Zen Tech share price targets cut after soft Q1; key trigger ahead

Defence stock Zen Technologies Ltd received fresh target cuts following a soft start to FY26. A couple of brokerages believe stock valuations look expensive, especially given the hazy visibility on earnings post the June quarter results. MOFSL slashed its earnings estimates by 22 per cent for FY26 and 18 per cent for FY27 to factor in the impact of the current temporary slowdown on near-term execution. Nuvama downgraded the stock to 'Hold'. 

Zen Technologies' Q1 results were muted given a slowdown in order inflow momentum that persisted for a fifth quarter in a row. Consolidated order backlog is now at Rs 754 crore, which is 0.7 times FY25 sales. This is against Rs 1,160 crore in June 2024.

Nuvama said this remains a key concern for future growth visibility. The management stays hopeful of Rs 650 crore order inflows in Q2FY26 coupled with US/NATO exports optionality and India’s defence emergency procurement orders throughout FY26.

"Downgrade to ‘HOLD’ as we find an approaching earnings trough with a recovery likely only from H2FY27E (if and when ordering picks up). We are cutting FY26E/27E EPS by 8 per cent/19 per cent and target PE to 40x (earlier 45x) with rollover to Sep-27E for a target price of Rs 1,800 (earlier Rs 2,170)," Nuvama said.

For now, the management maintains its previous guidance of 50 per cent CAGR in revenue, achieving cumulative revenue of Rs 6,000 crore over FY26-28, with Ebitda margin and PAT margin of 35 per cent and 25 per cent, respectively, across the years. The management expects this to be supported by pick-up of regular procurement cycle; finalisation of emergency procurement orders; and increased exports across Africa, the Middle East, the US & Latin America, CIS countries, Southeast Asia, and NATO-aligned countries.

The Zen Tech stock currently trades at 56.7 times its FY26 EPS and 36.2 times its FY28 earnings. 

"While we remain positive about the company and its ability to capitalize on upcoming demand for simulators and anti-drones, our estimates and current valuations capture the positives related to upcoming orders and correspondingly a 28 per cent PAT CAGR over FY25-28," MOFSL said. 

This brokerage factored in the June quarter performance and arrived at a revised target of Rs 1,650 (from Rs 1,850 earlier), based on 30 times September 2027 earnings. It maintained 'Neutral' on Zen Technologies.