Zensar, part of the RPG group of companies, provides application development, digital and cloud infrastructure services. Vertical wise, the company generates 51.3% of revenues from manufacturing, 22.2% from retail & consumer services, 23.2% from financial services and the rest from emerging verticals.
In geographical terms, major revenue contributor is Americas (75.2%), followed by Europe (14.3%), Africa (8.8%) and RoW (1.7%). We believe Zensar, with its acquisition in the core implementation and digital arena, can now effectively compete and win scale projects. This will enable the company to make inroads into top global companies (major tech spenders) and win large deals.
The new CEO’s focus on building digital capability has led to four acquisition over the past three years. These acquisition coupled with organic RPA tools & platforms have enabled the company to develop a full scale digital practice. We believe this will enable Zensar to participate in full scale digital deals and also help win large deals. Further, in order to improve large deal wins, the company has constituted large deal teams and engaged with third-party outsourcing agents. In addition, Zensar has aligned its sales incentive plan in line with the new strategic focus. Based on these factors, coupled with focus on mining top 50 clients, we expect revenues to grow at a healthy pace in long term.
We expect higher organic growth, divestment of non-core business and scale in large deals to boost margins. Consequently, the company is expected to register revenue and PAT CAGR of 11.7% and 15.6% over FY19-21E, respectively. Considering the robust growth, we have a ‘buy’ recommendation on Zensar and assign a P/E multiple of ~11x (PEG of 0.6) leading to a target price of Rs. 210.