This smallcap stock shed 14% today, hit 7-month low; tanks 45% in 1 month

In the previous two calendar years, Zen Technologies had zoomed over 200%; with a 207% surge in CY 2024 and 333% in CY 2023.

Shares of Zen Technologies hit a seven-month low of Rs 1,398.15, falling 14 per cent on the BSE in Tuesday’s intra-day trade amid heavy volumes. In the past one month, the stock price of this smallcap company tanked 45 per cent. It had hit a record high of Rs 2,627.95 on December 24, 2024.

 

In the previous two calendar years, Zen Technologies had zoomed over 200 per cent. In calendar year 2024, the stock surged 207 per cent, while, in calendar year 2023, it skyrocketed 333 per cent.

 

At 02:31 PM; Zen Technologies was quoting 10 per cent lower at Rs 1,455.05, as compared to 1.5 per cent decline in the BSE Sensex. The average trading volumes at the counter jumped over two-fold. A combined 0.97 million equity shares changed hands on the NSE and BSE.

 

 

The Zen group is the largest supplier of simulation training equipment and anti-drone systems in India. Its market position is strengthened by continuous research and development (R&D). The company benefited significantly after the roll out of the Defence Production and Export Promotion Policy (DPEPP) and the framework rolled out by the Ministry of Defence (MOD) in September 2021, leading to increased utilisation of simulators for training the armed forces. This, along with higher demand for anti-drone systems, has resulted in a healthy order book of Rs 956 crore.

 

Zen Technologies is engaged in designing, developing, and manufacturing state-of-the-art simulators. The company primarily caters to training simulators for police forces, anti-drone systems, and paramilitary and armed forces, along with government departments in sectors such as transport, mining, and infrastructure, as well as the civilian market.

 

The company’s revenue depends on the ability to successfully bid for orders and their timely execution. This risk is mitigated by favourable government regulations and the company’s well-established market presence. Zen Technologies exceeded the revenue and profit after tax of the previous year FY24 in the H1FY25 itself.

 

The company’s revenue rose significantly to Rs 443.34 crore in fiscal 2024 and is expected to rise above Rs 900 crore in fiscal 2025, backed by better order execution and strong order book. The company achieved revenue of Rs 496 crore in the first half of fiscal 2025 and had orders worth Rs 956 crore as of September 2024. It has a strong order pipeline and is expected to add more orders by the end of fiscal 2025. Operating margin is expected to remain strong at 30-35 per cent on a sustained basis, CRISIL Ratings said in rating rationale dated January 27, 2025.

 

However,  working capital was higher in H1FY25 compared to FY24 for the majority of defense players. Zen’s NWC days have increased to 200 in H1FY25 from 173 in FY24, on account of higher receivables and lower payables. Similar to Zen, NWC days of BEL/BDL/Data Pattern have also increased, moving from 2/-240/332 days to 66/-129/394, driven by higher inventory and receivables and lower payables. 

 

Though inventory shot up for HAL in H1FY25, it was more or less offset by increased payables and lower receivables compared to FY24. Motilal Oswal Financial Services (MOFSL) believe the increased working capital is a result of delayed payments from the MOD, which are expected to come to normal levels by FY25 end.

 

Any slowdown in procurement from the defense industry, especially for simulators, can expose the company to the risk of reduced order inflows and hinder its growth. Zen is also exposed to foreign currency risks for its export revenue. High working capital can also pose risks to cash flows, as historically, Zen’s working capital has remained high due to issues related to high debtors and high inventories. This is likely to come down due to improved collections and lower inventory, as per the management. However, any delays in the same can affect cash flows for FY25/26, the brokerage firm had said in December 2024 company report. The stock had already achieved MOFSL’s target price of Rs 2,400 per share.