Initial Post on Zen
http://biginvestorblog.com/2015/03/09/zen-technologies-practice-makes-perfect/
Zen just published their results yesterday.
The jist of the results are as follows:
| Figures in Cr |
2015 |
2014 |
|
| Sales | up 52% |
70.54 |
46.35 |
| Exepenses |
59.91 |
47.34 |
|
| R&D Expenses |
13 |
14.85 |
|
| EBIDTA |
21.94 |
2.36 |
|
| Interest |
2.13 |
2.47 |
|
| PBT |
19.81 |
0.08 |
|
| Tax |
24% |
4.87 |
0.00 |
| PAT |
15.73 |
0.06 |
|
| No of shareholders |
7.71 |
7.71 |
|
| EPS (in Rs) |
2.04 |
2.04 |
While the company has performed significantly better than last year and the environment in the defence industry is nothing short of optimistic, these reasons make me skeptical, if not cautiously optimistic.
As on the date the company has only 120 cr of orders on hand of which 80 cr are for AMC.
The company plans to package and sell the 30 products it has as a services solution to other countries with the help of Rockwell. The company has a sort of innate advantage in India due to the Make in India policy, however other developing countries do not have these handouts and Zen would have to compete on a level playing field. I don’t believe that we are the cheapest solution out in the world.
Of the 70.54 cr sales, 62 cr are lying in debtors. Though the operating margins are as high as 34%, a delay of 6 months which is normal in this industry will bring the margins to 28 % or less which is not super owing to the low base sales turnover and 40 cr debt.
Also unnerving is that the company has payables of 54.16 cr on the balance sheet against manufacturing and other expenses of 52.94 cr.
Buy on credit – Expenses on Credit – Sell on Credit — Hope you get paid. ( and somewhere along incur R&D expenses that amount to 80% of your PAT)
Unnerving for me, but maybe not for the passionate promoters, who believe in their product and the potential of the industry.
At about 450 cr the company is trading at 30x its current earnings, no idea how many times cash flow and about 3.5x the value of the current order book in hand.
One can muster up the courage to ignore the fragile balance sheet if the order book was solid. I however will not bet on the company based on its current financials and declared story. For me this is a bet one will have to take on deeper understanding of the nature of the promoters, their integrity and ability to perform. At least for now.
Eagerly awaiting the con-calls and further updates on the order book and developments with Rockwell Collins.