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Result Synopsis

Nazara Technologies (NAZARA) reported inline financial performance for the quarter. Both, sequential revenue growth and EBITDA margin were broadly along expectation. It reported sequential revenue degrowth of 8.1% QoQ in a seasonally weak quarter for Nazara, led by 8.1% QoQ decline in revenue of esports( contributing 48.4% to revenue) and 0.4% QoQ decrease in the revenue of Gamified Early Learning(contributing 27.7% to revenue). There was sequential decrease in EBITDA margin(down 11 bps QoQ) led by sequential decline in revenue.

Indian Gaming industry is expected to achieve $3.5bn in 2023 from $1.5bn in 2020 at CAGR of 32.6% led by increasing smartphone penetration, increase in the number of mid/hard core gamers and gradual increase in In?app purchases. The revenue base of Nazara has become more diversified across business segments, thus helping to reduce the overall risk. High cost of content and higher marketing cost continues to weigh down on operating margin. Its acquisitions driven business strategy remains a risky one as such acquisitions often come at premium valuation. We estimate revenue CAGR of 27.6% over FY23?25E with average EBITDA margin of 12.5% over the period. We maintain our NEUTRAL rating on the stock with revised target price of Rs 598/share based on EV/EBITDA of 14x on FY25E. The stock trades at EV/EBITDA of 18.8x/13.0x on FY24E/FY25E.

Result Highlights

* Reported revenue of Rs 2,893mn (down 8.1% QoQ, up 65.2% YoY). The degrowth was led by 8.1% QoQ decrease in revenue of Esports Segment (up 52.9% YoY) contributing 48.4% to revenue. Freemium segment degrew by 25.7% QoQ (down 8.8% YoY), Adtech decreased by 16.3% QoQ, Real money gaming decreased by 11.3% QoQ (up 14.5% YoY), Gamified Early Learning decreased by 0.4% QoQ (up 56.1% YoY), and Telecom business degrew by 12.9% QoQ (down 22.3% YoY).

* Nodwin revenue grew by 57% YoY in Q4FY23 driven by growth in multiple IPs (Playground, Dgtl etc.) as well as strong growth in gaming accessories business.

* Sportskeeda revenues grew by 41% YoY in Q4FY23, as US revenues grew ~53% YoY during the same period.

* Launched partnerships with West Indies cricket team and Colexion NFTs.

* EBITDA margin decreased by 11bps QoQ to 9.6%, due to sequential decrease in overall revenue.

* Nazara is increasing stake in Nextwave Multimedia, the developer of WCC from 52.38% to 71.88%.

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