Rs. 905.60 million in the prior period of last year. In Q1 FY16, net profit
is Rs. 760.80 million against Rs. 559.60 million in the corresponding quarter of the previous year. The company
has reported an EPS of Rs. 17.15 for the 1st quarter as against an EPS of Rs. 12.76 in the corresponding quarter of
the previous year.
Break up of Expenditure
Months Jun-15 Jun-14 % Change
Net Sales 7059.70 6119.50 15.36
Net Profit 760.80 559.60 35.95
EPS 17.15 12.76 34.42
EBITDA 1227.80 905.60 35.58
Break up of Expenditure
(Rs. In millions)
Q1 FY16 Q1 FY15 % CHNG
Purchase of traded goods 420.70 512.20 -18%
Employee benefit
expenses 4435.30 3734.50 19%
Depreciation &
amortization expense 109.70 105.60 4%
Other expenses 1112.00 1053.10 6%
Segment Revenue
Business Highlights
• Zensar announces the launch of its Oracle Exalytics Lab in San Jose, California and is now a certified reseller
of Oracle Exalytics In-Memory Machine.
• The Company launched the Oracle Cloud Lab at its corporate headquarters in Pune, India.
• Zensar announced a strategic consulting partnership with JIVE Software. JIVE is the leading provider of
modern communication and collaboration solutions for businesses and this alliance is in keeping with
Zensar’s focus on providing transformational digital solutions to customers to help achieve clear business
outcomes.
Significant new client additions reported this quarter are:
• Zensar’s latest acquisition Professional Access, an Oracle Commerce company has been fueling many recent
wins in the ecommerce space namely:
� Oracle commerce support services for South African chain of retail stores which is one of the largest in
the country; a large American multinational clothing corporation; an American global information
technology company; New York City-based fashion designer of American sportswear for women;
leading provider of consumer, financial and property information, analytics and services to business
and government; one of the two largest check printers in the United States; and a leading Airport
Retailers globally based in the Middle East.
� Support and enhancement for a Japanese multinational consumer electronics company
� Enhancement and testing services for financial services company based in Mexico
� Omni Channel enhancement for a medical prescription refills company
� Big Data integration with Oracle Commerce at American department store retail chain
• Large deal within the international government body based in Europe for Oracle E-Business with critical
enhancements and customizations
• Large deal with a premier American home-furnishings company for Oracle application maintenance and
support
• SAP ERP global rollout and implementation for the leading marketer and manufacturer of generic
pharmaceutical products in the US
• Oracle ERP upgrade and enhancement provider of broadcasting services to international studio facilities in
the US
Graphical Representation
COMPANY PROFILE
Zensar is a leading software and infrastructure services and solutions provider with industry expertise across
Manufacturing, Retail, Insurance, Utilities, Banking, Financial Services and Government. The Company delivers
comprehensive services for mission-critical applications, enterprise applications, business intelligence and
analytics, business process management and digital enterprise services. Using its multi-shore capabilities, Zensar
combines expert consulting, integration and support services with world-class customer service to help
organizations attain significant business outcomes. Zensar has 8000+ associates with operations across US, UK,
Europe, Middle East, Africa, India and Asia Pacific.
About RPG Enterprises
RPG Enterprises is one of India's largest industrial conglomerates. Established in 1979, RPG Enterprises is one of
India’s fastest growing business groups with a turnover touching Rs. 18,000 cr. The group has fifteen companies
managing diverse business interests in the areas of Automotive, Tyres, Infrastructure, IT, Pharmaceuticals,
Plantations and Power Ancillaries.
FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March 31, 2014 -2017E
ZENSAR TECHNOLOGIES LTD. FY-14A FY-15A FY-16E FY-17E
EQUITY AND LIABILITY
A) Shareholder's Funds
1) Share Capital 437.68 443.27 443.50 443.50
2) Reserves and Surplus 9017.35 11126.52 13463.08 15953.75
Total Net worth 9455.03 11569.78 13906.58 16397.25
B) Minority Interest 10.99 11.95 12.66 13.17
C) Non Current Liabilities
1) Long term borrowing 745.85 14.95 13.16 11.84
2) Other Long term liabilities 60.72 38.28 34.45 31.70
3) Long term Provisions 292.73 370.68 418.87 456.57
Total Non-Current liabilities 1099.30 423.91 466.47 500.10
D) Current Liabilities
1) Short term borrowings 213.90 971.59 1088.18 1186.11
2) Trade payables 1507.41 1304.70 1200.32 1104.29
3) Other Current liabilities 2104.17 2425.78 2644.10 2802.75
4) Short term Provisions 468.29 637.33 739.30 828.02
Total Current liabilities 4293.77 5339.40 5671.91 5921.18
TOTAL EQUITY AND LIABILITY (A+B+C+D) 14859.09 17345.04 20057.63 22831.70
ASSETS
E) Non-Current Assets
Fixed Assets
Tangible assets 889.56 872.08 906.97 934.17
Intangible assets 3325.68 4601.44 5429.70 6244.15
Capital Work in Progress 2.73 6.43 10.29 12.86
Intangible assets under development 17.87 7.90 8.69 9.47
1) Sub Total - Fixed Assets 4235.85 5487.85 6355.64 7200.66
2) Non-Current Investments 7.50 8.02 8.42 8.76
3) Deferred Tax Asset 304.14 142.30 153.68 162.91
4) Long Term loans and advances 296.79 466.69 578.69 677.07
Total Non-Current Assets 4844.28 6104.86 7096.43 8049.39
F) Current Assets
1) Current Investment 1478.46 931.24 1042.99 1147.29
2) Inventories 1287.79 1226.23 1275.27 1313.53
3) Trade receivables 3581.25 4538.84 5355.83 6212.76
4) Cash and Bank Balances 1458.12 1972.46 2366.95 2815.52
5) Short-terms loans & advances 817.17 867.30 928.01 1002.25
6) Other current assets 1392.02 1704.12 1992.15 2290.97
Total Current Assets 10014.89 11240.18 12961.20 14782.32
TOTAL ASSETS (E+F) 14859.09 17345.04 20057.63 22831.70
Annual Profit & Loss Statement for the period of 2014A to 2017E
Value(Rs. mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 23350.10 26557.80 29744.74 32719.21
Other Income 302.80 269.50 339.57 359.94
Total Income 23652.90 26827.30 30084.31 33079.15
Expenditure -19768.60 -22641.20 -25217.59 -27778.61
Operating Profit 3884.30 4186.10 4866.72 5300.54
Interest -102.80 -111.60 -122.76 -132.58
Gross profit 3781.50 4074.50 4743.96 5167.96
Depreciation -383.00 -415.40 -442.40 -468.95
Profit Before Tax 3398.50 3659.10 4301.56 4699.02
Tax -1023.30 -1012.80 -1139.91 -1240.54
Profit After Tax 2375.20 2646.30 3161.64 3458.48
Minority Interest 0.00 -0.40 -1.90 0.00
Net Profit 2375.20 2645.90 3159.74 3458.48
Equity capital 437.68 443.27 443.50 443.50
Reserves 9017.35 11126.52 13463.08 15953.75
Face value 10.00 10.00 10.00 10.00
EPS 54.27 59.69 71.25 77.98
Quarterly Profit & Loss Statement for the period of 31 Dec, 2014 to 30 Sep, 2015E
Value(Rs. mn) 31-Dec-14 31-Mar-15 30-Jun-15 30-Sep-15E
Description 3m 3m 3m 3m
Net sales 7198.70 6680.90 7059.70 7412.69
Other income 90.90 -24.70 134.40 114.24
Total Income 7289.60 6656.20 7194.10 7526.93
Expenditure -6143.60 -5649.40 -5966.30 -6278.54
Operating profit 1146.00 1006.80 1227.80 1248.38
Interest -32.00 -28.90 -32.20 -34.78
Gross profit 1114.00 977.90 1195.60 1213.60
Depreciation -97.40 -115.00 -109.70 -114.09
Profit Before Tax 1016.60 862.90 1085.90 1099.52
Tax -321.30 -144.90 -323.20 -305.67
Profit After Tax 695.30 718.00 762.70 793.85
Minority Interest -0.10 0.00 -1.90 0.00
Net Profit 695.20 718.00 760.80 793.85
Equity capital 439.70 443.27 443.50 443.50
Face value 10.00 10.00 10.00 10.00
EPS 15.81 16.20 17.15 17.90
Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 54.27 59.69 71.25 77.98
EBITDA Margin (%) 16.64% 15.76% 16.36% 16.20%
PBT Margin (%) 14.55% 13.78% 14.46% 14.36%
PAT Margin (%) 10.17% 9.96% 10.63% 10.57%
P/E Ratio (x) 14.12 12.84 10.76 9.83
ROE (%) 25.12% 22.87% 22.73% 21.09%
ROCE (%) 40.97% 36.65% 35.38% 32.79%
Debt Equity Ratio 0.10 0.09 0.08 0.07
EV/EBITDA (x) 8.13 7.66 6.51 5.89
Book Value (Rs.) 216.03 261.01 313.56 369.72
P/BV 3.55 2.94 2.44 2.07
Charts
OUTLOOK AND CONCLUSION
� At the current market price of Rs. 766.45, the stock P/E ratio is at 10.76 x FY16E and 9.83 x FY17E
respectively.
� Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.71.25 and
Rs.77.98 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 19% over 2014 to 2017E
respectively.
� On the basis of EV/EBITDA, the stock trades at 6.51 x for FY16E and 5.89 x for FY17E.
� Price to Book Value of the stock is expected to be at 2.44 and 2.07 x for FY16E and FY17E respectively.
� We recommend ‘BUY’ in this particular scrip with a target price of Rs.860.00 for Medium to Long term
investment.
INDUSTRY OVERVIEW
India is the world's largest sourcing destination for the information technology (IT) industry, accounting for
approximately 52 per cent of the US$ 124-130 billion market. The industry employs about 10 million Indians and
continues to contribute significantly to the social and economic transformation in the country.
The IT industry has not only transformed India's image on the global platform, but has also fuelled economic
growth by energising the higher education sector especially in engineering and computer science. India's cost
competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be
its unique selling proposition (USP) in the global sourcing market.
The IT-BPM sector in India grew at a compound annual growth rate (CAGR) of 25 per cent over 2000-2013,
which is 3-4 times higher than the global IT-BPM spend, and is estimated to expand at a CAGR of 9.5 per cent to
US$ 300 billion by 2020.
Market Size
India, the fourth largest base for young businesses in the world and home to 3,000 tech start-ups, is set to
increase its base to 11,500 tech start-ups by 2020, as per a report by Nasscom and Zinnov Management
Consulting Pvt Ltd. India’s internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by 2018,
accounting for 5 per cent of the country’s gross domestic product (GDP).
Investments
Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments
from major countries. The computer software and hardware sector in India attracted cumulative foreign direct
investment (FDI) inflows worth US$ 13,788.56 million between April 2000 and December 2014, according to
data released by the Department of Industrial Policy and Promotion (DIPP).
The private equity (PE) deals increased the number of mergers and acquisitions (M&A) especially in the e-
commerce space in 2014. The IT space, including e-commerce, witnessed 240 deals worth US$ 3.8 billion in
2014.
Some of the major investments in the Indian IT and ITeS sector are as follows:
• Wipro has won a US$ 400 million, multi-year IT infrastructure management contract from Swiss
engineering giant ABB, making it the largest deal for the technology company.
• Tech Mahindra has signed a definitive agreement to acquire Geneva-based SOFGEN Holdings. The
acquisition is expected to strengthen Tech Mahindra’s presence in the banking segment.
• Tata Consultancy Services (TCS) plans to set up offshore development centres in India for Japanese
clients in a bid to boost the company's margin in the market.
• Reliance is building a 650,000 square feet (sq ft) data centre in India—its 10th data centre in the
country—with a combined capacity of about 1 million sq ft and an overall investment of US$ 200 million.
• Intel Corp plans to invest about US$ 62 million in 16 technology companies, working on wearable, data
analytics and the Internet of Things (IoT), in 2015 through its investment arm Intel Capital. The Indian
IoT industry is expected be worth US$ 15 billion and to connect 28 billion devices to the internet by 2020.
• Keiretsu Forum, a global angel investor network, has forayed into India by opening a chapter in Chennai.
With this, the Silicon Valley-based network will have 34 chapters across three continents.
Government Initiatives
Some of the major initiatives taken by the government to promote IT and ITeS sector in India are as follows:
• India and the United States (US) have agreed to jointly explore opportunities for collaboration on
implementing India's ambitious Rs 1.13 trillion (US$ 18.22 billion) ‘Digital India Initiative’. The two sides
also agreed to hold the US-India Information and Communication Technology (ICT) Working Group in
India later this year.
• India and Japan held a Joint Working Group conference for Comprehensive Cooperation Framework for
ICT. India also offered Japan to manufacture ICT equipment in India.
Road Ahead
Internet should be a basic human right, say 87 per cent of internet users in India, compared with 83 per cent
globally, according to a report by Centre for International Governance Innovation (CIGI).
India continues to be the topmost offshoring destination for IT companies followed by China and Malaysia in
second and third position, respectively. Emerging technologies present an entire new gamut of opportunities for
IT firms in India. Social, mobility, analytics and cloud (SMAC) collectively provide a US$ 1 trillion opportunity.
Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to
around US$ 650-700 billion by 2020. Social media is the second most lucrative segment for IT firms, offering a
US$ 250 billion market opportunity by 2020.
The US$ 12 billion plus rising Indian e-commerce business market is witnessing a rush of hiring and may need
100,000 people over the next six months, as per industry experts. The industry offers a slew of opportunities and
scope for innovation thereby attracting the young mind to push their limits.
Disclaimer:
This document is prepared by our research analysts and it 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 we do not represent that
it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for
the recipients’ investment decision based on this document.
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