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Zensar intrigues me from a stock picker’s perspective. We probably saw the worst in rupee appreciation over the past year and one would have expected Zensar to report a decline in top line, bottom line and margins. Something interesting happened instead: the company reported a 29% increase in top line, a 12% increase in bottom line and only a 100 basis points decline in its posttax margin.
This is what I like about Zensar which has a market capitalisation of Rs 360 crore:
• The company is globally respected; it figured in the Fortune top 10 global offshore outsourcing companies from India (International Association of Outsourcing Professionals).
• It possesses impeccable quality credentials; it was the first company in the world to graduate to the Enterprisewide SEI CMM Level 5 in 1999; it moved to the CMMi Level 5 in 2004.
• It has nearly no net debt on its books.
• It has a presence in the insurance, retail, electronics and telecom verticals across customers like Credit Suisse, Ivestee, AIG, Aegon, Liberty Life, Marks and Spencer, Sainsbury’s, Doxons, Tesco, Franklins, 7-Eleven, Cisco, EDS, Logitech, Fujitsu, P&O Nedlloyd, Singtel, npower, National Grid and KPMG among others.
• It enjoys a presence across the global delivery platform, SBP led solution development, product engineering, embedded systems and business-IT consulting.
• It derived an average billing rate increase of around 5% and the company indicates that new clients are coming in at good billing rates.
• Its US revenues were placed at 50% of turnover sustained by a robust order book in addition to growing Asia-Pacific revenues.
There is something about the sequence of results over the past few years that tell you a little more about what is happening at the company:
• The company’s customer acquisition momentum is accelerating—the increment in customers over the past six years has moved from 28 to 18 to 19 to 32 to 46 to 73 (total 273, nearly 85 customers providing annuity revenues and the rest providing projectbased income). The biggest increase has happened at a time when its competitiveness should hypothetically have been the weakest.
• This increase has been correspondingly reflected in an increase in revenues momentum as well. Not only have the company’s revenues climbed steadily over the last six years, the quantum of the increment has also been increasing.
What has got me interested is that the realised dollar rates for the January-March quarter was Rs 40.20 and the company has projected a top line of Rs 950 crore for 2008-9 and a bottom line of Rs 80 crore against an exchange rate of Rs 39.
So that’s a case of having been hammered down unreasonably on the expectation of bad news and the phenomenon not correcting when the bad news turns to good. The dollar has now crossed Rs 42. Zensar is an opportunity waiting to be grabbed.
Patherya heads Trisys, an annual reports consultancy. His column identifies stocks that are not in the limelight
He can be reached at mudar@trisyscom.com
