Zen Technologies Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Revenue target reset, not abandoned: Management cut the FY26–28 turnover target from ₹6,000 Cr to ₹4,000 Cr over FY27–28, blaming a government procurement slowdown that starved the order book. The tone stayed bullish: next year should be the highest ever.
• Combat training breakthrough arrived: A ₹100+ Cr combat training node order landed after a decade of marketing, validating a product management calls "number one in the world" and expects to sell in tens or hundreds.
• Export pivot accelerates on EU opening: The EU FTA was called a "fresh breath of air"; management is now scouting EU acquisitions and sees the bloc as a faster, more welcoming route to NATO markets than the US.
• Margins held up despite cost headwinds: Operational EBITDA margin hit 37.6%, up 870 bps YoY, even as employee costs rose from salary arrears, ESOP grants and new labour codes.
• What to watch next quarter: Whether the long-delayed regular simulator order finally converts before March 2026, the pace of EU market entry, and any hard numbers on the new product launches promised in the "next few months."

The Revenue Reset

Management walked back the earlier ₹6,000 Cr turnover target for FY26–28, replacing it with a ₹4,000 Cr execution target over FY27 and FY28. The culprit was a slowdown in government procurement that compressed order inflows over the preceding nine months, forcing a base-year readjustment.

• Split implied, not committed: Management declined to give exact FY27/FY28 figures but agreed with an analyst's scale of ~₹1,500 Cr in FY27 and ~₹2,500 Cr in FY28, adding they can execute above ₹2,000 Cr in a single year without operational strain.
• 9M FY26 tells the damage: Revenues fell 21.4% YoY over the first nine months; PAT was down 8%. The Q3 uptick (16.8% YoY growth) was not enough to close the gap.
• Order book bridge to the target: To hit ₹4,000 Cr, management needs a running order book of ₹2,500–3,000 Cr by FY27-end, up from ~₹1,000 Cr in equipment orders today. The missing piece is the regular simulator order, which has been persistently delayed.
• Capacity is not the constraint: Management says the supply chain can handle ₹4,000 Cr; if orders run larger, they are already investing in machinery, plant and a product R&D facility.

Ashok Atluri: "I think we are having the same feeling here in the simulator order with regular budget, where we are running very fast behind it, but it is maintaining equidistant from us."

Combat Training: The Decade-Long Bet Pays

Zen received its first combat training node order, worth ₹100+ Cr, after nearly ten years of development and marketing. Management describes it as a showcase product that will drive orders both in India and globally.

• Scale ambition: Management expects the node to sell "in tens if not in hundreds," positioning it as a major growth vector beyond simulators and anti-drone systems.
• Integrated naval centre in parallel: Anawave (acquired) has delivered tactical and submarine simulators; a full-fledged integrated Naval Training Center is now being built, mirroring the Army combat training node.
• Anawave/ARIPL naval outlook: Management called the ₹500 Cr three-year estimate for the combined naval entity "very, very conservative."
• No second ADS: When asked if any pipeline product matches the Anti-Drone System in scale, management answered flatly: "the answer is no."

Ashok Atluri: "This was the very, very big thing in the sense it is the first order that we got. And this will become a showcase not only for India but worldwide."

Export Pivot: EU Opens, US Grinds

The EU FTA, declared a couple of weeks before the call, has reshaped Zen's export strategy. Management now sees the EU as a faster, more welcoming route to NATO markets than the US, where regulatory processes are moving slowly.

• EU as NATO base: The company is talking to consultants, scouting EU acquisition targets, and expects clarity "in the next couple of months." A management visit to Europe is planned, with a promise of "something interesting" on the next call.
• US still in play, just slower: A team is built, interacting with US authorities and getting registered. Interest was strong at the Orlando I/ITSEC expo, especially for naval simulators, but orders will take longer due to regulatory hurdles.
• Export order range: Zen is pursuing orders from ₹100 Cr to ₹800 Cr apiece. Non-US orders, including EU, are expected to convert faster.
• Export contribution target: 20–30% of total turnover, especially for FY2028, with orders visualised from the Middle East, Africa and Southeast Asia.
• IP ownership as export moat: Management argues that owning IP is critical for export markets because foreign-sourced technology can be compromised; Zen's IP-owner stance is a differentiator.

Ashok Atluri: "With this FTA coming through, it has completely changed. It is an absolutely new opportunity for us. And I think we are being more openly embraced by the EU as a country than US at this point in time."

Anti-Drone & Electronic Warfare

The anti-drone system remains Zen's largest product franchise, now evolving from soft-kill to hard-kill capability. Procurement continues on an emergency basis, and the company is building capabilities for electronic warfare scenarios.

• Hard kill order received: Zen won an order for a hard-kill anti-drone system, a combination management says competitors do not offer. The solution includes AI Turing's product.
• Margin question lingers: Anti-drone margins are historically lower than simulators because the product was new and faced competition. Management acknowledged potential margin pressure as competition heats up but believes feature depth (soft kill, spoofing, hard kill) will sustain differentiation.
• AI Turing contribution: Expected to make a "meaningful contribution" to revenues and profits by FY2027.
• Threat-led, not RFP-led: Management stressed they build for operational needs, not RFPs, citing the Venezuela electronic warfare incident as a scenario they are engineering against.

Ashok Atluri: "We are not building for an RFP or we are not worried about the RFP. We actually want India to win wars. So, what is the product that we need to have to handle the actual threat?"

Margins & Integration

Operational EBITDA margin expanded to 37.6%, up 870 bps YoY and 30 bps QoQ, driven by favourable product mix and cost discipline. The gain came despite a rise in employee costs from three one-off items.

• Cost headwinds absorbed: Higher employee benefit expenses flowed from salary arrears after the annual appraisal cycle, increased ESOP expenses from fresh grants, and a one-time impact from new labour code implementation.
• ARI integration progressing: ARI currently delivers ~25% PAT standalone; once fully integrated, it should converge toward Zen's long-term average. The small consolidated dip is expected to fade in FY2026–27 itself.
• Capacity investment underway: Management is spending on machinery, plant and a product R&D facility to build execution headroom beyond ₹4,000 Cr, signalling margin investment is not over.

Order Book Composition & Pipeline

The order book stood at ~₹1,000 Cr in equipment orders at the time of the call, with management expecting it to improve "pretty soon" as delayed orders convert.

• Recent wins: Management cited "almost ₹600-plus Crores" of recent orders, including the anti-drone system upgrade, hard kill, combat training mode orders and tank simulators. Only the regular simulator order remains elusive.
• Procurement tailwinds: The draft Defence Acquisition Process 2026 is expected anytime and should enable faster procurement cycles. Emergency procurement is expected to continue.
• RDI Fund: The government's ₹1 lakh Cr Research Development and Innovation Fund allocates ₹20,000 Cr per year for Deep Tech including defence; Zen plans to use it for long-term R&D on technologies 5–7 years out.

Guidance & Commitments

Key Metrics