Zensar Technologies: Enabling Digital Transformation

Zensar Technologies

BSE Sensex

27,145

S&P CNX

8,328

Zensar Technologies

Initiating Coverage | Sector: Technology

CMP: INR979

TP: INR1,300 (+35%)

Buy

Enabling Digital Transformation

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Vol m

Free float (%)

ZENT IN

44.6

1,120/650

1/-14/49

44.4

0.7

76.7

0.1

52.2

Dual force of Digital prowess and IMS/Cloud expertise



Financial Snapshot (INR b)

Y/E Mar

2016 2017E 2018E

Net Sales

29.6 31.4 36.2

EBITDA

4.3

4.8

6.1

PAT

3.1

3.5

4.5

EPS (INR)

68.2 77.6 98.2

Gr. (%)

17.0 13.7 26.6

BV/Sh (INR)

314.4 373.8 448.3

RoE (%)

24.0 22.5 23.9

RoCE (%)

28.5 27.2 28.9

P /E (x)

14.4 12.2

9.7

P / BV (x)

3.1

2.5

2.1

Shareholding pattern (%)

As On

Mar-16 Dec-15

Promoter

47.8

47.9

DII

0.5

10.2

FII

14.1

4.5

Others

37.5

FII Includes depository receipts



Mar-15

47.7

0.5

13.0

38.8

Zensar (ZENT) is a technology services provider with a portfolio spread across

traditional to transformational solutions: Applications, Infrastructure, Digital and

Industry-specific solutions. It is part of the USD3b RPG Enterprises and USD40b

APAX portfolio of companies. ZENT has core strengths in Oracle implementations,

eCommerce enablement and IMS & Cloud.

Digital forms 27% of ZENT's revenues (v/s 10-15% for peers), with a prime focus

on Oracle ATG (a leading eCommerce enabling software product). YoY growth in

all areas of Digital was in the range of 21-37% YoY in FY16, which offers potential

for above-industry growth going forward.

Pruning of non-core businesses has weighed on growth over the past few years,

leading to organic revenue decline of 1.7% in FY14, growth of 4.2% in FY15 and a

fall of 0.7% in FY16. Restructuring efforts are nearing completion, with ROW

exposure down from 10% in FY13 to 5% in FY16, IMS maintenance revenue down

from 15% in FY13 to 8% in FY16, and a cap on product revenue.

The company has hired a new CEO, Sandeep Kishore (ex. Corporate VP and Global

Head of Life Sciences & Healthcare and Public Services at HCLT) and has since

made substantial progress in the implementation of its new strategy, which

narrows company’s focus on (1) Digital, (2) IMS, (3) Oracle and (4) Account mining.

In USD terms, we estimate 2% revenue growth in FY17 and 12% in FY18, a 240bp

EBITDA margin improvement over FY16-18E and 20% earnings CAGR over FY16-18.

With most issues behind, (as the thrust from new areas starts materializing), we

expect an improvement in CQGR from 1.1% in FY16 to 1.9% in FY17 and 3.4% in

FY18, and re-rating from the current levels of 9.7x FY18E earnings.

Enabling Digital Transformation

Zensar Technologies

Sagar.Lele@motilaloswal.com

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91 22 3982 5585

Rapid shift in business model to Digital



Zensar has been shifting its focus from traditional IT services to Digital,

where the traction has been evidently moving the needle in its overall

performance. Contribution of Digital, as a % of revenue, has increased from

5% in FY14 to 27% in FY16, half of which was added because of the

acquisition of Professional Access. The company expects it to reach 30% in

FY17.



YoY growth in all areas of Digital (Big data & Analytics, Cloud, Design

Experience, Digital Marketing Services, Cyber Security) was in the range of

21-37% YoY in FY16. The high contribution of Digital to overall revenue

should further boost performance, in our view.



In Digital, the key focus area is eCommerce (enhanced through the

acquisition of Professional Access in Aug-14). The company derives 15% of

revenues (50% of Digital) from Oracle Commerce implementation, and the

balance from other Digital and cross-over services. This positioning puts

ZENT in a sweet spot, as (1) Oracle ATG has the highest market share (20%)

among eCommerce platforms for online retailers and (2) Professional Access

is among the top three Oracle ATG implementation specialists.

4 July 2016

Zensar Technologies

Stock Performance (1-year)

Restructured business aligned for growth



ZENT has been restructuring its business over the past few years by

implementing its 3x3x3 strategy, sharpening its focus on (1) Manufacturing,

Retail and Insurance; (2) the US, Europe and Africa; and (3) on service offerings

of Application Management, Infrastructure Management and Digital.



Significant cutting down of the flab over the past few quarters has led to: (1)

increased leadership bandwidth, (2) sharper targeting in the market, (3) lower

overhead costs proportionate to sales, and (4) lower focus on non/less-

profitable areas, which have helped improve overall margins in FY16. We expect

this to yield similar results going ahead.



Pruning of business and client-specific issues have led to subdued organic

revenue growth (-1.7% in FY14, 4.2% in FY15 and 7.0% in FY16), but has

improved the quality of revenues. Focus geographies now comprise 95% of

revenues. Contribution of IMS maintenance (non-core) has reduced to 8% of

revenue in FY16 from 15% in FY13, while the number of focus clients has

reduced from 75 in FY15 to 66 in FY16.

Time for growth engines to start delivering



With the flab cut post the leadership change (appointment of Sandeep Kishore

as CEO), ZENT has now redefined its growth strategy, which is based on the

following pillars.

[1] Digital:

To grow Digital to 30% of revenue in a year (from 27% currently).

[2] IMS:

To grow the IMS & Cloud business to 20% of total revenue in a year.

[3] Oracle:

The Oracle ecosystem currently contributes 33% of ZENT’s revenue and

should continue to be a focus area. ZENT is an Oracle Cloud Partner, and there is

a shift in focus to cloud and as-a-service models for both Oracle and ZENT.

[4] Account mining:

Identified 65 high-potential accounts for mining, where the

focus is on implementing dedicated sales, delivery and Digital teams.

Valuation and view0



Expect revival going forward:

On account of its ongoing restructuring, we

expect revenue growth of 2% in FY17 (1.9% CQGR v/s 1.1% in FY16). However,

with the implementation of its growth engines well in progress, we expect a

revival in revenue growth to 12% in FY18. Revenue growth pick-up, profitability

improvement in the IMS business and current investments should lead to 230bp

EBITDA margin expansion over FY16-18E. EBIT margins in the IMS business (18%

of revenue) can improve from 6% in FY16 to 14% in FY18, led by higher revenues

from ‘IMS and Cloud’ and the restructuring in the MVS business. This alone has

the potential to improve overall margins by 150bp. We expect an EPS CAGR of

20% over FY16-18.



Buy, 35% upside:

Discounting FY18 earnings by 13x – at a discount to peers such

as PSYS and MTCL (which have demonstrated consistency in performance and

potential in newer services) but at a premium to peers such as MPHL, KPIT and

NITEC (given strong positioning in Digital, potential improvement in

performance, and prospects of industry-leading growth); and at a premium to

historical median given improved performance, sharper positioning and defined

expertise – would lead to a target of INR1,300, implying a 35% upside.



Key risks:

Inability to rotate the ERP business to as-a-service, client-specific

issues, and near-term margin pressure on account of elevated investments.

4 July 2016

Zensar Technologies

Story in charts

Exhibit 1: Expect organic revenue growth to pick up

Organic revenue (USDm)

Growth (YoY, %)

12.0

Exhibit 2: 3x3x3 strategy results in improved focus

4.9

4.2

2.0

(1.7)

(0.7)

399

FY15

427

FY16

462

FY17E

518

FY18E

Source: MOSL, Company

389

FY13

383

FY14

Source: MOSL, Company

Exhibit 3: Cutting down on non-core geographies…

Europe

Africa

ROW

Exhibit 4: …and non-profitable/scalable clients

USD1m+ clients

FY13

FY14

FY15

FY16

FY13

FY14

FY15

FY16

Source: MOSL, Company

Exhibit 5: IMS: Reviving Services and reducing

Maintenance…

Maintenance

Services

Exhibit 6: …thus, correcting the IMS revenue mix

Maintenance

Services

-2%

54%

46%

61%

65%

-16%

-13%

-15%

-17%

-21%

3QFY16

4QFY16

46%

FY13

54%

39%

FY15

35%

FY16

1QFY16

2QFY16

FY14

Source: MOSL, Company

4 July 2016

Zensar Technologies

Story in charts

Exhibit 7: Contribution of Digital to total revenue among the

highest in the industry

Digital revenue (USDm)

Digital (% of total revenue)

Exhibit 8: 21-37% YoY growth in all areas of Digital in FY16

FY16 Growth (YoY, %)

36%

27%

13%

2,154

TCS

14%

1,031

WPRO

256

MTCL

122

ZENT

30%

15%

12%

KPIT

104

PSYS

NITEC

Source: MOSL, Company

Exhibit 9: Expect sharp improvement in profitability…

EBITDA margin (%)

15.4

14.7

13.7

13.9

14.4

16.7

Exhibit 10: …to the tune of 235bp over FY16-18E

EBITDA margin change (YoY, bp)

100

135

(81)

FY13

FY14

FY15

FY16

FY17E

FY18E

FY13

FY14

FY15

FY16

FY17E

FY18E

Source: MOSL, Company

Exhibit 11: …as profitability in IMS improves, among other

reasons…

IMS revenue (INRb)

10.0

7.4

8.2

5.6

IMS PBIT margin (%)

Exhibit 12: …leading to 20% earnings CAGR over FY16-18E

Net profit (INRb)

36.1

26.6

17.0

10.0

11.4

2.4

FY14

2.6

FY15

3.1

FY16

13.7

3.5

FY17E

4.5

FY18E

Growth (YoY, %)

4.7

FY13

5.3

FY14

5.3

FY15

5.3

FY16

1.7

FY13

Source: MOSL, Company

4 July 2016

Zensar Technologies

FOUR GROWTH ENGINES TO DRIVE OUTPERFORMANCE

DIGITAL



To grow to 30%

of revenue in a

year



Presence across

ecommerce

enablement,

Cross-Over and

Enterprise

Digital



Largest Oracle

Commerce

practice

globally

IMS & CLOUD



To grow to 20%

of revenue in a

year



Focus on the

areas of

[1] Hybrid IT,

[2] Net-gen

end-user

experience,

[3] Network

security and

[4] Unified IT

management

ORACLE



33% of revenue

currently from

the Oracle

ecosystem



Betting on

Oracle Cloud

SaaS and PaaS

solutions

CUSTOMER

APPROACH



Focus on 65

High-Potential

Accounts



Focus on deal

sizes of

USD10m+ TCV

Source: MOSL

ENCOURAGING PROGRESS IN EXECUTION



Carved out a team of 300+

people to focus on Digital



Launched CMO-led

solutions



Internalized Digital in the organization



Training all employees on Digital

technologies



250+ client-facing professionals trained

on Digital

DIGITAL



Industry experts hired in the

focus areas in Infrastructure

Management



Solutions in IMS & Cloud

launched



Laying focus on resurrection of

profitability in the MVS

business



Shift in focus to cloud and

as-a-service models for

both Oracle and ZENT



Paused on the goal to attain Platinum

partnership with Oracle



Instead focusing on the better-aligned

managed cloud partner program

IMS &

CLOUD

ORACLE



New team put in place for large

strategic deals



Starting to deal with third-party

outsourcing agents



Reallocated resources to high growth

accounts



Dedicated sales and

delivery team for 30

accounts



Mirroring this for the

rest of the accounts

CUSTOMER

FOCUS

Source: MOSL

4 July 2016

Zensar Technologies

ZENT’s DIGITAL SOLUTIONS STACK SPREADS OVER THE FOLLOWING AREAS

Big Data & analytics

B2C Commerce

Data wrangling, data science and

analytics & visualization in the

verticals of Retail, Insurance and

Manufacturing.

Implementation of omni-channel

experience; eCommerce, Mobile

Commerce, Data Analytics, UX, CX

(Oracle Commerce, SAP Hybris &

Magento).

Cloud

IoT/Industrial internet

Services of migration, integration

and development in the areas of

SaaS, IaaS, PaaS; focus on hybrid

application and infrastructure

Extensive domain expertise in

discrete manufacturing & SCM;

outcome-based delivery model

and a strong partner ecosystem

with proprietary frameworks.

Design experience

B2B Commerce

Customer journey mapping, UX,

CXM, augmented reality,

wearables, and delivering E2E

customer experience across

Customer acquisition to service;

implementation, integration &

development; focus on E2E

customer success (Oracle, SFDC,

SAP).

Digital marketing services

Cyber security

Business outcome driven

engagements across Web ops, Data

ops, Marketing ops, Social ops

(Adobe, Oracle, Marketo, SFDC,

Zensar’s proprietary compliance

and risk assessment tool; threat &

vulnerability management, DLP,

threat discovery & analytics

3x3x3 strategy results in improved focus

Manufacturing

Retail

Insurance

USA

Europe

Africa

Application

Management

4 July 2016

Infrastructure

Management

Digital Enterprise

Zensar Technologies

Shift in business model to Digital

Digital revenue increased from 5% in FY14 to 27% in FY16

Scaling up Digital business

ZENT has been shifting its business model from traditional IT services to Digital, by

realigning its focus on Digital transformation/enterprise. Traction in Digital has been

evidently moving the needle in its overall performance. Contribution of Digital, as a

% of revenue, has risen from 5% in FY14 to 27% in FY16, and the company expects it

to reach 30% in FY17. The contribution of Digital to total revenue is among the

highest in the industry, and thus could potentially help the company to record

industry-leading growth.

Exhibit 13: Leading the Digital shift among Tier-II

Digital revenue (USDm)

Digital (% of total revenue)

36%

27%

13%

2,154

TCS

14%

1,031

WPRO

256

MTCL

122

ZENT

30%

15%

12%

KPIT

104

PSYS

NITEC

Source: MOSL, Company

In Digital, ZENT’s key focus areas are eCommerce (enhanced through the acquisition

of Professional Access in Aug-14). The company derives 15% of revenues (50% of

Digital) from Oracle Commerce and Magento, with the balance coming from other

Digital and cross-over services.

ZENT’s Digital solutions stack spreads over the following areas:

[1] Big Data & analytics:

Data wrangling, data science and analytics & visualization

in the verticals of Retail, Insurance and Manufacturing.

[2] Cloud:

Services of migration, integration and development in the areas of SaaS,

IaaS, PaaS; focus on hybrid application and infrastructure clouds with cloud

architecture.

[3] Design experience:

Customer journey mapping, UX, CXM, augmented reality,

wearables, and delivering E2E customer experience across multiple channels and

devices.

[4] Digital marketing services:

Business outcome driven engagements across Web

ops, Data ops, Marketing ops, Social ops

(Adobe, Oracle, Marketo, SFDC, Sitecore).

4 July 2016

Zensar Technologies

[5] B2C Commerce:

Implementation of higher-performance omni-channel

experience; eCommerce, Mobile Commerce, Data Analytics, UX, CX

(Oracle

Commerce, SAP Hybris & Magento).

[6] IoT/Industrial internet:

Extensive domain expertise in discrete manufacturing

& SCM; proven solution framework with an outcome-based delivery model and a

strong partner ecosystem with respective proprietary frameworks.

[7] B2B Commerce:

Customer acquisition to service; implementation, integration &

development; focus on E2E customer success

(Oracle, SFDC, SAP).

[8] Cyber security:

Zensar’s proprietary compliance and risk assessment tool;

capability across GRC, SEIM, HIPPA, PCI DSS, threat & vulnerability management,

DLP, threat discovery & analytics.

Exhibit 14: In line with the shift in the industry spending mix (USD b)

Source: Company, Gartner, IDC

Boosting capability via acquisition of Professional Access

In August 2014, ZENT acquired Professional Access (PA), which is one of the largest

Oracle ATG and Endeca partners in the world (implementation and maintenance). It

is an Oracle Platinum partner with presence in the US, the UK, Latin America, Middle

East and Africa. The company works with several large and mid-sized retailers in

these geographies to build and implement their eCommerce strategies.

4 July 2016

Zensar Technologies

Exhibit 15: Revenue break-up of PA (by service line and vertical; % of revenue)

Others, 0.3

BFS and Others, 3.9

public

sector, 5.2

Maintenanc

support,

46.1

Implement

ation, 53.7

Retail and

telecom,

90.8

Source: MOSL, Company

The acquisition puts ZENT in a sweet spot as:



Oracle ATG has the highest market share (20%) among eCommerce platforms

for online retailers.



PA is among the top three Oracle ATG implementation specialists.

Betting on success of Oracle ATG

Oracle ATG has the highest market share (20%) among eCommerce platforms for

online retailers. The other dominant players in the market are IBM WebSphere and

SAP Hybris. In-house software accounts for the majority of the market (~40%). Other

players in the market with a lower share include Digital River, Magento, Elastic Path,

Apttus and CloudCraze.

Some of the largest retailers using the Oracle Commerce platform are Neiman

Marcus, Walgreens, Macy’s, Express, CVS, Kohl’s, Blue Nile, American Eagle,

OfficeMax and Chico’s.

4 July 2016

Zensar Technologies

Exhibit 16: Oracle – A leader in Gartner's Magic Quadrant for Digital commerce platforms

Source: Gartner



Digital commerce platforms facilitate transactions over the web. They support

the creation and continuing development of online relationships with

consumers across multiple channels, including mobile, direct and indirect sales,

digital and call center.

Digital commerce platforms enable organizations to build B2B, B2C or B2B-to-

consumer (B2B2C) commerce sites and support a continuum of business

objectives, from generation of incremental revenue to enabling

transformational business change.

Oracle is a leader based on its Oracle Commerce product, which combines ATG

and Endeca capabilities. Oracle Commerce can be implemented on-premises or

hosted by Oracle or a third party. The product supports both B2C and B2B

business models, and has several global, multi-language and multi-site

implementations. In mid-2015, Oracle released a multitenant SaaS commerce

platform called Oracle Commerce Cloud.

4 July 2016

Zensar Technologies

Strengths and weaknesses assessed by Gartner

STRENGTHS



Core capabilities and advanced features:

Oracle Commerce has a strong set of

native features, including support for digital products, data-rich products

requiring customer information, and an in-store sales clienteling solution. This

functionality can also take advantage of a wide ecosystem of Oracle Customer

Experience (CX) products, including Oracle Marketing Cloud, Sales Cloud, Service

Cloud, CPQ Cloud and other Oracle enterprise applications. Oracle is also in the

process of productizing integrations between Oracle Commerce and other CX

applications.



Search and complex commerce capabilities:

On-site search continues to grow in

importance, and the integration of ATG and Endeca capabilities in Oracle

Commerce 11 is a differentiator. Oracle Commerce has strong capabilities in

support of complex product lines and organizational hierarchies in B2B

operations; it enables personalization of a storefront by both B2C and B2B users,

and supports multiple selling channels in both B2C and B2B operations.



Multisite, global functionality:

Oracle Commerce provides a scalable, flexible

and globally deployable digital commerce platform. Reference customers

commended its ability to easily generate multiple storefronts, deploy globally

and handle the sale of complex products.

CAUTIONS



OM and multichannel capabilities:

Oracle Commerce does not come with

prebuilt integration with Oracle's Order Management module. So clients

expecting to integrate this module with Oracle Commerce are required to

devote some development resources to this task. Oracle Commerce also lacks

some native functionality for multichannel commerce: enabling buying online

with pickup or return in a store requires integration with an OM or DOM

application, such as Oracle Order Management, or with a third-party OM

system.



WCM functionality: Oracle Commerce's WCM capabilities are not competitive

compared to those of best-of-breed WCM products. However, Oracle has added

base-level WCM features which should address segments of the market that do

not require best-of-breed WCM capability.



Evolving cloud roadmap: Oracle is placing strong emphasis on shifting products

to the cloud. With the release of Oracle Commerce Cloud, on-premises-only

customers should check that the Oracle Commerce roadmap does not focus on

the development of Commerce Cloud, which is currently not suitable for most

enterprise-level customers.

Source: Gartner

Among the top implementation partners for Oracle ATG

There is limited competition in Oracle ATG implementation with only around 10

companies globally, including Accenture, Cognizant and EPAM. Other players are

significantly smaller in size, employing between 100 and 500 people. PA is the only

Oracle Platinum partner in Oracle ATG implementation.

4 July 2016

Zensar Technologies

PARADE launch

ZENT recently launched PARADE (Professional Access Rapid Application Deployment

Environment), a preconfigured accelerator for deploying Oracle Commerce. It is

designed to deploy the Oracle Commerce suite, including the Oracle Commerce

platform, Oracle Guided Search and Oracle Experience Manager.

PARADE comes with all standard eCommerce capabilities, including shopping cart,

stream-lined checkout process, along with industry-leading search and guided

navigation from Endeca. The solution offers powerful tools for multi-site

management, merchandising and promotions with an extensive focus on customer

experience and personalization. Processes for PARADE-based implementations are

tailored to accelerate the overall deployment while bringing most granular level of

visibility and transparency at each step.

Scaling up Digital business

While eCommerce implementation comprises 50% of ZENT’s Digital revenue, the

balance comes from other Digital and cross-over services. The company’s

perspective on Digital is divided into two parts:

Enterprise Digital

– (1) Digital agility (front-end), (2) cross-over of Digital and

IT/business processes (cloud and hybrid infra/IT) and (3) stability of the core systems

(ADM, back-end systems with APIs built in).

CMO-led Digital solutions

– ZENT launched CMO-centric services on April 1, 2016. It

sees a massive opportunity in tapping CMO budgets, with solutions around

marketing analytics, digital analytics, content and creative solutions.

The company has seen strong growth across services in Digital, and is poised for

further acceleration in FY17 given the progress it has made in building and launching

new solutions over the current year. In FY16, the entire solution stack for ZENT grew

by above 20% YoY, which was much higher than the total company growth rate of

5%. Given the 27% contribution of Digital to overall revenue, organic growth has the

potential to accelerate further.

Exhibit 17: Strong growth across Digital solution stack

FY16 Growth (YoY, %)

Company

Big data &

analytics

Cloud

Design

Digital

B2C

B2B

experience marketing Commerce Commerce

services

Cyber

security

Source: MOSL, Company

4 July 2016

Zensar Technologies

Restructuring well in progress

Solid pruning of business over the past three years

ZENT has been actively making efforts to restructure its operations over the past

three years. A major exercise carried out to aid this process was cutting down of the

excess flab and hence sharpening its focus on selected verticals, geographies and

service offerings.

3x3x3 strategy

The premise of the 3x3x3 strategy was to sharpen its focus on (1) the

Manufacturing, Retail and Insurance segments, (2) on geographies of the US, Europe

and Africa and (3) the service offerings of Application Management, Infrastructure

Management and Digital. This would, in turn, result in (1) increased leadership

bandwidth, (2) sharper targeting in the market, (3) lower overhead costs

proportionate to sales and (4) lower focus on non/less-profitable areas, thereby

improving overall margins.

Exhibit 18: 3x3x3 strategy

Source: Company, MOSL

Improved vertical focus

In line with its strategy, ZENT sharpened its focus on the verticals of Manufacturing,

Retail and Insurance. Accordingly, several of the company’s customers in the areas

of government, healthcare and utilities were churned out. During FY13-FY16, this

resulted in a reduction in business to the tune of USD30m, which was 8% on the

revenue base in FY13.

Exhibit 19: Vertical focus

Manufacturing

Retail

Financial Services

Emerging

FY13

FY14

FY15

FY16

Source: Company, MOSL

4 July 2016

Zensar Technologies

ROW down to 5% in FY16, from 10% in FY13

Similarly, ZENT realigned its focus on the geographies of the US, Europe and Africa.

It was operational in several other countries across the globe, but the business there

was sub-scale. Additional investments were necessary to sustain/grow the business

in these geographies, which would imply a cost increase that was disproportionate

to revenue. Accordingly, revenue from ROW declined to 5% in FY16, from 10% in

FY13.

Exhibit 20: Geographical focus

Europe

Africa

ROW

FY13

FY14

FY15

FY16

Source: Company, MOSL

Products down to 6% in FY16, from 11% in FY13

ZENT has been de-focusing from the products business in infrastructure

management. The company intends to include the products bit only where it is

integral to the services portfolio of the organization. Revenue from Products has

gradually inched lower to 6% of total revenue in FY16 from 11% in FY13.

Moreover, the company’s focus is on IMS & Cloud, which would mean the Services

business in infrastructure management would grow.

However, the focus in the MVS business would be on profitability improvement and

not top-line growth. The reduction in Maintenance revenue contribution to 8% in

FY16 from 15% in FY13 reflects the change in effort within the Services business.

Exhibit 21: Putting a cap on Product revenue

Product revenue (INRm)

12.3%

11.2%

Composition (% of total revenue)

10.0%

7.1%

5.9%

3.8%

432

FY11

2,193

FY12

2,373

FY13

2,307

FY14

1,872

FY15

1,756

FY16

Source: Company, MOSL

4 July 2016

Zensar Technologies

Execution of new strategy underway

With the clean-up almost done, it’s time to execute

From sorting to growing – a WIP

Given the sharpened focus of the company as well as the streamlining of operations

to ensure profitable growth, the company witnessed a reduction in business across

verticals, geographies and service lines. Sandeep Kishore’s appointment came in at

the fag end of this restructuring exercise. With the flab cut-off, ZENT has now

defined its growth strategy post the leadership change (appointment of Sandeep

Kishore as CEO). The growth strategy is now based on the following pillars.



Digital:

The aim is to grow Digital to 30% of revenue in 12 months (from 27%

currently). Around 50% of Digital revenue comes from Oracle Commerce and

Magento. The balance comes from other Digital and cross-over services. The

company’s perspective on Digital is broken into two parts:

Enterprise Digital

– [1] Digital agility (front-end), [2] cross-over of Digital and

IT/business processes (cloud and hybrid infra/IT) and [3] stability of the core

systems (ADM, back-end systems with APIs built in).

CMO-led Digital solutions

– ZENT launched CMO-centric services on April 1,

2016. It sees a massive opportunity in tapping CMO budgets with solutions

around marketing analytics, digital analytics, content and creative solutions.

Execution progress:



Launched CMO-led solutions on April 1, 2016. The company is in the process of

developing a new set of propositions which can be taken to existing clients.



Carved out a team of 300+ people from all over the company to increase the

focus on Digital.



Internalizing Digital in the organization by focusing on making all of ZENT’s

processes digital. The company has launched six apps for internal use over the

past 90 days.



Training all employees on digital technologies; have made it compulsory for new

hires to go through a two-week training program.



250+ client-facing professionals were also put through an intense three-day

training to align sales to offerings and customer needs.

Strategic deals:

ZENT will be focusing on deal sizes with TCV of USD10m+ using its

differentiation in automation frameworks, multi-service focus and digital prowess.

Execution progress:



Changes have been made to the sales incentive plan in line with the new

strategic focus.



A new team has been put in place to focus on large strategic deals. The team is

bringing in expertise around bidding, pricing and structuring of large deals.



Initiatives to deal with third-party outsourcing agents are being undertaken for

increased participation in large deals.

4 July 2016

Zensar Technologies

Infrastructure business:

ZENT’s infrastructure business comprises of (1) MVS

and (2) IMS & Cloud, which are run separately as focused businesses. The

company intends to grow its IMS & Cloud business to 15% of total revenue over

the next 12 months. The key focus areas in this business are:

(1) Hybrid IT:

Automated and orchestrated provisioning and management of public,

private and on-premise infrastructure. ZENT’s focus is on an integrated platform

across technologies and hosting models that will enable it to target the G-1000.

(2) Next-gen end-user experience:

Focusing on predictive analytics and mobility;

ZENT combined Aternity, Nano Heal, Lakeside and Service Now to build a predictive

end-user management solution, which spans over user interface and backend

systems.

(3) Network security:

Design, implement and manage comprehensive IT security

frameworks.

(4) Unified IT management:

Driven by automation, orchestration and analytics.



Execution progress:



Industry experts hired in each of the focus areas of ZENT.



All solutions in the focus areas in IMS and Cloud are now up and running.



Focus on resurrection of profitability in the MVS business; increased focus on

direct clients and revamping of the product mix.



Oracle:

The Oracle ecosystem contributes 33% of ZENT’s revenue and will

continue to be a focus area. ZENT is an Oracle Cloud Partner, and there is a shift

in the focus to cloud and as-a-service models for both Oracle and ZENT. The

partnership with Oracle has been strengthened after the acquisition of PA,

which is one of the largest partners globally for Oracle Commerce.

Farming:

Identified 65 high potential accounts for mining, where ZENT has been

rated highly in account delivery. There have been changes in the organization

structure to achieve improved results from farming efforts. ZENT is adopting a

three-in-a-box approach to aid this process, by hitting accounts through its

sales, delivery and practice expertise.

Execution progress:



Cut down in the number of strategic accounts to half, thus sharpening focus on

mining.



Reconstituted the team to make the organization more nimble; relocated

resources to high-growth accounts.



30 of the strategic accounts have dedicated sales and delivery teams. The

company is in the process of mirroring this for the rest of its key accounts.

4 July 2016

Zensar Technologies

Expect revival in performance

Led by revenue growth acceleration and margin expansion

Expect revenues to continue growing

Due to its restructuring exercise over the past three years, organic revenue growth

has remained subdued and subpar relative to peers. However, organic revenue

growth has been inching up as a result of the reduction of the non-core businesses

and the increasing focus on high-growth areas. The business undergoing pruning has

now reduced to lower single digits, reflecting the dominance of growth areas in

overall portfolio.

We expect this upward trajectory to continue through FY18. Although this implies

7% revenue CAGR over FY16-18E, which is lower compared to the industry, it

signifies a substantial improvement compared to the 5.6% revenue CAGR over FY14-

16; which is more evident from the improvement in CQGR from 1.1% in FY16 to

1.9% in FY17E and 3.4% in FY18E.

Exhibit 22: Upward trajectory in revenue likely to continue

Organic revenue (USDm)

Growth (YoY, %)

12.0

4.9

4.2

2.0

(1.7)

(0.7)

399

FY15

427

FY16

462

FY17E

518

FY18E

389

FY13

383

FY14

Source: Company, MOSL

Our confidence stems from the following:

(1) The

portfolio

of revenues for ZENT has been set right after three years of

restructuring. Its 3x3x3 strategy has been well executed and most of the pain is now

behind. Although some consolidation is still expected in the portfolio, this should

only improve the revenue growth momentum.

(2)

Digital

accounts for 27% of ZENT’s total revenues, which is higher compared to

the industry average. Among mid-cap peers, MTCL (36%) and PSYS (30%) fare better

than ZENT in terms of their exposure to Digital. Both these companies have

demonstrated strong growth in Digital, as well as in their overall performance driven

by an outperformance of this segment. Given the fact that all sub-segments in

Digital for ZENT grew by 21-37% YoY in FY16, the potential for additional impetus to

overall revenue growth appears high, in our view.

4 July 2016

Zensar Technologies

Exhibit 23: Healthy growth in Professional Access since acquisition

Revenue - Professional Access (USDm)

15.3

12.6

6.5

12.0

12.5

14.7

14.6

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Source: Company, MOSL

(3) In Infrastructure Management, ZENT’s focus is on IMS & Cloud, which is run

separately as a business. The company intends to grow its IMS & Cloud business to

15% of total revenues over the next 12 months. It has already put a large deals team

in place for this area, and any incremental addition here would positively impact

both revenue growth and profitability.

For mid-sized companies like ZENT, which has an IMS business of USD70m per

annum, scaling up in IMS does not have a large negative impact on existing revenues

or pricing pressure in renewal deals and hence easier rotation to newer areas.

ZENT’s focus in the IMS space is on the areas of hybrid IT, next-gen end-user

experience, network security and unified IT management. The focus on newer areas,

combined with management’s rich IMS background and the creation of sales/large

deals teams, should bode well for ZENT going forward.

Exhibit 24: De-focus on products and emphasis on IMS & Cloud resulting in change

Maintenance

Services

-2%

-16%

-13%

-15%

-17%

-21%

3QFY16

4QFY16

Source: Company, MOSL

1QFY16

2QFY16

(4)

Renewed client focus

at ZENT has led to consolidation of accounts with revenues

above USD1m to 66 in FY16, from 75 in FY15. The company has relooked at the way

these accounts are mined, and has allotted dedicated resources to get deeper into

them. This is likely to translate into a sharper focus and stronger growth from

existing accounts going forward.

The impact of this move was witnessed in FY16, when revenue growth was strong

across top client buckets. This has higher probability of maintenance/getting better

given the increased focus.

4 July 2016

Zensar Technologies

Exhibit 25: Strong growth across top client buckets in FY16

FY16 revenue growth (YoY, %)

28%

27%

-3%

Top 5

Top 6-10

Top 11-20

Non Top 20

Overall company

Source: Company, MOSL

Significant levers for margin expansion

ZENT has been able to maintain EBITDA margins in the 13-15% range over FY13-16,

despite the organic revenue growth pressure. This has been a function of the

improved mix of business.

In FY16, several investments were made to aid strategy execution. These

investments ranged from building capabilities, launching of new solutions,

completing the service breadth in strategic areas, hiring of new sales personnel,

increased account managers, and addition of the large deals team, among others.

Despite these investments, margins expanded by 50bp YoY in FY16.

Going ahead, we expect margins to be driven by:

[1] Continued improvement in the

portfolio mix,

and full impact of a better revenue

composition.

[2]

Investments

made in FY16 should start bearing fruit in FY17/18 and lead to

benefit on profitability.

[3]

IMS

margins are likely to improve significantly due to the dual focus of the

company: profitability resurrection in Products, and revenue growth in IMS & Cloud.

EBIT margins in the IMS business (24% of revenue) could improve from 6% in FY16

to 12-14% in FY18. This alone has the potential to improve overall margins by

150bp.

Exhibit 26: Expect further margin expansion…

EBITDA margin (%)

15.4

14.7

13.7

13.9

14.4

16.7

Exhibit 27: …with the help of multiple available levers

EBITDA margin change (YoY, bp)

100

135

(81)

FY13

FY14

FY15

FY16

FY17E

FY18E

FY13

FY14

FY15

FY16

FY17E

FY18E

Source: MOSL, Company

4 July 2016

Zensar Technologies

Exhibit 28: Focus on Products profitability and scaling up of

Services in IMS to be major drivers

IMS revenue (INRb)

10.0

7.4

8.2

5.6

80%

79%

IMS PBIT margin (%)

82%

81%

Exhibit 29: Portfolio mix and scale economies to give more

leverage than traditional levers

Utilization (%)

4.7

FY13

5.3

FY14

5.3

FY15

5.3

FY16

FY13

FY14

FY15

FY16

Source: MOSL, Company

4 July 2016

Zensar Technologies

Initiating coverage with a Buy; TP of INR1,300

Valuations driven by rebound in growth and positioning in Digital



Execution for next leg of growth is in progress:

Post the leadership change at

ZENT, execution has become fast-tracked, with several steps taken toward

realigning the organization with its growth engines. In line with this, several

services/solutions have been launched, sales function has been augmented and

there is a renewed focus on client mining and large deals. These initiatives are

currently in the investment mode and likely to start adding to growth along with

Digital and IMS.

Digital; the key trigger:

Digital accounts for 27% of ZENT’s revenue and has been

seeing growth of 21-37% YoY. Half of Digital is constituted by eCommerce

implementation, where capabilities have increased post ZENT’s acquisition of

Professional Access, which in FY16 grew by 25% YoY. The rest of Digital revenue

comes from other Digital and cross-over services. Moreover, with increased

emphasis on Enterprise Digital and CMO-led solutions, Digital will only get a

further boost from current levels.

Re-constitution to continue for the better:

ZENT had earlier laid focus on

achieving the Diamond partnership with Oracle. However, elevation from

Platinum partnership is a function of the work around Oracle’s installed base,

and not cloud services. Oracle has a managed cloud partner program, on which

ZENT has turned its attention as this better aligns with changing market

dynamics, Oracle’s strategy and ZENT’s focus areas. Moreover, the realignment

of focus in infrastructure management toward IMS & Cloud too marks a step in

this direction.

Expect rebound in revenue growth:

On account of ongoing restructuring, we

expect revenue growth of 2% in FY17. However, with the implementation of

growth engines well in progress, we expect a revival in revenue growth to 12%

in FY18.

Margin comfort for FY17-18E:

Revenue growth pick-up, profitability

improvement in the IMS business, and current investments should lead to a

230bp EBITDA margin expansion over FY16-18E. EBIT margins in the IMS

business (18% of revenue) can improve from 6% in FY16 to 14% in FY18, led by

higher revenues from ‘IMS and Cloud’ and the restructuring in the MVS

business. This alone has the potential to improve overall margins by 150bp. We

expect an EPS CAGR of 20% over FY16-18.

Exhibit 31: …coupled with margin expansion

12.0

EBITDA margin (%)

15.4

16.7

Growth (YoY, %)

Exhibit 30: Revenue growth expected to continue

Organic revenue (USDm)

4.9

4.2

2.0

(1.7)

(0.7)

399

FY15

427

FY16

462

FY17E

518

FY18E

FY13

13.7

14.7

13.9

14.4

389

FY13

383

FY14

FY15

FY16

FY17E

FY18E

Source: MOSL, Company

4 July 2016

Zensar Technologies

Value ZENT at INR1300 per share



ZENT warrants a premium:

We believe ZENT warrants a premium to its peers

considering: (1) its positioning in Digital, especially in eCommerce

implementation, (2) potential growth driven by Digital and IMS, and (3) a

healthier portfolio mix and a sharpened focus driving improved performance

relative to the past three years.

Premium to historical P/E justified, given:

(1) a pick-up in revenue and earnings

CAGR over FY16-18E, (2) focus on Digital and IMS & Cloud leading to

differentiated positioning v/s being a me-too player earlier, and (3) focused

approach opposed to chasing of growth in multiple dimensions earlier.

We value ZENT at 13x forward EPS to arrive at a fair value of INR1300 per

share (35% upside),

at a 10% discount to peers such as PSYS and MTCL (which

have demonstrated consistency in performance in the past and have developed

strong capabilities in newer services), 30% discount to INFO, but at a 20%

premium to peers such as MPHL, KPIT and NITEC, given strong competitive

positioning, well-defined niche and a strategy to drive the next leg of growth.

Exhibit 32: Valuations attractive, given revenue growth

revival

16.0

13.5

11.0

8.5

6.0

10%

15%

20%

25%

Source: MOSL, Company, Bloomberg

NITEC

MPHL

HEXW

MTCL

KPIT

CYL

PSYS

Exhibit 33: Valuations attractive, given earnings CAGR

16.0

13.5

11.0

8.5

6.0

10%

15%

20%

25%

Source: MOSL, Company, Bloomberg

HEXW

MPHL

KPIT

NITEC

MTCL

PSYS

CYL

ZENT

Exhibit 34: Currently at lower valuations for strong performance

CMP

(INR)

TCS

INFO

WPRO

HCLT

TECHM

MPHL

HEXW

PSYS

KPIT

MTCL

NITEC

CYL

ZENT

2,500

1,172

558

731

506

568

229

690

157

674

515

485

980

Reco.

Neutral

Buy

Neutral

Buy

Neutral

Buy

Revenue

CAGR

(INR)

(FY16-18E)

2,650

1,350

600

900

550

520

230

775

180

750

560

550

1,300

11%

13%

10%

31%

11%

21%

15%

12%

EBITDA

Earnings

EV/

margin

CAGR

EBITDA

expansion

(FY17E) (FY18E)

(FY16-18E)

(FY17E)

(FY16-18E,bp)

(116)

12%

18.5

16.1

14.2

14%

17.5

15.3

11.3

(12)

15.4

13.5

9.7

(225)

24%

13.3

11.9

9.0

11%

13.8

11.8

8.3

174

11%

15.1

13.4

8.3

(131)

17.5

15.6

12.1

(99)

18%

16.3

13.4

9.4

11%

9.9

8.6

5.7

18%

16.1

13.4

11.4

(86)

11%

9.9

9.1

4.8

101

19%

13.7

11.5

9.0

235

20%

12.6

10.0

7.7

EV/

EBITDA

(FY18E)

12.1

9.4

7.9

7.5

6.9

6.7

10.3

7.4

4.5

9.1

4.1

7.1

5.7

Dividend Dividend

yield

(FY17E) (FY18E)

1.8

2.1

2.5

2.4

2.5

1.6

7.5

4.5

4.0

4.2

1.7

1.1

1.6

2.3

2.2

2.6

1.6

2.1

Source: MOSL, Company

4 July 2016

Zensar Technologies

Scenario analysis – Upside potential outweighs downside risk

Exhibit 35: Scenario analysis suggest >60% upside in bull case v/s 6% downside in bear case

Bear case

FY17

FY18

453

498

30,799

34,887

4,582

5,417

14.9

15.5

153

4,666

5,570

1,396

1,760

3,270

3,810

925

-6

Base case

FY17

FY18

462

518

2.0

12.0

31,414

36,232

4,831

6,062

15.4

16.7

153

4,914

6,214

1,396

1,760

3,518

4,454

1,300

Bull case

FY17

FY18

471

537

32,030

37,601

5,086

6,704

15.9

17.8

153

5,169

6,856

1,396

1,760

3,773

5,096

112

1,575

Source: Company, MOSL

Revenues (USDm)

Revenue growth (%)

Revenues (INRm)

EBITDA

EBITDA margin (%)

Dep/int/other income

PBT

Tax/minority interest

PAT

EPS

Target PE (x)

Target price (INR)

Potential return (%)

Bull case suggests >60% upside from current levels

Our sensitivity analysis suggests that in the bull case, ZENT could generate EPS of

~INR112 (v/s INR98 in base case). Valuing ARBP at 14x forward earnings (in line with

peers like MTCL and PSYS v/s 13x in base case – 10% discount to peers) yields a fair

value of INR1,575 (v/s TP of INR1,300), implying upside of >60% from CMP.



Faster than expected growth in Digital:

The current traction in Professional

Access (25% YoY growth in FY16) and faster growth in Other Digital Services,

given the recent launch of solutions by ZENT could lead to higher growth in

Digital (27% of total revenue) and move the needle in terms of overall

performance, leading to higher than anticipated growth over FY16-18E.

Strong execution of account mining/large deals:

Now that ZENT has identified

65 high-potential accounts, it has started changing the approach towards mining

these customers. It is in the process of deploying dedicated sales and delivery

teams for these accounts (and Digital evangelists in some cases). This process

could lead to strong growth in top accounts that leads to improved overall

performance on the revenue growth front. Similarly, its focus on large deals

could result in some big wins, which can be a game-changer over the next two

years.

Valuation multiples in line with peers rather than at discount:

In our base case,

we have assumed target multiple of ~13x (10% discount to peers like MTCL and

PSYS). MTCL and PSYS have been commanding higher multiples amongst mid-

cap peers on account of their presence in new-age services, and the fact that

this expertise has led to outperformance to industry, and holds the potential for

it to continue going forward. The successful execution of the laid-out strategy

can result in earnings CAGR of 28% over FY16-18E, which would result in a

convergence of the valuation gap that currently exists.

4 July 2016

Zensar Technologies

Bear case analysis indicates limited downside from current levels

Our bear case sensitivity analysis shows that ZENT could generate EPS of ~INR84 (v/s

INR98 in base case). Valuing ZENT at 11x forward earnings (30% discount to peers

like MTCL and PSYS and in line with MPHL/NITEC v/s 13x in base case) yields a fair

value of INR925 (v/s TP of INR1,300), implying downside of 6% from CMP.



Slower ramp-up in growth engines:

ZENT is currently making investments to

enable the successful execution of its strategy. In the process, it has launched

several solutions, beefed up teams, added capabilities, etc. If the bearing-of-

fruit of these investments takes longer than anticipated, revenue growth may

remain subdued for longer than we currently estimate.

Clean-up overpowers growth engines:

While the company is focusing on 65

accounts for mining, it is simultaneously cutting out low-yield customers. If the

letting-go of business is more than the growth stemming out of the strategy

measures undertaken, revenue growth could lag.

Valuation multiples discount to broaden to 30% discount to peers:

In this case,

we have assumed target multiple at 11x v/s 13x in the base case. This multiple,

we have witnessed for peers with sub-par revenue growth, margin pressures

and a recovery lifecycle.

Exhibit 37: …reflecting improving business mix

4.0

3.0

2.0

8.6

11.6

1.0

0.0

1.5

1.6

2.5

P/B (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

Exhibit 36: Premium to historic valuations…

P/E (x)

5 Yrs Avg(x)

15 Yrs Avg(x)

10 Yrs Avg(x)

7.2

6.2

Source: MOSL, Company, Bloomberg

Exhibit 38: Return ratios better than most peers

RoE (FY17E)

RoE (FY18E)

Exhibit 39: Dividend payout ratio of 20%

Dividend payout ratio (%)

Dividend yield (%)

20% 21%

19% 20% 18% 18%

18%

2.1

1.6

12%

1.3

1.2

1.1

0.7 0.8

0.4

12%

0.5

0.3

Source: MOSL, Company

4 July 2016

Zensar Technologies



High composition of Digital:

Digital

constitutes to 27% of ZENT’s revenue,

v/s 10-15% for peers. Higher proportion

of revenue from Digital enables ZENT to

potentially outperform peers.



Well-defined niche in Digital:

Post the

acquisition of PA, ZENT has gained

capability in eCommerce enablement,

for a product that has 20% market share.

This bodes well given the high-growth of

enterprise spend on eCommerce.



Strong partnership with Oracle:

ZENT

gets 33% of its revenue from the Oracle

ecosystem. The relationship has only

strengthened post the PA acquisition.

ZENT has been focusing on the managed

cloud partnership with Oracle, which

focuses on SaaS/cloud-based solutions

instead of legacy implementation.



Leadership:

Several initiatives have been

taken up since the leadership change.

The new CEO has made the organization

more nimble, and laid the foundation for

successful execution of strategy. Clarity

of vision and strong execution bode well

for organizational performance.



Portfolio composition:

In the past,

ZENT has been spread out in terms of

its presence in verticals and

geographies, resulting in a lack of a

focused approach. Although it has been

executing a clean-up exercise, it still

carries the baggage of some non-core

verticals and geographies.

Yield on customers:

The lack of a

focused approach on customer

acquisition led to multiple customers

that are low on profitability and aren’t

scalable, resulting in a drag on overall

scalability of the organization.

Infrastructure Management business:

ZENT’s IM business is comprised of

Services, Maintenance and Products.

Maintenance and Products have been

weighing on profitability of the

business, despite a much lower

quantum compared to three years ago.

Profitability resurrection and presence

in non-focus areas has been leading to

subdued overall performance and

consumption of bandwidth in multiple

areas.



Expansion of Digital services:

Of the

USD122m Digital practice of ZENT,

50% is comprised of PA. The rest

comes from Other Digital Services and

Cross-Over Services. The company has

recently launched solutions in the

areas of IoT, data analytics, and front-

end capabilities aimed at tapping the

CMO budget. This opens up a whole

new area of spend for ZENT.

Large deals:

ZENT has set up a new

team for large deals (USD10m+). It has

also started engaging with third-party

outsourcing agents, enabling an

opportunity to scale up significantly.

IMS & Cloud:

ZENT’s focus in the areas

of IMS & Cloud is well aligned with

changing industry dynamics. The CEO’s

rich experience in IM, and efforts to

reorganize the company to tap this

space lead to opening of new doors.

Customer focus:

The company’s focus

on increasing wallet share within

existing customers and tapping other

areas of spend have the potential to

drive growth in a more focused and

organized manner.



Cloud migration in ERP:

ZENT has a

sizeable

exposure

legacy

implementation and maintenance.

These areas have been under pressure

because of pricing and cloud migration.

The shift poses a threat to ZENT’s

existing revenue, if it isn’t able to

rotate its business with agility.

Client concentration:

ZENT gets 37% of

its total revenue from its Top-5

customers. Any issues in the customer

could result in lower spend,

consequently impacting the overall

performance of ZENT.

Costs overshooting revenue in the

near-term:

The company is currently in

an investment-mode as it gets ready to

capitalize on new opportunities. This

requires investments in the form of

people, capabilities, solutions and

reorganization. Investments may lead

to margin pressures if revenue growth

follows with a lag.

4 July 2016

Zensar Technologies

Company description

Zensar (Bloomberg: ZENT) is a provider of technology services and has a solutions

portfolio spread across Traditional to Transformational - Applications, Infrastructure,

Digital and Industry-specific solutions. It is part of the USD3b RPG Enterprises and

USD40b APAX portfolio of companies. Digital forms 27% of ZENT’s revenue and

comprises of Oracle Commerce & Magento, as well as other Digital and cross-over

services.

Exhibit 40: Revenue composition by services and verticals

IMS -

Services,

16%

Financial

services,

19%

Emerging,

IMS -

Maintenanc

e, 8%

Application

Manageme

nt Services,

76%

Retail and

consumer

services,

22%

Manufactur

ing, 54%

Source: MOSL, Company

4 July 2016

Zensar Technologies

Key management personnel

Mr Sandeep Kishore, CEO & MD

Prior to Zensar, Sandeep was Corporate Vice President and Global Head of Life

Sciences & Healthcare and Public Services at HCL Technologies. He was responsible

for a USD1.1b business. He has over 25 years of experience in the IT industry,

spanning across IT, Engineering and Business Process Outsourcing.

Mr Nitin Parab, Chief Executive – Enterprise Transformation Services

Whilst based in US for almost 2 decades, Nitin has deep experience in managing

operations (Business Development, Marketing, Solution Design, Service Delivery,

Technology Practices, Alliances and Partnerships) in several countries across all

continents.

Mr Pinaki Kar, Chief Executive – Infrastructure Management Services

Pinaki Kar joined Zensar as the Infrastructure Business Unit Head. In his last role,

Pinaki was CEO & President of Wipro Infocossing. His responsibilities included

transformation of the business to a higher growth path, incubating Cloud

Computing, expanding into Europe and APAC, synergizing with Wipro’s Global

Infrastructure Services business.

Mr S Balasubramaniam, Chief Financial Officer

With over 28 years of experience in finance and commercial functions, S.

Balasubramaniam is the Chief Financial Officer of Zensar. He joined Zensar in 2005.

Mr Syed Azfar Hussain, Global HR Head

Azfar has over 21 years of experience in Human Resources at global, regional,

country, business and site levels in organizations such as Alcan, Hewlett Packard,

Deloitte & Touche, and Flextronics.

Mr Ajay Bhandari, Chief Corporate Development Officer

Ajay has been associated with ERP Implementation, Funds & Investments

Management, and Corporate Finance for over 17 years. He began his career at

Zensar as a senior consultant in the year 1999 and is now responsible for all

Strategy, Marketing and Quality functions.

Mr Krishna Ramaswami, Delivery Head, Digital Enterprise Services

Krishna heads the India operations as well as Digital Enterprise at Zensar. With over

25 years’ experience, he has successfully run the Healthcare vertical. Krishna has

also been responsible for the Infrastructure Management business globally.

Mr Harish Gala, Global Head, Enterprise Application Services

Harish Gala is the Global Head of Enterprise Applications and Zensar’s Hyderabad

Center. He has over 25 years of experience in Management Consulting and IT

services (enterprise applications and ERP) and driven ERP enabled transformation

engagements across diverse industry sectors for transnational clients.

4 July 2016

Zensar Technologies

Ms Prameela Kalive, Global Head, Custom Application Services

Prameela has been with Zensar Technologies for over 15 years now and has led

multiple portfolios ranging from Software Delivery, Global Strategy and Marketing

to Global HR and managing Emerging Markets. She now Heads Zensar’s India (Pune)

operations in addition to heading the Strategic Services Organization and multiple

other global business enabling portfolios.

Mr Chakri Vaddi, Head, Enterprise Business, US

Chakri is Senior Vice President and Head of the Enterprise Transformation Services

business for Zensar in US and in this role he is responsible for Manufacturing, Retail,

Insurance and Banking Industry vertical businesses. His responsibilities include end

to end P&L management, Strategy, Business Development, Marketing, Service

Delivery, Alliances and Partnerships.

Mr Chaitanya (Chai) Rajebahadur, Head, Enterprise Business, Europe

Chai is an experienced business leader with significant success in the Industry having

built a strong base in Manufacturing, Retail, CPG, Telecom, Media, Banking &

Financial services and Logistics & Transportation. He has experience in managing

business in Europe, US, India, Middle East, Singapore and Australia with over 21

years of experience in the IT Outsourcing Industry.

Mr Deepanjan Banerjee, Head, Client Assurance Services

Deepanjan has been with Zensar since 1998 where he has, over the years,

successfully juggled multiple roles – from delivery to consulting to sales.

Mr Krishna Kumar, Delivery Head, Digital Commerce Services

KK heads the Retail Practice and Deliveries globally. In the 14 years that he has been

with Zensar, P. Krishna Kumar has worked in various capacities and across various

geographies - as delivery center head, practice head and onsite engagement

manager. His work experience has been mainly across manufacturing, supply chain

and retail.

Mr Mohan Hastak, Head, Strategic Business Function, Custom Application

Solutions

Mohan is head of the Financial Services and Insurance vertical at Zensar

Technologies. He has over 30 years’ experience in the Information Technology

sector, and has largely concentrated on the Insurance vertical over the past 15

years.

Mr Harish Lala, Head, Enterprise Business, Africa

Harish was involved in setting up Zensar’s Africa operations with its starting base in

South Africa and since then has been working with many Blue Chip companies

across Banking, Insurance, Retail and Mining across Africa by helping them

implement transformational business solutions using technology as enabler.

4 July 2016

Zensar Technologies

Key risks

Client concentration

ZENT, like other mid-cap peers, has high client concentration, with top five clients

contributing 37% of revenues and top 10 contributing 45%. A good example of

client-specific dynamics affecting the overall performance was in 4QFY15, when

ZENT had to give an exceptional discount to a client, which affected both revenue

and profitability. The extent of the discount was USD5m, which translated to a 4.3%

negative impact on a sequential basis. Client-specific issues, spend changes,

requirements and challenges have the potential to impact its overall revenue

growth given the high concentration.

Dependency on Oracle

ZENT is a Platinum partner for Oracle, and the ecosystem contributes 33% of its total

revenue. This partnership has further strengthened post the acquisition of

Professional Access, which is an implementation partner for Oracle’s eCommerce

platforms. Any hindrance to the success of Oracle’s products in the market would

reflect in the flow of business to ZENT.

Pressure of reinvestment eroding margins

ZENT’s foray into Digital and efforts to realign business to growth engines require

investments in capabilities, people, sales teams, reorganization and solutions. This

could result in near-term margin pressure as revenue would follow investments

made.

4 July 2016

Zensar Technologies

Financials and Valuations

Income Statement

Y/E March

Profit & Loss

Sales

Change (%)

Cost of Services

SG&A Expenses

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

Forex

PBT

Tax

Rate (%)

Minority Interest

PAT

Extraordinary

Net Income

Change (%)

Balance Sheet

Y/E March

Share Capital

Reserves

Net Worth

Minority Interest

Loan

Capital Employed

Applications

Gross Block

Less : Depreciation

Net Block

CWIP

Other LT Assets

Curr. Assets

Current Investments

Inventories

Debtors

Cash & Bank Balance

Loans & Advances

Other Current Assets

Current Liab. & Prov

Current Liabilities

Other liabilites

Provisions

Net Current Assets

Application of Funds

E: MOSL Estimates

FY11

11,383

19.5

7,906

1,948

1,529

13.4

294

305

1,502

184

12.3

1,318

3.3

FY12

17,825

56.6

12,337

3,224

2,263

12.7

333

527

2,364

777

32.9

1,587

20.4

FY13

21,145

18.6

14,809

3,444

2,892

13.7

332

100

332

-187

2,606

861

33.0

1,745

10.0

FY14

23,156

9.5

15,957

3,803

3,396

14.7

383

109

290

205

3,399

1,023

30.1

2,375

36.1

FY15

26,277

13.5

18,329

4,307

3,641

13.9

415

112

364

181

3,659

1,013

27.7

-1

2,646

11.4

FY16

29,643

12.8

20,366

5,015

4,262

14.4

454

106

181

407

4,289

1,169

27.3

-26

3,094

17.0

(INR Million)

FY17E

FY18E

31,414

6.0

21,400

5,183

4,831

15.4

471

159

411

303

4,914

1,376

28.0

-20

3,518

13.7

36,232

15.3

24,284

5,886

6,062

16.7

543

129

603

223

6,214

1,740

28.0

-20

4,454

26.6

FY11

433

4,027

4,460

2,392

6,852

5,480

-2,007

3,473

744

5,558

246

836

1,876

1,100

916

584

2,973

997

1,682

294

2,585

6,852

FY12

434

5,325

5,759

2,755

8,514

6,045

-2,269

3,776

583

7,869

468

950

2,911

1,745

1,142

654

3,741

1,337

1,884

521

4,128

8,514

FY13

436

6,853

7,289

2,353

9,642

6,341

-2,372

3,969

545

8,035

417

1,049

3,354

1,420

856

937

2,931

1,059

1,556

315

5,104

9,642

FY14

438

9,017

9,455

2,032

11,498

6,503

-2,287

4,215

608

10,015

1,478

1,288

3,581

1,458

817

1,392

3,361

1,507

1,385

468

6,654

11,498

FY15

443

11,127

11,570

1,396

12,977

8,201

-2,728

5,474

617

11,240

931

1,226

4,539

1,960

880

1,704

4,368

1,305

2,426

637

6,872

12,977

FY16

446

13,812

14,258

1,878

16,175

8,889

-3,182

5,706

517

13,989

1,016

1,259

5,427

2,823

1,072

2,392

4,054

1,643

2,118

293

9,935

16,175

(INR Million)

FY17E

FY18E

446

16,506

19,887

16,952

20,333

1,628

1,378

18,619

21,750

9,289

-3,653

5,635

619

17,815

1,116

1,205

5,752

6,072

1,136

2,535

5,462

2,185

2,913

364

12,352

18,619

9,739

-4,197

5,542

721

21,678

1,216

1,290

6,634

8,311

1,310

2,918

6,199

2,480

3,306

413

15,479

21,750

4 July 2016

Zensar Technologies

Financials and Valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout %

Valuation (x)

P/E

Cash P/E

EV/EBITDA

EV/Sales

Price/Book Value

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

RoIC

Turnover Ratios

Debtors (Days)

Fixed Asset Turnover (x)

E: MOSL Estimates

(INR Million)

FY17E

FY18E

77.6

158.5

373.8

15.5

20.0

98.2

210.0

448.3

20.2

20.6

FY11

30.5

31.2

103.3

3.5

11.5

FY12

36.6

51.0

132.7

7.0

19.1

FY13

40.2

42.3

167.9

8.0

20.0

FY14

54.7

67.7

217.9

10.1

18.4

FY15

61.0

66.6

266.6

11.2

18.4

FY16

68.2

84.6

314.4

12.0

17.6

17.9

14.5

12.2

1.8

4.5

1.0

16.1

14.7

11.2

1.5

3.7

1.1

14.4

11.6

9.9

1.4

3.1

1.2

12.2

6.0

7.7

1.2

2.5

1.6

9.7

4.5

5.7

1.0

2.1

34.0

23.4

39.7

31.1

26.2

22.1

26.7

30.3

24.4

28.4

30.8

25.8

25.2

28.6

25.1

24.0

28.5

24.7

22.5

27.2

26.4

23.9

28.9

33.6

3.3

4.7

5.3

5.5

4.8

5.2

5.6

6.5

Cash Flow Statement

Y/E March

CF from Operations

Cash for Working Capital

Net Operating CF

Net Purchase of FA

Free Cash Flow

Net Purchase of Invest.

Net Cash from Invest.

Proc. from equity issues

Proceeds from LTB/STB

Dividend Payments

Cash Flow from Fin.

Exchange difference

Net Cash Flow

Opening Cash Bal.

Add: Net Cash

Closing Cash Bal.

E: MOSL Estimates

FY11

1,014

392

1,406

-272

1,134

-3,129

-3,401

1,886

-138

1,759

-200

1,299

-200

1,100

FY12

2,281

-546

1,735

-263

1,472

-190

-452

-320

-329

-640

649

1,096

649

1,745

FY13

2,212

-1,152

1,060

-334

726

-247

-776

-379

-1,139

-318

1,739

-318

1,420

FY14

2,720

-625

2,094

-323

1,771

-961

-1,284

-422

-411

-774

1,413

1,458

FY15

2,823

382

3,206

-372

2,834

-1,448

-1,819

-395

-542

-874

512

1,448

512

1,960

FY16

3,805

-1,218

2,587

-423

2,164

-422

-375

-969

-1,302

863

1,960

863

2,823

(INR Million)

FY17E

FY18E

4,148

5,127

831

-887

4,980

4,239

-396

-446

4,584

3,793

-102

-498

-548

-409

-379

-824

-1,073

-1,233

-1,452

3,248

2,239

2,823

6,072

3,248

2,239

6,072

8,311

4 July 2016

REPORT GALLERY

RECENT INITIATING COVERAGE REPORTS

Zensar Technologies

NOTES

4 July 2016

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