Zenith Computers - Rs.33.00

Incorporated in 1980, Zenith Computers Ltd (ZCL) is second largest manufacturer and seller of a complete range of personal computers, laptops, accessories and peripherals. It also provides focused services on networking systems integration, which includes consulting solution, design, integration, migration, outsourcing and maintenance services. ZCL has strong distribution and sales network with more than 25 branches, 425 dealers and 125 showrooms along with widespread service centres across India. Its range of desktop PCs are manufactured in an ISO–9001/14001 certified plant adhering to international stringent quality standards that meet the CE, FCC and Energy Star certifications apart from being Intel Validated and Microsoft certified. It has an installed base of more than 1 million computer systems in India and has reputed clientele including corporates from banking, telecom, IT, educational institutions and even PSU companies.

Buoyed by the cutthroat competition in the PC segment and witnessing the great inclination among people to buy laptops, ZCL has decided to focus on the laptop business for future growth. It has, therefore, launched a series of laptops, from starters to high-end users. ‘The Executive Laptop’ and ‘Director Laptop’ have been a huge success in the market. Having created a niche in the education and laptop PC market in India, ZCL is now heavily betting on exports. Exporting its products to SAARC countries like Nepal, Bangladesh, Sri Lanka etc., ZCL has already emerged as a big player in the PC Hardware industry in the South Asian sub-continent and is now its concentrating to establish its presence in the Middle East countries like Saudi Arabia, Iran, Iraq, Oman, UAE, Bahrain, Qatar & Yemen. The company is also keen to encash the extremely great potential in South Africa for which it has tied-up with the ICS Group to form ‘Zenith Africa (Pty) Ltd.’

To capture the growing home entertainment and Internet market the company has acquired a presence in gaming computers in association with Singapore's Creative Technology Ltd. ZCL is actively focusing on Internet applications with special emphasis on Internet banking products and is aggressively looking at marketing Banc724, its Total Banking Automation (TBA) solution aimed at co-operative banks. For future growth, it is also considering acquisitions of software companies abroad. Since notebooks comprise 40% of the total computer market all over the world, while in India it just amounts to 3% there is a huge growth opportunity for the company.

For FY05 its Net sales increased by modest 8% to Rs.282 cr. but its NP jumped 50% toRs.4.70 cr. and it declared 10% dividend. The company has healthy reserves of around Rs.35 cr. leading at a BV of Rs.32. Notably, the computer hardware industry continues to get Government support both at the Central and State levels to exempt computers from excise duty and efforts are still on to effectively reduce the price of computers so that a large section of population are able to own a computer for their personal use. Considering all these factors, ZCL can end FY06 with a turnover of Rs.320 cr. and NP of Rs.6.50 cr. resulting in an EPS of Rs.4 on its current equity of 15.50 cr. With a current market cap of merely Rs.50 cr. and FY06 earning discounted by only 8 times, ZCL is trading reasonably cheap and can appreciate 50% easily in the next 9~12 months. Investors are strongly recommended to buy this emerging mid-cap.