Defence stock: Zen Tech shares tumble 10% after Q3 miss; what's next?

Defence stock Zen Technologies Ltd hit its 10 per cent lower circuit limit on Tuesday morning, as December quarter results failed to meet investor expectations, thanks to delays in booking of certain contracts. Zen Tech has underperformed broader indices of late, falling a massive 60.77 per cent in 2025 alone, amid concerns related to growth visibility, order inflows, and acquisition plans. MOFSL and ICICI Securities, however, maintained their 'Buy' call on the stock, with target prices that suggests up to 96 per cent potential upside ahead.

On Tuesday, the stock fell 10 per cent to hit a low of Rs 971.50.  "The sharp correction in the stock price over the past one month provides good opportunity for investors as broader fundamentals remain unchanged. We believe the fall in the stock price is mainly market driven and because of uncertainty around order inflow. In its Q3FY25 concall, management maintained guidance for FY25: Revenue of Rs 900 crore, Ebitda margins of 35 per cent and PAT margin of 25 per cent," said ICICI Securities.

Based on the uncertainty lingering over the order inflow, it reduced target multiple on the stock to 35 times from 45 times and suggested a new target of Rs 1,970 against Rs 2,535 earlier.

The company, which offers defence training and anti-drone solutions, reported a 22 per cent year-on-year rise in standalone net profit at Rs 38.62 crore on 44 per cent YoY rise in revenue at Rs 141.52 crore. Ebitda target of 35 per cent and PAT margins of 25 per cent by the end of the financial year.

The company's order book stood at Rs 816.91 crore as of December 2024. The share of training simulators and anti-drones in the total order book stood at 48 per cent and 52 per cent, respectively. The training simulators’ order book comprised a majority of orders in the domestic market (76 per cent), while the anti-drone systems order book is more inclined towards the export market (55 per cent).

MOFSL noted that the anti-drone market is becoming crowded with an increasing number of players but Zen has the advantage of full backward integration across seeker, detector, radar, camera, as well as both hard kill and soft kill, which others don’t have as of now.

Following the Q3 results, MOFSL cut its estimates by 4-22 per cent for FY25-27. This brokerage revised its target multiple for Zen Tech downwards, as the company was earlier getting a higher valuation multiple for growth, which is looking weak till FY26.

"Beyond FY26, we expect overall ordering to improve from large-sized simulator orders, recent acquisitions, and MoUs, as the company’s overall capabilities are being enhanced across simulators, anti-drone, and other new areas," MOFSL said.

That said, due to delays in the finalisation of tenders, execution may remain impacted in the near to medium term, MOFSL said while maintaining 'Buy' with a revised target of Rs 1,600 based on 30 times March 2027 earnings.

The management said a few new orders are in the final stage of discussions and will start getting finalised in the next 2-3 months. Further, the company expects a sharp ramp-up in orders beyond FY26 on an overall increase in ordering as well as a wider TAM from the newly acquired companies.