Fidelity Research bullish on Zensar Technologies

Fidelity Management And Research Company seems to be very bullish on Zensar Technologies, a pune based midcap IT company, and has quietly increased its stake in the company from 0% on 31st March 2010 to 4.62% (~2 million Shares) as on 31st DEC 2010 based on the shareholding pattern declared by the company on the National Stock Exchange official website. The latest share holding pattern of the Zensar Technologies as on 31DEC 2010 is summarized below:

Sr No	Shareholder	Number of shares	% of total shareholding
1	Promoter group	20620404	47.64%
2	Mutual Funds	1005310	2.32%
3	FIIs including Fidelity	2785281	6.43%
4	Electra Partners Mauritius Ltd	10301294	23.80%
5	Ganesh Natrajan	557058	1.29%
TOTAL			81.48%

Around 82% of the shares of the Company is locked among the promoters and institutional investors. Free float in the stock is very low and ownership among public is shallow. Any good news in terms of company performance might create significant demand for its shares and because of low liquidity the stock price might appreciate very fast in very short span of time.

On valuation metrics as well the company is tremendously undervalued. At the current Market price of 180 the stock is available at a PE multiple of just 6 times based on the current year EPS of Rs. 30/- and around 5 times based on the expected EPS of around Rs 35/- in FY-12. The expected financial performace of the company is summarized below:

Parameter	FY-11	FY-12	FY-13
Sales	1150	1600	1800
PAT	130	150	180
EPS	30	35	42
PE	6	5.14	4.28

Stick with the bottom up approach in 2011

Indian stock markets have corrected more than 5% in 2011 and individual stock have seen correction in the range of 10-15%. This market correction has made some of the stocks very attractive.

The rise of indian market in 2009 and 2010 is certainly a reason for SENSEX and NIFTY to take a breather in 2011 and hence a broad based call on stocks based on markets might not be a good idea. Instead one can look at the sectors or stocks which have not performed inline with the markets in 2009 and 2010. For example MIDCAP IT basket, Shipping were lagards of 2009 and 2010. If the globe is expected to do well in 2011 then good quality companies in both of the above sectors should do well.

Good quality stock in the MIDCAP IT segment are still trading at a PE range of 6-12 which is tremendously cheap given the cash generating and high ROC nature of the business. Some of the name like POLARIS Softwares, MPHASIS, ZENSAR Technologies, NIIT TECH are trading at rediculously low valuations in absoulte terms and should give decent returns from current levels in 6-12 Months. Names like GE Shipping under the shipping sector looks atttractive at the current valuation.

In a nutshell if one doesen't get panicked by the volatility in the market and focus on individual story one can still make decent return in this market. But the mantra is to keep the temparament cool and look at this market correction as opportunity.

Happy Investing!!.

Buy Polaris Softwares

We are strongly positive on Polaris Softwares Lab and recommed buying at CMP of 171.

POLARIS software which is a niche plauyer in BFSI domain trades at a PE multiple of just 8.75 based on expected FY-11 EPS of Rs. 20. Vis - a Vis bigger player it is trading at a very significant discount and should give decent returns in next 3 to 6 months time frame.

One can look for an immediate target of Rs 200 in 1 month time (15% Appreciation) and a target of Rs 240 in 3 months time (38 % Appreciation). Slightly longer term investors can invest for the price target of Rs 320 within 1 year. The 1 year target is based on a PE multiple of 14 times on FY -12 estimated EPS of 23.

MIDCAP IT companies are expected to do well in FY-11 and POLARIS being a undervalued nice MIDCAP IT Company should benefit from the overall sector rerating.

Technicall also the stock has bottomed out at 145 and has been on uptrend since last 1 month. We believe todays correction is because of unwinding of F&O position across all the companies and hence is a good opportunity to accumulate the stock at the current level of 170 - 171.

Buy Zensar Technologies

Zensar Technologies acquired Akibia Inc last month. The results of Akibia group will be reflected in the march quarter of Zensar.

On consolidated basis the company is expected do a Profit After Tax of around 130 crores on the topline of around 1150 crores, resulting into an EPS of around Rs 30.

The midcap IT story has started to catch up recently and there has been an overall PE rerating happening across the midcap IT basket. We expect that even on conservative basis Zensar should get a PE multiple of at least 8 times in 3 months from here. Considering that our price target for the stock is Rs 240/- in 3 to 4 months time frame.

Investors with that kind of time frame in mind can invest in the company at around Rs 170/- for an appreciation of close to 40%.