Defence stock with 145% returns in 2024 so far, hits record high today — do you own? – CNBC TV18

Shares of defence company Zen Technologies Ltd. surged as much as 8% to a record high of ₹2,033 on Friday, December 6. According to brokerage firm Nuvama Institutional Equities, the stock still has more potential for an ongoing rally.

Nuvama has maintained a ‘Buy’ rating on Zen Technologies, with a price target of ₹2,200 per share, suggesting a potential upside of over 16% from Wednesday’s closing levels.

Zen Technologies has signed an MoU with Florida-based AVT Simulation, known for its air simulation systems, aiming to break into the US defence market. The partnership was announced during the National Training & Simulation Association’s Interservice/Industry Training, Simulation and Education Conference.

Nuvama views this development as strategically positive for Zen Technologies, expanding its addressable market (details awaited) across simulation training and anti-drone segments while also offering UAS technology to AVT.

After a muted first half in terms of orders, the pickup in order intake (OI) in the second half of FY25 remains critical. This, along with meeting its 50% revenue CAGR, 35% operating profit margin (OPM), and 25% profit after tax (PAT) margin guidance over the next two to three years, is key to sustaining growth.

“We believe timely tendering and ordering by the Ministry of Defence (MoD) are essential, along with meeting its ambitious 50% revenue CAGR, 35% OPM, and 25% PAT margin guidance over the next two to three years, amid intense competition in the anti-drone market,” the brokerage stated.

The US is one of the largest markets for Indian defence exports. However, Nuvama awaits further details on the partnership between Zen Technologies and AVT Simulation to better assess the opportunity’s scale.

Zen Technologies had raised over ₹1,000 crore through an institutional share sale (QIP) in August 2024. The issue was subscribed over five times.

The management had told CNBC-TV18 back then that it planned on using part of the QIP proceeds for acquisitions.

“We are looking at 2-3 acquisitions. The size of the acquisition we are looking for is between ₹100 crore and ₹250 crore. We are focusing on both the simulation market and the anti-drone systems (ADS) market as we are looking to strengthen ourselves in both segments,” Ashok Atluri, CMD of Zen Technologies had told CNBC-TV18.

As per the September 2024 shareholding pattern, promoters of Zen Technologies had a 51% stake in the company. India’s Mutual Funds had a 4.55% stake, while Foreign Portfolio Investors had a 5.7% stake in the company.

Shares of Zen Technologies are trading 2.17% higher on Friday at ₹1,928. The stock has jumped 145% so far this year.

Zen Tech shares had risen 331% in 2023 while adding another 140% in 2021 and another 60% in 2020. The stock has risen nearly 160% in the last 12 months.