Zensar Technologies Q3 Results Review - Tepid Quarter Due To Hi-Tech Weakness: Motilal Oswal

Motilal Oswal Report

Zensar Technologies Ltd.'s reported a weak performance in Q3 FY24 as revenue declined 3.2% QoQ in constant currency due to continued pressure in hi-tech vertical and higher furloughs.

However, it was above our estimate of 4.4% QoQ decline. Deal total contract value rose 28% YoY to $168 million but fell 14% sequentially from its peak in Q3 FY24. Adjusted Ebitda margin was in line with our estimate of 16.2%, with reported Ebitda margin down 140 basis points QoQ due to the reversal of bad debt provisions.

Zensar management expressed optimism on growth in most of its verticals, but it sees constraints in hi-tech (26% of revenues) segment, including extended furloughs. The weakness in hi-tech has impacted the overall growth of the company, leading to YoY decline in revenue for the last five quarters.

We continue to see muted growth in Q4 as well, resulting in a weak exit and in turn impacting FY25 revenue growth.

Given the challenging near-term macro outlook, especially in key verticals like hi-tech and manufacturing (52% of Q3 revenues), we expect FY25 revenue growth to be 7.1%, before picking up in FY26.

We factor in a modest USD revenue compound annual growth rate of 5.5% over FY23-26E.

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