IPO Note - Nazara Technologies Ltd By Motilal Oswal
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Nazara Technologies (Nazara) is a leading, India based, diversified gaming and sports media platform with presence in India and across emerging and developed global markets such as Africa and North America.
Leadership position with a well-diversified portfolio:
Nazara is well diversified with some of the most recognizable IPs under its kitty, viz., Kiddopia in gamified early learning (39% of revenue), Nodwin & Sportskeeda in eSports (32%), WCC & CarromClash in simulation games (5%), and Halaplay Technologies in real money games (3%), while Telco Subscription forms 21% of revenue. It enjoysleadership in eSports with 80% market share and cricket simulation games where WCC is India’s most awarded mobile game. It’s capabilities of in-house content creation, game engine development, technology stack development and relationships with other participants in gaming, would help in further penetration and increase monetization.
Indian mobile gaming market to grow at 40% CAGR:
Indian mobile gaming market is expected to grow at 40% CAGR over 2020-23 vs 15% CAGR for global market, led by rising adoption of smartphones, drop in data prices, increased internet penetration, high internet speeds etc. Given its marketfirst position in India across sports simulation and eSports, Nazara is well placed to leverage the opportunity that interactive mobile games, eSports content and gamified early learning apps offer.
Financials:
Over FY18-20, Nazara’s revenue grew at 20% CAGR, while in 9MFY21 it achieved ~81% of FY20 revenue. EBITDA however went to negative in FY20, as the company reduced its dependence on high margin telco subscription segment to 21% of revenue (89% in FY18) in order to diversify and expand in fast emerging segments. In 9MFY21 EBITDA has started recovering and would pick up going ahead as Nazara attains economies of scale. Balance sheet is lean with minimal debt and working capital requirements. Return ratios however is negative as its loss making.
Issue Size:
INR5.8bn IPO consists of entirely OFS (by promoters and investors) which would result in promoter’s stake reducing to 20.7% post-IPO.
Valuation & View:
We like Nazara given its leadership in highly underpenetrated mobile gaming, wide product portfolio and strong relationship and network. Nazara is expected to witness strong growth for next 2-3 years given its recent acquisitions and first mover advantage. The issue is valued at 5.5x FY21 P/BV and 7.6x FY21 EV/Sales on an annualized and post issue basis. The issue is first of its kind listing and has no peer comparison in India. We believe that the market would like to give premium valuation to emerging growth stories like mobile gaming. We recommend Subscribe.
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