Target: ₹1,535

CMP: ₹1,211.35

Zen Technologies is an Intellectual Property (IP)-led defence company, making military simulators and counter drone systems. It is the undisputed leader in land-based simulators with a 90 per cent share.

The domestic drone market may post a CAGR of 22 per cent through FY25-29 to ₹2,000 crore in FY29. Zen has thus forayed into drones with 100 per cent indigenisation and on the wings of new acquisitions. It is diversifying into new areas of electronic warfare (EW) and AI-led defence solutions. Zen seeks to grow its exports via a new tie-up in the US and through setting up a subsidiary there with a view to establish a dedicated supply chain to manufacture in that country.

Zen is set to leverage: in-house R&D and IP-led asset light business model with high ROE; large addressable market for core categories (simulators and anti-drones) and new segments (AI-led defence solutions); and value unlocking through new acquisitions.

ZEN is currently trading at an attractive 21x one-year forward P/E, significantly lower than that for other private players, which presents a good entry point. We expect an earnings CAGR of 60 per cent through FY24-27E with an average ROE and ROCE of 42 per cent each through FY25E-27.

Key risks are delay in awarding of tenders and shift in defence budget allocation away from simulators.