Zen Technologies Ltd Q1 FY25 Earnings Conference Call Insights

Key highlights from Zen Technologies Ltd (ZENTEC) Q1 FY25 Earnings Concall

• Financial Performance
  • Company is on track to meet its $900 million turnover target for the year.
  • Aims to maintain an average gross margin of 35% and profit after tax of 25%.
  • The company expects to easily sustain the 25% profit after tax target.
• Simulator Market Trends
  • Shift from technical training simulators to tactical training simulators.
  • Armies worldwide now prioritize realistic combat training over having the latest equipment.
  • The company sees this as validation of their long-held approach to training.
  • Experiencing increased inquiries for training systems from both domestic and international customers.
• Counter-Drone Systems
  • Demand for counter-drone systems accelerating rapidly.
  • Shift from soft-kill to hard-kill anti-drone systems.
  • Aims to lead the market in both soft-kill and hard-kill anti-drone systems.
  • The company sees counter-drone systems as a key growth area alongside training simulators.
  • Company’s counter-drone system classified as IDDM and owns the IP for all key components.
• Product Innovations
  • Introduced a lightweight remote-controlled weapon system weighing less than 40 kg.
  • The Hawkeye camera system with a 40 km range for vehicles and 15 km for humans.
  • Unveiled Durgam, a rugged camera designed for armored and artillery forces.
  • Plan to integrate more AI capabilities to reduce human intervention in dangerous situations.
• Market Opportunity
  • The company estimates a 10,000 crore market for counter-drone systems over the next 3-5 years.
  • Expects to revise this estimate upwards significantly in the near future.
  • Demand increasing both in India and overseas markets.
• Export Revenue
  • No export revenues were recognized in the current quarter.
  • This aligns with the company’s expectations and execution schedule.
  • The next couple of quarters are expected to see significant export revenue recognition.
  • Export revenues may become heavier than domestic revenues in upcoming quarters.
  • Revenue mix varies between simulators, anti-drone systems, exports, and domestic sales across quarters.
• Acquisition Strategy
  • Company is actively looking for acquisitions in electronic warfare and training/simulation areas.
  • Goal is to increase product attractiveness by creating synergies through acquisitions.
• Order Inflow Expectations
  • The company expects substantial order inflow in 4Q25.
  • Some orders are anticipated to start coming in by the end of 3Q.
  • Order pipeline looks promising, giving confidence in securing a reasonable amount of orders.
  • The company believes it will be able to execute these orders in the following year.
• Margin Breakdown
  • The company’s anti-drone systems have an EBITDA margin of around 30%.
  • Training simulators have a higher EBITDA margin of about 40%.
  • Average EBITDA margin of approximately 35%.
• Revenue Projections
  • Maintains guidance of over INR900 crore revenue for the current year.
  • Expects to reach INR2000 crore revenue in about two years at an average CAGR of about 50%.
  • New product revenues are expected to be additional to the existing projections.
  • Aims for a PAT of 25% on the projected revenue.
• QIP Fund Utilization
  • The company has proposed a QIP for raising funds.
  • Some funds might be allocated for working capital to support sales scaling.
  • The company plans to invest in high-level R&D for simulators and anti-drone systems.
• Growth Trajectory
  • The company expects to maintain its projected 50% year-on-year growth rate.
  • Anticipate potential for exceeding linear growth projections due to changing market dynamics.
• Component Sourcing
  • Most hardware components used are commercial off-the-shelf items.
  • Company’s primary value addition is in software development and AI integration.
  • Actively working on developing alternate designs to mitigate potential supply chain risks.
• Goa Facility Update
  • New facility still in the blueprint stage.
  • Building designs are currently being developed.
  • Waiting for the government to construct access roads to the site.
  • Requesting the government to expedite the infrastructure work.