SVB fallout: Nazara Tech to further diversify its cash reserves, says CEO

Nitish Mittersain, founder and chief executive Nazara Technologies

Diversified gaming and sports media firm Nazara Technologies plans to revisit its risk management strategy and further diversify its cash reserves, in order to avoid being impacted from incidents such as the sudden collapse of Silicon Valley Bank (SVB) in the United States, founder and chief executive Nitish Mittersain told Moneycontrol.

On March 12, Nazara Technologies disclosed that two of its step down subsidiaries operating in the United States - Kiddopia Inc and Mediawrkz Inc - held an cumulative cash balance of $7.75 million (about Rs 64 crore) at the crisis-hit bank. Nazara owns 51.5 percent stake in Paper Boat Apps Private Limited that fully owns Kiddopia and 33 percent stake in Datawrkz Business Solutions Private Limited that owns Mediawrkz.

"At a group level, we have almost Rs 600 crore - Rs 700 crore reserves. We usually do not have more than 10 percent exposure to a particular bank in the overall Nazara group (Nazara Technologies and its subsidiaries). What we will probably do is reduce that to maybe 5 percent threshold for further diversification," Mittersain said.

"We will also explore various avenues to see how we can strengthen our risk management strategy, which includes considering buying insurance on our bank deposits, since we don't want to be in a similar situation again," he added.

Mittersain said that about half of the cash reserves of these subsidiaries were stuck (in SVB), however, since both of them are profitable and generate positive cash flows, there was no "panic situation" or pressure from a business continuity perspective. "Even Nazara does not need to step in to fund these companies," he said.

Gamified early learning, which includes Kiddopia and WildWorks, formed 24 percent of the company’s total revenue during the first nine months of FY23, while advertising technology services provided by Datawrkz contributed 14 percent, according to the company’s latest investor presentation.

Mittersain noted that this development would not have impacted their future plans even if the money was "not recoverable, which now is highly unlikely".

"This money was lying unused for a long time. But what we were stressed about is that $7-$8 million is a decent sum of money that got stuck and potentially could have gotten lost. So obviously, we were not happy about that situation" Mittersain said "Now, of course, after what's happened overnight, we are far more comfortable that we should be able to recover this money."

US regulators stated on March 12 that all depositors of SVB will be fully protected and they will have access to all their money starting Monday.

"I think this was like a stress test on us because it allows us to see whether we are resilient enough to take such external hits once in a while. There was no such big issue for us. Obviously for smaller startups and younger startups, the situation is different, because they are dependent on running the day to day business on potentially funds that got locked in SVB," Mittersain said.

Nazara Technologies slid nearly 7 percent to Rs 483.05 at the market open on March 13. However, it recovered later in the day to close at Rs 514.75, registering only 0.58 percent decline.