Zensar Technologies: Should you buy this stock now or wait for correction?

Zensar Technologies Ltd, whose shares are up 28 per cent from April low, posted strong June quarter results, with revenue rising 1.9 per cent in constant currency (CC) terms sequentially to $162 million, above analyst estimates of 1.3 per cent CC QoQ growth.

EBIT margin of 13.5 per cent, down 35 bps QoQ, was in-line with estimates. PAT came in at Rs 182 crore, above MOFSL and Nuvama’s projections. Total contract value (TCV) too was decent at $172 million, up 11.7 per cent YoY. Following its Q1 results, MOFSL and Nuvama maintained ‘neutral’ stance on the stock on valuation concerns, given the recent sharp rally on the counter. 

“We believe macro headwinds and deal softness may weigh on Zensar’s near-term growth. While the TMT vertical is showing early signs of recovery, we await sustained traction before turning constructive. We broadly maintain our estimates. We expect FY26/FY27 Ebitda margin estimates at 15.5 per cent/15.6 per cent, resulting in a PAT CAGR of 10% over FY25–27E. Our target of Rs 750 is based on 21x FY27E EPS. Reiterate Neutral,” MOFSL said.

Zensar Tech retained its guidance for mid-teen margins for FY26. But the roll-out of wage hikes and ESOPs could weigh on Q2.  “While cost optimisation initiatives are underway, the realization will have a lead-lag effect. In our view, a rising offshore mix should offer some margin support. We estimate EBITDA margins at 15.5%/15.6% for FY26E/FY27E,” MOFSL said.

Nuvama said Zensar’s growth was broad-based and management expects to grow faster in FY26 than FY25. It made minor cuts to FY26E/27E EPS due to higher ESOP costs.

Nuvama has raised target multiple to 25x (from 20x) FY27E P/E, on improving growth trajectory. Nuvama revised target is Rs 850 (earlier Rs 700). Retain ‘HOLD’ as the recent sharp run-up leaves valuation (24x FY27 PE) with limited upside potential.

Zensar’s TMT, Healthcare and BFS verticals grew 6.2 per cent/5.3 per cent and 4.6 per cent QoQ. Manufacturing & consumer fell 2.1 per cent QoQ due to the impact of the tariff led uncertainty. Despite remaining uncertain of the impact in coming quarters, the management expects growth in Q2. The average tenure of the deal wins increased with more complex and high quality engagements including managed services.  AI drove 30 per cent of the active pipeline and 20 per cent of the order bookings consists of AI influenced. Margins were hurt by investments.

The management highlighted wage hike effective July 1, which will have an impact of $3 million in Q2 and continue to aspire for mid teen margin range. Furthermore, the management plans to launch ESOP program for senior leadership in coming quarter although it did not quantify the impact. 

Utilisation was 84.3 per cent, up 40 bps YoY, with a net headcount reduction of 82 employees in Q1 while attrition reduced to 9.8 per cent. The management remained committed to QoQ revenue growth in every quarter of FY26 and aspires for higher growth in FY26, over FY25.

Nuvama said Zensar delivered better-than-expected growth along with strong deal-wins. That leads to an upgrade in growth estimates – which gets mitigated by lower margin assumptions due to ESOP expense. All along, Zensar is trading at 24x FY27E PE—significantly higher than its historical average (16x, ten years) – rendering the risk-reward unfavourable. While Nuvama retain ‘HOLD/SU’ on valuation concerns, it said it would watch out for any stock price correction, for opportunity to turn buyers.