Nazara Tech

24 May

E-Sports to be the new driver of growth – Nazara Technologies

 

 

Update on the Indian Equity Market:

On Tuesday, NIFTY settled lower at 16,125 (-0.6%). DIVISLAB (-6.0%), TECHM (-4.0%), and GRASIM (-3.9%) were the top losers. DRREDDY (+2.0%), HDFC (1.7%), and KOTAKBANK (+1.4%) were the gainers. Among the sectors, MEDIA (-2.6%), IT (-1.9%), and HEALTHCARE (-1.5%) led the losers. FINANCIAL SERVICES (+0.3%), and BANK (+0.1%) led the gainers.

Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Technologies with Economic times on 24th May 2022:

  • The company’s revenue mix is an evolving pie chart as it is operating in 5 growth segments viz gamified learning / E-Sports / freemium / ad tech and skill-based real money gaming. All of these areas have a very large Target Audience Market and strong tailwinds based on organic growth momentum and inorganic velocity in different segments.
  • Gamified learning was the largest segment in FY21 and now E-Sports is the largest segment in FY22 the company believes E-Sports has the potential to further evolve if mid-size M&A were to happen in skill-based real money gaming.
  • The online gaming segment has been on the rise for a few years now. In 2020, this segment grew to Rs 79 billion and had a steady growth of 28% in 2021. Even with the lockdown being lifted, this sector has continued to show growth.
  • The Online Gaming sector was valued at Rs 101 billion in 2021, according to an EY FICCI report. The number of esports players doubled from 3,00,000 in 2020 to 6,00,000 in 2021. Additionally, the number of online gamers grew by 8% from 360 million in 2020 to 390 million in 2021, and is expected to rise to 450 million by 2023. The gaming segment is expected to grow exponentially in all verticals including E-Sports for the company.
  • The management expects the online gaming industry to reach 500 million gamers by 2025 and will become the fourth largest segment of India’s M&E sector. It is expected to reach Rs 153 billion at a CAGR of 15%. This growth is expected to be mainly driven by three things: NFTs, Metaverse, and esports.
  • For the next few quarters – the management expects esports to continue to build on the momentum of Q4 and the opening of offline events and the growth of D2C biz with M&A of Wings and Planet Super Hero will be key drivers of growth for the company.
  • The company is present in 5 of the most dominant consumer trends in gaming and will also participate in web 3 so besides this, the management doesn’t think there are any unexplored new opportunity segments. The management’s aim this year is to strengthen leadership in each of the segments that the company operates across emerging markets outside the Indian subcontinent.

Asset Multiplier Comments

  • The online gaming sector is still an underpenetrated segment in India. With increasing internet accessibility and smartphone availability, India offers a largely untapped market in the online gaming segment, which has been accelerated by the pandemic and lockdowns.
  • Being the market leader in this segment, Nazara Technologies is well poised to strengthen its leadership in the E-sports category for the medium term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nazara Technologies was ₹ 1,200/- as of 24-May-2022.  It traded at 28x/ 21x the consensus earnings estimate of ₹ 43/ 58/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1796 /- implies a P/E Multiple of 31x on the FY24E EPS estimate of ₹ 58/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered 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.”

 

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11 Apr

Entertainment first company that contains learning: Nazara Technologies

Update on the Indian Equity Market:

On Monday, NIFTY settled 109 points lower at 17,675 (-0.6%). HCLTECH (-2.7%), LT (-2.6%), and INFY (-2.5%) were the top losers. GRASIM (+2.6%), ADANIPORTS (+1.8%), and CIPLA (+1.5%) were the gainers. Among the sectors, IT (-1.1%), FINANCIAL SERVICES (-0.56%) and FINANCIAL SERVICES 25/50  (-0.53%) led the losers OIL&GAS (+1.9%), MEDIA (+1.4%), and REALTY (+1.1%) were the gainers.

Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Technologies (NAZARA) published in Business Standard on 9th April 2022:

  • The journey from a telco value-added services provider in 2017 to a diversified e-sports company gives the belief that the company had volume, velocity, leadership, IPs, and also the predictability and visibility of revenues.
  • The telco subscription business segment currently contributes less than 10% of total business and the business that the company was not operating in the last five years, is now dominating the portfolio.
  • Skill-based real money gaming contributes only 4% of the company’s business while its market share in the gaming industry is almost 80%.
  • But the company is not aggressively expanding its offerings in the real money gaming business segment as it doesn’t have more clarity. With more clarity on taxation of skill-based real money gaming, the offerings will be expanded.
  • NAZARA is an entertainment-first company that also contains learning, NAZARA is not a learning-first company like Byju’s or Unacadamy. NAZARA has an aim that the child should get entertained and along with entertainment children can get a certain amount of learning.
  • The Company’s product portfolio has varied offerings for different age groups. For the age group of 2-7 years the company has the subscription-based product which is Kiddopia and for the age group of 7-12 years company has games like Roblox where kids have a social community and they can create their games.
  • To expand its business the company is making investments to acquire more IP’s, distribution capabilities, and advertising tech stacks for better monetization. After expanding in India, the company plans to expand its business in the Middle East and Africa.
  • NAZARA’s positioning as a gaming company from India has a halo effect and other benefits that will result in the coming years but it’s tough to explain the company’s diversified portfolio and gaming business model.

Asset Multiplier Comments

  • We expect that the increased penetration of skill-based real money gaming and which contributes ~80% to the gaming market to create new opportunities for the company where the company doesn’t have a strong presence.
  • We believe that the reopening of schools and colleges may impact the number of users as students are now busy with offline schools and examinations. However, 1QFY23 might be a strong quarter for the company due to school vacations. Its diversified product offering is a key positive for the company.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nazara Technologies was ₹ 1,675/- as of 11-April-2022. It traded at 81/ 54x the consensus EPS estimate of ₹ 21/31/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,428/- implies a P/E Multiple of 78x on the FY24E EPS estimate of ₹ 31/-.

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.”

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19 Jan

Datawrkz’s products will help optimise user acquisition cost – Nazara Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY ended at 17,938 (-0.1%) as it closed near the intraday low of 17,885. Among the sectoral indices, PSU BANK (+2.2%), MEDIA (+1.0%), and METAL (+0.8%) ended higher, whereas IT (-2.1%), FINANCIAL SERVICES 25/50 (-1.1%), and FINANCIAL SERVICES (-1.1%) led the losers. Among the stocks, ONGC (+3.5%), TATAMOTORS (+1.9%), and UPL (+1.9%) led the gainers while INFY (-2.9%), SHREECEM (-2.8%), and ASIANPAINT (-2.7%) led the losers.

Excerpts of an interview with Mr. Nitish Mittersain, founder and MD of Nazara Technologies (NAZARA) with Economic Times on 19th January 2022:

  • The company has discussed an issue of preferential shares, with its board. This issue is for funding the acquisition of a company called Datawrkz which is an AdTech platform based in Bangalore. Datawrkz earns 70% of its revenues from the US.
  • Datawrkz focuses on optimizing customer acquisition costs, especially on mobile. It has a product called Primus that generates higher revenues for publishers. When customers are monetizing through ads, its products and tools help them optimize the yield that they are getting on the ads.
  • NAZARA has a large user acquisition cost that comprises almost 20% or more of its revenues. Therefore, the company plans to deploy Datawrkz’s products and technologies to optimise its user acquisition cost. It also plans to use Primus to optimize the yields from its ads that may help it to increase its revenues.
  • The company has valued Datawrkz at Rs 2,250 mn. Initially, the company plans to take a 33% stake for Rs 600 mn, out of which Rs 350 mn will be paid in cash and the balance Rs 250 mn will be paid in cash or through shares and the balance will be decided based on their performance in CY2023.
  • In India, Datawrkz will be able to scale up using NAZARA’s network, and Datawrkz will be helpful for NAZARA to scale up its revenues in the US.
  • In CY2021, Datawrkz posted revenue of 900mn with about a 12% EBITDA margin. Though Datawrkz is generating positive cash flow, NAZARA’s focus will be to grow in terms of revenue and strategic initiatives, and not focus very strongly on margins as it believes that the business can scale significantly.

 

Asset Multiplier Comments

  • We believe that Nazara Tech’s acquisition of the stake in Datawrkz will benefit it in the reduction of user acquisition costs, and the use of Primus will help in increasing revenues for its e-sports, gamified learning, and other segments.
  • Datawrkz’s presence in multiple geographies including US and Singapore will turn out to be beneficial for Nazara to scale its presence in those markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of NAZARA was ₹ 2,494/- as of 19-January-2022. It traded at 167x/ 105x/ 68x the consensus earnings estimates are ₹ 14.2/22.7/35.2 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,598/- implies a P/E Multiple of 74x on FY24E EPS estimate 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.”

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26 Apr

Confident of being profitable at PAT level – Nazara Tech

Update on the Indian Equity Market:

On Monday, NIFTY closed at 14,485 (+1.0%). Top gainers in NIFTY50 were Axis Bank (+4.2%), JSW Steel (+3.4%), and Ultratech Cement (+3.3%). The top losers were Cipla (-2.9%), Britannia (-2.8%), and HCL Tech (-2.7%). The top sectoral gainers were REALTY (+3.4%), METAL (+2.0%), and PVT BANK (+1.8%) and the only sectoral loser was PHARMA (-0.9%).


Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Tech (NAZARA) with CNBC -TV18 dated 23rd April 2021

  • The Company’s EBITDA numbers are a good indication of the health of the operations. In terms of Gamified Early Learning, e-Sports and Freemium, he said that they are very positive about these three segments. 
  • These three verticals are being driven by the massive consumer trends and have accelerated since the last year because of the pandemic.
  • He believes all three segments will continue to drive growth. According to him, the paying subscribers for Gamified Early Learning segment have grown 172 percent from April 2020 to March 2021.
  • In the e-Sports business, Nazara Technologies is a market leader with an 80 percent share. Their attempt & aspiration is to innovate more and grow in this market.
  • They are very gung-ho about Freemium because in-app purchase – the habit of buying virtual items is going to increase in India and that will become a very strong growth driver.
  • On Real Money gaming, the company has a strategically cautious approach. Telco Subscription business is a mature business. 
  • It is a cash cow for them. This business generates around 20-28 percent EBITDA, hence the opportunity is big.
  • They do not have any debt on their books, they are a cash-rich company. So, there is no interest to be paid out.

Asset Multiplier comments:

  • As Nazara operates in high-growth business segments such as gaming, gamified learning, and Esports, they will continue to drive profitable growth. The management is prioritizing growth over profit maximization at this stage so that they can achieve and maintain market leadership in the segments they operate in.
  • E-sports, which contribute ~37% to the total revenue is disrupting traditional sports worldwide. It is an outcome of sports and gaming intersecting to create fast-paced spectator entertainment content.

Consensus Estimate: 

  • The consensus estimates and price targets are not available for NAZARA.

 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.”

 

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