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Zensar Technologies
Rs 127
Sec tor : IT
xxxo...
BSE Sensex Nifty 52 week high (Rs) 52 week low (Rs) 16,498 4949 193 125
Bloomberg NSE Code BSE Code Equity Shares (m) Face Value (Rs) Market Cap (Rs mn)
Zensar generated free cash of over Rs 2 bn over FY8-10. This allowed it do its largest acquisition yet, a $66mn (around Rs 3 bn) all cash deal to acquire an IM company in FY11. With robust operating cash flow going forward, Zensar will have ammo for further strategic acquisitions over FY11-13. Growth better than peer averages Zensar holds its ground against peers in growth rates delivered in revenues, EBITDA and net profit over FY08-11. Its revenues grew 12% over FY08-11, compared to a peer average of 7.4%. PAT has grown at 25% versus 17% for peers. Growth drivers in place for FY11-13 Zensar made a significant acquisition in FY11, that of Akibia, an IM company. This will add over Rs 3.5 bn to the FY12 topline. More importantly, there is strong opportunity to cross-sell between existing Akibia and Zensar clients. Zensar is also creating focussed verticals, a move which will help it mine its clients better, and compete better against peers. At current price, Zensar quotes at 4.2x FY11 and around 2.8x FY13e earnings, below midcap averages. We rate Zensar at 5.2x expected FY13 earnings, giving a likely price of Rs 230 by March 2013. This implies a return of 80% absolute, or about 50% annualised upside from current levels. Dividend yield is 2.8% on FY11 DPS (despite a 1:1 bonus in FY11); this could rise to 4% by FY13.
FY'09 Sales EBITDA PAT EBITDA margin (%) Net margin (%) ROE (%) ROCE (%) P/E Ratio (x) EV/EBITDA (x) Dividend Yield (%)
Rs mn
Share Price Performance (%) Zensar 1 week 1 month 3 month 6 month 1 year -6.61 -13.63 -27.32 -22.81 -26.23 Sensex -1.39 -11.88 -8.31 -9.24 -10.38
Shareholding Pattern (Jun11)% Promoters FIIs DII Bodies Corporates Others 47.79 8.02 2.52 2.46 41.68
23 Aug11
Investment Rationale
Came out of FY11 positioned for growth
Akibia acquisition a strong growth driver
Zensars acquisition strategy is focussed on plugging gaps in its service offerings, designed to give global heft to critical parts of its business. For example, the Thought Digital acquisition catapulted Zensar among the top Oracle shops in India, and added considerable gap over its midcap peers. Akibia a transformatory deal The Akibia deal is a similar transformatory acquisition, positioning Zensar strongly in the infrastructure management (IM) space. Akibia had a topline of $108mn at the time of its acquisition, around 40% of Zensars FY11 turnover. With this, Zensar is now amongst top ten players in IM space in India. Akibia revenues reflected only in Q4 of FY11, so there will be significant topline impact in FY12. Akibia will add over Rs 3.5 bn to FY12 topline, playing a key role in projected 43% revenue growth for FY12. More importantly, Akibia has strong pedigree in the IM space, which is one of the fastest growing IT segments. This can lift overall growth rates for Zensar. Also, Akibia presents significant cross sell opportunities. Several verticals within Zensar see opportunity for increment growth coming from cross selling opportunities. The cross sell opportunity could an incremental 5-10% growth to Zensar over next couple of years.
Four-S Research
23 Aug11
Oracle Practice
Among the leading Oracle shops in India, ahead of midcap peers Zensar is among the key players in India in Oracle delivery. It has more than 1,200 associates dedicated to this practice. Having executed over 500 projects, Zensar's expertise extends over Oracle EBusiness Suite, Business Intelligence, Hyperion, Demantra, Oracle Fusion Middleware, Databases, Shared Services and Oracle Retail. It is a Platinum partner of Oracle. Only Infosys is a Diamond partner, a higher category. In the Oracle practice, Zensar is at par or better than any other midcap IT company, and even capable of competing with the IT majors in some cases
IM Practice
Akibia puts Zensar among the best IM shops The Akibia acquisition was meant to be transformatory for Zensars IM practice. With this acquisition, Zensar would count as among the leaders in the IM space amongst midcap IT.
Strong on process
World class processes Zensar is the world's first enterprise-wide SEI CMM Level 5 Company. This shows the companys focus on rigorous processes. Some of that is also visible in its financial processes, discussed below.
Four-S Research
23 Aug11
Zensar has among the better cash flow performances amongst midcaps
Fancied midcaps like Rolta, Infotech have poor cash flow focus
Some mid-cap IT companies which are relatively more fancied than Zensar, like Rolta, Infotech Enterprises, and 3i Infotech, are running on inferior free cash flows. This means they are still buyers of growth. 3i has done dozens of acquisitions, Rolta seems to run a huge capex. What the table above tells us is that unless Zensar does a sizeable acquisition (which it did in FY11) it will generate free cash.
Four-S Research
23 Aug11
Simple as it sounds, this is not something all that easy to implement, if you look at the peer group. Both 3i Infotech and Rolta generate large amounts of operating cash, yet they run hugely negative free cash. In 3is cash, it is both aggressive fixed asset purchase and acquisitions. In Rolta, it is mainly fixed assets which more than eat up the cash flow. In 3is case, we believe there is lack of discipline in acquisitions, in the other case, you have to question the need to massive investments in fixed assets. Take another case, Infotech Enterprises, which has a market cap of more than 2x Zensar. It has generated just marginally better operating cash flow as Zensar over the last 5 years. In 3 of these 5 years, Zensar has done better. Infotech again has invested 50% more in fixed assets compared to Zensar. In sum, we believe Zensar is doing far better than peers in both free cash flow generation, and end use of cash flows.
Better receivables management is one reason for the healthy operating cash flows at Zensar.
Four-S Research
23 Aug11
Valuation anomaly
No need to quote below peers
Zensar is getting valued below the average valuations for mid-cap IT companies. In the section on peer comparison below, we have further split that mid-cap IT space into two parts: companies getting low valuation, and those fancied somewhat more in the market. There is a distinct difference in the valuation of companies in the two groups. Zensar seems to be getting clubbed amongst the lesser fancied midcaps. While the better valued peer group quotes at a trailing PE of 8.65, Zensar is quoting at a PE 4.21. As we have seen above, the strong financials and strengths in key business niches suggest there is no need for a valuation gap. Even if the gap is partially bridged, the stock offers a strong upside.
Risk factors
Higher contribution from single client
Zensar has high dependence on Cisco. This year, business from Cisco could suffer Zensar has around 31% of revenue coming from its largest client, CISCO, which it lists in its manufacturing vertical. This makes Zensar highly sensitive to performance of CISCO and its decisions regarding IT expenditure. With CISCO undergoing structural changes and facing budget cuts, Zensar may not witness major growth in this account in near future. But Zensar is now diversifying its business into various segments to mitigate dependence on Cisco. Zensar will also get help from cross-selling to Akibia clients which will again reduce this risk.
Currency Risk
While Zensar has managed currency well, current volatile financial markets pose a risk Revenues for Zensar are mostly in foreign currency, making Zensar highly sensitive to currency movements. Zensar is already looking to diversify its geographical client base in emerging countries and Asia pacific. It must also be pointed out that Zensar has managed forex risk well so far. While some other midcap peers gave nasty currency shocks around 2008/09, Zensar was not among these. 6
Four-S Research
23 Aug11
Peer Benchmarking
The peer set: midcap IT companies
Zensar is squarely placed in the middle of the midcap IT universe by size With a market capitalisation of around Rs 5.55 bn, Zensar is a midcap IT company. The table below gives key headline data for the midcap IT space. As can be seen, sales, EBITDA and PAT for Zensar place it close to the midpoint of midcap IT universe. However, in terms of value ascribed to the business, whether via market cap or EV, Zensar falls considerably below peer averages. This is also evident from the last row of the table below, where we have given how Zensar compares against peer averages.
Market Cap
3i Infotech Geometric Infinite Infotech Ent KPIT Mastek Mindtree NIIT Polaris Rolta Sonata Subex Average Zensar 5,452 2,448 3,061 12,705 13,118 2,485 14,122 10,569 13,239 15,827 3,277 3,119 8,285 5,552
EV
Sales
Sales 3 yr CAGR
6% 2% 34% 16% 14% -13% 10% 12% 7% 13% -6% -6% 7% 12%
EBITDA
EBITDA 3 yr CAGR
8% 129% 59% 20% 10% -26% 20% 29% 10% -12% -4% 61% 25% 11%
PAT
PAT 3 yr CAGR
-2% `-ve 53% 28% 15% -31% 32% 30% 31% 12% 6% NA 17% 25% (Rs mn)
27,248 2,384 3,602 9,208 12,128 1,215 13,709 9,485 11,874 28,377 2,093 8,535 10,821 7,240
25,875 6,229 8,894 12,175 10,235 7,138 15,332 12,323 16,200 17,411 14,111 4,926 11,984 11,483
50,415 9,235 14,787 18,034 15,221 8,722 17,850 20,480 21,390 37,402 14,008 13,128 20,056 20,715
2,536 575 1,072 1,397 946 677 1,016 1,822 2,119 3,821 856 788 1,469 1,363
Four-S Research
23 Aug11
Company Rolta Polaris Infotech Enterprise Mindtree KPIT NIIT 3i Infotech Infinite Subex Sonata Geometric Mastek Average Zensar
While large cap IT companies are sitting on cash hoards, midcap IT companies While Akibia deal has pushed up debt, have struggled with debt. Not so for Zensar. While it currently does not have a cash hoard due to the recent acquisition, its debt situation is at least far more in general Zensar Four-S Research 8
23 Aug11
Among larger peers, 3i Infotech has a big mess on its balance sheet. Roltas debt-equity also generally has been larger than Zensar.
We can see Zensar maintaining historically better liquidity status compared to industry. Even with reduced liquidity due to Akibia acquisition, Zensar still manages to maintain stronger liquidity condition than most of its peers.
Company
P/E
EV/Sales
D/E
Ratios ROCE
ROE
Less valued midcaps Subex 3.96 Sonata 3.83 Infinite 2.86 Mastek 3.67
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12% 30% 33% 26% 18% 15% 19% 13% 2% 25% 33% 22% 48% 29% 32% 31% 14% 22% 14% 22% 32% 34%
5.40 4.01 2.58 3.40 7.97 7.68 5.55 5.11 7.59 6.78 4.62
1.06 0.77 0.38 0.67 1.19 0.91 0.75 0.78 1.63 1.05 0.63
6.0% 12.0% 2.0% 4.1% 14.0% 10.0% 7.0% 16.0% 13.0% 12.0% 17.0%
-2.0% 30.0% NA 11.2% 15.0% 32.0% 31.0% 28.0% 12.0% 23.6% 25.0%
1.9 0.4 0.0 1.1 0.2 0.0 0.0 0.0 0.7 0.2 0.5
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the low PE companies; these have grown net profit at a CAGR of about 24% versus 11% for low PE companies. More importantly, note the D/E ratio and the capital efficiency ratios. Half of the high PE companies are debt free, while none have a D/E ratio more than 1x. Not all is rosy and clean in this universe as well. There is stuff here which could make an institutional investor uncomfortable. For example, atleast a couple of the peers in this set both took large write-offs on forex derivates.
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Price Target
Zensar should hit a price of Rs 250 by March 2013. We expect it to rerate towards valuations of better IT midcaps The average discount the better performing set is getting is a PE of just less than 9x based on historical values. Assigning a 15% growth rate to this set, the expected FY13 PE comes to about 6.5x. While we believe that Zensar should quote at parity, lets assume a discount of 25% to this value which means a forward PE of about 5.2x FY13 numbers. Based on expected earnings per share of Rs 44 for FY13, this leads us to an expected share price of Rs 230 for March 2013.
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Zensars Business
Getting a grip on Zensars business model
Valuation suggest market negative on Zensars fundamentals The market discounting for Zensars business model would seem to imply that it is a totally commodity business model, perennially working under severe price pressure; or the business is already past the maturity phase, into what you may call in standard business cycle terms the decline phase. Lets first see the key points on the business model here which we think are perhaps influencing investor view on Zensar: There is no differentiator Zensars business is commodity Is this a declining business
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Whatever be the story, an analyst will ultimately seek evidence in the numbers. So, for a mid-cap IT company, what number can show something about how commoditised the business is? EBITDA margin is one relevant number to look at. If the business has no differentiator, EBITDA margin should compare poorly to peers. For Zensar, as we have noted earlier, this is not the case. While there are companies like Sonata, Mastek and Mindtree which have EBITDA margin in the 10-15% range, Zensar has an EBITDA margin of 13.6% in FY11. Zensar has increased its operating margin from 12-13% levels in FY07 and FY08, to around 18% levels in FY10 and FY11, signifying increasing value add in the business mix.
23 Aug11
Large IT companies are trying to go up the chain, not come down the chain. They are trying to do things like: become consulting led, take over the entire IT organisation of large clients, etc. So the large IT companies are not yet competing with small IT companies for the same client. Any relevant number for this? Number of active clients continues to increase. This is evidence degrowth fears are overblown We think the correct numbers to check this would be things like total active clients, and average business/client. When these numbers start showing a declining trend, then certainly fears on the future of midcap IT would rise. Zensar has increased its total client base from 200 at the end of FY07 to about 400+ by the end of FY11.
Lets look at how these two drive growth and make the business model more robust.
23 Aug11
About Akibia Akibia is a US based firm, founded in 1988. It provides infrastructure management services to companies worldwide to help them optimise, manage and support their infrastructure. It has more than 900 customers. Akibia helps its clients to improve the availability, reliability and performance of their data centre, network and security infrastructure. With its expert consulting Akibia helps IT organizations reduce costs, increase efficiencies and manage risk in the data center. The Akibia Impact There are several ways this deal will impact Zensars numbers: FY12 will see full reflection of Akibia revenues Immediate topline impact: In FY11, the Akibia numbers formed part of the topline only for Q4. FY12 will see the full integration of Akibia numbers with Zensar. This itself will lead to a growth of over Rs 3.5bn in topline for FY12. Gives a big push in the important IM space: IM, or specifically, remote IM (RIM) is among the fastest growing IT sub-segments. IM is a large $370bn market, of which remote IM is about $95-108bn. India is rapidly gaining traction in the RIM market. Offshoring to India is growing at above 20%, according to Gartner. Before the acquisition, Zensars presence in this space was small, though growing rapidly. By 2010, this business was 4 year old at Zensar, with 50+ clients, serviced by 402 associates and growing at over 50%. Akibia had a client history of about 900 clients at the time of acquisition, and 325 employees. With a revenue run rate of about $108mn, this has added to Zensars capabilities immensely. Also, 70% of this revenue is recurring, giving high revenue visibility. The Akibia acquisition puts Zensar among the top 10 players in IM space in India. Cross selling opportunities: Akibia has a large client base of leading global companies. Zensar sees significant cross selling opportunities in this deal. For example, a large investment bank is a customer of Zensar in Asia and Akibia in the US. So Zensar can sell Akibia to this bank in Asia, while in the US, it can hope to make inroads with the help of Akibia. The banking vertical itself is expecting almost 70% of their growth in the next 1-2 years to come by cross-selling. Geographical expansion of Akibias lines is another way to benefit from the acquisition.
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Verticalisation: More focus, more expertise, deeper relationships Verticalisation: a need of the hour The IT market place is changing from technology support to solution selling. IT service companies are moving away ahead from mere application development and outsourcing to be a transformation agent for their customers. With a well rounded capability set in service offerings, growing share of enterprise revenues, Zensar felt it was ready to into business solution selling mode. Recognising this trend, Zensar has restructured as of FY11 into 5 focus verticals: BFS, manufacturing, retail, insurance, connected services. Verticalisation of the business will help Zensar use its deep industry knowledge and technology expertise to cater more effectively to customers requirements. Zensar is also looking to push further its consultant-based model which integrates consulting with business solution development. It is building a strong consultant team with extensive experience in different verticals like banking, retail, insurance, etc, they will consult Zensar customers to help them achieve their business goals with Zensar solutions. Below we take a look at the key verticals.
Vertical
Zensars expertise lies in discrete manufacturing which constitutes more than 60% of overall manufacturing companies IT spend. Working as a catalyst with global manufacturing companies, Zensar is helping clients to maintain competitive edge with the help of various enterprise class solution core to manufacturing and supply chain. Zensar has been able to gain substantial market in various attractive subsegments like consumer products, Hi tech, Industrial among others while looking very aggressively to increase share in other appealing segments like aerospace & defence and automotive. Zensar has been providing various services like IM, EBS & mobility AMS & Web 2.0, BPO successfully with strong technology capability in Oracle, MS dynamics, SAP, etc. Almost 80% of manufacturing revenue coming from single customer i.e. CISCO, is a potential risk factor, which can put manufacturing vertical revenues in a tight situation whenever CISCO puts constraints on its IT plans. This is visible in FY12, where revenue contribution from CISCO business could stay flat or come down. The manufacturing vertical is looking forward to reduce this dependency on single client by expanding non CISCO accounts to mitigate this risk. The aim is to grow non CISCO manufacturing accounts by 20-25% in first year with similar or better prospects in next two years. Most of this growth (~75%) is expected from new accounts which are anticipated with verticalisation strategy and Akibia cross-selling.
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Engineering and PLM is one gap in Zensars ability to cater to the manufacturing vertical. Zensar aims to plug this gap through an acquisition in US/Europe in the medium term. Zensar has also developed their own IP like Autozenics and NExchange along with other IP in areas of traceability, quality and PLM, SCM. This showcases Zensars belief on creating own IP and flourishing innovation within organisation. Company has high hopes from the Autozenics product, which is a Microsoft dynamics solution for SME in auto cluster.
Vertical
Investment Banks
Zensar provides range of services in this sector from implementation to consulting, process outsourcing, maintenance, infrastructure and testing across various sub-sectors like Retail Banking, Private Banking & Wealth Management, Capital Markets, Compliance & Risk Management. The Company is looking to grow in this segment at the rate of 20-25% in next 2 years with the help of existing strong clientele base such as UBS, Credit Suisse, CLSA and KBW.
Zensar plans to break into Fintech Top 100 within next two years. For this, Zensar will need to hike revenue from BFS vertical to around US$55-60mn revenue from existing US$45mn in FY11. Zensar plans to achieve this growth by establishing a centre of excellence to build frameworks and IP for various sub-sectors like investment banking. While Zensar is not doing much in retail or commercial banks, it has decent expertise with investment banks. Most of the projects in this vertical are of the type of Run The Bank service which mainly deals with maintenance and
Four-S Research
Application Dev
Private Banking
Asset Management
Testing
Others
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Till now Banking and Financial services vertical was more focused on emerging market with 90% business coming from this market. Zensar is aware of the need to derisk geographically; accordingly the vertical would devote more attention to revenues from developed markets. This will also help Zensar to push up margins from banking vertical. The BFSI vertical has strong opportunity of cross-selling their services to Akibia clients with as many as 23 unique banking and financial services clients in Akibias portfolio.
Vertical
Zensar has a built good expertise in insurance vertical
Insurance
The insurance vertical predates the current round of organisation wide verticalisation. Zensar had created this vertical in 2008, recognising the need to give specific focus to this. A result of this early start is that the vertical team believes it has the domain expertise now to target top 5 players in each geography the Americas, Europe, South Africa, APAC. As the leading insurance companies, who were early IT adopters and are now stuck with legacy systems, try to transfer to the latest technology, Zensar hopes to benefit. It has already executed large projects successfully in South Africa among other projects.
Line of Business
Health Life & Annuities Mutual Funds Short term & Speciality
40%
22%
The insurance vertical currently has a high US tilt, due to business from its top client Assurant contributing 60% of vertical revenue. 3 of the top 5 companies in South Africa are clients Zensar is now looking to expand their geographical reach by targeting Europe, South Africa and other geographies like Australia, India, etc. Zensar has already bagged South Africas 3 of top 5 Insurance companies and the top organisation in India. With this, Zensar has become South Africas biggest Indian IT vendor. 19
Four-S Research
23 Aug11
Zensar has strong strategic plans to build up this segment by targeting top 5 organisations in all major geographies with major focus on life, health and P&C. Zensar has strong presence in health insurance segment with majority clients coming from that area. Now Zensar is looking to build pipeline in life and annuities for Europe region while looking to maintain stronghold in health segment in US region and focusing on P&C segment in US, Europe and South Africa region. With 6 insurance clients in Akibias portfolio, Akibia- Zensar cross-selling opportunities also look good. This alone can drive add almost 10% growth to the vertical revenues. With strong visible pipeline, the Insurance vertical is expected to grow at a growth rate of 25-30% for the next two years. Strong growth is envisioned in US and UK region while Zensar is looking to double top line from Australia region which currently has very low base though. Zensar is also working on developing IP in this segment with focus on Multichannel Platform for Insurance, Readily deployable SOA components and Compliance enabled Testing framework. The vertical is looking to add almost 15% of revenue from IP sales in next two years.
Vertical
Providing entire gamut of services from professional advisory to IT strategy, BI and retail specific solution.
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Zensar boasts of strong clientele in this space like Carrefour, NAAFI, Wet Seal, Acosta etc. Zensar has rolled out its SmartShop solution as of now only in India and company is experience positive response from the market. With further development and refinement Zensar looks to ring out this offering in other markets which will add up Zensar revenue from its IP products.
Vertical
The driver is the regulation driven Y2K like opportunity, the ICD-10 remediation. The US healthcare industry needs to transition to ICD-10 by 1 October 2013. By this date, ICD-10 codes must be used on all Health Insurance Portability and Accountability Act (HIPAA) transactions, including outpatient claims with dates of service, and inpatient claims with dates of discharge Zensar is looking to build domain capability in healthcare through partnerships and to drive POC for new service areas. For Utilities, it wants to focus on US and Europe. The areas of focus are smart grid and smart metering. IM solutions could also help get business here. Zensar has strong 15 years hands on domain expertise in Utilities practices which Zensar is looking to leverage to garner more similar projects In the Government vertical, Zensar is still finding its feet in the Indian marketplace. Here the market already crowded with several other firms, Zensar needs to find its niche here. The company is developing low delivery cost model which is very vital to gain government projects where customers are like state govt, municipal corps and defence.
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Zensar is focused on diversifying its business mix across verticals which can be seen in the trends for last few years. With decreasing dependency in manufacturing & telecom sector from 45% in 2010 to 39% in FY11 and 20% of BFSI in FY10 to 18% in FY11 Zensars deliberate efforts to expand their horizon and to capture opportunities in other verticals are very much evident. Global scale of operations Zensar derives its revenues across the globe with sales and operational presence in more than 11 countries including US, UK, Germany, Sweden, Finland, Middle East, South Africa, Singapore, Australia, Japan and Poland. Geographical diversification plan in place The share of the US market in total revenues went up in FY11, 64% from 60% in FY 10. This was mainly due to the Akibia acquisition, and the impact of its sales mix. In fact share of the US market was around 50% of revenues in FY07 and FY08. The increase in share of the US market has gone hand in hand with increasing EBITDA margins, indicating the lucrativeness of that market. Zensar is now looking to expand its offerings to other emerging market such as China, India, Middle east and SAARC countries. This is evident with setting up of a delivery center in China and upcoming regional delivery center in Jordan.
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8000 6000 4000 2000 0 FY'07 FY'08 FY'09 FY'10 FY'11 Rest of the World Europe USA
Rs in mn
Zensars pursuit to hedge the geographical risk is also evident with new emerging territories like South Africa which is one of the fastest growing territories for Zensar. Zensar has also managed to garner faster growth in the Middle East. Company is also looking to invest heavily in India and China to build presence.
64%
Zensar boasts diversified client portfolio with clients from various verticals. Some sample clients: banking vertical has Credit Suisse, UBS, KBW; retail has M&S and Carrefour; manufacturing and media like CISCO, Activision, Fujitsu; insurance has clients like Assurant, Investsec, AXA, Prudential; and connected services has clients like National Grid and Morrison. Chart 3: Client Concentration
Client Concentration Top 5 client Top 10 client FY'07 55% 69% FY'08 43% 51% FY'09 44% 52% FY'10 49% 60% FY'11 46% 54%
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Rs in mn
The top line however is expected to grow at CAGR of 26% over FY11-13 on the back of current acquisition of Akibia, which will add an incremental Rs 3.5bn to Zensars top line for FY12. Further organic and inorganic growth is expected to boost revenue of Zensar to reach Rs 19bn by FY13. Revenues Growth
18000 16000
14000 12000 10000 8000 6000 4000 2000 0 FY'09 FY'10 FY'11 FY'12E FY'13E
Rs in mn
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GTS (Global Transformation Services) and EAS (Enterprise Application Services) are the major service offerings from Zensar which constitute 65% and 24% of revenue to Zensar, respectively. Data Centre, Network & Security Services (PSI Holdings) segment is also making headway in Zensar with ~11% revenue contribution from it in FY11 top line.
Rs in mn
Global Transformation Services (GTS) GTS segment grew at a 4-year CAGR of 14% to Rs 7,433mn in FY11 from Rs 4,358mn in FY07. This is mostly organic growth, since the acquisitions Zensar has done do not lie in this space. This is also the most profitable segment for Zensar. Global Transformation Services (GTS)
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 FY'07 FY'08 FY'09 FY'10 FY'11
Rs in mn
Enterprise Application Services (EAS) Enterprise Application Services (EAS) segment grew at a 3-year CAGR of 13% to Rs 2,757mn from revenue of Rs 1,700mn in FY 07.
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Zensar has managed to increase EBITDA at the impressive CAGR of 19% from FY08 to FY11. Zensar has shown strong financial discipline and bottom line focus by maintaining EBITDA margin above 13% in FY11 reaching as high as 17.8% in FY 10 from 12% in FY 08. This growth in EBITDA margin is mainly due to improved contribution from higher margin GTS services which has better margins compared to other services. Acquisition of Akibia will ring in more revenue from Data Centre, Network & Security Services which may bring pressure on Zensars margins for short term. But further improvement in margins is expected in longer run as company strives to enter other profitable services and verticals. Consistently strong EBITDA performance
EBITDA
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2008 2009 EBITDA 2010 EBITDA margin 2011 20% 16% 12% 8% 4% 0%
Zensar showcased strong EBITDA growth of 19% CAGR in last five years. Even better growth expected in near future.
Rs in mn
Zensar net profit has grown at CAGR of 28% in last 3 years expanding net profit from Rs 640mn in FY08 to Rs 1340mn in FY11. Zensar has improved these net profit figures while keeping focus on net margin maintaining strong net margin of around 12% in FY11. Net profit is expected to show a CAGR of 23% growth over the next two years. This is mainly resulting due to expanding top line and improvement in margins too.
NET PROFIT
1500 15% 10% 5% 0% 2008 2009 Reported net profit 2010 Net margin 2011
1000 500 0
Rs in mn
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Balance Sheet
Balance Sheet Shareholder's Equity Share Capital Reserves and Surplus ESOPs Total equity capital Liabilities Secured Loans Unsecured Loans Minority Interest Deferred Tax Liability Total Liabilities and Owner's Equity Assets Goodwill on consolidation Gross Block Less: Depreciation Net Fixed Assets Capital Work in Progress Investments Current Assets Inventory Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets Current Liabilities Provision Total Current Liabilities Net Current Assets Deferred Tax Asset Total Assets FY'07 239 2,138 2,377 885 1 5 3,267 563 542 21 128 204 FY'08 240 2,600 2,840 639 7 8 3,486 2,317 702 1,615 295 160 FY'09 240 2,346 2,586 757 3 5 3,351 2,019 904 1,115 59 237 FY'10 216 3,081 3,297 447 2 3,745 2,128 1,106 1,022 14 151 FY'11 433 4,027 4,460 2,363 16 6,839 5,480 2,007 3,473 52 256 FY'12E 433 5,386 5,819 2,363 8,182 5,489 2,367 3,122 70 309 FY'13E 433 7,231 7,664 2,363 10,027 5,489 2,722 2,767 100 400
1,333 811 535 526 3,205 1,046 281 1,327 1,878 63 3,351
1,426 1,300 439 726 3,891 1,016 357 1,373 2,518 40 3,745
836 2,295 1,100 536 1,445 6,211 2,970 411 3,380 2,831 227 6,839
836 2,471 1,368 726 1,441 6,841 18,523 5,799 24,322 44,091 272 8,182
836 2,821 3,199 925 1,536 9,316 21,150 7,107 28,257 64,910 270 10,028
(Rs mn)
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Ratios
Ratios Per share numbers (Rs) EPS CEPS DPS Profitability Ratios EBITDA margin Pretax margin Net margin ROE ROCE Growth Ratios Revenue growth EBITDA growth Net profit growth Activity/Turnover Ratios (x) Asset turnover Working Cap turnover Debtors turnover Debtor Days Payables turnover Payables Days Liquidity Ratios (x) Current Ratio Cash Ratio Solvency Ratios (x) Debt Equity Leverage Ratio Net Debt / EBITDA Interest Coverage FY'08 26.72 26.06 3.80 FY'09 36.12 43.78 4.50 FY'10 58.98 64.65 5.50 FY'11 30.37 32.41 3.49 FY'12E 31.4 10.6 4.5 FY'13E 44.1 48.0 5.3
1.9 0.3
2.4 0.6
2.8 0.9
1.8 0.3
2.8 0.6
3.3 1.1
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