Rakesh Jhunjhunwala-backed Nazara Technologies will open its Rs 583-crore initial public offering on March 17. All the analysts, who Moneycontrol spoke to, assigned 'subscribe' rating to the mobile gaming company's issue.
The company has already received overwhelming response from anchor investors. Many marquee global investors such as Goldman Sachs India, Government of Singapore, Fidelity Funds, Nomura, Abu Dhabi Investment Authority, Aberdeen Standard Asia Focus, Steadview Capital Mauritius, Eastspring Investments, Hornbill Orchid India Fund and Cohesion MK Best invested in the company.
Experts anticipate double-digit growth for the gaming industry, going ahead. The company has strong geographical presence and product portfolio and is expected to see steady growth in margin & return ratios. This is the first IPO from a company in the pure play gaming business.
"The IPO is valued at 8.3x on H1FY21 (annualised) price/sales which we believe is reasonable when compared to the newly-listed technology stocks (average around 13x). We assign subscribe rating on the issue," Aditya Birla Capital said.
Also read - Nazara Technologies IPO opens: 10 things to know
"The gaming industry is set to witness over 30 percent CAGR over 2020-2023 on the back of high mobile penetration, increasing internet penetration and increasing number of gamers. Nazara has a wide spread presence both in terms of geography and product portfolio which offers strong growth visibility," the brokerage added.
Global gaming industry size stood at $157.5 billion as compared to the cumulative size of movies + music, which was $97 billion, as of year 2020. It has grown at a CAGR of 11 percent over year 2017-2020. However, the Indian gaming industry has grown at a CAGR of 29 percent to $1.5 billion over the same period.
BP Equities expects decent listing gains, considering "the company's leading position in the industry, presence across emerging and developing countries, ongoing bullish sentiment and appetite for new IPOs".
"Therefore, we assign 'subscribe' rating to this IPO issue (only for listing gains)," BP Equities said.
Meanwhile, Angel Broking has also assigned 'subscribe' rating to the IPO given the strong growth potential of the company.
"It has been reporting losses as they have increased their spending significantly on advertising & promotion since FY20. This will help drive strong topline growth for the company, going ahead," the brokerage said.
Over the last 3 fiscal years, the company has entered newer business segments with high growth potential through the inorganic route. The newer segments include eSports, gaming - World Cup cricket, HalaPlay – Fantasy Sports.
"Although this growth has come at the expense of EBITDA margins and return ratios, the pivot was an essential strategy to foray into diverse lucrative opportunities, leveraging an ecosystem of partners and creating business moats. All these acquisitions were funded through internal accruals. As the synergies and growth from these investments kick in, the margin profile and consequently return ratios will return back to a path of steady growth," said GEPL Capital, which advised subscribing the issue.
The brokerage feels the offer at a price/sales multiple of around 7.95x on the annualized sales of H1FY21 may seem aggressive but would be justified in terms of the growth prospects in the medium to long term.
KR Choksey also recommended a subscribe to the issue, with the potential for healthy listing gains as well as long term stock price appreciation in light of strong long term growth potential in online gaming, both in India and globally.
Among other brokerage houses, Choice Broking, Chola Securities, Marwadi Shares and Finance, and AUM Capital also recommended subscribing to the issue.
The Rs 583-crore public issue opened for subscription on March 17 and will close on March 19.
As it is fully an offer for sale issue, all the money will go to the shareholders who are selling stake. The price band for the offer was set at Rs 1,100-1,101 per share.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.