Zen Technologies share price jumps 4% as Motilal Oswal assigns ‘Buy’ call, sees 31% more upside after 73% YTD rally

Zen Technologies share price rallied nearly 4% on Thursday after brokerage firm Motilal Oswal initiated coverage on the stock with a bullish view. Zen Technologies is a multibagger smallcap stock that has delivered more than 127% return in the past one year. Zen Technologies shares have gained over 72% year-to-date (YTD).

Motilal Oswal Financial Services initiated coverage on Zen Technologies shares with a ‘Buy’ rating and a target price of ₹1,775 per share as it expects the company to grow at a much faster pace than the industry, have a very strong margin, and expand its capabilities across other defense segments. Zen Technologies share price target implies an upside of more than 31% from Tuesday’s closing price.

Zen Technologies is a niche player in the defense simulator-based training market and has also forayed into the counter-drone market. The addressable markets for simulators and counter-drones in India are estimated at ₹14,000 crore and ₹12,000 crore, respectively, over the next five years.

The company commands a significant market share in both of these segments, with just 2-3 players in the defense simulator market and 5-6 players in the counter-drone market.

With a healthy order book of ₹1,400 crore and a likely inflow CAGR of 37% over the next three years, Motilal Oswal expects the company’s revenue, EBITDA and PAT to clock a CAGR of 63%, 57% and 56% over FY24-27.

“This growth will be led by order inflow growth of 37%, due to a strong pipeline across simulators and anti-drones, EBITDA margin of 37%, 36.5% and 36.5% for FY25, FY26 and FY27, and enhanced control over working capital due to improved collections. With a substantial revenue growth, healthy margins, and stable working capital, we expect Zen Technologies’ RoE and RoCE to improve to 38% and 38% by FY27, respectively,” Motilal Oswal said.

Key drivers

Motilal Oswal’s positive view on Zen Technologies shares is based on a few factors. Firstly, the brokerage firm believes the long-term industry growth drivers are in place for the company. Zen Technologies also has a well-positioned simulator portfolio to capitalize on opportunities.

Moreover, the company has an advantage of having a fully backward integrated counter-drone portfolio and it generates a healthy EBITDA margin due to its strong competitive positioning. The broking house also believes Zen Technologies’ current order book provides healthy revenue visibility and its asset-light model can potentially generate strong RoE and RoCE. Its AMC business is expected to grow in line with product business over a few years.

However, key risks and concerns for the company include any slowdown in procurement from the defense industry, especially for simulators, foreign currency risks and high working capital.

At 12:35 pm, Zen Technologies shares were trading 1.65% higher at ₹1,374.60 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.