In the last couple of years, fantasy sports – the kind where you create teams and bet on them – have become hugely popular in the country. We have seen big investments from renowned investors in this segment.
However, there is one player – having a huge gaming empire – that has largely been absent from the fastest growing segment of e-sports: Nazara Technologies. And, that is perhaps a big flaw in its strategy, say analysts.
Real money gaming (RMG), which refers to skill-based games like poker, rummy, and even cricket where players can bet money playing against another player or the system, has been the real money churner in India. They now contribute 40 percent of India’s gamer base, said JM Financial in its report.
The reason is in the gaming genre (which is different from fantasy sports and RMGs) Indians prefer simpler board games like Ludo or Candy Crush that are difficult to monetise while higher grossing action and adventure games are relatively less popular.
“Not surprisingly, RMGs (FS, Rummy, Poker, etc.) dominate India’s gaming market revenue pool. Nazara’s sub-scale presence in these segments limits its revenue monetisation potential,” said Abhishek Kumar of JM Financial.
Another problem that Kumar finds is Nazara’s disjointed gaming assets, which, unlike other gaming platforms, limit its ability to broaden its acquisition funnel and maximise gamers’ wallet share.
He has initiated coverage on Nazara Tech with a ‘hold’ rating and a target price of Rs 1,070. This compares with the current price of Rs 1,050 and translates into almost no upside.
To be fair, the company in which ace investor Rakesh Jhunjhunwala holds over one-tenth stake is one of the largest players in the gaming industry. Through its acquisition-led growth model, Nazara has morphed into a diversified gaming company with a presence across eSports, gamified learning, and simulation. And, more importantly, it is profitable unlike other emerging players in the RMG segment.
The share price of the company has taken a beating in the last few months. It is down about 69 percent from its highs. JM Financial estimates 32 percent revenue CAGR over FY22-25 (versus 54 percent in the past three years), led largely by eSports and ramp-up in recent acquisitions, translating into 28 percent EPS CAGR over the same period. CAGR stands for compound annual growth rate.
It values the firm at FY24 expected EV/EBITDA and PE of 18 times and 83 times, respectively.
“Despite a 57 percent correction YTD, we find valuations rich. Any potential adverse regulation on RMG would not only reduce competitive intensity but also increase scarcity value for Nazara - this would make us more constructive on the business’ outlook and on the stock,” said Kumar.Though some analysts still see value in the company. For instance, Prabhudas Lilladher in its May report set a target of Rs 1,747 on the stock, meaning a potential upside of 70 percent from the current rate. The broker sees eSports as a key growth lever for the firm.