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Strong operating performance across segments  

Our view and valuation

Overall, it reported strong performance for the quarter with both revenue and EBITDA margin broadly inline with estimates. The sequential growth was broadbased across segments, with overall revenue stream becoming more diversified across segments. The EBITDA margin trajectory has become predictable. The outlook for gaming industry remains strong in India led by expected rise in the number of mid/hard core gamers. The rising smartphone penetration, affordable internet data and improving payment ecosystem continue to support the growth of gaming companies in India. The business faces long term risks due to low entry barriers and the acquisition?based growth strategy. We estimate revenue CAGR of 48.3% over FY22E?FY24, with average EBIT margin of 8.5%

We revise our rating from REDUCE to NEUTRAL on the stock as per our new recommendation parameters; with revised target price of Rs 652/share, valued at EV/EBITDA of 16.0x on FY24E EBITDA. Trades at EV/EBITDA of 15.6x on FY24E EBITDA

Result Highlights

* Revenue grew by 27.4% QoQ( up 70% YoY) to Rs 2,231mn, led by consolidation of Adtech company, Datawrkz, with reported revenue of Rs 321mn for the quarter.

* In terms of other segments, esports grew by 12% QoQ; Gamified Early Learning grew by 2% QoQ; Freemium grew by 30% QoQ; Real money gaming grew by 18% QoQ; Telco subscription grew by 1% QoQ.

* EBITDA margin grew by 498 bps QoQ to 13.5%( down 945 bps YoY); with sequential improvement in margin led by positive operating leverage.

* For Gamified early learning, increase in subscription pricing has stabilized unit economics model. The number of subscribers fell by ~6,800 subscribers QoQ, to 301,916.

* For Real money gaming, it is looking at consolidation led scaling as statutory clarity emerges.

* Investments for long term suppressed Q1FY23 EBITDA margin for esports segment

* Datawrkz, a US based programmatic Advertising and monetization company, is a new growth engine for Nazara

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