Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zen Technologies Ltd (BOM:533339, Financial) is on track to meet its INR900 crore turnover target for the year.
- The company expects to sustain a 25% PAT, driven by higher margins in exports and specific product segments like simulators.
- There is a growing demand for tactical training simulators, both in India and overseas, which is beneficial for the company.
- The counter-drone systems market is expanding rapidly, with increasing inquiries and a shift towards hard kill systems, where Zen Technologies Ltd is a leader.
- New product launches, including AI-powered systems, have generated significant interest and are expected to contribute to future revenues.
Negative Points
- No export revenues were recognized during the current quarter, which could impact short-term financial performance.
- Order inflows are expected to be lumpy, with substantial orders anticipated only in the third and fourth quarters.
- The company faces competition in established fields like surveillance and remote control weapon systems, which could impact market share.
- Dependence on imported components for some products makes the company vulnerable to supply chain disruptions and geopolitical risks.
- The new products, while promising, will take time to generate significant revenues, with major sales expected only from the next financial year.
Q & A Highlights
Q: For the anti-drone systems, can you give us a sense of the future opportunity from a three to five-year perspective?
A: We feel that we are in the absolute top range in the anti-drone space. The demand is increasing, and we expect the demand to be significantly higher than the previously indicated INR10,000 crores for the next three to five years. This demand is high not only from India but also from overseas markets.
Q: On the export revenues, there were no export revenues recognized during the quarter. Is there a spillover to the next quarter?
A: The execution is going as per schedule, and we expect the next couple of quarters to recognize exports in a major way. There were no export revenues during the current quarter, but this is usually expected.
Q: You mentioned looking at some acquisitions. Can you speak about the size or capability area you are targeting?
A: We are looking at electronic warfare and training and simulation. These areas should be easy for us to absorb. We haven't committed to any acquisitions yet but are looking aggressively to increase the attractiveness of our product through synergy.
Q: What kind of order inflow are you looking at for this financial year?
A: The fourth quarter will see substantial orders, starting from the end of the third quarter. We are confident, looking at the pipeline, that we should get a reasonable amount of orders and will be able to execute them in the next year.
Q: Can you provide a broad opportunity for the new AI-based platforms you introduced?
A: These systems are not only about anti-drone but also increasing the effectiveness of artillery and tanks. This is a huge market, potentially branching into thousands of crores. We expect more announcements in this area as we go ahead.
Q: How do you get orders for training and simulators? Is it through government allocations?
A: The government has been buying training simulators as a special allocation. They have issued a framework mandating the transition to simulator training, which is more cost-effective and efficient compared to conventional training.
Q: Do we expect any additional revenue from the new products this financial year?
A: Major sales from the new products will start in the next financial year. This financial year, we have sold one system as part of the anti-drone systems, but significant revenue will come next year.
Q: How vulnerable are you to supply chain shocks and malicious actors?
A: Most of our software and components are commercial off-the-shelf. We can rewrite software to accommodate any component disappearance. Our systems are air-gapped and not connected to the internet, reducing vulnerability to malicious actors.
Q: Can you provide more details on the use of QIP funds?
A: The funds may be used for acquisitions, working capital, and high-level R&D for simulators and anti-drone systems. We will provide more details as we progress.
Q: What is the status of the Goa facility?
A: It is still in the blueprint stage. We are designing the buildings and waiting for the government to complete the access road. We are requesting them to hasten the work so we can start as soon as possible.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
