L&T Finance and Zensar Technologies in Focus this Week

This week the two hot stocks, one from the NBFC sector and another from the IT sector, have shown great upside potential with a strong financial position. First is L&T Finance and Zensar Technologies is second. In this blog, we’ll go through all the key details of these two stock recommendations.

L&T Finance Limited

L&T Finance’s CMP was ₹187.80 (as on September 27, 2024) and its target price is set at ₹237 with an upside potential of 26%.

Investment Rationale

• • L&T Finance offers financing for two-wheelers, consumer goods, homes, farm equipment, women entrepreneurs, rural groups, real estate, and infrastructure. It provides financing for small and medium enterprises through term loans and overdraft facilities.
  • The performance of the company has been in line with the expectations and guidance provided in earlier quarters. The company posted a highest ever quarterly profit of ₹686 crore in Q1FY2025 registering a growth of 29% over a year ago, on the back of healthy retail disbursements growth of 33% to ₹14,839 crore.

• • The consolidated loan book has picked up pace growing at 13% YoY to Rs 88,877 crore end June 2024. The company has attained a reutilization target of 95% and retail loan growth of above 25%. It is working towards achieving a consolidated GNPA of below 3%. It’s well-tracked to achieve a consolidated RoA of 2.8-3%, which stands at 2.68% in Q1FY2025.
  • According to the management, the company is aiming at a 25% compound annual growth rate (CAGR) over the next few years, with a focus on consolidating its retail lending business.
  • The retail housing disbursement stood at ₹2,245 crores, up 73% YoY. The book size reached closer to ₹20,000 crore milestone rising 42% YoY. The sustained business momentum is driven by collaborative launches with prime developers across top locations. Additionally, the launch of the Complete Home Loan offering across 11 locations led to high lead generation and should provide tangible results over the next few quarters.

• The company has exhibited improvements in the NIM+ fees to 11.08% in Q1FY2025 from 9.64% in Q1FY2024, the company has continued to show sustained improvement in consolidated asset quality. Gross Stage 3 (GS3) declined to 3.14% from 4.04% in Q1FY24 (reduction of 90 bps YoY) and Net Stage 3 (NS3) to 0.79% from 1.19% in Q1FY24 (reduction of 40 bps YoY). Credit cost at 2.37% remained stable across both QoQ and YoY.
• The company is moving into Telangana, Maharashtra, Western UP, and later on a couple of other new geographies as well. The growth will come in the microfinance segment from expansion into uncovered villages in existing territories as well as new territories. The company expects to add 250 to 300 new microfinance branches during the year.

Shareholding Pattern

Promoter shareholding is highest in L&T Finance at 66.37% which is the group company, Larsen & Toubro (L&T).

Valuation

The company is focused on boosting customer acquisition by developing a strong sales funnel and expanding its product offerings. It is enhancing credit underwriting through its proprietary digital credit engine, ‘Project Cyclops,’ and building a forward-looking digital infrastructure to drive innovation. Additionally, the company is increasing brand visibility through greater market presence and strengthening its capabilities by recruiting and upskilling tech talent, all of which are contributing to its strong performance. Thus, it is expected that the stock will see a price target of Rs. 237 in an 8 to 10-month time frame on a target P/BV of 2.05x and FY26 (E) BVPS of Rs. 115.64.

Risk

• Economic slowdown
• Tight liquidity conditions

Zensar Technologies Limited

Zensar Technologies’s CMP was ₹678 (as on September 27, 2024) and its target price is set at ₹834 with an upside potential of 23%.

*As on September 27, 2024

Investment Rationale

• Zensar Technologies is a globally focused software and services company spread across eighteen countries across the world. Zensar provides end–to–end services from IT development to Business Process Outsourcing, from consulting to implementation. The company is headquartered in Pune, India, and has over 10,300 associates working across more than 30 locations, including San Jose, Seattle, Princeton, Cape Town, London, Singapore, and Mexico City.
• Despite the challenging environment, the company won deals to the tune of US $154 million across services including advanced engineering, data engineering, and platform services.
• The company added 2 new clients YoY in the US $5 million + category taking the total clients to 31 in the category. It has 86 clients in US $1 million+, 14 clients in US$10 million+ and 4 clients in US $20 million+. It has a focus on clients with revenues greater than $2 billion.

• • The voluntary attrition rate, on a last twelve-month basis for the June quarter, reduced to 10.60% from 10.90% in the March quarter, indicating that it is gradually coming down, a trend seen across the industry. It had a gross addition of 855 employees in the quarter. Its overall headcount increased by 47 compared to Q4 of FY24. The company reported net cash of $280.90 million at the end of the quarter, with YoY growth of 7.30%.
  • On the segment front, Banking and Financial Services reported a sequential QoQ revenue growth of 6.8% in both reported and constant currency. Manufacturing and Consumer Services reported a sequential QoQ growth of 2.4% and 2.7% in constant currency. Healthcare and Life Sciences reported a sequential QoQ growth of 6.9% in both reported and constant currency.

• On July 17, 2024, Zensar entered into a definitive agreement for acquisition of 100% stake in Bridge View Life Sciences, a Pennsylvania-based technology and consulting solutions company in the Life Sciences industry. This move reinforces its focus on the Healthcare and Life Sciences vertical mainly in the US and overall growth.

Shareholding Pattern

In the overall shareholding of Zensar Technologies, promoters hold the highest share of 49.17%.

Valuation

The company has a healthy order book and according to the management, the company continues to stay focused on execution, innovation, and cost optimization to further maintain Zensar’s financial performance achieved in the last few quarters. Focus on client centricity; execution excellence and a good pipeline represent sustained business growth. Thus, it is expected that the stock will see a price target of Rs.834 in an 8 to 10-month time frame on a 1-year average P/BV of 4.18x and FY26 BVPS of Rs.199.49.

Risk

• Economic slowdown
• High attrition rate

Conclusion

While these two stocks are established names in the market and within 8 to 10 months, they are expected to touch their target. However, it is very important to keep track of a share price after investing and setting up a stop-loss. To keep a track of your invested stocks, open a demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.