This multibagger defence stock jumps 8%, hits record high; Buy, says Nuvama

Defence stock Zen Technologies Ltd climbed 8 per cent to hit a fresh record high on Friday morning but if we were to go by Nuvama Institutional Equities, the aerospace stock has more legs to the ongoing rally. 

On Friday, the stock gained as Zen Technologies has signed an MoU with Florida-based AVT Simulation (known for its air simulation systems) to break into the US defence market on the sidelines of National Training & Simulation Association’s Interservice/Industry Training, Simulation and Education Conference. 

Zen Technologies shares jumped 7.79 per cent to hit a record high of Rs 2,034.60 on BSE. The stock is up 155.17 per cent in 2024 so far, a solid 906 per cent in two years and 3438.05 per cent in the past five years.

This, Nuvama said, is a strategically positive for Zen Technologies, which may expand its serviceable market for both simulation training and anti-drone segments while offering UAS-technology to AVT. "After a muted H1 in terms of ordering, OI pickup in H2FY25 remains one of the key ask-rates along with meeting its 50 per cent revenue CAGR, 35 per cent OPM and 25 per cent PAT margin guidance over the next two–three years; maintain ‘Buy’ with a target price of Rs 2,200," it said.

The brokerage noted that Zen Technologies is among the few suppliers of critical defence simulators that beef up armed forces’ readiness and capabilities. Its growth arsenal is in-house IP design (75-plus patents) and next-gen anti-drone systems, Nuvama said.

Zen Technologies is a prominent second/third-order beneficiary of India’s defence capital outlay -- total defence budget allocation for FY25 is $75 billion. "We believe timely tendering/ordering by MoD is one of the key asks along with meeting its 50 per cent revenue CAGR, 35 per cent OPM and 25 per cent PAT margin guidance over the next two–three years amid high competition in the anti-drone market," it said.

Nuvama said given the recent QIP completion of Rs 1,000 crore, the Zen Technologies' management highlighted the allocation of Rs 300–400 crore towards inorganic growth, whereas Rs 400 crore is to be utilised for working capital requirements. 

The company also mentioned it was expanding its business presence in US, Argentina and El Salvador and is planning a capex of Rs 80 crore by FY26E.