Stock markets the world over are locked in a tight bear hug. In India, the markets are down some 15 percent since mid-January. The IPO rush of last year has dwindled into a trickle.
Companies that were listed at the start of this cycle have been on a roller-coaster ride, at least in terms of valuation. One of them was Nazara Technologies, the first gaming company in India to go public, which declared a 1:1 bonus issuance of shares in May to celebrate the first anniversary of being a listed company.
Anuradha SenGupta spoke to Nitish Mittersain, joint managing director and founder of Nazara Tech, chairman and managing director Vikash Mittersain, and chief executive officer Manish Agarwal on matters such as valuations, the bonus issue, how the IPO price was decided, the evolution and future of gaming in India and associated issues, and the potential for gaming companies. Edited excerpts:
Anuradha SenGupta: When you look at this, the valuation rollercoaster, can you give us a sense of how that feels?
Nitish Mittersain: It doesn’t feel a lot, you know, because we’ve been in this business for 20 years. We’ve been through many roller coasters. We’ve been through many market cycles. Today, of course, it’s listed. You can see the price every day. But we have been through many market cycles, starting from 2000 and the dotcom crash. So it’s not the first time we are experiencing it. I think we find ourselves a lot more confident because we have a strong balance sheet, a strong business, a profitable business, and a cash-generating business. So this downturn right now in the market is actually very useful for us.
Anuradha SenGupta: What do you mean?
Nitish Mittersain: We are very acquisitive in nature. For the last three-four years, we’ve been growing a lot. So with the downturn, our competition slowed down… valuations will fall, and you may get a lot more M&A deals at better valuations. So, I think we will probably come out much stronger through this phase. And therefore, the current market environment is not really impacting us.
Anuradha SenGupta: The celebration with this, the bonus issue. What prompted that? Why did your board take that decision?
Nitish Mittersain: We want to be seen as a company that is focused on creating shareholder value, irrespective of how the markets are. Some people said this is not the right time to do this issue… We do not want to play to the market in terms of the volatility in the market and do tactical things. We want to stay the course how we have planned it. And we thought this was a good thing to do for the company in the first year, which is why we did it.
Anuradha SenGupta: The offer price of Rs 1,100 was less than what you believe it could have been valued at. I want to understand your logic here.
Nitish Mittersain: We had a lot of pressure from our selling investors to significantly increase the price. There was talk of taking it up as high as Rs 2,000. And at that point of time, we could have done it because, at Rs 1,100, we got oversubscribed 150 times. Even at Rs 2,000, you could have easily sold the IPO. But my personal belief was we were not doing the IPO for the short term. This was a new journey that we were starting with a completely new set of shareholders…We’ve always been very focused on trying to derive value for our investors and those who take faith in us to the best extent possible. We have the best intent and best effort that we can make. And from that perspective, I thought that overpricing the issue because we can just didn’t make sense. And I honestly really fought back on that, saying that it's Rs 1,100 or I'm not doing the issue…
Anuradha SenGupta: You've seen the gaming industry, which today is front and centre and under the spotlight, for over 20 years now. What is the key shift you think that has happened?
Nitish Mittersain: I think the key things that really changed – one was the mobile phone penetration – the advent of smartphones, especially Android phones. So for Rs 5,000-6,000, a person actually has a good gaming device in his hand, which earlier was not possible. Nobody had PCs and consoles at home. The second thing is data. In our country, the speed of data, the cost of data is fantastic. And everybody has access to it now. So I think the evolution of data on mobile is the second thing. And the third thing that's recently happened is the growth of the digital payments ecosystem, which, as you know, has surpassed a lot of the Western nations.
So, I think a combination of these three things has been a perfect storm. I think India will become the gaming nation of the world in the years to come, 2030, because just the size of the consumer base we have and the appetite we have, you’re only seeing the early signs now.
Anuradha SenGupta: What are some of the concerns that the government and regulators have over gaming? What would help the gaming industry and at the same time protect the people because the concerns are about the people and the risks they may face?
Nitish Mittersain: The big push into regulatory aspects and focus has really been driven by the skill-based gaming industry in India, which has really scaled in terms of monetisation, whether it’s fantasy sports or other skill-based companies that have come up and are providing products and services to consumers. Now, the government wants to make sure that there is responsible gaming and that consumers are protected and I think that’s extremely important. We would definitely want such regulations that protect consumers. What is missing now, with the recent developments, which hopefully, will emerge, is more clarity.
Anuradha SenGupta: On what front?
Nitish Mittersain: Clarity on regulations, clarity on taxation. Because what happens is that when there is no clarity, companies like us find it difficult to invest or build these businesses, whereas a lot of fly-by-night operators in India or outside of India really take advantage of it. So you have a situation where this unclarity results in these offshore companies benefiting, consumers being exploited, the taxes not being generated. So it’s a lose-lose proposition. Clear regulation on what can be done or can’t be done, clarity on taxation, etc., will really help this industry develop in the right manner.
Anuradha SenGupta: Game of skill, game of chance. How do you see the difference, because you’re a gamer?
Nitish Mittersain: Some games like cricket, where there are a lot of reflexes required to play the game, are very clearly games of skill, like our World Cricket Championship game. Then there are games like today’s very popular Ludo, where it is a bit debatable whether it’s a game of skill or game of chance. Both sides have their own perspectives. There, we need to go into the underlying data to be able to really see what’s happening and justify whether it is a game of skill. If better guidance can come in terms of what is permitted and what is not permitted, then companies like us can aggressively invest in games of skill without worrying.
Anuradha SenGupta: The India gaming story is about massive numbers of gamers, the second-largest in the world, 400 million-plus. But that's accompanied by the fact that people really spend $2, $3, right? That’s what you make per user. How do you see that distance, that journey being crossed?
Nitish Mittersain: The consumption-versus-monetization gap is large because India is a mobile-first gaming country, unlike a lot of international markets, whether it’s the west, China, or Korea… So users evolved and got into the habit of spending on gaming.
In India, because it was a mobile-first gaming country, all the consumers were very casual in nature initially. Now they are evolving and better quality games are available. The spending curve is starting to pick up already… But even in normal gaming, freemium gaming, etc., the spending is starting to increase.
India is now No. 1 or No. 2 in terms of the number of games downloaded, but it’s not even in the top 10 when it comes to spending. You will see that change. If you talk to youngsters today, even a 10-year-old kid, their whole life is revolving around gaming, eSports, and watching game influencers on YouTube. So as the next generation comes in… India will scale up in terms of becoming maybe a top five, top three countries in terms of spending over the next four-five years.
Anuradha SenGupta: All these categories or kinds of gaming, what is Nazara Tech seeing the most potential in?
Manish Agarwal: If you look at it, gaming per se, it’s a beautiful golden decade as both of us keep saying. Within that, there are many other business models that are emerging. Some are already kind of very visible like eSports – very, very visible. I believe what you saw in IPL auctions, seven years forward you will see in eSports auctions.
I truly believe that. That’s the viewership of the finals of eSports tournaments happening today. It’s almost getting bigger and coming closer to the IPL matches. So it’s already happening today when India is still we call a very nascent gaming market.
Anuradha SenGupta: Are eSports now back in the way they used to be, now that life has gone back to a sort of post-COVID normal?
Manish Agarwal: We can fill Wankhedes and Chinnaswamys if they are indoor, that's the kind of demand we have. So we're getting people, and they are crazier fans than what you and I have seen in soccer and cricket. Second, I believe is that for the social hangouts and communities, gaming is the social platform.
Anuradha SenGupta: Thanks to all the startups, the gaming startups with tonnes of money and their sponsorship of IPL and cricket, fantasy games seem to be really the big deal. Is it such a big deal or is it their advertising and communication that's making the buzz?
Manish Agarwal: We are a low per capita income country. And if I can put my skill to use to make money – what we call play-to-earn or play-to-participate – that’s a big market. And that market has been growing very fast and will continue to grow because it’s still 20-30 percent penetration of gaming.
Or, if you look at 900 million of the smartphone or mobile user base, then you are talking about only 10-15 percent. So a huge amount of growth is going to happen. For our portfolio, it's 4 percent. As the statutory clarities keep moving from black to white in the continuum, we will also get more and more comfortable in doing more capital allocation.
Anuradha SenGupta: The gaming industry is at the cutting edge of technology, technological changes, and disruptions. How do you decide what to go after? Is this the right time? Is this the thing to back in with your investment?
Nitish Mittersain: There are new things happening all the time. It is obviously very tempting to get into all the latest things. But we need to also have a balance between the ability to monetise and be attracted to new things. So while you can always have R&D on new things so that you are on the cutting edge, I think the discipline of also focusing on what’s the real business is very important. It’s like virtual reality 10 years ago was the new hot thing. But had we got into it 10 years ago, we would have not been able to make any money. We would have burned a lot of money. Today, it’s potentially at an inflection point over the next two-three years because of headsets and things like that.
Anuradha SenGupta: If you don't get on it early, will someone else have the first-mover advantage?
Manish Agarwal: We have a very simple theory that we never take decisions on FOMO. And in technology, many times, the first-mover advantage is a disadvantage. It is not an advantage because the gestation cycle of the behavior which technology can create is pretty long. We want to see when there’s a lot more user base, which is using that technology, and then we have an opportunity of building business models on top versus just kind of creating initial behaviors.
Anuradha SenGupta: Why is it that you didn't want to have a developer team, which would be at the heart of any gaming company? Why did you take the acquisition route?
Nitish Mittersain: I think in 2015, what we realised is that this market is going to grow very fast. And if you keep experimenting with zero-to-one opportunities, where the chance of success is very limited, we may miss the boat. The second point we realised is that if we partner with founders and management teams that are very passionate, experienced in their particular sub-sector, then we can build a fantastic team. So I think from that perspective, we usually say let's go and partner with lots of existing players, upcoming players, and build a very strong platform where we can all come together, bring in synergies, bring in our passions, bring in our experience, our network, to build something that is larger than what any single company can do.
Anuradha SenGupta: What do you see your role today as the chairman of Nazara Tech? I can see the NSE’s certificate of listing and I can see that proud smile on your face.
Vikash Mittersain: I am more the mentor of the company and the group. And you know, often I stopped them from doing things because I have a little long-term vision. Sometimes the youngsters get excited by what they're doing and what they're getting to do. But there are some pitfalls which you have to avoid. So that's my role, to guide them.
Anuradha SenGupta: Do you have a favourite game or is it about the numbers for you?Vikash Mittersain: Yes, it’s the numbers. That’s my game.