India’s defense and software sectors, particularly the SaaS (Software as a Service) model, are key growth areas with immense potential. The defense sector, bolstered by initiatives like “Atmanirbhar Bharat,” is focusing on indigenization and innovation, opening opportunities for local manufacturers and service providers. With increasing government budgets and exports, the segment is poised for robust expansion.
Similarly, India’s SaaS ecosystem is scaling globally. The model’s subscription-based approach appeals to enterprises seeking cost-effective and scalable software solutions. The SaaS market in India is expected to grow exponentially, driven by digital transformation, cloud adoption, and expanding global demand for IT services. These sectors collectively drive India’s innovation and economic progress.
1. Zen Technologies Limited
Company Overview
Zen Technologies Limited, established in 1996, designs, develops and manufactures combat training and counter-drone solutions for defense and security forces. The Hyderabad-based company emphasizes the indigenization of technologies for India’s armed forces, police, and
paramilitary forces. With offices in India, the UAE, and the USA, Zen Technologies focuses on simulation training and cutting-edge unmanned aerial systems, enhancing India’s defense capabilities while targeting global markets.
Target Price and Upside
Nuvama Institutional Equities reiterated its “BUY” rating for Zen Technologies, setting a target price of ₹2,200. This projection reflects a 16% upside from the stock’s last closing price, highlighting the company’s growth potential.
Currently, the shares of the company are trading at Rs. 1,986 with an upside of close to 3.86% from its previous close of Rs. 1,912 as of December 9, 2024.
Rationale Behind the Target
Nuvama emphasized that the partnership with AVT Simulation strategically benefits Zen Technologies, broadening its serviceable market in simulation training and counter-drone technologies.
The brokerage expects a 50% CAGR in revenue and robust operating and PAT margins of 35% and 25%, respectively, over the next two to three years. However, a surge in order inflows in H2 FY25 is critical to maintaining this growth.
While the U.S. defense export market presents vast opportunities, Nuvama awaits detailed updates on the Zen-AVT partnership to assess the collaboration’s full potential.
2. Newgen Software Technologies Ltd
Company Overview
Newgen Software Technologies is a global provider of software products specializing in workflow automation, document management, and imaging. The company offers end-to-end solutions across various sectors, enhancing organizational efficiency and regulatory compliance. Recently, Newgen secured a ₹32.5 crore order from the Reserve Bank of India (RBI) to implement and maintain the Regulatory Application Management System (RAMS) over seven years, further cementing its reputation as a leading technology partner.
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Target Price and Upside
Jefferies reaffirmed its “BUY” recommendation on Newgen Software, setting a target price of ₹1,500. The brokerage underscored strong growth potential driven by strategic initiatives and promising market opportunities.
Currently, the shares of the company are trading at Rs. 1,427 with an upside of close to 5.38% from its previous close of Rs. 1,353 as of December 9, 2024.
Rationale Behind the Target
Jefferies highlighted Newgen’s strong outlook, supported by growth in the India and West Asia markets and expanding efforts in the U.S., particularly with mid to large-tier banks. The recent RBI order strengthens Newgen’s positioning and is expected to drive deal inflows from other Indian banks.
Jefferies emphasized that consistent order inflows and client acquisitions will sustain growth momentum for the company. This, combined with management’s strategic focus on capturing emerging opportunities, underpins the optimistic projection for Newgen’s long-term performance.
Conclusion
Zen Technologies and Newgen Software represent promising investment opportunities in India’s defense and software sectors. With strong growth potential, strategic partnerships, and favorable market conditions, both companies demonstrate resilience and innovation. Brokerage recommendations highlight their upside potential, driven by technological advancements, expanding market reach, and strategic initiatives in domestic and international markets.
Written By: Dipangshu Kundu
Disclaimer
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