Reduce Nazara Technologies Ltd For Target Rs.1,954 - Yes Securities
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Mixed operating performance with eSports being key growth driver
Our view
Overall, mixed performance for the quarter, as its growth in the quarter was mainly led by eSports segment. The outlook for gaming industry remains strong in India led by expected rise in the number of mid/hard core gamers. The business faces long term risks due to low entry barriers and the acquisition‐based growth strategy. We maintain REDUCE Rating on the stock with revised target price of Rs 1,954/share
Result Highlights
* Reported revenue of Rs 1,858 mn, up 43.4% QoQ (up 42.4% YoY), on the back of seasonally strong quarter for eSports segment( up 119.5% QoQ, up 89.2% YoY).
* Gamified early learning segment was down 12.4% QoQ( up 1.4% YoY), impacted due to changes in Apple's IDFA Privacy policy; while Telco subscription business was down 22.3% QoQ, in line with trend. Revenue from Freemium segment was up 35.7% QoQ, (down 7.5% YoY), while revenue from Real Money games increased by 109.8% QoQ, (up 93.4% YoY), led by OnePlay acquisition in Q2FY22.
* EBITDA margin increased by 126 bps QoQ to 16.3%, on positive operative leverage as marketing cost increased by just 11.6% QoQ.
* Kiddopia App saw increase in active users by 3,039 paying subscribers to a total of 326,738 subscribers. For real money gaming segment, the strategy is to first integrate Halaplay and Oneplay into one common tech platform.
* The management has maintained 35‐40% YoY revenue growth for FY22( through organic and inorganic means) with EBITDA margin profile of 13‐15%
Valuation
The stock trades at EV/EBITDA of 19.5xx on FY24E EBITDA. The rising smartphone penetration, affordable internet data and improving payment ecosystem continue to support the growth of gaming companies in India. We value the stock at revised EV/EBITDA multiple of 21x on FY24E to arrive at target price of Rs 1,954/share.
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