APRIL 09, 2010 BUY MEDIUM RISK PRICE

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1 APRIL 09, 2010 BUY MEDIUM RISK PRICE Rs.281 TARGET Rs.540 TECHNOLOGY SHARE HOLDING (%) Promoters 53.1 FII 0.4 FI / MF 2.3 Body Corporate 4.5 Public & Others 39.7 STOCK DATA Reuters Code Bloomberg Code BSE Code NSE Symbol Market Capitalization* Shares Outstanding* ZENT.BO ZENT.IN ZENSARTECH Rs mn US$ 136 mn mn 52 Weeks (H/L) Rs.353 /82 Avg. Daily Volume (6m) 30,199 Shares Price Performance (%) 1M 3M 6M (4) (14) Days EMA: Rs.246 *On fully diluted equity shares ANALYST Dhananjay Mishra dhananjay.mishra@sushilfinance.com SALES: Devang Shah /61 devang.shah@sushilfinance.com Nishit Shah nishit.shah@sushilfinance.com Please refer to important disclosures at the end of the report Initiating Coverage Zensar Technologies Ltd. (Zensar) is globally renowned software & services Company, which provides decision enabling services (comprising of business intelligence & data warehousing, collaboration and knowledge management), business process outsourcing & optimization services, and software application & support services. With associates & 300+ customers, Zensar has strong presence across USA, Europe, Middle East, and APAC regions. The Company has its delivery centers at Pune, and Hyderabad, with its overseas centers in Poland, UK and China. Zensar delivers comprehensive range of services to its clients & has been recognized by the Department of Scientific and Industrial Research (DSIR) for its in house R&D efforts. Strong Clientele with technical alliances with global players Over the years, Zensar has built & consolidated a comprehensive range of services in IT and BPO space, lending a wide range of offerings to customers that best suit their business needs. Zensar has strong and long lasting relationship with large clients like Cisco, National Grid, Fujitsu, Marks and Spencer, Danaher Corporation, Electronic Arts and Logitech, etc. with about 26 accounts in US$ 1 5 mn range and 6 accounts of more than US$ 5 mn. With successful implementation of its enterprise business, it has expanded its global presence and has placed itself amongst the leading Tier I players in Oracle space. Zensar has also formed strategic technology alliances with global leaders such as IBM, Sun Microsystems, Microsoft & Oracle, which enables Zensar to leverage its core competencies, ensuring comprehensive business solutions to its customers. Building & expanding capabilities for its organic growth On domestic front, to expand its business, Zensar is planning to launch several new offerings with more focus on promising segments such as government, education, media & entertainment, healthcare & logistics, etc. The Company aims to be among the top 10 Indian IT service providers within next few years. Zensar currently has sitting capacity for 5,229 People at its development centers in Pune and Hyderabad, and is adding 438 more seats at its Pune center. Zensar is also investing about Rs. 500 mn to set up 600 seater development center in Bhubaneswar over the next 2 years. It will also set up a 40 people campus in Shanghai during FY11. During FY10, Zensar had hired about 550 people and during FY11, it plans to add around 700+ people. Intend to acquire US $ mn Company in next 6 9 months As per its inorganic growth strategy, Zensar is exploring an overseas acquisition opportunity and already deployed merchant bankers to identify the potential Company with expertise in remote infrastructure management (RIMS) or offshore application support services. The board has cleared its proposal to invest up to US$ mn for the probable overseas acquisition. The deal is expected to happen in next 6 9 months. The expected acquisition will increase its offshore business opportunities. In the past, Zensar has made three overseas acquisitions. Healthy balance sheet with high cash Zensar has a very healthy balance sheet with low Debt, low Debtor Days (55 days) and High Net Cash in excess of Rs. 1,000 mn (more than Rs. 45 per share) as of Dec OUTLOOK & VALUATION Zensar is a leading software player with strategic business model of providing application development maintenance & support in Global Transformation Services (GTS) segment and SAP, Oracle & Business Intelligence (BI) solutions in Enterprise Application Services (EAS) segment. Over the years, Zensar has delivered excellent growth by widening its service offering through organic & inorganic growth strategies. In the past, The Company had acquired two companies specialized in SAP & Oracle space respectively, which helped Zensar increase its packaged solution capabilities and spread of clients globally. Going forward, we expect its consolidated revenues to grow by 10% & 12% in FY11E & FY12E respectively and its APAT to grow by 7.3% & 5.8% in FY11E & FY12E respectively (slower APAT growth mainly due to higher tax rate expected in FY11E & FY12E). At CMP of Rs. 281, the stock is trading at a very attractive valuation of 4.4x & 4.2x its FY11E & FY12E EPS respectively. Given its long term relationship with clients, strong domain capabilities, and healthy balance sheet, we initiate our coverage on the stock with a Buy rating and a target price of Rs.540 (based on 8x its FY12E EPS of Rs.67.4). KEY FINANCIALS Y/E Mar. Revenue (Rs mn) APAT (Rs mn) AEPS (Rs) AEPS (% Ch.) P/E (x) ROCE (%) ROE (%) P/BV (x) FY FY10E FY11E FY12E For private Circulation Only. Sushil Financial Services Private Limited Office : 12, Homji Street, Fort, Mumbai Member : BSEL, SEBI Regn.No. INB/F NSEIL, SEBI Regn.No.INB/F Phone: Fax: info@sushilfinance.com

2 COMPANY BACKGROUND Zensar operates as a software and services Company in India and internationally. The Company is engaged in services of software development, networking, e commerce, and systems integration. Zensar offers global transformation services, including application development & modernization, support & maintenance, product engineering, embedded systems & voice/non voice services, and enterprise application services, such as package implementation, upgrade, migration, support & maintenance. It also offers consulting services (comprising of IT consulting, impact sourcing, information architecture), software services (comprising of application development, usability engineering, application migration and modernization, and testing). In addition, it provides collaboration services, such as enterprise content management, portal, learning solutions, business process management, and business intelligence; business process outsourcing (BPO) services consisting of retail BPO services, customer interaction services, finance and accounting, and knowledge process outsourcing; and infrastructure services, including IM consulting, hosting, remote infrastructure management, and information technology help desk. The Company is headquartered in Pune, India. The Company has following verticals that have been main focus area: a) Manufacturing & Telecom b) Pharma, Textiles, Energy & Utilities c) Retail d) Banking, Financial Services & Insurance (BFSI) KEY BUSINESS AREAS Decision enabling Services: Zensar's decision enabling services provide velocity to the customer's business by process and technology consulting that help corporations make better decisions. The services comprise enablers like business intelligence and data warehousing, content and collaboration management as well as knowledge management Business. Process Outsourcing and Optimization (BPO2) Services: The BPO2 services involve process execution and optimization to help businesses perform at optimum levels by making continuous improvements possible. The services encompass accounts payable, receivables, telesales and help desk support & knowledge process outsourcing services. IT enabling Services: In IT enabling services, Zensar helps companies design, develop, implement and test applications (packaged or custom built) to enhance business processes. It has a strong tie up with Oracle as a worldwide certified partner with over 750 consultants. The Company also provides SAP support in key verticals of dairy, textile, pharmaceutical, manufacturing and IT/ operations. Zensar brings a strong blend of functional business skills & technology or package specific expertise to help make swift implementations possible with minimal risk rendering maximum value. IT Support Services: Its IT support services help companies focus on their core business needs, while Zensar provides operational maintenance, fixes and day to day support of their applications and technology infrastructure. 2

3 Zensar OBT Global: SUBSIDIARIES Zensar acquired US based OBT Inc. and its Hyderabad based offshore affiliate OBT Global Pvt. Ltd., which was specialized in SAP applications, to leverage its ready to use templates for the pharmaceutical and textile industries. It offers value added preconfigured SAP solutions, which are industry specific & pre configured with build in content, tools & methodologies for a cost effective implementation. Through the acquisition, Zensar enhanced its services in the textile vertical by offering innovative and cost effective SAP Solution mysap All in One for SMEs in textile industry. As a one stop SAP solution provider, OBT Global offers turnkey solution consisting of SAP licenses, hardware, implementation, and annual maintenance to all its clientele. Zensar Thought Digital: The Company also acquired the New York based Thought Digital, which was owned by SOA Software, a leading systems integrator specializing in Oracle applications. Zensar Thought Digital enjoys a strong client base across verticals like communications & media, financial services, consumer products and services. The combined Oracle consulting group with over 750 Oracle professionals is now one of the top 10 Oracles consulting firms in the world. The acquisition draws synergies from both organizations and offers the Oracle market a total solutions partner servicing all major geographies and industry verticals. The solution portfolio comprises full life cycle implementations, upgrades, and support leveraging multi shore capabilities. As per Zensar's initiatives in the area of consolidation of US operations, it integrated Zensar OBT Technologies Inc. and Zensar Thought Digital LLC into Zensar Technologies Inc. These initiatives were directed to strengthen its business model and rationalize its dependence on the US market. The Company demonstrated deep client mining and retention capabilities, evident from the sharp improvement in realization per client across all client categories. The Company's business achievements continue to be driven by a diversified, market aligned services portfolio, wide geographic presence, enhanced productivity through proven efficiency benchmarks and strong people orientation. Zensar Advanced Technologies (ZATL): The Company formed a JV with Tokyo based EZA Ltd to strengthen its footprint in the emerging Japanese market. The JV was named Zensar Advanced Technologies Ltd (ZATL). During the transaction, EZA Ltd transferred all its order book, employees, technology, and intellectual property to ZATL. EZA Ltd was incorporated in 1996 and brought in over 10 years of strong industry experience into the Zensar. The Company had over the years developed products in media server, digital appliances and security space. Zensar eventually bought out its JV partner's 40% shares in Zensar Advanced Technologies Ltd, making ZATL a 100% subsidiary. 3

4 INVESTMENT RATIONALE Strong Clientele with technical alliances with global players Over the years, Zensar has built & consolidated a comprehensive range of services in IT and BPO space, lending a wide range of offerings to customers that best suit their business needs. Zensar has strong & long lasting relationships with customers like Cisco, National Grid, Fujitsu, Marks and Spencer, Danaher Corporation, Electronic Arts and Logitech, etc. with about 26 accounts in the range of US$ 1 5 mn and 6 accounts of more than US$ 5 mn. With successful implementation of its enterprise business, it has expanded its global presence and has placed itself among Tier I players in Oracle space. Zensar also has a focused and comprehensive alliance management framework. To enhance its offerings in chosen geographies, technologies and domains, the Company has entered into key alliances with global leaders like Microsoft, IBM, Oracle, Sun Microsystems, BEA etc. helping Zensar constantly upgrade infrastructure and resource skills and to develop expertise on the stated platforms. These partnerships enable Zensar to leverage its core competencies, ensuring comprehensive business solutions to its customers. Building & expanding capability for its organic growth On domestic front to expand its business, Zensar is planning to launch several new offerings with more focus on promising segments such as government, education, media & entertainment, healthcare and logistics etc. The Company has also been empanelled as IT consultant for nationwide Restructured Accelerated Power Development and Reforms Programme (R APDRP) launched by the Ministry of Power, Govt. of India in the 11 th Five year Plan to prevent frequent outages, and transmission & distribution losses largely due to theft and unmetered supply. Zensar aims to be among the top 10 Indian IT services providers in the coming years. The Company currently has sitting capacity for 5,229 People at its development centers in Pune and Hyderabad and is adding 438 more seats at its Pune center. Zensar is also investing about Rs. 500 mn to set up 600 seater development center in Bhubaneswar over the next 2 years. It will set up a 40 people campus in Shanghai during FY11. During FY10, Zensar had hired about 550 people and during FY11, the Company plans to add around 700+ people. Intend to acquire US $ mn Company in next 6 9 months As per its inorganic growth plan, Zensar is exploring an overseas acquisition opportunity and already deployed merchant bankers to identify the potential Company and a deal is expected to happen in next 6 9 months. The board has already cleared its proposal to invest up to US$ mn for the probable acquisition. This proposed acquisition will be part funded by a mix of internal accruals and debt. Zensar is looking for a firm with expertise in remote infrastructure management services (RIMS) or offshore application support services, which will enable the Company to do more offshore business. Over the last four years, Zensar has acquired three overseas companies. Healthy balance sheet position with high cash Zensar has a very healthy balance sheet with low Debt, low Debtor Days (55 days) and High Net Cash in excess of Rs. 1,000 mn (more than Rs. 45 per share) as of Dec

5 Q3FY10 PERFORMANCE ANALYSIS During Q3FY10, the Revenues dipped 4.6% QoQ to Rs mn, mainly due to forced holiday shutdown by a couple of clients (including Cisco) and fewer working days in the December quarter, which impacted its Revenues adversely (by about Rs.35 mn), while rupee appreciation against US$ impacted Revenues adversely (by about Rs.56 mn) and GBP/US$ impact was about Rs.15.6 mn. The volume dip was just about 1% QoQ. Its EBITDA margins dipped by 30bps QoQ to 18.1%, Other Income fell by 85% to Rs.7.8 mn (on impact of forex losses) and the net profit dipped 14.2% at Rs mn. The management has received approval from the board to make acquisition worth US$ mn. The acquisitions would be focused towards annuity type of revenues. The Company is seeing good traction in order booking. During Q3FY10, Zensar won a deal for US$ 6 mn from a large media Company. The client, which the Company won from Satyam Computer namely Assurant, is also seeing good traction. The Company added 25 new clients during the quarter. New clients contributed about 28 30% of the Revenues. The number of clients between US$ 1 5 mn decreased to 26 from 28 in Q2FY10, between US$ 5 10 mn decreased to 5 from 7 in Q2FY10. The number of active clients stood at and Zensar is doing business with 270 clients. The Company added 259 employees during the quarter with total 5074 employees as on December 31, Its onsite employee count stood at 1031, while its offshore employee count stood at The BPO, marketing, and support staff remained at 444, 56 and 387 respectively. The utilization level dipped 100bps at 85%. During Q4FY10, the Company will add 260 graduates and during FY11, it plans to add about 700 employees. As on Dec 31, 2009, the Company had a total capacity of 5229 seats (4750 in Pune and 479 in Hyderabad). The Company is increasing its seating capacity by 438 seats in Pune. The Company has hedged about 64% of its outstanding debtors at about Rs. 48.1/US$. The Company is targeting offshore/onsite mix to be about 45:55. For the quarter, the share of offshore was 42%, up from 38% during Q2FY10. During Q3FY10, Revenues from Europe region dipped by 4.6% contributing to 16% of revenues, USA grew 0.4% at 61% and ROW dipped 15.6% at 23%. In terms of revenue by service offering, enterprise application services (EAS) revenues dipped by 4.6% contributing to 29% of its Revenues, BPO services revenues dipped 4.6% contributing about 4% & Global Technology Services (GTS) revenues dipped 4.6% contributing 67%. For the quarter, Revenues from Manufacturing & Telecom vertical de grew by 4.6% and contributed to 45% of its Revenues (45% in Q2FY10), Retail de grew 4.6% contributing 9% (9% in Q2FY10), whereas Pharma, Textiles & utilities grew 4.1% contributing 12% (11% in Q2FY10) and BFSI grew 0.5% contributing 20% (19% in Q2FY10). In terms of revenue by project type, Fixed Price contributed 40% (against 39% during Q2FY10) and Time & Material contributed 60% (against 61% during Q2FY10). The top 5 clients contribution increased 3.7% at 50% (46% in Q2FY10), while the top 6 10 decreased 12.5% at 11% (12% in Q2FY10). The account receivable days were down at 55 days against 58 days in Q2FY10. Cash in books is about Rs mn with debt of US$ 15 mn, which would be paid in the next 3 years at US$ 5 mn per year. 5

6 OUTLOOK & VALUATION Zensar is a leading software player with strategic business model of providing application development maintenance & support in Global Transformation Services (GTS) segment and SAP, Oracle & Business Intelligence (BI) solutions in Enterprise Application Services (EAS) segment. Over the years, Zensar has delivered excellent growth by widening its service offering through organic & inorganic growth strategies. In the past, The Company had acquired two companies specialized in SAP & Oracle space respectively, which helped Zensar increase its packaged solution capabilities and spread of clients globally. Going forward, we expect its consolidated revenues to grow by 10% & 12% in FY11E & FY12E respectively and its APAT to grow by 7.3% & 5.8% in FY11E & FY12E respectively (slower APAT growth mainly due to higher tax rate expected in FY11E & FY12E). At CMP of Rs. 281, the stock is trading at a very attractive valuation of 4.4x & 4.2x its FY11E & FY12E EPS respectively. Given its long term relationship with clients, strong domain capabilities, and healthy balance sheet, we initiate our coverage on the stock with a Buy rating and a target price of Rs.540 (based on 8x its FY12E EPS of Rs.67.4). 6

7 PROFIT & LOSS STATEMENT (Rs.mn) Y/E Mar FY09 FY10E FY11E FY12E Net Sales 9, , , ,864.0 Soft dev. cost 5, , , ,735.3 SG&A 2, , , ,993.2 Total Expenditure 7, , , ,728.5 EBITDA 1, , , ,135.5 Interest Depreciation Other Income PBT 1, , , ,900.7 Tax APAT , , ,463.5 Minority interest (3.0) APAT , , ,463.5 Extra Ord. Exp/Inc. Con.Net Profit , , ,463.5 FINANCIAL RATIO STATEMENT Y/E Mar. FY09 FY10E FY11E FY12E Growth (%) Net Sales APAT EBITDA Profitability (%) EBITDA Margin Adj. PAT Margin ROCE ROE Per Share Data (Rs.) Adj. EPS Adj. CEPS BVPS Valuations (X) PER PEG P/BV EV / EBITDA EV / Net sales Dividend Yield (%) Turnover Days Debtors days Creditors days Gearing Ratio Total Debt to Equity BALANCE SHEET STATEMENT (Rs.mn) As on 31 st Mar. FY09 FY10E FY11E FY12E Share Capital Reserves & Surplus 2, , , ,502.6 Net Worth 2, , , ,719.6 Secured Loans Unsecured Loans Minority interest Capital Employed 3, , , ,972.6 Net Block 1, , , ,281.6 Cap. WIP Investments Sundry Debtors 1, , , ,970.3 Cash & Bank Bal , ,533.6 Loans & Advances Other Current Asset Current Assets 3, , , ,152.5 Curr Liab & Prov 1, , , ,856.3 Net Current Assets 1, , , ,296.2 Deferred Tax Assets Total Assets 3, , , ,972.6 CASH FLOW STATEMENT (Rs.mn) Y/E Mar. FY09 FY10E FY11E FY12E PAT , , ,463.5 Depreciation & Amortization Chg in Deferred tax (17.6) Chg in Working cap (66.4) (267.4) (171.6) (257.4) Cash flow from operations , , ,503.0 Chg in Gross PPE (302.9) (348.3) (320.5) Chg in WIP (21.1) (10.0) (10.0) Chg in Investments (77.7) Chg in others Cash flow from investing (324.0) (358.3) (330.5) Chg in debt (257.4) (150.0) (100.0) Chg in Share Capital (0.1) (24.2) Chg in reserves (1,011.8) (426.3) (28.2) (29.9) Dividend (107.8) (154.8) (166.0) (175.6) Cash flow from financing (1,004.6) (862.7) (343.7) (304.5) Chg in cash Cash at start ,665.5 Cash at end , ,533.6 Source: Company, Sushil Finance Research Estimates 7

8 Rating Scale This is a guide to the rating system used by our Equity Research Team. Our rating system comprises of six rating categories, with a corresponding risk rating. Risk Rating Risk Description Low Risk Medium Risk High Risk Predictability of Earnings / Dividends; Price Volatility High predictability / Low volatility Moderate predictability / volatility Low predictability / High volatility Total Expected Return Matrix Rating Low Risk Medium Risk High Risk Buy Over 15 % Over 20% Over 25% Accumulate 10 % to 15 % 15% to 20% 20% to 25% Hold 0% to 10 % 0% to 15% 0% to 20% Sell Negative Negative Negative Neutral Not Applicable Not Applicable Not Applicable Not Rated Not Applicable Not Applicable Not Applicable Please Note Recommendations with Neutral Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses). ** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we have enhanced our return criteria for such stocks by five percentage points. Desk Research Call is based on the publicly available information on the companies we find interesting and are quoting at attractive valuations. While we do not claim that we have compiled information based on our meeting with the management, we have taken enough care to ensure that the content of the report is reliable. Although we have christened the report as Desk Research Calls (DRC), we intend to release regular updates on the company as is done in our other rated calls. Additional information with respect to any securities referred to herein will be available upon request. This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, recirculated, published in any media, website or otherwise, in any form or manner, in part or as a whole, without the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or public dissemination of information contained herein is prohibited. This report is to be used only by the original recipient to whom it is sent. This is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken in preparing the above, we claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk. This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to be reliable, but we have not independently verified such information and we do not guarantee that it is accurate or complete. All expressions of opinion are subject to change without notice. Sushil Financial Services Private Limited and its connected companies, and their respective directors, officers and employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained herein prior to the publication thereof. 8