In this article, we will discuss one multibagger stock to buy in August 2023 which should have a promising future due to optimistic outlook for drone industry. Unmanned Aerial Vehicles (UAVs), mainly known as drones, are utilised by numerous countries to dodge problems such as disease control, vacuuming up ocean waste and for defence purposes. Remote access and safety offered by drones are the critical factors stemming growth of the drones in India. Even in India, that continues to develop technological advancements in the areas of EVs, digitization, artificial intelligence, etc, has been discovering usage of drones in a range of sectors. Initially utilised in defence, photography and videos, drones are now utilised in food delivery, surveillance, geographical mapping, etc.
As of now, India makes up for ~22.5% of total global drone imports. Despite of the fact that drones are used for military activities, commercial drones are now getting popular. With total market value of more thanUS$ 900 million, commercial end-use drone sector should be able to exceed military industry. By 2025, India is expected to be world’s third-largest drone market. The Government of India has plans to make India a Global Drone Hub by 2030. Government expects total turnover of the drone manufacturing industry to improve from INR60 crore-INR80 crore to INR 900 crore by FY24.
As Indian government targets to make India a global drone hub by 2030, total of 12 central ministries are focused on increasing demand for drone services. It is expected to create demand for ~1 lakh drone pilots over next several years. As per Civil Aviation Ministry, as the drone market grows, Indian drone industry should be able to touch US$1.5 billion-US$1.9 billion by 2026.
With this in mind, let us have a look at one multibagger drone stock to buy in August 2023.
Zen Technologies Limited designs, develops and manufactures state-of-the-art Combat Training Solutions. These solutions are used in the training of Defence & Security Forces globally and is a leader in offering Counter-Drone Solutions to protect borders, critical infrastructures etc. The company has portfolio of more than 40 products.
Zen Technologies Limited has received order worth INR64.97 crores, including GST (INR55.06 crores excluding GST) from Ministry of Defence Govt. of India.
In 1Q24, the company’s revenues grew by ~299% year-over-year to INR132.45 crores, with EBITDA showing a phenomenal growth of ~414% to INR68.79 crores. The company’s PAT saw a tremendous growth of ~474% to INR47.13 crores. The company’s performance for 1Q24 set a new record for the company in revenue and profitability. Strong performance in 1Q stemmed from successful execution of significant part of the simulation export and domestic anti-drone orders. Inherent operating leverage of the company’s business model supported the performance as it saw EBITDA of 51%.
Why are we saying that this drone stock is a multibagger stock to buy in August 2023? The stock has gone up by ~36% in just one month and it has recently received an order from Ministry of Defence. Given the strong growth potential of drone industry, the stock appears to be a promising one. Apart from this, the company saw new orders to the tune of ~INR202 crores. Additionally, in July 2023, it bagged orders worth ~INR500 crores, bring its cumulative order book position to ~INR1,000 crores. This figure exceeds cumulative turnover of previous whole decade.
The company believes that this is an inflection point. As a result of escalating geopolitical risks and India’s improved relations with international counterparts, Zen Technologies Limited is optimistic about establishing significant inroads in export markets, principally for simulators and anti-drone systems.
Strong liquidity position and healthy balance sheet and improved working capital cycle should support the company’s growth in the long-term. This should support execution of the orders and fast-track its plans for the growth opportunities which are expected to unfold in upcoming years. Investments made in R&D in the past couple years led to continuous new product additions. It has recently released Anti-Drone technology and it continues to make further investments for development of Air Defence Gun Simulators. The company is willing to take short-term pains given the possibility of long-term gains.
Increased investments in R&D throughout the lifetime resulted in increased entry barriers for new entrant. Defence business is the one which is highly regulated and this is largely impacted by government policy and budget allocation. Indian government’s focus on Make in India and Atmanirbhar Bharat campaign ended up creating conducive environment. There is a exports target of INR 35,000 crores by 2025.
Therefore, strong balance sheet, high value complex systems, higher revenues from simulators and anti-drone systems, strong regulatory and asset-light business model are expected to act as principal growth enablers for the company. Focus of the company is on growing the sales of equipment and expand product portfolio, having strong focus on emerging space Anti-Drone systems. The company expects to scale the AMC business and targets that contributions from AMC should manage fixed operating expenses.
Zen Technologies Limited continues to streamline operational efficiencies and cost optimisation to enhance the financial performance. Business model of the company is strategically positioned to reduce lumpiness and enhance profitability in upcoming years. The company is establishing Demo centre overseas and the focus is on export markets to expand international presence. Plans are there to enhance technical capabilities by increasing investments in R&D and getting into high value-added complex systems. It is evaluating tie ups with several OEMs.
Continuous focus on export markets led to brisk growth in export footprint. Zen Technologies Limited has strong product and projects pipeline in markets of Middle East, Africa and CIS countries. The company projects exports to make a contribution of over 20% to the top line in FY24. Apart from this, quicker clearances from Indian Government for exports should further help the company.
In upcoming years, contributions from AMC stream should be able to cover fixed operating expenses of the company’s business. This should offer stability and predictability to its business operation. Significant order wins of equipment can then provide significant operating leverage and support the growth in bottom line.
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