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Strong Gaming Execution; Acquisition-led Scale Improves Outlook

NAZARA delivered a resilient Q1FY27 despite near-term earnings volatility. Comparable revenue (ex-Nodwin) grew 9% YoY, while gaming revenue increased 14% YoY to INR 2.8bn, with EBITDAM remaining healthy at 19.5% despite elevated user acquisition spends. However, lower-than-expected margins, the deferment of Bluetile and BestPlay consolidation to Q2FY27, and the revised acquisition payout structure have altered the company's near-term earnings and cash flow profile. For now we model in cumulative INR 12.0 Bn preferential equity issuance (including the INR 7.35 Bn already announced) and INR 8.0bn of incremental debt to fund the acquisition with remaining from internal accruals. We will revisit these assumptions as management provides greater clarity on the final funding structure.

While the revised transaction structure changes the timing of cash outflows, NAZARA secures 100% ownership upfront, eliminates earn-out uncertainty, and enables full consolidation from Q2FY27, strengthening Nazara's international gaming franchise. The appointment of Raymond Stauffer as CEO from Sep'26, alongside Nitish Mittersain's transition to Executive Vice Chairman focusing on strategy, M&A and capital allocation, should further strengthen execution. Despite near-term funding and integration risks, we remain constructive on Nazara's longterm growth prospects driven by global gaming expansion, disciplined capital allocation and operating leverage. We value the company on the SOTP method and arrive at a TP of INR 400 (maintained) and assign ‘ADD’ rating.

Core Gaming Momentum Intact; Acquisitions Expand Global Scale

NAZARA reported Q1FY27 revenue of INR 4.29 Bn (-14.0% YoY; +7.8% QoQ), impacted by the deconsolidation of Nodwin; however, comparable revenue (excluding Nodwin) increased ~9% YoY, reflecting healthy underlying demand. Gaming remained the key growth engine, with revenue rising 14% YoY to INR 2.75 Bn, supported by a strong performance from Kiddopia, Fusebox and Animal Jam, while all gaming businesses remained EBITDA positive. Management continues to invest in user acquisition to expand monetisation and engagement, while upcoming content launches across Fusebox and Curve Games provide additional growth levers. We expect growth to accelerate from H2FY27, supported by Bluetile & BestPlay consolidation, expanding global gaming franchises and continued execution across the gaming portfolio

Margin Impacted by Growth Investments; Strategic Reset Expected to Improve Earnings Quality:

EBITDA margin stood at 10.8%, reflecting elevated user acquisition spending and softer profitability in AdTech. Company registered PAT loss of INR 799 Mn, primarily due to the one-time write-down of the remaining RMG investment and lower associate income, with limited impact on the underlying operating business. The restructuring of the Bluetile & BestPlay acquisition into a 100% upfront acquisition (USD 303 Mn) removes earn-out uncertainty, simplifies ownership and strengthens earnings visibility from Q2FY27. We believe improving scale, operating leverage and a richer mix of global gaming revenues should support gradual margin expansion, although acquisition integration and funding remain key near-term monitorables.

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