Zen Technologies: Obscene growth, fantastic coming four years
Growing 3X by FY24 and 6X by FY25 on FY23 revenue, while maintaining EBITDA. Oder book 2.5X FY23 revenue to be executed in 18 months. Huge growth visibility till FY27 at a PE of 82
1. Defence training & anti-drone solutions provider
zentechnologies.com |NSE: ZENTEC
Zen Technologies Limited provide Defence Training Solutions, Drones and Anti- Drones solutions. The company is engaged in indigenous design, development and manufacture of sensors and simulators technology based defence training systems and has been providing Defence Training Solutions and seamless services to Ministry of Defence (Armed Forces), Security Forces Police, Para-military forces.
The company manufactures land based military training simulators, driving simulators, Live range equipment and Anti drone Systems.
With a dedicated R&D (recognized by the Ministry of Science and Technology, Government of India) and production facility in Hyderabad, ZENTEC has applied for over 110 patents and shipped more than 1,000 training systems around the world.
2. 200%+ growth in revenue and PAT in FY23
This year has been a strong one, as we achieved our highest-ever revenue.
3. Q1-24 growth momentum stronger than FY23
250%+ growth in revenue YoY
500%+ growth in PAT YoY
Performance for Q1FY24 has set a new record for us in terms of revenue and profitability. This strong performance in the quarter was driven by the successful execution of a significant part of the simulation export and domestic anti-drone orders
4. Order book confirms, FY24 growing faster than FY23
Order book at 2.5X FY23 revenue to be executed in 18 months
Over the next 18 months, I think most of the order will be executed, yes.
Additionally, in July 2023, we bagged orders worth around ₹500 crores. This brings our cumulative order book position to ~ ₹1,000 crores, a figure that exceeds the cumulative turnover of the last whole decade.
5. Outlook: 245% CAGR growth between FY23-25
i. Strong order inflow expected
By before September, we’re going to get few more orders and this order book position is going to build up further and most of these orders are going to be domestic orders.
ii. Growth projections: Obscene growth! Fantastic coming four years
I don’t know how to give that number to you because internally what we are discussing is almost obscene, so I don’t want to share that with you. So, I will not give the number on that but just be assured that we actually feel it’s going to be fantastic three, four years coming four years.
iii. FY24 revenue ~ Rs 600 cr i.e. 3X of FY23 revenue
This year is going to be about three times the last year’s growth.
iv. FY25 revenue ~ Rs 1,200 cr i.e. 6X of FY23 revenue
And next year it’s going to be definitely much more double the size of the current year and we expect more orders to come.
iv. Huge growth visibility till FY27
And I think the next couple of years are already taken care of in that and there will be huge growth and we expect very good growth in the third and fourth year also as per our calculation.
ii. High quality growth: Sustainable margins and cash generation
So, I do think that the EBITDA margins are sustainable. And even if you were to assume that then there will be some pressure or some competition coming up. Or even if the pressure is there I think we should be able to maintain the EBITDA into current margins.
Strong balance sheet with ~ ₹ 275 crores in cash balance as on July 31, 2023
6. Outlook for 245% growth till FY25 at a PE of 82
7. So Wait and Watch
If I hold the stock then one must wait and watch for quarterly results to see if the company is on track to
Execute its order book in the next 18 months from Q1-25 end. Its not a long
Grow to a revenue of Rs 600+ cr by FY 24
Grow to a revenue of Rs 1200+ cr by FY 25
Q1-24 has been excellent and ZENTEC looks to be on track to meet the asking rate for FY24
8. Join the ride
If I am looking to enter the stock then
PE at 82 looks very high
Valuations are reasonable. PE of 82 for 245% growth CAGR in revenue till FY25 makes ZENTEC very attractive
This is a story of 3X FY23 revenue in FY24 which plays out in the next three quarters. So the upside should come quickly.
On the flip side the margin for error is small. One bad quarter and the asking rate will become quite high.
There is a margin of safety in the stock. Instead of delivering 245% revenue CAGR till FY25, if ZENTEC underdelivers and grows at les than half the guided rate say 100% CAGR, even then a PE of 82 provides a safety cushion.
Positions need to be built over time over bad days when the stock is not doing well as the story being told today is expected to play out in four years.
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Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades