The IPO is an offer for share (OFS) of 5.29 million shares being sold in the price band of Rs 1,100-1,101, representing a 16.7 per cent stake in the company. Ahead of its IPO, the company allotted shares worth Rs 261 crore to 43 anchor investors at Rs 1,101 per piece.
At the upper limit of the price band, the issue would garner Rs 582.91 crore from investors.
Nazara is the only company in India to have rights over IP and assets across grassroots, regional, national and international e-sports. The company has market-first positions in India across sports simulation and e-sports. Its e-sports content business grew 60 per cent in FY20, and has expanded nine times in the last three years.
The IPO is a play on India’s under-penetrated gaming and global gamified early learning markets, which are expected to grow at an annual pace of 30-40 per cent over 2020-2023.
Antique Stock Broking said that it is a first of its kind company getting listed in India, and could command a significant premium given high expected growth rates and lack of opportunities in space.
Choice Broking is executing Nazara’s top line to rise 33.8 per cent annually to Rs 593 crore in FY20-23, based on conservative estimates, over FY20-23. It is expecting Ebitda to expand 11 percentage points to 8.8 per cent (from -2.2 per cent in FY20) and PAT margin to expand 3 percentage points to 2.6 per cent (also negative in FY20) in FY23.
“At a higher price band of Rs 1,101, Nazara is demanding an EV/Sales multiple of 12.8 times its FY20 sales. However, if we annualise the H1 sales, the demanded valuation comes out to be 8.4 times, which is attractive considering the prevailing valuation of internet technological companies in India. Thus, considering the nascent stage of the domestic gaming market and the dominant position of the Nazara in key growth segments, we assign a “SUBSCRIBE” rating for the issue,” Choice Broking said.
Astha Jain of Hem Securities said that the company is the leader in India across a diversified gaming and sports media platform has a successful business model and established presence in India, a market with economic, technical and cultural complexities, has given it a competitive advantage.
“The company being the pioneer in the field will get the first mover advantage. Hence , we recommend investors to subscribe to the issue for short and long term gains,” she said.
IIFL is partially exiting, selling 14 per cent stake in the company, out of its overall holding of over 21 per cent. The promoters — who own over 22.5 per cent stake—will offload 2.25 per cent stake, while holding the remaining 20 per cent in the company. Rakesh Jhunjhunwala, who is one of the largest shareholders with 10.8 per cent stake, has decided to stay invested in the company.
“The company’s IPO will be the first pure play gaming company that would get listed on stock exchanges. On the valuation front, the company is valued at 12.7 times EV/Sales based on FY20 numbers. Considering its leading position in the mobile gaming industry in India with a presence across emerging and developing countries and prevailing sentiment in the IPO market, we believe a decent listing gain is possible. Therefore, We assign a subscribe rating to this IPO issue only for listing gain,” BP Equities said.
The company posted strong revenue growth of 45.9 per cent at Rs 247.50 crore after clocking a degrowth of 1.4 per cent in FY2019. In the first half of FY21, the company recorded Rs 200 crore in revenues.
That said, “The company has been reporting losses as they have increased their spending significantly on advertising & promotion from FY2020 onwards, which will help drive strong topline growth for the company. Advertising & promotion expenses which accounted for 16 per cent of the company’s revenues in FY2019 has increased sharply to 53.7 per cent of revenues in FY2020 and 59.7 per cent of revenues in 6MFY2021. At current levels the stock is trading at EV/Sales of 11.6 times FY20 revenues,” Angel Broking said while recommending a ‘subscribe’ to the issue.
Among the key business segments, the company earns 39 per cent of revenues from Gamified Early Learning, 23 per cent from esports, 21 per cent from telco subscription, 5 per cent from freemium mobile games and 3 per cent from fantasy and real money games.
Global gaming industry size stands at $157.50 billion in 2020. But the size of Indian gaming industry stands merely at $1.5 billion, roughly 25 per cent of the Bollywood. Rising smartphone and internet penetration is leading the growth.
“The gaming industry is set to witness 30 per cent plus CAGR over 2020-2023E on the back of high mobile penetration, increasing internet penetration and increasing number of gamers. Nazara has a widespread presence both in terms of geography and product portfolio which offers strong growth visibility. The IPO is valued at 8.3 times on H1FY21 (annualised) price/ sales, which we believe is reasonable when compared to the newly listed technology stocks (Avg 13 times),” said Aditya Birla Money.
