Zen Technologies Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Revenue collapsed, but the story is a delay, not a loss: Standalone Q2 revenue fell 48% YoY to Rs.124.65 Cr as the government’s emergency procurement focus post-Operation Sindoor pushed simulator and training-equipment orders out of H1. Management calls the orders a matter of “when, not if.”
• Margins held up despite the top-line shock: Standalone operational EBITDA margin actually improved to 34% (from 33% YoY), while total EBITDA margin jumped to 52% on other income, demonstrating the operating leverage and R&D efficiency in the model.
• The anti-drone thesis just got a real-world catalyst: Post-Operation Sindoor, anti-drone system tenders have been floated, RFPs are out, and the pipeline has become “very strong.” Management expects order results in the next couple of months and calls FY2027-2028 “great years.”
• The Rs.6,000 Cr cumulative guidance stands, with a caveat: Whatever isn’t executed in FY2026 spills into FY2027-2028, assuming the order book materializes as expected. The chance of spillover to FY2029 is “not there as of now.”
• What to watch next quarter: Whether the Rs.650 Cr of delayed simulator orders actually land in H2, the outcome of anti-drone system tenders, and any export surprises management is telegraphing.

The H1 Miss: What Happened

• Operation Sindoor reordered government priorities: The government’s extreme focus on emergency operational procurement starved the regular training-equipment and simulator budget, so the order book did not build up as expected. The Rs.650 Cr of order flow management had pencilled into H1 simply did not arrive.
• Management admits it misread the slowness: The CEO said the team was “very wrong about the slowness” but insists the orders “will definitely come in,” framing the miss as a timing problem rather than a demand problem.
• Q2 was still better than Q1: Standalone revenue improved sequentially, and H2 is expected to be better than H1, though the full year will be muted relative to FY2025.
• Simulator orders are the most certain recovery leg: Management is “very confident” simulator orders will come in H2, with “no question of spilling out to 2027.” Other orders beyond the Rs.600-650 Cr block also have to come through.

Ashok Atluri: “this is just a question of when, not a question of if the things are moving in the right direction and we expect orders to come”

Anti-Drone Systems: The Core Growth Engine

• Tenders are live and orders are imminent: Anti-drone system tenders have been floated, evaluations are underway, and management expects results “in the next couple of months.” If the government sticks to its emergency-procurement timeline, delivery happens within 12 months.
• Zen claims a decisive competitive moat: The CEO stated that no country, including China, has made anything “as competent and as cost effective” as Zen’s system, and that any end user serious about border protection will find only Zen can deliver a truly serious system.
• The hard-kill contract proves single-vendor status: Zen won a hard-kill system contract in a single-vendor situation where nobody else could offer the government a complete solution: detector, jammer, radar, electronic optic, remote-control weapon station, and the weapon itself. The AI Turing acquisition provided the RCWS piece that made Zen the only one-stop shop.
• L70 integration is already proven in trials: Zen has integrated its system with the L70 gun and demonstrated drone shoot-downs in trials; the system has been deployed at multiple locations.
• Order sizes are scaling fast: RFPs are “pretty big” and increasing in size; management says anti-drone orders in 2027 will be “very, very big.”
• The threat evolves, creating a recurring upgrade cycle: Anti-drone systems have a nominal 10-year lifecycle, but the drone threat evolves almost annually, so systems will need upgradation every two to three years, building a recurring revenue stream into the installed base.

Ashok Atluri: “we have not seen any country including China making anything as competent and as cost effective as we have made”

Margins: R&D Efficiency as a Moat

• Operational margins improved despite the revenue collapse: Standalone operational EBITDA margin rose to 34% (from 33% YoY), and consolidated operational EBITDA margin improved to 38% (from 33% YoY). Total EBITDA margins jumped sharply on other income.
• H1 tells a different story on standalone basis: Operational EBITDA margin for H1 FY2026 compressed to 34% from 37% in H1 FY2025, reflecting the operating deleverage from the top-line decline over the full half.
• Margins are protected by deep R&D, not pricing power: Management argues competitors who try to match Zen’s offering would have no margins because Zen operates very efficiently in R&D and production. The margin structure is considered sustainable for at least the next couple of years.
• The IP barrier reinforces the margin story: Because Zen’s systems meet the IDDM (Indigenously Designed, Developed and Manufactured) requirement and the IP is owned in India, management believes no other company can replicate the offering after Zen’s three to four years of heavy research.

Ashok Atluri: “if IDDM requirement, the IP requirement is there, there is no way we feel that any company can do it. Because we have done research for three to four years, very, very heavy research in this and it is very important that the IP in this company should be owned by India”

The Rs.6,000 Cr Target: Execution Risk and Scaling

• The cumulative guidance is intact but back-end loaded: The Rs.6,000 Cr cumulative revenue target stands; whatever is not executed in FY2026 will be executed in FY2027 and FY2028, assuming the order book materializes. Management sees no spillover risk to FY2029 “as of now.”
• FY2027-2028 will “more than make up” for the current-year deficiency: Management feels “very confident” that FY2027 and FY2028 will be great years, with orders accelerating from late FY2026 onward.
• Zen is scaling to handle large orders: The company has previously executed Rs.250-300 Cr and says it is scaling itself to execute large orders. On the question of whether Zen will get the order book to scale up, management answers yes, given the pipeline.
• The product mix is shifting toward anti-drone: Management previously thought the split would be 40% simulators and 60% anti-drone; it now thinks the mix may be closer to 50-50, reflecting the post-Operation Sindoor surge in anti-drone demand.
• Exports are a deliberate diversification play: The Indian government is pushing Zen to sell to friendly allied nations, and the company is de-risking by having multiple customers. Management promises “very nice pleasant surprises” in exports between H2 and H1 of next year, with a lot of revenues. Geographic focus spans Africa, the Middle East, CIS countries, and now Southeast Asia via the ARI acquisition.

Acquisitions and Strategic Focus

• Every acquisition fills a specific capability gap: ARI brought naval simulation and a Southeast Asia presence (office in Singapore); Vector Techniques provided drone-ecosystem understanding; Bhairav Robotics contributed robotics and RCWS capability; TISA addresses another stated requirement.
• AI Turing was the hard-kill enabler: AI Turing made remote-control weapon stations that were tested in recent trials and were the only one-stop-shop solution for the complete hard-kill requirement, appreciated by the end user.
• Strategy is depth, not breadth: Management will go deeper into simulation and anti-drone systems and will not pivot unless a very good acquisition can help Zen become global #1 or #2 in three to five years.
• Technology partnerships are welcome on equal terms: Zen is open to technical partnerships as long as they are genuine R&D collaborations, not a “master-slave manufacturing relationship.” The company is willing to co-develop the next version of a partner’s product.

Ashok Atluri: “Do not try to make yourself spread over many avenues. So we really want to go deep into these things, simulation and anti-drone systems and we do not want to pivot unless there is a very, very good acquisition that has deep capabilities and can help us have a leadership plan to become a global number one or number two in the next three to five years.”

Guidance & Commitments

Key Metrics