NAZARA TECHNOLOGIES - RIDING ON THE GAMIFICATION

The friends of Nazara network are a network of gaming companies where Nazara acquires majority stake in fast growing gaming businesses with growth potential and possible synergies within their network. The management in these companies are also given some equity in Nazara to bring a common alignment of goal, and day to day operations continue to be run by original managements while Nazara helps connect the dots to create significant additional value for all stakeholders.

Nazara is following Embracer Group’s (a Swedish video game and media holding company) business model of acquiring and expanding growing gaming companies.

Nazara has not generated free cash flow in the last 7 years. The company is almost debt free and has 1339 Cr. of cash(includes recent fundraise of 510 Cr. by SBI Mutual fund and Nikhil Kamath).

Brief 

Nazara Technologies is the sole publicly listed gaming/e-sports company in India, holding a robust market position in mobile gaming and e-sports across India, the USA, and global markets.

The company has 3 main business vertical, Gaming which includes Telco subscription,Gamified learning,Freemium apps, eSports and AdTech.

Quick Inisghts

The friends of Nazara network are a network of gaming companies where Nazara acquires majority stake in fast growing gaming businesses with growth potential and possible synergies within their network. The management in these companies are also given some equity in Nazara to bring a common alignment of goal, and day to day operations continue to be run by original managements while Nazara helps connect the dots to create significant additional value for all stakeholders.

Nazara is following Embracer Group’s (a Swedish video game and media holding company) business model of acquiring and expanding growing gaming companies.

Nazara has not generated free cash flow in the last 7 years. The company is almost debt free and has 1339 Cr. of cash(includes recent fundraise of 510 Cr. by SBI Mutual fund and Nikhil Kamath).
The standalone numbers of the company are very less in comparison to the consolidated financials as most of the revenue comes from business that were acquired and scaled, the telco business that the company had before the acquisitions is declining YOY.

Nazara has done multiple acquisitions following it’s friends of Nazara model with both cash and equity and scaled those business very well, the management is very open to M&A opportunities.

Sales of the company has grown at 26.4% CAGR for the last 7 years and EBITDA at 45% for the last 5 years.

Nazara is mainly focused on the Mobile gaming market which is growing fastest among PC,Console and Mobile gaming platforms.

Company’s CEO Manish Agarwal resigned from the company in Dex 2022, promoter Nitish Mittersain was re-designated as CEO of the company

The management is very bullish on e sports, they believe that eSports will become the 2nd largest after cricket in next 5-10 years with 200-300 million audiences.

Investing in Nazara is essentially a wager on the effective execution of management's mergers and acquisitions (M&A) strategy, the successful scaling of acquired businesses, and the ability to generate sustained profits from those ventures.

Business of Nazara
Nazara Technologies is the sole publicly listed gaming/e-sports company in India, holding a robust market position in mobile gaming and e-sports across India, the USA, and global markets.

The company has 3 main business vertical, Gaming which includes Telco subscription,Gamified learning,Freemium apps, eSports and AdTech

Gaming
Nazara's gaming segment operates through diverse revenue streams, including in-app purchases, advertising, subscriptions.The company owns notable IPs such as Kiddopia, Animal Jam, World Cricket Championship, Classic Rummy, Halaplay,  

Gamified Early Learning
In North America, Nazara entered the gamified early learning segment through the acquisition of Kiddopia in FY 2020. Kiddopia, catering to children aged 2 to 6, has demonstrated strong unit economics and notable growth in subscriber retention rates. Kiddopia continues to be #2 grossing app for kids under 5 years of age in the US (for iOS devices as per data.ai). WildWorks caters to kids aged 9-11 through in-app purchases and subscription monetized apps.Animal Jam, developed by WildWorks, is a top-grossing app for iOS devices in the 8-12 age category in the US.

Telco Subscription
The telco subscription business comprises of over 1,021 Android games, targets mass mobile internet users in emerging markets. Monetization is achieved through periodic subscriptions, with telco The focus is on offering a diverse catalog of games to first-time mobile gamers in regions like India, South Asia, Africa, and the Middle East, through partnerships with telecom operators.

Freemium Mobile Games
The company's freemium mobile gaming portfolio includes free-to-play sports simulation and children's games. World Cricket Championship:WCC, India’s leading cricket simulation game, collaborates with Cricket West Indies to enhance the gaming experience for fans globally.

eSports
Having acquired Nodwin Gaming in FY 2018, Nazara dominates the Indian eSports market, securing over 80% of the total market share. Key growth drivers include proprietary event and content IPs, exclusive rights to premium eSports content, and strategic partnerships with global brands.

Nodwin
Sportskeeda maintains a dominant position across multiple sports in India and ranks 9th in the US.Sportskeeda acquired a ~73% stake in Pro Football Network LLC, strengthening its presence in the US NFL coverage.

Adtech
The adtech segment, focuses on advertising, digital media buying, and planning. Notable entities in this segment include Vizibl, AdPrimus, and BidAmp.

Strategic Investments and Collaborations
Nazara's strategic acquisitions and collaborations include Publishme, Rusk, and Wings, contributing to its establishment as a predominant player in the gaming and eSports industry in Turkey, the MENA region, and India.
Publishme: A comprehensive games marketing and publishing enterprise facilitating Nazara's prominence in Turkey and the MENA region.
Rusk: An Indian digital entertainment firm, following investment from Nazara and Nodwin, augmenting gaming and eSports content for the 18 to 25-year-old demographic.
Wings: A gaming accessories company collaborating with Nodwin to intensify retail outreach towards gaming and eSports enthusiasts in India.

Industry Overview

The video game industry is today a ~US$ 200 billion industry with advanced graphics, immersive gameplay, and a growing audience of approximately 3 billion active players worldwide. About 50% of these players engage in in-game asset purchases, emphasizing the economic potential of the gaming industry. Gaming, surpassing the global music and movie industries, is rapidly becoming the future of entertainment, with a market size 7 times larger than the music industry and 5 times larger than the movie industry. Mobile gaming, capturing 50% of the overall segment, is poised to remain a dominant force as mobile devices become more prevalent and demand for mobile games continues to grow. With the convenience of mobile gaming, there is a bet on the explosive growth of the Indian gaming market, expected to reach US$ 8.6 billion by 2027, with positive momentum in monetization potential. The global in-app market is expanding at a 24% CAGR to US$ 176 billion, and the in-app advertisement market is advancing at a 20% CAGR to reach US$ 120 billion in 2023. By 2027, the Indian gaming market is forecasted to increase to US$ 8.6 billion from the current US$ 2.6 billion, capturing a significant share of the global player base with 500 million gamers and 115 million paying users. The gaming ecosystem in India is expected to flourish, producing 2000+ gaming companies and 250K+ jobs by 2025, with total funding in the gaming ecosystem exceeding US$ 3 billion since 2017. Esports in India, officially recognized by the government as a professional sports category, is expected to reach a value of US$ 1.1 billion by 2025 from US$ 140 million in 2022, with the number of esports players rising from 200,000 to over 1.5 million. Gaming spends in India have doubled since 2020, with approximately 1/5th of gamers investing an average of US$ 13 annually. While this is lower than the US$ 45 spent on real-money gaming (RMG), it indicates a rising interest in gaming as an entertainment medium. The gaming market in India holds significant potential, and Nazara is optimistic, aiming to nurture it not only from a utilization perspective but also by empowering budding talent. Mobile gaming has emerged as a category winner in the overall segment by capturing 50%  from the overall pie. As mobile devices become more prevalent and the demand for mobile  games continues to grow, the mobile gaming industry is positioned to remain a dominant force  in the world of gaming for the foreseeable future.

Competitors

Competitors of Nazara range from established entertainment and gaming companies such as Sony Interactive Entertainment, Reliance Jio, Tencent and Microsoft Game Studios to emerging gaming start-ups such as Dream11, Mobile Premier League (MPL), Games 24x7.

Promoters 

Vikash Mittersain, Nitish Mittersain, and Mitter Infotech LLP

Management

Board
Vikash Mittersain serves as the Chairman and Managing Director, having held the position since the company's inception. He possesses a diploma in industrial electronics from Walchand College of Engineering, Sangli, and has extensive experience across various business sectors. Additionally, he is the founder and president of India Business Group (Chamber of Commerce).
Nitish Mittersain, the Joint Managing Director, CEO & founded the company in 1999 and has actively promoted it for the past two decades. Holding a bachelor of commerce degree from the University of Mumbai, he is also a trustee of the Dr. B. K. Goyal Heart Foundation and India Business Group (Chamber of Commerce).
Kuldeep Jain, a Non-Executive, Independent Director since August 20, 2013, holds a postgraduate diploma in management from The Indian Institute of Management, Ahmedabad. With over a decade's experience, he is currently the managing director of Clean Max Enviro Energy Solutions Private Limited.
Sasha Mirchandani, an Independent Director since January 4, 2018, holds a bachelor of science degree in business administration from Strayer University. Bringing over a decade of experience as an angel investor, he is also the co-founder of Mumbai Angel Venture Mentors and a director of Kae Capital Management Private Limited.
Shobha Jagtiani, an Independent Director since January 4, 2018, holds bachelor's degrees in arts and laws from the University of Bombay. With over 45 years of legal experience, she is currently a partner at D.M Harish & Co.
Probir Roy, an Independent Director since January 4, 2018, holds a bachelor's degree in economics and statistics from St. Xavier’s College, University of Mumbai. With over a decade's experience in information technology and communications, he is currently a Senior Advisor at the World Association of Small and Medium Enterprises.
Rajiv Agarwal, a Non-Executive Director, holds a bachelor's degree in technology (chemical engineering) from Banaras Hindu University. Associated with RaRe Enterprises since 2006, he focuses on strategic investments across diverse sectors for RaRe Enterprises' PE portfolio.

KMPs
Sudhir Kamath, the Chief Operating Officer at Nazara Technologies since October 2022, is an alumnus of Delhi University and IIM Ahmedabad. With over 20 years of experience in strategy consulting, private equity investing, operations, and entrepreneurship, Sudhir has successfully driven growth at Nazara Technologies.
Rakesh Shah, the Chief Financial Officer and at Nazara Technologies since 2010, holds a B.Com degree from Bombay University and is a qualified Chartered Accountant (CA) and Institute of Cost and Works Accountants of India (ICWAI). With more than 24 years of experience, he specializes in financial, administration, and management accounting.
Anupriya Sinha Das, the Head of Corporate Development at Nazara Technologies since June 2022, brings over 13 years of experience in Private Equity, Investment Banking, and Consumer Technology businesses. With a B. Tech degree from MNNIT, Allahabad, and a PGDBM from XLRI Jamshedpur, Anupriya has successfully managed investments totaling over US$ 300 million across various sectors.
Akshat Rathee, the Co-founder & Managing Director of Nodwin Gaming Private Limited, played a pivotal role in establishing the company in 2014, leveraging valuable experience gained at PGM Entertainment and Ernst & Young.
Ajay Pratap Singh, the Chief Executive Officer of Absolute Sports Private Limited, with over 10 years of experience, has a proven track record of successfully growing businesses. He has held vertical lead and leadership positions at organizations such as Tally Solutions, Ed-Tech Start-up SuperProfs, and Dainik Bhaskar.
Anirudh Kumar, the Chief Strategy Officer of Absolute Sports Private Limited, joined in 2022 and holds a BA (Hons) degree in Economics from Delhi University and an MBA specializing in Strategy and Finance from ISB, Hyderabad. With over 17 years of experience, Anirudh has a strong background in Management Consulting, Marketing, and Venture Capital.
Anshu Dhanuka, the Co-founder & Chief Product Officer of Paper Boat Apps Private Limited, played a key role in establishing the company in 2013, leveraging previous experience with Walnut Labs Private Limited.
Anupam Dhanuka, the Co-founder and Chief Executive Officer of Paper Boat Apps Private Limited, played a crucial role in co-founding the company in 2013. In addition to his role at Paper Boat Apps, Anupam holds previous experience with Walnut Labs Private Limited.
Senthil Govindan, the Founder and CEO of Datawrkz Business Solutions Private Limited, established Datawrkz in 2013, leveraging an MS in Management Information Systems from The University of Arizona and an MBA from IIM Ahmedabad. Before founding Datawrkz, Mr. Govindan gained valuable experience working with renowned companies.
Christopher Franklin J., the Chief Executive Officer of Nextwave Multimedia, brings 20 years of experience in the game industry, specializing in E-sports, game design, and studio leadership. Christopher has played a pivotal role in multimillion-dollar game franchises.
Deepak MV, the CEO of Openplay, with over 15 years of experience in strategic transformations, P&L management, and operational efficiency, leads with vision, building high-performance teams and driving strategic success. An alumnus of IIM Calcutta, Deepak has excelled at blue-chip companies like Tata Motors and Axis Bank.

Shareholding Pattern

Analysis - Promoter has not diluted any stake, shareholding reduced because of fund raising


Key Ratios

Analysis - The Financial Ratio shows decent improvement in financial as the business develops and matures.



Analysis - Margin has been bit lower in recent years mainly due to expansion.

Analysis - Return on asset and capital and equity have been stablized in last 2 years as the business becomes more resilient.

Financial efficiency needs to be improved in the coming years to make a more sustainable business.


Financials
Analysis - Strong Cash flows along with debt free business with high financial leverage along with growing revenue, PAT , EBTIDA makes this business much stronger finanically and also sustainable.

Valuation

The company currently boasts a P/E ratio of 93 and an EV/EBITDA multiple of 31. This premium valuation can be attributed to the company's impressive growth rate. A comparative valuation with other players is difficult as there are no listed players available for reference in the market.

Risks

The company has done multiple mergers and acquisitions over the past five years, with each acquisition demonstrating substantial growth in both revenue and EBITDA. While these achievements are commendable, the sustainability of profitable outcomes from these entities remains a critical consideration for the company moving forward. Given the management’s aggressiveness to further mergers and acquisitions,any non-synergistic deals could significantly affect the overall health of the company. Additionally, the government's recent crackdown on online betting and gambling companies lead to substantial contingent liability for Nazara. This is particularly relevant as the company ventured into this sector through HalaPlay and OpenPlay.

Opinion and Analysis:

Nazara Technologies has strategically positioned itself as a major player in the gaming and eSports industry, following a successful acquisition and expansion model akin to Embracer Group. Despite a lack of free cash flow in the past 7 years, the company's nearly debt-free status and substantial cash reserves of 1339 Cr., including recent fundraise, provide a cushion for future endeavors.

The company's focus on the rapidly growing mobile gaming market, with a 26.4% CAGR in sales over the last 7 years, aligns with industry trends. However, the decline in telco business and the CEO's resignation in December 2022 pose short-term challenges.

Nazara's diverse revenue streams, including eSports dominance, gamified learning, freemium apps, and adtech, showcase its adaptability in the dynamic gaming landscape. The bullish outlook on eSports as the 2nd largest sport after cricket and robust revenue growth at 45% EBITDA CAGR for the last 5 years make Nazara an intriguing investment.

The company's financial performance, with positive RoCE and improving operating margins, underscores effective scaling and management of acquired businesses. However, the CEO's departure and the need for sustained profitability from mergers and acquisitions highlight potential risks. The gaming market's explosive growth in India and Nazara's strategic investments and collaborations position it well, but investors should monitor management's execution closely.

In conclusion, Nazara Technologies' unique business model, strong market position, and financial performance make it worth further research. However, the inherent risks associated with the gaming industry and the company's aggressive M&A strategy necessitate vigilant monitoring for sustainable growth and profitability.

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