Zen Technologies: A Growth Opportunity

Drone

Summary of the Business

Zen Technologies presents a unique opportunity for investors seeking to capitalize on the growth of India's defence sector. With over 30 years of experience, the company has established itself as a leader in cutting-edge “defence training systems” and “anti-drone technology”.

Zen's strong financial performance underscores its growth potential. In FY24, it achieved record revenue of ₹430 crores, a 167% year-over-year increase, with an EBITDA margin of 43% and profit after tax growing by 243%. These impressive numbers reflect the company’s scalable, asset-light model, which allows it to maintain high profitability as it expands.

Zen is poised to capture a significant share of the estimated ₹15,000 crores domestic defence training market. The company’s global footprint, particularly in the Middle East and Africa, further amplifies its growth prospects.

Let's Understand What the Future Holds for the Company

Our AI tool analyzed public information on what management thinks about Zen Technologies’s future, and this is what they have to say on the following five parameters:

  1. Revenue Growth: Zen Technologies has set a target of achieving ₹2,000 crores in revenue by FY27, with an expected compound annual growth rate (CAGR) of 50% starting from the next year. For FY25, the company aims to execute orders worth ₹900 crores.
  2. Profit Margin: The company is aiming for a 35% EBITDA margin and a 25% PAT margin.
  3. Fundraising: The company has taken permission to raise up to ₹1,000 crores through a Qualified Institutional Placement (QIP) for potential inorganic acquisitions. Additionally, they are open to opportunistic investments in R&D, which may exceed their budget if a good product idea arises.
  4. Expansion: The company expects to spend around ₹30 crores on R&D for FY25.
  5. Order Book: The current order book stands at ₹1,400 crores, with a high probability of winning an additional ₹900 crores worth of orders. The company expects to replenish its order book with new orders amounting to around ₹1,200 to ₹1,300 crores by the fourth quarter.

The Future Looks All Rosy, But Is It at the Right Price?

The best parameter to understand is the Price to Earnings to Growth (P/E/G) Ratio along with the sustainability of growth.

Current Price to Earnings Ratio: 98

Expected Growth: 50%

P/E/G Ratio: < 2

Whether it is a good buy or a bad one is up to you, but this is definitely a diamond in India’s growth story.

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