Zen Technologies: When the theme is hot, but the numbers are not
Zen Technologies sits at the intersection of India’s defence and drone boom, but shrinking order books, slowing execution and stretched working capital raise questions about near-term earnings momentum.
India’s focus on defence has sharpened steadily over the past few years. Operation Sindoor in May brought renewed attention to the country’s defence capabilities and strengthened the outlook for domestic defence manufacturers.
After clocking 11% and 14% CAGR growth between FY19 and FY25, India’s defence production and exports are projected to expand at a much faster 19–20% CAGR between FY25 and FY29.
Markets have clearly bought into this optimism. The Nifty India Defence Index has delivered a blistering 54% CAGR over the past five years, far outpacing the broader Nifty 50’s 13% CAGR over the same period.
Drone tailwinds
Within the broader defence umbrella, drones have emerged as a key growth theme. The war in Ukraine has underscored the increasing role of unmanned aerial vehicles in modern warfare. Beyond military use, drones are finding applications in public safety, disaster relief, law enforcement and agriculture.
Policy support has followed. The Drone Rules 2021 simplified licensing and approvals through the Digital Sky platform, while GST rates on military and commercial drones were slashed to 0% and 5%, respectively.
Yet, despite the narrative momentum, listed investment options in the drone space remain limited. Defence heavyweights such as HAL and BEL have minimal exposure, while pure-play names like ideaForge have slipped into losses amid intensifying competition.
Zen Technologies stands out as one of the few listed companies with meaningful drone exposure alongside relatively strong financials. Its stock has delivered a 73% CAGR over the past five years, outperforming even the defence index. The key question now: how much steam is left?
Full-spectrum play
Hyderabad-based Zen Technologies has built its position through sustained focus on R&D. With 180 patents applied for and a string of strategic acquisitions, the company today offers a full suite of defence solutions spanning land, air and sea.
In 2025 alone, Zen acquired Applied Research International (ARI), Vector Technics, TISA Aerospace and Bhairav Robotics. ARI expanded Zen’s capabilities into naval and maritime simulations and has already contributed ₹92 crore to the consolidated order book. Vector and TISA strengthened Zen’s drone warfare capabilities, with Vector focusing on propulsion and power distribution, and TISA adding loitering munitions.
Zen has also been deploying AI to develop one-on-one training simulators and enhance threat classification and autonomous response systems in anti-drone platforms. AI Turing Technologies, acquired last year, enabled entry into electro-optics, thermal imaging and robotics, while Bhairav Robotics has further bolstered defence robotics offerings.
Earlier, Zen’s 2018 acquisition of Unistring Tech Solutions (UTS) added electronic warfare and radar capabilities. UTS accounted for ₹98 crore of Zen’s ₹680 crore order book as of September 2025.
Order-book drag
Ironically, Operation Sindoor has emerged as a near-term headwind. Emergency procurements shifted government focus away from routine requests for proposals, delaying order wins. Management maintains these delays are procedural and do not reflect underlying demand or long-term revenue visibility.
However, Zen’s order-book pressures predate Sindoor. Its order book has steadily shrunk—from ₹1,434 crore in December 2023 to ₹484 crore by September 2025. Including subsidiaries, the consolidated order book stands at ₹680 crore, but that provides barely a year of revenue visibility based on recent run rates.
Excluding maintenance contracts, the core order book is under ₹400 crore. The stock has corrected 45% so far in 2025.
With a shrinking order book, execution has slowed. Zen’s revenues declined 52% year-on-year in H1FY26, while Ebitda fell 56%.
Working capital pressures persist. Operating and free cash flows have been intermittently negative over the years, and the cash conversion cycle has stretched from 108 days in FY20 to 117 days in FY25, driven largely by longer receivable cycles.
Structural cushions
Lumpy orders and stretched working capital are inherent risks for defence companies with heavy government exposure. Businesses with strong balance sheets and diversified revenue streams tend to weather these cycles better—and Zen appears to have laid some of those foundations.
First, subsidiary contributions are rising, expected at ₹250 crore in FY26. This diversification helped cushion H1FY26 results: while standalone revenues fell 52%, consolidated revenues declined a smaller 33%. Standalone Ebitda dropped 56%, but consolidated Ebitda fell just 13%.
Second, Zen is now debt-free, offering resilience amid revenue volatility. Despite slower execution, margins have remained healthy due to cost efficiencies and an asset-light model. Operating and free cash flows also turned positive in H1FY26, helped by a push towards exports, which typically have shorter receivable cycles.
Path ahead
Industry tailwinds remain strong. India’s military drone market generated about $1.5 billion in revenue in 2024—just 4% of the global drones market—leaving significant headroom. The domestic drone industry is projected to grow at 18% CAGR to $4 billion by 2030.
Management argues Zen’s wideband jamming-based anti-drone systems are technically superior, cost-effective, fully indigenous and IP-owned, aligning closely with the Make in India mission.
Still, execution will be critical. Against management’s ambitious guidance of ₹6,000 crore cumulative revenue between FY26 and FY28, fresh order inflows will matter. The company expects deferred orders to materialise in H2, including simulator orders and anti-drone tenders under emergency procurement programmes. Earlier this month, Zen secured a ₹120 crore Defence Ministry order for training simulators.
Exports, currently 18% of the order book, are another focus area. ARI’s presence in Singapore could aid regional expansion, while traction is building in Africa, the Middle East and Southeast Asia. However, competition and long export conversion cycles suggest patience will be required.
After the recent correction, the stock trades at around 49 times earnings—still demanding, but meaningfully lower than earlier peaks.
For more such analysis, read Profit Pulse.
Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
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