Zen Technologies - Rs.63.00

Incorporated in 1993, Zen Technologies Ltd. (ZEN) is a pioneer in the design, development and manufacture of world class, state-of-the-art training simulators for the defense sector. In fact, it was the first company in India to commercialize PC-based visual simulation technology for small arms training simulators. A simulator is nothing but a training device that duplicates artificially the conditions likely to be encountered in some operations. Apart from training security forces, simulators are extensively used for weapons training, aviation, maintenance, medicine, power plants, bridges, ships and entertainment. The four main products of the company that are widely accepted by the market are Small Arms Training Simulator (ZEN SATS), Hand Grenade Simulator (ZEN HE36S), Advanced Weapons Simulator (ZEN AWeSim), and Driving Training Simulator (ZEN DTS). Last fiscal, it introduced two new products TacSim (Tactical Engagement Simulator) and ATGM (Anti-Tank Guided Missile Simulator), for which it has partnered with SAAB Training Systems, Sweden, for production of TacSim. Besides, it also manufactures Tactical Reconnaissance system (ZEN TReS), Forward Observer Simulator (ZEN FOS), Radar Scan Converter (ZEN RSC), Integrated Missile Simulator (ZEN IMS) etc. Recently, it has also developed a cabin crew simulator with great potential for in-flight cabin crew training.

To develop simulators, the company has also acquired a range of skills including software, electronics, mechanical, and optics which gives it an upper edge over its competitors. ZEN has supplied simulators to over 70 customers all over India but its main customers are Defence Services, State Police forces, Para Military forces and the Navy of a South East Asian country. Notably, its simulators are widely accepted by Indian Security Forces. Now with its ZEN DTS product, the company is targeting the civilian market in a big way. Moreover, it has been participating in the overseas defence exhibitions, wherein strong interest is being shown in simulators. Hence to set up its foothold in international market, ZEN has decided to establish a subsidiary in United Arab Emirates (UAE) to tap the Middle East and African counties. After bagging an Information Security Management System (ISMS) certificate as per ISO/IEC 27001:2005 standard by STQC, the company is betting big on exports and is partnering with strong local organizations in the overseas market.

ZEN is also expanding its base to meet future needs and has bought land near the Hyderabad new international airport for construction of world-class integrated facilities. Ironically, its share, which hit a high of Rs.325 in Aug.’05, is available at mere Rs.60 due to constant selling by FIIs. For FY06, its sales as well as net profit have improved by around 10% to Rs.20 cr. and Rs.7 cr. respectively. However for H1FY07, its top-line was flat at Rs.4.50 cr. and it reported a net loss of Rs.0.60 cr. compared to net profit of Rs.0.30 cr. due to higher provision for R&D expenses. Due to dependence on business from government organizations, its quarterly results will be quite lumpy and corresponding quarter on quarter results will be uneven. For the full year FY07, it is expected to register total revenue of Rs.18 cr. with net profit of Rs.4.50 cr. i.e. EPS of Rs.6 on its equity of Rs.7.63 cr. Investors can buy at current levels as the risk:reward ratio is quite favourable with a price target of Rs.90 (50% appreciation) in 12-15 months.