Target: ₹2,120
CMP: ₹1,341.40
Q2 and H1 were difficult for due to deferral in expected order inflows to H2. Despite a muted FY26 outlook, Zen Technologies retained its guidance – sales CAGR of 50 per cent in FY25-28 – led by robust order inflow in H2FY26 and FY27 (in the backdrop of the recent India-Pakistan conflict).
We cut FY27E and FY28E EPS estimates by 7 per cent and 6 per cent on lower order inflow outlook for FY26, which may hit execution in FY26-27. We lower our TP to ₹2,120 from INR 2,225 on 38x September FY27E P/E (from 40x), which is lower than private companies P/E on delay in order inflow in FY26 (we factor in the impact of order deferral in subsequent years).
Gross margins expanded 1,340bps to 63.6 per cent in Q2, likely due to execution of higher-margin simulator orders. Management expects EBITDA margin and PAT margin to sustain at 35 per cent and 25 per cent.
But we reiterate Buy as successful demonstration of Zen’s product portfolio in the recent India-Pakistan conflict should drive demand domestically and on the exports front. We also expect robust show by subsidiaries (on inflows and sales). The stock has underperformed Nifty by 29 per cent in the past three months. Expect an earnings CAGR of 24 per cent in FY25-28E with an average ROE and ROCE of 19 per cent each in FY26E-28E.