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Nazara Technologies is a leading India based diversified gaming and sports media platform with a presence in India and across emerging and developed global markets such as Africa and North America, with offerings across the interactive gaming, eSports and gamified early learning ecosystems. The company owns some of the most recognisable IP, including WCC and CarromClash in mobile games, Kiddopia in gamified early learning, Nodwin and Sportskeeda in eSports and eSports media, and Halaplay and Qunami in skill-based, fantasy and trivia games. The company derive revenues mainly from subscription fees paid by users for accessing gamified early learning content, as well as from eSports business. These two segments cumulatively accounted for 71% and ~42% of operating revenues for H1FY21 and FY20 respectively.

Favourable macro-economic and demographic drivers

Favorable macro-economic and demographic drivers, growth in adoption of gaming and online learning and improvement in digital payment and tech infrastructure in India provides a great opportunity for growth of the company. The gaming industry in India is currently valued at US$ 1.54 billion and is expected to grow at a CAGR of 31% to US$ 3.53 billion by 2023.The combined Gen-Z and millennial population provides a large user base of mobile gamers, sports and eSports fans. Further, rapidly rising per capita spends and high internet and smartphone penetration, India as a market for each of company’s offerings is still far from saturation, both in terms of the number and engagement of users as well as monetisation opportunities, thereby providing huge potential for growth.

Leadership position in a diversified and scalable business

The company’s successful business model and established presence in India has given a competitive advantage. The content is developed in India for the Indian as well as global audience, allowing it to achieve scale. The company has an operating leverage advantage in gamified early learning on account of captive development of content being undertaken in India, while generating revenues inter alia from North America. Further, its leadership in eSports and sports simulation and geographical reach across India, Middle East, Africa and North America provide a strong foundation for growth.

Key risk & concerns

* Inability to protect IP or any third-party claims could materially affect the business

* Skill-based fantasy and trivia real money games are subject to regulatory uncertainty

* Significant portion of revenue from eSports business comes from a few customers

Priced at FY20 Mcap/Sales of 13.5x on upper band

At a price of |1101/share, the stock is available at 13.5x FY20 Mcap/sales.

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