Rs 7-To-850 In 10 Years: Defence Stock Zen Tech Rises By 12,130%, HDFC Securities Recommends Buy

Aerospace & Defence company, Zen Technologies has come a long way. In a decade, the stock price which once traded below Rs 7, has skyrocketed to over Rs 900. The maximum level has been Rs 1,000 price. However, currently, Zen Tech faces a few hiccups due to a bearish market tone, which brings in an opportunity to buy this stock.

Brokerage HDFC Securities has recommended buying for a target price of Rs 1,031, which it expects to be achieved in the next 2-3 quarters by Zen Tech. This will be a potential upside of 21.24% in Zen Tech ahead.

On BSE, Zen Tech's share price ended at Rs 851.20 apiece, at its 5% lower circuit with a market cap of Rs 7,153.85 crore. The smallcap was at the intraday high of Rs 908.40 apiece during trading hours of March 13 before correcting.

Currently, Zen Tech is up by 225.81% from its 52-week low of Rs 261.25 apiece, but down by 14.88% from its 52-week high.

The short-term correction makes Zen Tech a hot bet for short-term gains.

Zen Technologies Ltd (ZTL) is a leading company engaged in designing, manufacturing and developing land-based military training simulators, driving simulators, live-range equipment, and anti-drone systems. ZTL has its training platform to provide a realistic battle experience by integrating its entire range of product offerings.

In its latest research note, HDFC Securities highlighted that ZTL's order book stood at Rs 1434 crore as of Dec 31, 2023 (Simulator products Rs. 634.23 cr, Training Simulators & Equipment Rs. 800.2 cr). The book-to-bill stands at 3.6x of TTM Sales, which provides adequate revenue visibility over the medium term. Order inflow in Q3FY24 was at Rs 129 crore and Rs 1309 crore in 9MFY24 vs. Rs 61 crore in 9MFY23.

Further, the brokerage pointed out that ZTL has a success rate of around 80% in winning orders. Its robust outlook depends on the potential opportunities owing to the government's thrust on indigenization in defence and the company expects to be a prime beneficiary of the same given its level of expertise, technical abilities and successful track record of execution. ZTL expects significant growth in the next three to four years and targets to achieve aspirational revenue guidance of Rs 450 crore in FY24E and Rs 900 crore in FY25E.

Analysts at HDFC Securities said accordingly, "Given healthy growth outlook and strong deal intake in 9MFY24, we have now revised earnings and increased the target price for the stock."

On the valuation, HDFC Securities added, "ZTL has a strong position in the anti-drone systems market, with most competitors relying on imported products while the company is fully utilizing its manufacturing capacity for anti-drone systems and has a network of vendors for manufacturing. The company expects to win a majority of the orders in the anti-drone systems market due to its ability to make software and hardware changes to tackle evolving threats. The market size for military training simulators is estimated to be around Rs 15,000 crores."

However, the brokerage also said, "In the simulator market, ZTL is facing competition, especially in specialized products like tank simulators and air defence simulators. With this, ZTL has positioned itself to capitalise on emerging market opportunities by leveraging its inherent capabilities. The company is expected to report strong performance in future, led by its strong indigenization capabilities, healthy order book, promising order inflow pipeline, and strong execution capabilities."

Thereby, HDFC Securities has set a target price of Rs 1,032 for the next 2-3 quarters.

10 years ago, Zen Tech traded near Rs 7 levels on March 13. This stock price is adjusted to its stock split of 1:10 ratio. From March 13, 2014 levels, the stock has skyrocketed by a massive 12,129.88%. But from the stock split of 1:10 ratio which was carried on November 21, 2014, where the stock was near Rs 49.4 levels, Zen has gained by a whopping 1,623.07%.

Zen Tech is also among the top dividend-paying defence stocks. As per Trendlyne data, Zen has delivered up to 18 dividends since September 2006.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.