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.