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.

Firstcall India Equity Research: Email – info@firstobjectindia.com

C.V.S.L.Kameswari Pharma & Diversified

U. Janaki Rao Capital Goods

B. Anil Kumar Auto, IT & FMCG

M. Vinayak Rao Diversified

G. Amarender Diversified

Firstcall Research Provides

Industry Research on all the Sectors and Equity Research on Major Companies

forming part of Listed and Unlisted Segments

For Further Details Contact:

Tel.: 022-2527 2510/2527 6077 / 25276089 Telefax: 022-25276089

040-20000235 /20000233

E-mail: info@firstobjectindia.com

www.firstcallresearch.com