Zen Technologies Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Zen Technologies Ltd (ZENTEC) Q4 FY24 Earnings Concall

• Financial Performance
  • Zen Technologies reported strong financial performance with record sales and profitability in FY24.
  • Achieved revenue of INR 430 crores on a standalone basis in FY24, slightly missing the projected target of INR 450 crores.
  • Expects to exceed a turnover of INR 900 crores in the current financial year FY25.
  • Aims to maintain EBITDA margin of 35% and PAT margin of 25% despite varied product mix.
• Order Book
  • Recorded extraordinary order wins of around INR 1,350 crores in FY24.
  • Order book position surpassed INR 1,400 crores as of March 31, positioning the company for sustained growth in FY25.
  • Expects more order wins during the current year to further accelerate growth.
• Business Strategy
  • Focus on developing indigenously designed and developed defense equipment with IP ownership.
  • Products are world-leading in their respective categories.
  • Strategic investments in R&D and acquisitions (existing and future) to drive growth.
  • Optimistic about domestic and export market opportunities, actively exploring new export avenues.
  • Confident in accelerating growth trajectory, driven by strong order book and business strategy
• Working Capital Management
  • Inventory days increased to 113 days due to build-up required to execute orders and achieve revenue targets.
  • Receivable days rose to 143 days, driven by higher Q4 sales of INR 136 crores against receivables of INR 169 crores.
  • Working capital cycle expected to remain in the range of 140-160 days going forward to support operations.
• R&D and Acquisitions
  • Budgeted R&D spend of around INR 30 crores for FY25, but open to investing more opportunistically.
  • Obtained shareholder approval to raise up to INR 1,000 crores for potential acquisitions, but no target identified yet.
  • Will raise funds through QIP if and when acquisition opportunities materialize.
• Export Opportunities/Performance
  • Out of the order book of INR 1,400 crores, over INR 400 crores is for exports.
  • Expects exports to contribute around 30-33% of targeted INR 900 crore revenue in FY25.
  • Sees huge demand for anti-drone systems both domestically and internationally, a key growth area.
  • No exports were recorded in Q4 FY24, with all sales being domestic.
  • Export sales are expected to pick up significantly in the coming quarters.
• New Product Pipeline
  • Plans to announce a range of new and interesting products in the coming weeks/months.
  • Products are expected to be path-breaking and attractive for end-users in India and globally.
  • New products will either enhance existing product lines or cater to adjacent markets.
• Order Inflow Expectations
  • Bulk of order inflows for FY26 is anticipated to start coming in Q3 and Q4 of FY25.
  • Targeting order inflows of INR 1,200-1,300 crores in FY25 to replenish executed orders of ~INR 900 crores.
  • Order inflow guidance is based on existing product lines, with new products being an added advantage.
• OEM Tie-Ups
  • evaluating tie-ups with Original Equipment Manufacturers.
  • Some understanding reached, but official agreements yet to be signed.
  • The company plans to announce these tie-ups publicly once the agreements are finalized.
• Growth Drivers
  • Expecting order inflows of INR 1,200-1,300 crores in FY25 to sustain growth momentum.
  • Key growth areas are anti-drone systems and training simulators for both domestic and export markets.
  • Confident of achieving the targeted INR 900 crore revenue based on existing order book position.
• Margins and Pricing
  • Contracts are typically fixed-price without any pass-through mechanism for commodity price changes.
  • Simulators command higher margins compared to anti-drone systems, with exports fetching better margins than domestic sales.
  • Simulator raw material costs range from 15-50%, while anti-drone systems are around 35%.
• Revenue Growth Targets
  • Set a target of INR 2,000 crores revenue for FY27, translating to a CAGR of around 50% from the next financial year.
  • Exports are expected to contribute around 33-35% to the revenue.
• AI Turing
  • Zen invested in AI Turing Technologies to integrate their camera solution into Zen’s anti-drone system.
  • AI Turing’s solution was superior and reasonably priced, enabling Zen to offer a complete anti-drone product.
  • The investment aimed to secure the bandwidth and financially support AI Turing’s operations.
  • AI Turing’s contribution is not expected to substantially mitigate the lumpiness in Zen’s quarterly revenues.
  • While yearly growth is assured, some quarterly fluctuations are inherent to Zen’s business model.
• Medical Devices Subsidiary
  • No significant activity happened in the medical devices subsidiary, Zen Medical Technologies, in the last year.
  • No promising prospects foreseen for the medical devices business in the near future.
  • Will update if any developments happen in the medical simulation field.