HDFC Securities Pick of the Week 04th Jan'26: Zensar Technologies Ltd

HDFC Securities has selected Zensar Technologies Ltd. (NSE: ZENSARTECH) — a mid-sized IT services and digital engineering company — as its Pick of the Week. The brokerage recommends buying the stock in the ₹685–715 range and adding on declines in the ₹625–640 band. HDFC Securities has assigned a base case fair value of ₹770 and a bull case fair value of ₹830 over a 2–3 quarter time horizon, supported by improving deal quality, rising AI-led engagements, stable execution across core verticals, and margin stabilisation through utilisation improvement and cost optimisation.

2FY26 Result: Steady Performance, Selective Deal Momentum

Zensar reported stable operating performance in Q2FY26, with revenue in line with expectations and profitability marginally ahead of estimates. Growth was supported by BFSI and Healthcare, while Telecom, Media & Technology remained weak.

Key Financials — Q2FY26

• Revenue: ₹1,421 crore; up 8.7% YoY and 2.6% QoQ
• EBITDA: ₹220 crore; up 9.5% YoY with margin at 15.5%
• Net Profit (PAT): ₹182 crore; up 17.0% YoY and flat QoQ
• Order Wins: US$158.7 million; book-to-bill at ~1.0x
• AI Influence: ~28% of order bookings driven by AI / GenAI

Revenue growth in H1FY26 stood at 8.1% YoY, while EBIT and PAT grew by 11.5% and 16.1% YoY respectively, indicating operating leverage and cost discipline.

Strategic Growth Drivers and Key Strengths

1. Transition to AI-led and Digital-first Engagements

• • Zensar’s GenAI platform ZenseAI influenced ~28% of Q2FY26 bookings and ~30% of the active pipeline.
  • Over 50% of employees are trained in AI/GenAI, with enterprise-wide adoption accelerating.
  • AI is embedded across legacy modernisation, automation, analytics, and managed services.

1. Improving Deal Quality and Pipeline Visibility
   • Deal tenures are increasing with a shift toward managed services and outcome-based contracts.
   • Active client base expanded to 171 customers, with rising contribution from large accounts.
   • Order book quality improved despite some deal deferrals in Q2.
2. Sectoral Strength in BFSI and Healthcare
   • BFSI revenue grew 11.0% YoY and 5.6% QoQ in reported currency.
   • Healthcare & Life Sciences grew 11.3% YoY and 3.9% QoQ.
   • These verticals are expected to remain the primary growth engines.
3. Margin Stability and Operational Discipline
   • EBIT margin remained stable at ~13.4% in Q2FY26 despite salary hikes.
   • Utilisation improved to 84.8%, while subcontractor dependence declined.
   • Management expects margins to remain in the mid-teens over FY26–FY28.
4. Strong Balance Sheet and Cash Position
   • Zensar is net cash positive with ~US$316 million in cash.
   • The company remains debt-free with consistent free cash flow generation.
   • Cash supports dividends and selective acquisitions.

Valuation & Recommendation

HDFC Securities’ Estimates

• Base Case Fair Value: ₹770
• Bull Case Fair Value: ₹830
• Time Horizon: 2–3 quarters

Recommendation

• Buy in the ₹685–715 range
• Add on dips at ₹625–640

Growth in AI-led services, stabilisation in core verticals, improving deal quality, and operational efficiency underpin the valuation outlook.

Risks & Considerations

• Deal delays due to macro uncertainty
• Client concentration risk (top 5 clients contribute ~27% of revenue)
• Pricing pressure from competition
• Talent retention and wage inflation
• Currency volatility impacting export earnings

HDFC Securities’ View

Zensar Technologies is transitioning from a traditional IT services provider into a digital-first, AI-enabled engineering and consulting company. While near-term growth remains selective, the improving quality of deal wins, expanding AI adoption, and strengthening presence in BFSI and Healthcare provide medium-term visibility. A strong balance sheet, stable margins, and disciplined execution position Zensar well for sustainable growth, making the stock attractive for investors seeking exposure to mid-cap digital and engineering services over the next few quarters.