- Revenue fell 1.3% QoQ, but EBIT margin jumped 240bps to 16%.
- Bookings surged 14% QoQ to $180 m, pushing book‑to‑bill above 1.0x.
- Adjusted PAT beat estimates by 22% and grew 37% YoY.
- Analyst expects EBITDA margins near 16% through FY27 and a 10% CAGR in PAT to FY28.
- Buy rating persists with a target price of INR 1,000, implying a 26× FY28 EPS multiple.
Most investors skim past a 1‑percent revenue dip—yet that very slip is the catalyst for a potentially explosive earnings runway.
Why Zensar's Revenue Dip Signals a Sector Shift
Zensar reported a 1.3% quarter‑on‑quarter (QoQ) constant‑currency (CC) revenue decline, slightly better than the consensus 1.7% fall. While the headline looks bleak, the nuance lies in the composition of the revenue mix. Managed Cloud Services (MCS) grew 3.4% QoQ, offsetting weakness in the Telecommunications, Media & Technology (TMT) and Healthcare & Life Sciences (HLS) segments, which fell 8.7% and 2.3% respectively. This divergence mirrors a broader industry pivot: clients are shedding legacy on‑premise contracts in favor of cloud‑first, subscription‑based models. For investors, the takeaway is that Zensar is already reallocating resources toward higher‑margin, growth‑centric services.
How Zensar's Margin Surge Beats Competitor Trends
EBIT margin rose to 16.0% from an implied 13.6% in the prior quarter—a 240 basis‑point (bp) uplift that dwarfs the sector average of roughly 12‑13% for comparable Indian IT firms. The boost stems from two levers: improved utilization of high‑value cloud engagements and disciplined cost control, especially after the one‑time labor‑code expense of INR 254 m was excluded. By contrast, peers such as Tata Consultancy Services and Infosys posted margin drags of 30‑40 bps in the same period, largely due to rising payroll costs. Zensar’s ability to out‑pace the margin curve suggests a competitive moat rooted in operational efficiency and a faster transition to high‑margin services.
What the 14% Booking Jump Means for Your Portfolio
Bookings climbed to USD 180 m, up 14% QoQ, even as they slipped 12% year‑on‑year (YoY). More importantly, the book‑to‑bill ratio reached 1.1x, indicating that new contract wins are outpacing revenue recognition. In the IT services business, a book‑to‑bill >1.0x is a leading indicator of future top‑line growth. The YoY dip is primarily a lag effect from the pandemic‑era backlog that has now normalized. For investors, the current trajectory implies a revenue acceleration window in FY27‑FY28 as the pipeline matures.
Historical Parallel: Zensar's Past Turnarounds
Look back to FY22‑FY23 when Zensar faced a similar 2% revenue contraction. The company responded with a decisive cloud‑first strategy, bolstering MCS and digital transformation services. Within two fiscal years, EBIT margin leapt from 13.2% to 15.5%, and share price rallied over 40%. That pattern—modest top‑line weakness followed by margin expansion—repeated at several mid‑cap Indian IT firms that successfully navigated the shift from legacy maintenance to cloud. History suggests Zensar is on a familiar, profitable path.
Impact of Zensar's Outlook on Your Portfolio Allocation
Motilal Oswal projects EBITDA margins of 15.9% for FY26 and 16.2% for FY27, translating into a compound annual growth rate (CAGR) of ~10% in profit after tax (PAT) through FY28. The implied FY28 earnings per share (EPS) valuation uses a 26× multiple, which is modest relative to the sector’s historical premium of 30‑35× for high‑growth cloud players. This suggests a valuation cushion: even a modest earnings miss would still leave the stock attractive on a forward‑PE basis. For a diversified portfolio, Zensar offers a blend of growth upside and defensive margin stability.
Investor Playbook: Bull and Bear Scenarios for Zensar
Bull Case: Continued acceleration of MCS and digital transformation contracts pushes EBIT margin above 17% by FY28. Global IT spending rebounds faster than expected, and Zensar secures marquee deals in the fintech and health‑tech space. The stock re‑rates to a 30× FY28 EPS multiple, delivering a >30% upside from the current INR 1,000 target.
Bear Case: TMT and HLS segments underperform longer than anticipated, dragging revenue growth below 3% YoY. Margin pressure resurfaces if labor‑code compliance costs re‑emerge or if competitive pricing erodes the cloud premium. In such a scenario, the stock could retreat to a 20× FY28 EPS multiple, capping upside at ~10%.
Given the current fundamentals, the risk‑adjusted case tilts toward the bull side, especially for investors seeking exposure to the Indian IT services transformation wave.