1 Speciality Chemical & 1 Multibagger IT Stock To Buy Post Q3FY22 Results

Zensar Technologies and Sudarshan Chemical Ltd have both received a buy call rating from brokerage company ICICI Direct. Following the release of their Q3FY22 statistics, the brokerage expects these stocks to provide exceptional returns over the next 12 months.

Zensar Technologies Ltd

ICICI Direct has said in a report that "Zensar's share price has grown by ~2.7x over the past five years (from ~Rs 170 in January 2017 to ~Rs 410 levels in January 2022). We continue to remain positive and retain our BUY rating on the stock. We value Zensar at Rs 525 i.e. 20x P/E on FY24E."

Q3FY22 results according to the brokerage

• Revenue grew 4.7% in CC terms while dollar revenue grew 3.7% QoQ.
• Earnings before interest and taxes (EBIT) margins declined 110 bps QoQ to 14.3%.
• Digital services contribute 71.5% of revenues.

Key triggers for future price performance of Zensar Technologies as per the brokerage

• Zensar is addressing key shortages of the past; the new CEO has devised a strategy to focus on the experience side and build capabilities in digital engineering, data, artificial intelligence and machine learning.
• Driving deal momentum, annuity revenues, increasing investment in sales & talent, leadership and tuck-in acquisition to build capability bodes well for long-term revenue growth.
• Expect dollar revenue compound annual growth rate (CAGR) of 12.3 over FY21-24E.

Sudarshan Chemical Ltd

According to the brokerage "The stock appreciated at 19% CAGR in the last three years. We maintain our rating to BUY on the back of a better growth outlook from speciality pigments. We value Sudarshan Chemical at 27x P/E FY23E EPS to arrive at a revised target price of Rs 695/share (earlier Rs 735/share)."

Q3FY22 results as per ICICI Direct

• The top line came in above estimates due to better volume growth while the bottom line remains almost in line due to margin pressure.
• Reported revenue growth of 18.8% YoY to Rs 601.8 crore, led by higher growth from pigments (up 17.4% YoY) & engineering (up 85% YoY).
• Gross margins fell 230 bps YoY to ~40.5% while earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin contracted 340 bps YoY to 12.3%, due to higher operating costs like others (+30.2% YoY).
• EBITDA declined 7.2% YoY to Rs 73.9 crore.
• Profit after tax (PAT) was down 7.1% YoY to Rs 36.4 crore.

Key triggers for future price performance according to the brokerage

• Upcoming capital expenditure (CAPEX) bodes well for speciality pigments revenue growth.
• The higher share of the value-added business portfolio is expected to improve the margin profile of the business.
• Allocation of incremental free cash flow (FCF) towards organic/inorganic growth is likely to expand return ratios further.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.