Zensar delivered strong results for the quarter with revenues and earnings growing far above expectations at 15.8% and 30.1% respectively. Even after excluding inorganic impact of Thought Digital, the organic revenue growth stood strong at ~10.8% qoq despite Rupee appreciation. Operating margin improved significantly by 170 bps led by sharp improvements in profitability of EAS and BPO segments. Higher other income offset the impact of sequentially higher tax payout there enabling 30.1% profit growth. Management has guided for a strong FY08 with revenues and earnings in excess of Rs8.5bn and Rs850mn respectively.
Company’s guidance for FY08 appears achievable given the fact that full year Thought Digital integration would add close to US$27mn (similar to CY06 revenues) at least in the year thereby leaving a yoy growth requirement of 24% for organic revenues aga inst 40% achieved in FY07. Further, profitability turnaround in ITS segment or even break-even here would act as a big margin lever enabling in sustaining operating margin on yoy basis. Management’s earnings guidance translates into an EPS of Rs35.5 and reflects attractive P/E valuation of 8.5x on FY08 basis.
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