Zen Technologies' order pipeline and counter-drone demand support FY27 execution recovery

Investment View and Key Thesis

ICICI Direct Research retains its BUY view on Zen Technologies, citing the company’s positioning in the expanding demand for anti-drone systems and other new-age warfare requirements. Zen Technologies designs, develops and manufactures combat-training and counter-drone solutions for defence and security forces, with a focus on indigenous technologies for the Indian armed forces, state police and paramilitary forces.

The broker’s target price is Rs 2,170, based on 40 times FY28E earnings per share. The long-term thesis rests on the company’s simulation and counter-drone platforms, along with its expansion into HyperStrike interceptor drones, Integrated Smart Border Suite, drone propulsion, autonomous systems, unmanned ground vehicles and directed-energy technologies.

Subdued Q1 FY27 Performance

Zen Technologies reported a subdued Q1 FY27 due to lower execution. Net sales declined 10.5 per cent year-on-year and 20.5 per cent quarter-on-quarter to Rs 141.6 crore. EBITDA fell 40.2 per cent year-on-year to Rs 38.7 crore, while EBITDA margin contracted by 1,356 basis points year-on-year to 27.3 per cent. PAT declined 40.0 per cent year-on-year to Rs 31.8 crore.

ICICI Direct attributed the lower revenue to the absence of meaningful order inflows in H1 FY26 and the timing of execution, as a substantial part of contracts was received in H2 FY26. Management attributed the margin compression to lower operating leverage and incremental research and development investment, rather than structural pricing pressure. Gross margin remained healthy at 72.9 per cent.

Order Book and FY27 Execution Outlook

Management said FY27 revenue recognition should be weighted towards Q2 FY27 and Q3 FY27 because the current order book was largely secured in H2 FY26 and has an approximately 12-month execution cycle.

• Zen Technologies executed Rs 142 crore of orders and received Rs 45 crore of fresh orders during Q1 FY27.
• After the quarter, the company won a Rs 178 crore Ministry of Defence order for upgrading and integrating tank and crew gunnery simulators.
• The order book stood at Rs 1,239 crore as of June 2026, comprising Rs 921 crore of equipment orders and Rs 318 crore of customer contracts.
• Including the recent simulator order, the broker refers to the current backlog as approximately Rs 1,400 crore.

Management reiterated its expectation of ending FY27 with an order book of about Rs 2,500 crore, implying more than Rs 2,000 crore of order inflows during the year. It identified a pipeline of simulator orders worth Rs 700-800 crore in the coming months and materially larger counter-drone opportunities thereafter.

Management also reaffirmed a cumulative revenue aspiration of Rs 4,000 crore over FY27-FY28, of which simulation is expected to contribute more than Rs 2,000 crore. It continues to target a mid-30 per cent operating EBITDA margin in FY27E.

Simulation, Counter-Drone and Export Opportunities

Zen Technologies is entering flight simulators through the C-295 simulator, while management estimates a domestic Army and Navy simulator opportunity of about Rs 25,000 crore. Vector Technics is expanding propulsion manufacturing capacity to 300,000 units annually, with nearly half of enquiries originating overseas.

Management highlighted export opportunities across Europe, the Middle East and friendly nations, alongside an estimated US$10 billion simulator opportunity in the United States. The company’s broader expansion areas include HyperStrike interceptor drones, Integrated Smart Border Suite, autonomous systems, unmanned ground vehicles and directed-energy technologies.

Broker Estimates and Valuation

ICICI Direct expects EBITDA margin to remain above 35 per cent in FY27E and FY28E as execution rises and the mix shifts towards higher-yield contracts. Its target price of Rs 2,170 is based on 40 times FY28E earnings per share.

Key Risks

• Dependence on government contracts.
• High working-capital requirements.
• Competition.
• Technological risk.