Multibagger stock: Why did Motilal Oswal downgrade Zen Technologies stock despite 177% jump in Q4 PAT?

Multibagger stock: Shares of defence stock Zen Technologies have been on a tear, hitting upper circuits for eight straight sessions, logging a nearly 48% rise during this period. The rally can be attributed to the rise in drone stocks following Operation Sindoor and strong performance by the company during the March 2025 quarter.

The company's strong order book and the current geopolitical environment remain conducive for Zen Technologies, said leading domestic brokerage Motilal Oswal Financial Services, but still downgraded the stock to 'neutral' from ‘buy’ on expensive valuations.

Zen Tech earnings, order book strong

For Q4 of the financial year 2024-25 (FY25), Zen Technologies stock posted a beat on revenue and profit after tax. While its revenue grew 116% year-on-year (YoY) to ₹2.9 billion, PAT jumped 117% to ₹849 million due to a lower-than-expected tax rate and higher other income.

"EBITDA margin contracted 100bp YoY to 32.2% vs. our estimate of 36.4% primarily due to a lower-than-expected gross margin of 59% (vs. our est. of 67%)," said the brokerage.

The company received orders worth ₹150 crore in the quarter, leading to an order book of ₹690 crore. The company has maintained order inflow guidance of ₹800 crore in 1HFY26, primarily from simulators. Government urgency following the recent conflict with Pakistan and geopolitical tensions has sparked a significant growth in its order pipeline.

While FY26 is expected to be a muted year due to order delays and execution timelines, Zen maintains a medium-term guidance of 50% CAGR in revenue. Management emphasised that while order inflows may accelerate in 1HFY26, actual revenue recognition may shift to FY27, hence the softer near-term outlook.

Zen Tech valuations: An overhang?

Zen Technologies share price has risen over 73% since March 1, 2025, amid an overall sharp run in defence stocks. In the last one year, the drone stock is up 99% while on a five-year basis, it has surged 4785%, delivering multibagger gains to investors.

The brokerage said that while we remain positive about the company and its ability to capitalise on the upcoming demand for simulators and anti-drones, our estimates and current valuations capture the positives related to upcoming orders and correspondingly 40% PAT CAGR over FY25-27.

“The stock has moved up by 74% since our last update in Feb’25. We thus downgrade the stock to Neutral and would look for better price points to enter the stock,” it added.

MOSL's revised Zen Tech stock target price of ₹1,750 signals almost 11% downside from today's (May 20) high of ₹1978.65 apiece.

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