Zen technologies - A micro cap in the defense space!

Starting a new thread on a defence based micro cap Zen technologies

They basically prepare simulators in the defence sector primarily landbased as of now. Here are a set of links all should go

  1. Please go through this interview
  1. Please read through the future of the simulator industry in India


  1. Several videos on the simulator technlogies you will find in the media section on the company website.

Here are some viewpoints to kickstart the discussion.

  1. The current sales is just around 80 crores.
  2. The land based simulator potential over the next 4 to 5 years is more than 5000 crores.
  3. The fastest growing section is in the aviation space. Zen is foraying into it with typing up with Rockwell Collins
  4. The CMD indicated that they are at advanced stage of negotiations for a 500 crore order (5x of current turnover).
  5. Huge operating leverage in play (Above 100 crores operating margins go up to 30 percent).
  6. The CMD indicated they they could make a stake sale of 24 percent to strenghthen their products especially in the aviation space.
  7. The make in india push and defence offset clauses have made a sea change on the environment in the defence industry.

Key risks:

  1. Since the customer is essentially the Defense ministry, there are long turnaround times. Defense ministry is infamous for being a den of corrupt practices.
  2. The sales can be extremely erratic on a year to year basis.
  3. There is an amount of pledged shares by promoter. (However to add they are repaying their loans taken basically for UAV simulator project from TDCI.). Net debt on 31 st march is almost zero.

Disclosure : Invested.


Director Ravi kumar is taking pay of only 30Lakh Rs which is very modest for 20Year experience and he owns 8 lakh shares.
Ashok Atuluri took 1.4Cr salary in 2012 when they were in profits. 2013, 2014 he took only 30Lakh
Management looks to be honest and incentives are tightly coupled with performance.


The company looks conscious on preservation of value by keeping the equity at a relatively low level of Rs 7.7 Crores from Rs 8.888 Crores through a buy back of equity during 2012 -2013 .
Expenses for R&D constitute 40% of sales which amount is stated to be written off as expenses rather than capitalised . Management looks transparent and honest in a sector known for its not so transparent practices .

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Here https://www.screener.in/company/ZENTEC/ in the Pros & Cons it’s written that the promoter’s stake is down & promoter’s stake is up.

What’s going on here?


Hyderabad-based listed entity Zen Technologi­es, which designs, develops and manufactures training equi­pment and simulators for weapons and allied defence systems, is looking to set up combat training centres (CTCs) in four countries.

Through these, it will provide combat solutions through simulators and ot­her components, its ma­naging director Ashok At­luri, said.

“The focus is on CTCs for individuals and group training to officers and soldiers. The training ra­nges from basic marksmanship skills to tactical training under various settings, including rural and urban terrains, with different ty­pes of weapons. Th­rough these we can give full-fle­dged services. We are in ta­lks with four co­untries,” he said.

Zen, operating for over two decades, has been a prime contractor to the Indian Army. It has supplied over 600 simulators to over 100 customers, including the three armed forces, state and central police forces of India and other countries. It has also forayed into annual maintenance contracts.

“We are operating in a niche area. Earlier, the cycle times used to be longer, ranging from five to seven years. But now they have reduced to around three to five years,” he said. For exports, it needs a no-objection certificate and an end-user certificate to ensure that the simulators don’t fall into the wrong hands.

Disc: Not invested. On watchlist.

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I have been looking at this company too. I am a little concerned about their receivables. Last year the revenue from operations was 72 cr while acc. rec. was 62 cr.

The payables was approx 18 cr(including payables in ‘other current liabilities’) while their SG&A was 32 cr.

Also the management has been over optimistic about its exports business since more than a decade now but it hasn’t materialized.

There is a sea change in the defence industry from the UPA days to the present ‘Make in India’ thrust by the NDA Government.
So hoping that many more contracts will come there way as they not only produce but also design their products in India.

thanks @hrishikesh for initiating post.
MAIN BUSINESS of ZEN TEC: design,develop and maintenance of training Simulators for Indian army, Police/ Para-military Forces and mining.
Has more than 30 simulators developed indigenously.list of products can be found at company website/annual report.
Latest product is combact traing centre(CTC) which was demonstrated at Def expo show 2016. CTC offers comprehensive and flexible training solution to meet Individual and collective training requirement. company seems to be more optimistic on this product.
It invests lot of money in R and D for the development of simulators.Amount spent on R and D is significantly high compared to its revenue.
2016 58 7 2.3 14.5
2015 81 24 15 13
2014 49.8 4 0.09 20
2013 37 9 4.7 11
2012 101 64 31 8
latest order book(as per AR 16):76 Crs.Almost entire order book includes Annual maintenance costs only(almost no sale of simulators)
Investment thesis:
Change in govt policy:
DPP 2016:
1.A new category Buy Indian (IDDM – Indigenously Designed, Developed and Manufactured) has been introduced and it will be given first preference.
2.Increase of indigenous content under Buy Indian(iddm) category from 30% to 40%. Under Buy and Make Indian category the requirement of indigenous content has been raised from 30% to 50%.
3.Single vendor situations:Previously Ministry of Defence was insisting for having at least two vendors even under Buy Indian category. The new DPP ensures that even if single vendor situation arises at bid stage, the procurement will be concluded, if the product qualifies and due process is followed.
4.Make Procedure has been modified to ensure that smaller companies participate as Developing Agency One encouraging feature for all the make projects where the product development is successful is that if the Government does not place the order within 24 months of developing the product, the Government will refund 100% of contribution made by the industry. This increases the Govt’s responsibility tremendously and insures the risk taken by the company.
Zen tech developing most of it products indigenously will benefit from this policy.
ZEN was mainly focused on simulators for land forces. From 2014 it started developing simulators for INDIAN AIR FORCE . It has MoU with ROCKWELL COLLINS USA for the same. Zen tec has displayed few products like rotary wing simulator,anti aircraft defense simulator for Indian air force at aero India 2015.
Many years of efforts on export seems to be bearing fruit now. It has recently received order from EGYPT for 30 Cr. Zen-Technologies-Egypt-Order-Business-Standard.pdf (132.8 KB)

1.Changes in Govt policy.
2.As the sales depend on Govt orders the sales are going to be lumpy/bumpy with lot of quarterly/yearly variation.
3.DPP policy: Increase in offset threshold to 2000 cr from 300 cr for foreign vendors. Offset is the foreign vendor’s obligation to source locally (buyer’s country) some items, amounting to certain percentage of the contract value, that go into the building of the purchased product. ZEN was actively looking for tie ups with foreign vendors as local partner . But with increase in offset threshold its not mandatory for a foreign vendor to tie up with local partner if the order is less than 2000 Cr.
4.Acceptance of its products by armed forces in pretty unpredictable. Even though it has developed more than 30 products how many of them was really accepted and sold is question.
5.Can it be a long term investment bet? Annual maintenance contract can provide regular income but most of the revenue is from sale of its products.Most likely it will be opportunistic bet only.
6. Company was trying to enter into european market from many years but it has not materialised.

Govt tenders:
I was searching for govt tenders for simulators . Found two tenders placed recently in which Zen tec is one of the bidder.eProcurement System Government of India2.pdf (103.6 KB)
eProcurement System Government of India.pdf (103.4 KB)
1.Need to search /keep eye on these tenders.
2.Asking management through mail about their planned bidding for any tenders.
3.In annual report they have mentioned that they are in the final stage of bidding worth 200 cr. what happened to the bidding?
4.what products are they looking to materialise. what is the worth recent CTC product .
( I have prepared my notes based on company annual reports/few articles/dpp policy. I may be biased/wrong in many aspects. Requests seniors to help in analysing this company)


Two insiders transfered shares. Check here https://www.valueresearchonline.com/stocks/snapshot.asp?code=15898&utm_source=direct-click&utm_medium=stocks&utm_term=zen&utm_content=Zen+Technologies&utm_campaign=vro-search

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It’s one of the very few Indian defence company with credible products. Regardless, I have my apprehensions on investing in defence companies specially micro-mid cap. The defence acquisition process is long and unpredictable with several stakeholders having divergent intents. 1) Does it has the staying power for the continuous fight and wait game? 2) Even if your products are best, it has to be lowest priced (L1). 3) In many cases even the best placed company/product might not win (unscrupulous forces) 4) Do we have any information on how indispensable are their products to the users? and what are the benefits/advantages of their products or simulators in general to the users (in terms of cost savings, time savings, reduction in accidents etc).

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Simulators are definitely helpful in cutting down the cost of training and time saving.
Question is effective they are in defence field?
Most important is to ask why Zen tech was not able maintain or increase its sales even after developing many new products.One answer may be delay in orders from army . But these simulators can be used at police /other security forces. Why they were not able to sell it’s products to varoius state govt police forces.?

The only company in India manufactures SIMULATOR Products. If the 4k Cr current orders in pipeline comes, then this stock with 5x valuation also looks cheap, Just wait for Budget announcement / Confirmation or orders from company.

dont think this is the only company …sankhya infotech also does something similar though not as advanced as zen…

@rishi0755 - Other companies are there as well. Axiscades, Vrinda are the known names.

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Thanks @narendra for useful links on tracking tenders.

Zen has emerged as the L1 bidder in one of these although AOC (award of contract) is yet to announced.

Good to see traction on simulator tenders. Expect lot of activity in the coming months.

Note: Edited to remove public references of defense tenders.

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zen tec is L2 in another tender for simulators

@Prdnt_investor @narendra Rudra/Narendra - The tender for which Zen has emerged as L1, the value listed in there is mere 1.45 cr. Is this for the whole tender or just a unit value (per simulator)? I tried opening the technical/financial summary documents, but couldn’t find what i was looking for. Any thoughts?

Similarly, the tender for which Zen is L2, the value for the bid is just 1.12 cr.

So are these tenders this small? Or this is per unit value?

hello @Mridul yes, I believe they are bidding for multiple tenders for different Defense units. There won’t be a single order worth 200 Cr but many smaller ones. It is difficult to search and locate most of these tenders, Zen has bid for in the last 2-3 years. Some of the tenders like the 81 MM MOR Simulator are slightly bigger. You can estimate from the EMD (earnest money deposit) amount.

Only way to track these, is to periodically visit the govt sites and keep updating the status of currently bid tenders. I am planning to put these on a shared google spreadsheet so that we can collaborate on this.

@Prdnt_investor Rudra, Instead, won’t it be better if we write to the company to know the tenders they have participated in over last few years and the opportunity size? Investment rationale here is solely based on new order wins as the current order book is sufficient for only next 6 months.

We are simply relying on mgmt guidance of 500 cr orders and stuff. But what happens if these award decisions are delayed or if they do not win these (although they claim they won 90% of the tenders they bid for)?

For small investors, this data point is extremely crucial. We can just ask them for tender ids, and we can take our research from there.

Few upcoming tenders in which Zen specializes -

Procurement of 81 MM MORTAR Simulator, Qty-15 NOs through online Global Tender


http://tenders.gov.in/innerpage.asp?choice=tc5&tid=andp883860&wno=1 (NOT SURE IF THIS IS RELEVANT TO ZEN)