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  • 23 Jul 2024
  • ICICI Securities

STRONG REVENUE GROWTH BUT DECLINE IN PROFITABILITY; WEAK NEAR-TERM OUTLOOK AS ORDER BOOK REMAINS WEAK

ZENSARTECH - 742 Change: -6.55 (-0.87 %)

News: Zensar Technologies reported strong Q1FY25 revenue numbers of US$ 154.4 mn, up 4.3% QoQ/3.4% YoY (in CC terms up 4.3% QoQ/3.3% YoY) while in rupee terms it reported revenue of ₹1,288.1 crore, up 4.7% QoQ/5% YoY. Vertical wise Healthcare (9.8% of mix), BFSI (39.7% of mix), Manufacturing (25.8% of mix) and Hitech (24.7% of mix) reported growth by 6.9%, 6.8%, 2.7% & 1.2% QoQ in CC terms respectively. Geography wise on a QoQ basis in CC terms, growth was led by the US region (68.7% of mix) which grew by 6.6% while Europe (19.8% of mix) & Africa (11.5% of mix) region declined by 0.1% & 0.9% respectively. The company’s EBITDA margin declined by 130 bps QoQ to 15.2% due to headwinds of increased operational cost  -150 bps, increased SG&A expenses (on account of provision created for doubtful debts for one of its customers who has filed bankruptcy) -110 bps mitigated by the tailwinds of better volume & utilization +40 bps, R&D tax credit +70 bps & exchange impact +20 bps. The PAT margin stood at 12.3%, down 180 bps QoQ. The revenue from Top 5/top 10 & top 20 clients increased by 4.3%/7.6% & 7% QoQ respectively. The company’s order book during the quarter declined by 15.2% QoQ to US$ 154 mn. The company’s net employees during the quarter increased by 47 to 10,396 while attrition declined by 30 bps QoQ to 10.6%.

Views: The company reported strong growth in revenues driven by sequential growth across all verticals, especially in its BFSI & Healthcare verticals. The margins were majorly impacted by higher operational cost such as visa cost, travel cost and license subscription costs. The company witnessed sequential decline in its EBITDA, EBIT as well as PAT measures. The order booking for the quarter was soft, indicating that near term outlook of revenue growth remains bleak. Key would be management commentary on growth ahead.

Impact: Neutral