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Zensar Technologies reported revenues of $155.9 mn, up 1.8% sequentially, above its estimates of 1.1%. In constant currency (CC) terms, revenues were up 3% quarter-on-quarter (QoQ) and over 26% from the year-ago quarter. 

Deal wins for the quarter stood at $125 mn, down 24.5% QoQ and up 29.3% YoY, with a healthy mix of new wins and renewals. The hi-tech and manufacturing verticals are witnessing a slowdown. Consumer services sector is also seeing a cut in discretionary spends, highlighted brokerage and research firm ICICI Securities.

“Management is seeing pockets of softness in business and a few clients have hinted towards reduction in spend amid the macro-uncertainties," the note stated. The brokerage house has maintained the buy rating on Zensar Tech shares with a target price revision to 276 from 295.

Going forward, management expects a short-term impact from the ongoing macro-challenges and continued supply-side constraints. ICICI Securities expects margins to be under pressure given the supply-side issues, gradual return of travel and facility costs, and investments for growth.

Further, it expects weak supply side engine coupled with cut down/deferment of discretionary spends by clients in consumer services/ hi-tech/ manufacturing verticals due to challenging macro environment is likely to limit earnings growth ahead.

"Management noted that it faced high supply-side pressure, which impacted margins; revenue growth remains strong and delivered its highest USD revenue till date. It has pushed mid-teen margin target by a couple of quarters to Q2FY24E. We are cutting FY23E/FY24E EPS by 4.8%/1.3% to incorporate the earning miss," while retaining ‘Buy’ tag on the IT stock with an unchanged target price of 406.

Indian IT service provider Zensar Tech's shares are hovering near its 52-week low level. The IT stock has declined more than 57% in 2022 (YTD) so far.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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