Zensar Technologies (Zensar’s) revenues for 4QFY09 were below estimates. A near-10% de-growth in volumes and billing rate cuts from top clients impacted revenues.
Reduced employee costs helped maintain margins q-o-q. Reduction in employees for the second consequent quarter raises issues on revenue visibility; management indicates a challenging 1QFY10.
Macro scenario not conducive still; recovery expected by 2HFY10. Deeper penetration in existing Fortune 500 relationships and leveraging on ThoughtDigital (TD) acquisition for more EAS work are the strategic levers to spur revenue growth, in addition to increased focus on annuity business.
We expect EPS of Rs33.4 for FY10 (v/s 35.1 earlier). The stock is available at 3.3x FY10 earnings with cash of Rs.30 per share expected in FY10.
We maintain BUY with a DCF-based price target of Rs.155 (unchanged) because of the cheap valuations and remain cognizant of the fact that, near term stock performance may be soft, in line with the macro uncertainties.
A prolonged recession in major user economies and a sharper-than-expected appreciation in rupee v/s major currencies are pronounced risks for a smaller player like Zensar.