Tata Group Company Picks Over 2% Stake in this Multibagger Drone Stock

Nowadays, Indian skies are not only buzzing with birds and airlines, but also with drones.

These futuristic marvels have grown dramatically over the last few years. As per a media report, 49 major deals have been achieved in India in the drone sector in the last four years.

Drones have revolutionized various industries, from agriculture and delivery services to surveillance and entertainment. As these remarkable machines continue to reshape our work and lives, investing in drone stocks has become a topic of interest for many.

With this in place, it's not just retail investors grabbing these stocks. Drone stocks are becoming the hottest ticket in town, with even big companies scrambling to grab a piece of the pie.

This is evident from the recent stake buy from Tata group company Tata AIA Life in a multibagger drone stock.

Tata AIA Life Insurance is a joint venture between India's Tata Group and AIA Group, one of the world's largest life insurance companies.

The company recently bought 2 million (m) shares of Zen Technologies, the sole manufacturer in India for the simulation training equipment and anti-drone systems.

Tata AIA Life bought a 2.4% stake in the company for Rs 725 per share in a block deal. The transaction was worth Rs 1.5 billion (bn).

However, promoter Tara Dutt Atluri sold 1.5 m shares, or 1.8%, of Zen at the same price, amounting to Rs 1.1 bn.

While we don't know why Tata AIA added Zen Technologies, there are some reasons that we can guess.

#1 Back-to-back order wins

Zen Technologies, on 20 December 2023, bagged export orders of Rs 420 m. The new order won by Zen Tech comprises stimulators, aligning with the national objective of becoming a net defence exporter.

Further, the company has been winning significant orders from the Ministry of Defence (MoD), Government of India.

These back-to-back order wins are due to factors like Make in India, Atmanirbhar Bharat Mission, Buy Indian IDDM, Simulation Framework, and the GoI's sustainability commitment.

Earlier on 26 October 2023, the company bagged an order valued at approximately Rs 1 bn from the Ministry of Defence, India, for its state-of-the-art Force-On-Force tank training system.

In September too, it won a significant contract from the Ministry of Defence for the supply of Anti-Drone systems. The total value of the order was worth Rs 2.3 bn.

The company has over three decades of expertise in delivering cutting-edge military training and anti-drone solutions.

The company has filed for over 130 patents, of which over 50 have been granted and has successfully shipped more than 1,000 training systems worldwide.

Its order book stood at Rs 14 bn as of 30 September 2023.

#2 New R&D Facility

Zen Technologies recently signed a memorandum of understanding (MoU) with the government of Goa to set up a new R&D facility in the state.

The new facility, to be set up at the Electronic Manufacturing Cluster (EMC) Tuem, Goa, will be established for Rs 500 m and is expected to create employment opportunities for 800 individuals.

This new facility will help it in its manufacturing capabilities, particularly in cutting-edge simulators and drone-related technologies.

The new facility will serve as an anchor unit for the EMC, with plans to develop and source sub-assemblies from Goan micro, small and medium Enterprises (MSMEs).

Following the establishment of the facility, Zen Technologies will expand its manufacturing base, affirming its commitment to expansion.

The facility will serve as an operational hub, supporting domestic and export business.

This strategic development will not only fortify the company's manufacturing presence but also diversify its operational landscape, underlining a proactive approach to business growth and resilience.

#3 Dominating Anti-Drone Share Plan

Zen Technologies is positioning itself to capture a substantial portion of upcoming government contracts.

As a key player in the defence sector, providing simulators for weapons and defence equipment, Zen Tech is the Ministry of Defence's top supplier of anti-drone systems.

So, this gives the company confidence to get a big chunk of the order that is being floated by the Indian government and other governments.

Zen Tech possesses significant indigenous capabilities in counter-drone technologies, which are becoming crucial part of the portfolio.

Further, is expected that the counter-drone market could be worth up to US$ 2 bn in the next five to seven years.

A Close Look at its Financials

For the September 2023 quarter, Zen Technologies' revenue grew by 99% to Rs 665 m, while it reported a net profit growth of 170.4% year-on-year to Rs 152.8m.

For FY23, the company has recorded a total revenue of Rs 2.2 bn. This gives the company a CAGR growth of 57% in its revenue between FY21 to FY23.

The profits have followed a similar trend. Its profit has increased from Rs 28 m in FY19 to Rs 500 m in FY23. This gives the company a CAGR growth of 161%.

This growth was on the back of a dominating position in the anti-drone system market.

Zen Technologies Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Total Revenue (Rs in m)	577.0	751.0	2261.0
Growth (%)	-	31.5	201.3
Net profit (Rs in m)	28.0	26.0	500.0
Net profit margin (%)	5.1	3.7	22.8

Source: Equitymaster

Going forward, the company aims to expand its market share.

What Next?

Going forward, the management foresees significant order wins in the future, driven by their active participation in various defence events.

Additionally, they anticipate securing more substantial order inflow due to the Indian government's aggressive procurement activities.

A major catalyst for this growth is the government's recent policy liberalisation, which allows for the global export of drones categorized for civilian use.

Previously restricted under the SCOMET list, these drones can now be sold worldwide, opening up vast international markets and boosting the company's potential for expansion.

Furthermore, the recent disbursement of Rs 300 million (m) as a PLI for drones and drone components is a game-changer for the industry.

This scheme offers a 20% incentive based on value addition, making it one of the most generous PLI schemes to stimulate the industry.

How Shares of Zen Technologies have Performed Recently

Over the last one year, the share price of Zen Technologies has gained 285%. In 2023 so far, the stock is trading higher by 305.5%.

Over the past six months, the stock has gained over 87%.

The company touched its 52-week high of Rs 911.4 on 17 August 2023 and its 52-week low of Rs 175.2 on 23 December 2022.

About Zen Technologies

Zen Technologies is a leading provider of military training and anti-drone solutions. The company was founded in 1993 and is headquartered in Hyderabad, India.

Zen is at the forefront of applying new technologies and developing new products. It is actively involved in the indigenization of technologies, which is beneficial to the Indian security forces.

It was the first Indian company to commercialise PC-based visual simulation technology for training simulators. Now, Zen is the leader, offering firearms, tank, driving, mining and unmanned aerial vehicle (UAV) simulators.

The firm offers its products to police and paramilitary forces, armed forces, security forces, and government departments, such as transport, mining, infrastructure, and civilian markets.

For more details, see the ZEN TECHNOLOGIES company fact sheet and quarterly results.

You can also compare Zen Tech with its peers-

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