India's defence sector is witnessing a historic boom, fueled by geopolitical realities and a strong push for self-reliance. Within this landscape, drone technology has emerged as a particularly hot theme. However, for Hyderabad-based Zen Technologies, one of the few listed players with significant drone exposure, the soaring narrative is currently clashing with some challenging ground realities.
The Promising Backdrop: Defence and Drones Take Flight
India's focus on strengthening its defence capabilities has intensified sharply in recent years. Events like Operation Sindoor in May have further spotlighted the need for robust indigenous manufacturing. The numbers are compelling: after growing at a 11-14% CAGR between FY19 and FY25, India's defence production and exports are projected to accelerate to a 19-20% CAGR from FY25 to FY29.
The stock market has enthusiastically priced in this optimism. The Nifty India Defence Index has delivered a stellar 54% CAGR over five years, massively outperforming the Nifty 50's 13%.
Drones represent a critical sub-theme. Global conflicts have proven their strategic value in modern warfare, while applications in agriculture, disaster management, and policing are expanding. Supportive policies like the Drone Rules 2021 and reduced GST rates have added fuel. Yet, pure-play investment options are scarce. This is where Zen Technologies stood out, boasting strong financials and a stock that delivered a 73% CAGR over five years.
The Zen Technologies Conundrum: Strong Foundation, Near-Term Headwinds
Zen has built a formidable full-spectrum defence solutions company through relentless R&D and strategic acquisitions. With 180 patents applied for, its offerings span land, air, and sea. A series of acquisitions in 2025 alone—including Applied Research International (ARI), Vector Technics, TISA Aerospace, and Bhairav Robotics—have bolstered its capabilities in naval simulation, drone propulsion, loitering munitions, and robotics.
However, the company is facing significant near-term pressures. Ironically, Operation Sindoor has acted as a short-term headwind, as emergency procurements diverted government attention from routine orders, delaying new contract awards.
More critically, Zen's order book has been shrinking steadily, from ₹1,434 crore in December 2023 to ₹484 crore by September 2025. The consolidated order book, including subsidiaries, stands at ₹680 crore, which provides barely a year of revenue visibility. This shrinkage has directly impacted performance: H1FY26 revenues declined 52% year-on-year, with EBITDA falling 56%.
Working capital remains a concern, with the cash conversion cycle stretching to 117 days in FY25. Reflecting these challenges, the stock has corrected by about 45% so far in 2025.
Structural Strengths and the Path Forward
Despite the turbulence, Zen has built-in cushions. Its subsidiaries are contributing more (expected ₹250 crore in FY26), which helped soften the H1FY26 blow on a consolidated basis. The company is now debt-free, and its operating and free cash flows turned positive in H1FY26, partly aided by a push into exports.
The long-term opportunity is undeniable. India's military drone market, valued at $1.5 billion in 2024, is just 4% of the global market and is projected to grow to $4 billion by 2030. Management is confident that its indigenous, IP-owned anti-drone systems align perfectly with 'Make in India'.
The immediate future hinges on execution and order inflows. The company expects deferred orders to materialize in the second half of the fiscal year. A recent ₹120 crore order from the Defence Ministry for training simulators is a positive step. Expanding its export footprint (currently 18% of order book) in regions like Africa, the Middle East, and Southeast Asia is a key focus, though it requires patience.
After the sharp correction, the stock trades at around 49 times earnings
