Zensar Tech stock slumps 5% after Q2 results disappoint Street

In the past one month, the stock of Zensar Tech has surged 5 percent as against 2 percent decline in the Sensex benchmark

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Zensar Technologies failed to cheer the Street with its second-quarter performance and shares tanked 5 percent to Rs 519 on the BSE on October 18. In the quarter ended in September, the IT service company’s revenue grew a modest 0.5 percent on-year and 1.1 percent on-quarter to Rs 1,240 crore, impacted by weak hi-tech and manufacturing verticals.

In the past one month, the stock of Zensar Technolgies has surged 5 percent as against a 2 percent decline in the benchmark Sensex. The scrip had hit a 52-week high of Rs 576 on October 17.

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The company registered a 206.3 percent on-year and 11.3 percent on-quarter net profit growth to Rs 173.9 crore in Q2FY24 as focus on cost optimisation bore fruit.

Vertical-wise, banking or manufacturing grew 3/6.7 percent QoQ in constant currency (CC) terms, while hi-tech or healthcare declined 8.3/1.7 percent QoQ in CC terms due to delayed decision-making and budget tightening by key clients.

Within geographies, North America was down 4.3 percent QoQ, whereas Europe and Africa registered growth of 11.3/7.9 percent QoQ.

That apart, the company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) margins contracted 15 basis points (bps) QoQ because of wage hikes. The headcount and attrition moderated to a 13-quarter low of 13.1 percent in Q2.

Also Read: Zensar Q2: Rally likely to pause

Going ahead, analysts at HDFC Securities believe that there is limited scope of margin improvement from the current level of 17 percent, while the management target is mid-teens level.

The management highlighted that continued challenges in hi-tech and consumer verticals is expected to continue.

“We expect the FY24 growth to be muted with acceleration from FY25. Hence, we have marginally changed our earnings per share (EPS) estimate by 1 percent,” the brokerage firm wrote, sharing an ‘add’ rating on the counter, with a target price of Rs 540 per share.

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