ICICI Securities Wants You To Buy Nazara Tech; Here’s Why

ICICI Securities on Tuesday (March 21) initiated coverage on gaming major Nazara Technologies with a target price of INR 700, which implies an upside of almost 38% to the stock’s close today.

The brokerage has a ‘buy’ rating on the stock due to the strong revenue growth in the esports segment and gradual profitability improvement in the gamified early learning segment.

After declining in the last three sessions, shares of Nazara ended today’s session 4.3% higher at INR 506.65 on the BSE.

ICICI Securities said that though Nazara’s gamified early learning segment went through a significant flux over FY22 and the first half of FY23 after Apple restricted the access of third-party apps from tracking user data on its devices, there are signs of stabilisation in the key performance indicators from Q3 FY23. 

Nazara, which already had Kiddopia in the gamified early learning vertical, added WildWorks to the segment in August last year by acquiring a 100% stake in the US-based gaming firm in an all-cash deal.

Going forward, the brokerage expects a robust growth in subscriber addition in the gamified early learning segment, which would also help revenue growth. 

On the other hand, Nazara’s esports vertical, led by Nodwin Gaming and Sportskeeda, currently dominates the Indian esports market with over 80% of total market share, as per the company. ICICI Securities expects EBITDA margin for Nazara’s overall esports business to improve by about 200 basis points (bps) YoY in FY24.

Helped by strong growth across segments, Nazara Technologies reported a 31% year-on-year (YoY) rise in its consolidated net profit to INR 22.4 Cr in Q3 FY23, while its operating revenue surged almost 70% to INR 314.8 Cr. The startup’s revenue from gamified early learning jumped 70% and revenue of its esports vertical saw a 40% rise during the quarter.

The brokerage expects further growth in the esports vertical to be led by Nodwin Gaming. “Margin outlook is also positive as we expect scale efficiencies to accrue from the new IPs created in FY23 and gaming accessories business,” it said.

It must be noted that Nazara’s Nodwin Gaming acquired a 35% stake in gaming accessories brand Wings, which is owned by Brandscale Technologies.

Nazara was on a major acquisition spree in FY23 and acquired a stake in advertising technology firm Datawrkz last year. ICICI Securities also sees the adtech business growing in the medium term.

The brokerage believes that there could be limited action in the real money gaming segment till there is more clarity on the regulatory front. However, favourable regulations in the space could trigger acquisitions, the analysts said.

Meanwhile, ICICI Securities expects Nazara’s telco subscription business growth to decline steadily.

Shares of Nazara fell almost 50% in 2022 amid a global macroeconomic slowdown, which hit the entire tech industry last year. The persisting uncertainties around gaming GST and other regulatory changes added to the woes of the gaming company.

However, the startup’s major verticals have remained resilient despite the pressure. In a recent regulatory filing, the company said that Nazara Group, which includes Nazara Technologies and its subsidiaries, continues to maintain healthy reserves of cash and cash equivalents in excess of INR 600 Cr. This number was excluding the funds that were impacted by the collapse of the US-based Silicon Valley Bank (SVB).

In its research note, ICICI Securities said that Nazara can use the cash to acquire scale through acquisition in real-money gaming, once there is regulatory clarity.

Last week, Nazara also said its subsidiaries Kiddopia and Mediawrkz, which had a cumulative cash balance of $7.75 Mn (about INR 64 Cr) in SVB, received unrestricted access to the entire amount.

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