Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

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Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Edited excerpts of an interview with Mr. Manish Agarwal, Chief Executive Officer, Nazara Technologies (Nazara) with ETNow on 23^rd September 2021:

• Nazara categorizes its consumers based on the age group and all their acquisitions fit in these cohorts. One is 2-12-year-old young kids, 14-25-year-old male sports fans, and then above 25 gamers.
• Nazara is present in emerging markets like India, South Asia, South Africa, and the Middle East which are seeing a strong tailwind across gaming and adjacencies to gaming.
• The company’s last acquisition Publishme allows the company to build gaming IPs in the Middle East.
• Having an on-the-ground understanding of what the consumer needs and how it would pan out in terms of retention engagement, consumer acquisition, and community building are important aspects for the company to succeed.
• Nazara three years back took a call that gaming is a talent-driven business and that talent is passionate about what they create and you need to work with that talent to grow those companies.
• Nazara’s telco business which is 15 years old, contributes around 13-14% to the company’s overall portfolio and its acquired IPs are in their growing phase like kiddopia, Nodwins, Sportskeeda, and the World Cricket Championship.
• The company’s strategy has been to build all the friends of Nazara as a concept and then continue to build value with those founders at subsidiary levels.
• Gaming as a secular trend was in a very advanced stage even before COVID due to two key reasons i.e launch of Jio and UPI transactions.
• Pre-pandemic, the company was growing around 48-50% YoY. The combination of acquisition and organic growth helped the company to grow ~87% and continues to see the same momentum of growth in different businesses.
• India is still 2-4 years old in e-gaming and esports. India’s gaming is still a very small market and is limited to mobile as an access device. The growth of this market is expected to come in the next 3-5 years.
• It is always important as an industry to look into the markets which are far ahead (seven-eight years ahead) and then work with stakeholders today to ensure creating and evangelising the benefits of gaming.
• Looking at the risk of gaming, it is predominantly limited to skill-based real money gaming where people are waging their money to win a large part of the money. The non-real money gaming part which is free to play mobile gaming, e-sports, or gamified learning does not fall into this bracket.
• Clarity regarding the difference between games of chance and games of skill will help to bring clarity to the policy.
• The company expects National E-sport Championship in the coming time to create a positive perception about gaming. This will take time and can only change through large ticket items like Olympics plus constant engagements with the stakeholders.

Asset Multiplier Comments

• We believe rising gaming culture, evolving E-sports, improvement in digital payment and tech infrastructure, favorable macro-economic, and demographic drivers in India provide an opportunity for the growth of the company.
• Nazara has created the entire network through selective acquisitions. This will help to explore the gaming sector boom in India.

Consensus Estimate (Source: market screener websites)

•  The closing price of Nazara Technologies was ₹ 2,280/- as of 27-Sep-21. It traded at 146x/90x/61x the consensus EPS estimate of ₹ 14.7/23.6/35 for FY22E/ FY23E/FY24E respectively.
• The consensus target price of ₹ 2,060/- implies a PE multiple of 59x on FY24E EPS of ₹ 35/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”