Zen Technologies, a leading player in drone and defence technology, saw its stock price tumble 20% on February 17, 2025, following the release of its Q3 FY25 results. While the company reported strong year-on-year (YoY) growth, the sequential decline in revenue and profit appears to have shaken investor confidence. Let’s break down what happened and what lies ahead for Zen Technologies.
Q3 FY25 earnings report:
Zen Technologies’ financials for the quarter ended December 2024 revealed a sharp contrast between annual and sequential performance:
| Metric | Q3 FY25 | Q2 FY25 | Q3 FY24 | YoY Change | QoQ Change |
| Net Profit (PAT) | ₹ 38.62 crore | ₹ 65.24 crore | ₹ 31.67 crore | 0.22 | -40.80% |
| Revenue | ₹ 141.52 crore | ₹ 241.69 crore | ₹ 98.08 crore | 0.44 | -41.44% |
| EBITDA | ₹ 58.69 crore | ₹ 87.85 crore | ₹ 48.41 crore | 0.21 | -33.18% |
| EBITDA Margin | 35.90% | 35.12% | 47.34% | Down | Up |
While the company showed impressive annual growth, the sequential decline in revenue (-41.44%) and net profit (-40.8%) signalled operational weakness. The EBITDA margin stood at 35.90%, slightly improving from Q2 (35.12%) but significantly lower than Q3 FY24 (47.34%).
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Market reaction
Following the earnings release, Zen Technologies’ stock hit the 20% lower circuit at ₹ 1,080 on the NSE. Investors reacted negatively to the sharp quarter-on-quarter drop in revenue and profit, leading to a significant sell-off. The stock has lost over 50% in the past month and 36% in the last six months, raising concerns about its near-term prospects.
Key reasons behind the decline
- Sequential drop in revenue and profit:
- Despite a 44% YoY rise in revenue, the 41.44% sequential decline raised concerns about the company’s growth trajectory.
- Net profit nearly halved from ₹ 65.24 crore in Q2 FY25 to ₹ 38.62 crore in Q3 FY25.
- Slowdown in new orders:
- The company secured new orders worth just ₹ 1.69 crore in Q3 FY25, significantly lower than its usual trend.
- As of December 31, 2024, its order book stood at ₹ 816.91 crore, down from ₹ 956.74 crore as of October 1, 2024.
- Stock’s recent underperformance:
- The stock had hit a 52-week high of ₹ 2,627.95 on December 24, 2024.
- It has plunged over 50% in the past month and 31% in just the last five days, wiping out significant investor wealth.
Analyst outlook
Despite the stock’s steep correction, analysts remain optimistic about its long-term potential. The consensus average target price for Zen Technologies shares stands at ₹ 2,495, with all three analysts maintaining a ‘buy’ rating. This indicates a potential upside of over 130% from its current levels.
Zen Technologies’ recent investments in Vector Technics and Bhairav Robotics also point towards its expansion into UAV propulsion and autonomous defence robotics, which could fuel future growth.
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Industry outlook and government support
The broader defence sector continues to see strong government support. The Union Budget 2025 allocated over ₹ 6.81 trillion to the Ministry of Defence, a 9.53% increase from FY25. This includes ₹ 1.80 trillion for capital expenditure, which is expected to benefit companies like Zen Technologies.
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What lies ahead for Zen Technologies?
While the recent stock plunge may seem alarming, Zen Technologies has a strong track record of growth. The company surged 207% in 2024 and 333% in 2023, driven by its leadership in simulation training equipment and anti-drone systems.
However, in the near term, the stock may remain under pressure due to slowing order inflow and investor concerns over profitability. The company’s ability to secure new contracts and execute its existing order book efficiently will be key to regaining investor confidence.
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Should investors worry?
While the recent decline raises short-term concerns, Zen Technologies continues to have strong growth potential, especially in India’s evolving defence sector. Investors should closely monitor order inflows and upcoming financial performance before making any decision.
