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First mover advantage on highly prospective online game business…

Nazara Technologies Ltd (NTL), incorporated on December 8th, 1999, is a leading gaming & sports media platform with presence in India and global markets such as Africa and North America. The company offers a range of diversified gaming products across interactive gaming, eSports and gamified early learning (learning through games for children aged between 2-6 years). NTL is one among the leading live eSports streaming and on-demand eSports media content companies with a market share of over 80% in India. World Cricket Championship (WCC) in mobile games, Kiddopia in gamified early learning, Nodwin in eSports and Halaplay in skillbased, fantasy & trivia games are some of its offerings.

* The Indian gaming industry is expected to grow at a CAGR of ~32% over FY20- 23E led by growth in digital infrastructure, increased internet penetration, adoption of smartphones and significant rise in quality gaming content.

* NTL has major share coming from subscription-based revenue from gamified learning content and eSport (together contributes ~71% of H1FY21 revenue) is likely to generate strong growth owing to robust industry outlook.

* NTL owns and has exclusive access to IPs (intellectual property) such as WCC (World Cricket Championship), Kiddopia, Halaplay, Qunami, Nodwin and Sportskeeda and has an average of 57.54 million MAUs (monthly active users) across all games in 9MFY21.

* Revenue grew at a CAGR of ~20% over FY18-FY20 led by inorganic growth through multiple acquisitions. Annualised revenue growth is 62% in FY21E, based on H1FY21 results.

* Company had achieved EBITDA margin of 28% in FY18 which henceforth reduced due to acquisitions and higher offers and promotions. Increased subscription, more advanced games like cricket and rummy becoming online is expected to support future margins.

* On an adjusted basis, the company is debt free, which is positive. However, other fixed costs like royalty, gaming infrastructure and regulation fees seem to be on the higher side, which can be addressed by the high growth expected in future.

* The company is supported by strong leadership team backed by marquee investors.

* At the upper price band of Rs.1,101, NTL is available at EV/Sales of 8.5x based on H1FY21 (annualized numbers) which is on the higher side. But this premium valuation is supported by the high scalability of new digital business. The company will also enjoy limited competition from domestic players and strong backing from a fast-growing Indian gaming market, we assign a “Subscribe” rating for the issue on a short to medium-term basis.

Purpose of IPO

At the upper price band, total issue size stands at Rs 583cr. The issue consists of only offer for sale (OFS) wherein the promoters and existing shareholders will dilute 3.05cr shares of the company. Although NTL will not receive any proceeds from this offer, the prime purpose of the issue is to enhance visibility, brand, provide liquidity to existing shareholders and achieve the benefits of listing shares on stock exchanges.

Key Risks

* Lack or change in government regulation.

* Competition from global players.

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