Buy Nazara Technologies Ltd For Target Rs.2,303 - Yes Securities
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Muted performance was muted in the quarter
Our view
Overall, the performance was below expectation led by muted performance in the Gamified early learning and esports segments. The outlook for gaming industry remains strong in India led by expected rise in the number of mid/hard core gamers. The business faces long term risks due to low entry barriers and the acquisition‐based growth strategy. We maintain REDUCE Rating on the stock with revised target price of Rs 2,303/share
Result Highlights
* Reported Revenue of Rs 1,296 mn( down 1.2% QoQ, up 17.8% YoY). The less than expected revenue was due to muted sequential performance in esports and Early gamified learning segments and higher decline in telecom subscription business.
* Gamified learning revenue was up 3.5%QoQ(up 25.6% YoY) to Rs 539 mn. The sequential growth in subscriber base has resumed for Kiddopia post a decline in Q1FY22 due to Apple IDFA impact. Monthly ARPU was between $6.3‐ $6.5 and monthly churn is between 4‐7% across the months in Q2FY22. For eSports, the revenue grew 34% YoY( down 6.4% QoQ) to Rs 498 mn. Media Rights contributed 61% of revenue in Q2FY22 ( 54% revenue in H1FY22) compared to 55% for FY21.
* Telecom subscription business declined by 7.3% QoQ( down 19.5% YoY) to Rs 166mn more than expected decline of 5% YoY.
* EBITDA margin was down 268 bps YoY(down 790 bps QoQ) to 15% on higher employee cost (up 39.3% QoQ); while advertisement cost normalised as it rose 20% QoQ to Rs 509 mn on lower base of 2nd wave affected Q1FY22.
* The management has guided for 35‐40% YoY revenue growth for FY22( through organic and inorganic means) with EBITDA margin profile of 13‐15%
Valuation
The stock trades at EV/EBITDA of 26.9x on FY24E EBITDA. The rising smartphone penetration, affordable internet data and improving payment ecosystem continue to support the growth of gaming companies in India. We value the stock at unchanged EV/EBITDA multiple of 25x on FY24E EBITDA target price of Rs 2,303/share
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