Stock to Buy For A 40% Upside, Following This Week's Market Crash

Benchmark indices crashed in trade this week, dropping nearly 4% for the week. This has left investors with the opportunity to buy into stocks at lower levels. Here is a stock that is being recommended by Motilal Oswal and can rally up to 40% from these levels.

Zensar - a good long term stock buy

Current market price	Rs 423
Target price	Rs 600
Gains	41.82%

Zensar helps to design, deliver, and grow digital products, services, and experiences to transform business. It also provides businesses speed and advancement with its cloud-native, full-stack, and data-driven practice. It also provides data Engineering and analytics strategies.

Zensar reported a strong 2QFY22 with a USD constant currency revenue growth of 12.3% QoQ and organic constant currency growth of 6.4% QoQ, ahead of Motilal Oswal's estimate. EBIT margin declined by 300bp QoQ to 10.9% due to a salary hike and other supply-related factors. Deal TCV witnessed a strong recovery to USD188.5m (v/s USD97mn in 1QFY22), implying a book-to-bill ratio of 1.3 times.

Management commentary remains optimistic

According to the management of the company as highlighted by the Motilal Oswal report, growth was broad based across verticals. Its largest vertical - Hi-Tech and Manufacturing - has three sub-verticals of Hi-Tech, Manufacturing, and Emerging. The management has re-designed the vertical in terms of strategy and new offerings. The new operating structure is ready, and there will be an additional leadership team onboarding in 3QFY22.

The management expects the growth momentum to continue. However, 3QFY22 would have a seasonal impact from furloughs. The City of San Diego deal has been partially ramped up in 2Q and will witness a full ramp up in 3QFY22.

Valuation and view of Zensar

According to Motilal Oswal, the current valuation of 20x FY23E EPS is one of the lowest in its midcap coverage and is at a discount of 45% to its peer median valuation.

The brokerage expects revenue growth momentum to continue in 2HFY22 and FY23. "The new CEO led leadership team is in place and its growth strategy has delivered results. We expect sustained traction, despite margin falling to mid teen levels. The management expects margin to revert to high teens in the medium term. With a likely return to high-teens organic growth in FY23E (we estimate 19% YoY) on a good FY22 exit and a recovery in key accounts, we see potential for a significant stock re-rating as valuations catch up with its peer group," Motilal Oswal has said.

Shares of Zensar was last seen trading at Rs 423 on the NSE.

Just a word of caution to our readers. While we do recommend stocks from brokerage reports, markets at these times are highly volatile due to detection of the new Covid variant 'Omicron. Therefore, it is prudent not too invest lumpsum amounts at current stage.

Disclaimer

The stock of Zensar has been picked from the brokerage report of Motilal Oswal Financial Services. 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.