Problem is management forever talks too big so investors expectations are also extremely inflated. Worth watching the order book for Axis Cades as well as they compete with Zen Tech in the Counter Drone space…
Management guided 50% cagr from fy25.
Hence, fy26 projected should be 1350cr and fy27 to be 2000cr.
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I think Market derating of High PE companies quite sharply has made everyone nervous (including myself)
I was evaluating company on Walk the talk metrics which is becoming more important in current market cycle
- US Investment of around 80 crores (Q2 question), they did well here - 10 mil USD investment
- US business - Some partnerships announced - On Track, need to track more steps
- Order Book - They said some 100 crores will come in end of Q3/Q4 (looks lesser here.Q2 concall answer) and we need more inputs for q4 as Rev aspirations for approx 1350 crores for FY26
- Acquistions - Looks of it - its in adjacent areas of other forces ( apart from Army) - Need to understand their views on this - But inline with what they guided 1 or 2 Qtrs back
Acquistion and US upside revenue (FY27 majorly) is NOT factored in 50% CAGR projections as per Q2 FY25 concall
- Margins Down this Quarter looks more to Product Mix/Other Income/Delays etc - Need to clarify
- Anti-Drone - Axiscades looks better there in India atleast, may be we need to understand whats their positioning in India in this space as margins are around 10% lower here compared to Simulators
Invested from a year
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The revenue , ebitda and PAT required for Q4 as follows :
The management seemed confident of achieving 900 cr top line with 35% OPM and 25% PAT mgn. Despite the slowdown in Q4 going by the confidence of Mr. Atluri, I believe this is doable .
With c. 150 cr out of the 1000 cr Qip , they have bought 1 company and acquired stake in 2 smaller ones in the naval simulation, drone propulsion and robotic space. The acquired company ARI , had a FY 25 revenue of c. 100 cr which will also add up from FY 26.
The open order book which used to be c. 1400 cr a quarter back has depleted to c. 800 cr with no additions in Q3. The pertinent question is
**Have they lost any orders to competition or no orders were awarded in the last 2 quarters in the Defense space ? **
If it’s a case of policy slow down , then there is a case of Zen getting order wins including the backlog .
At the current price of ₹1350 zen is trading at 58 PE and 12,000 cr mkt cap.
Disc: Invested . Waiting for the mgmt commentary
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Fact of the matter is, I am not as concerned about a rather tepid Q3. For such companies, it is very common. I just need assurance on order intake. We all know how Zen Tech revenues were before the large influx of orders. Now 850 cr can go on for 3 more quarters, but beyond that it start to gets very scary
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The stock was beaten today with a 20% LC
I heard the concall now and below are my observations:
- On order book - they acknowledged that the flow of orders has become very slow (post elections). They are expecting order flow to resume from Q1FY26. They are saying the demand/order book has only got delayed - they still expect 50% CAGR growth in next 3-4 years, they will catch up in FY26/27 with higher growths
- Margins - they said the acquired companies have lower margins hence the margins have gone down. Do not know if this is a permanent thing now.
If there are no order flows in next 1 or 2 quarters, the stock may go down further 20-30% (to 700/750 levels). Concerning as of now.
Invested
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Few additions on concall inputs
- Margins will be maintained after integration with Zen for Acquisition companies
- Drone Company(Vector Technics, applied for Patent on Drone motor products ) Acquisition will be selling subsystem to other Drone company and export from FY26 ,
may be 50 crores odd in couple of years to current rev of AntiDrone systems in terms of scaling - Naval systems acquisition (Applied Research International, Owner is friend of Zen MD )company has Rev of around 100 crores with ebidta of 17-18 crores and 12-13 crores pat currently,their Order book is also around 100 crores, eventually they may do joint product development considering synergies and sell at Zen margins eventually
- US Business is more to do with getting more business from existing customers via Make in America and to NATO countries majorly is my reading
- Other Income is FD interest on QIP amount, Q3 had some deliveries moved to Q4
50% Cagr for few years is conservative estimate with FY26 being slow growth year due to 800 crores (due to elections & other reasons) domestic order being pushed to FY26 instead of FY25
Other Acquisitions company products will be demoed in next Concall
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You may go through this, has been recently uploaded:
If it doesn’t work directly, you may go through the top most link under below webpage:
It will be just 2 quarters. Out of 800cr order book, only about 500cr is new equipment sales to be executed soon, others are for AMC.
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If there is so much demand for Zen’s product why dont they have enough orders.
Everything they do is game changing. It almost seems like they plant these stories in the press. If its game changing why are people not placing orders?
When management is giving guidance they should take into account potential delays in order wins. I see they have a total disregard to downside risks while communicating about growth prospects. They said 900crs of revenues in FY25 and 50 to 60% growth post that.
Now when they miss numbers they will tell you, what can we do if the orders were not placed.
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My reading is it looks like they are still dependent more on Domestic business and its more with Govt, until and unless they go agressive in Sales on Exports and invest for long term (which is always missing in the case with most Indian companies example Ramco in ERP 20-30 yrs back)
To think of it , export Market they are mainly to Middle East, CIS , India friendly nations based on below inputs on concall in Feb 2024
To myself, its NATO countries which may move the needle on Growth from Make in US in FY27 onwards
Also, if you notice, they are Slow moving into Adjacent areas of Naval and AirForce Simulation and even Drones too , so to complete wide variety in Defense portfolio
Some insights came from Feb 2024 concall
One is from a strategic road map perspective, you are saying you will export to 50%, but
what’s our right to win against the global competition, because India, I think your positioning
is like you own the IP, your policies are favoring, but what’s our thought process regarding
that?
Ashok Atluri: So, this is what I said in the earlier question, somebody said how far. For the first 20 years of
our life, any preference from the Indian government actually, say two statements that were
made, I want the best for my boys, and the second was, there is no runner-up in war. And
these two sentences were used to buy the best equipment that was available. And they said,
this is the only way to go. And there is one country in the world that used to say that even if
my country’s company is 60% good, we will buy from them because that will allow me to
reinvest and make me a better system. And India has been following this policy forever, we
want the best, no runners-up policy. And this country-B, which was following this 60% is
enough, some kind of functionalities and I’ll buy only from my country’s company was
Israel. You see where Israel is today in terms of products and in terms of technology and
where India was some eight years back. Today, we are playing a catch up game. We are
trying to becoming number one in many categories. For a land for the simulators, India is
number one and of course, Zen is the major reason for that. But there are other things also
where we are emerging as number one. So, the export, when we go, the thing is that we are
absolutely the number one, only thing is there will be more political reasons. For example,
you cannot sell to any of the NATO countries if you are outside NATO. But these guys will
come and preach us, you should have open policy for importing defense equipment into
India. But now what is happening is that what about the other countries like Africa, Middle
East, CIS countries, Southeast Asia, they would love to buy from a country like India once
you are able to prove the quality and say, listen, our quality is better, we are competed with
them, and these are our products, they would love to buy from us. Because India is not only
in terms of quality and technology better than those companies but also we are a more
reliable partner to them. So we think that export is a very, very major growth and if we then
play cards, the growth projection that I’m giving will look like a joke after some time, they
will be much, much higher than what we are projecting.
Disc : Sold out recently, will look at add later once see clarity on acquisitions roadmap and Order book increase
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FINALLY, some order win finally coming through. Still too small but progress is progress.
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L70 AA guns upgraded by Zen Tech mainstay of our Air Defence against the drones.
https://www.indiatoday.in/india-today-insight/story/how-the-army-is-tweaking-its-vintage-l-70-gun-into-a-drone-killer-1857876-2021-09-27
Sep 28, 2021 07:40 IST
How the army is tweaking its vintage L-70 gun into a drone-killer
A new interface with existing counter drone systems allows the World War-2 era anti-aircraft gun the capability to intercept drones
The counter-drone system made by Hyderbad-based Zen Technologies Ltd is similar to the one ordered by the Indian Air Force last month. The IAF placed a Rs 120 crore order for an unspecified number of counter-drone systems from the same firm. The Zen-Anti Drone Air Defence Systems or ZADS variant ordered by the IAF, is primarily a ‘soft kill’ system. It detects and jams radio frequency emissions from the drone between 10 metres and 10 kilometres.
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Does anyone know if Zen technologies Anti-Drone systems have been used in this conflict?
Yes, Zen’s counter drone system, ZADS, is integrated with the L-70 air defence guns. Zen has been working with both Army and AirForce on it since around 2020. While researching Zen Tech, I remember reading somewhere that the ask from the army was to make the system effective against swarm drones. And we saw what happened!
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