NSE should become Nasdaq in 5 years, more founders should list in India: Nazara's Nitish Mittersain

Nazara's game studio business will become the largest revenue generator, says founder Nitish Mittersain

It has been over three years since Nazara Technologies debuted on the Indian stock exchanges as the country’s first gaming firm. Founder Nitish Mittersain says the benefits of going public have far outweighed the disadvantages for one of the country’s oldest gaming companies.

In fact, Mittersain says he has been encouraging founders to list.

“(India) is a great place to be, to create wealth for themselves and for everybody here in the country. I've been telling a lot of startup founders that in five years, we should convert NSE into India's Nasdaq” Mittersain told Moneycontrol in an interview.

After recently raising Rs 760 crore from marquee investors such as Zerodha co-founder Nikhil Kamath, ICICI Prudential MF, and SBI Mutual Fund, the diversified gaming and sports media firm is now gearing up for a growth sprint with an ambition to achieve 10x revenue growth in the next five years.

The company’s revenues have tripled since its 2021 IPO debut, and profits have increased by an equal measure. This is primarily driven by the growth in its esports vertical, which includes Nodwin Gaming and Sportskeeda.

Mittersain says the esports segment will continue to grow fast over the next 2-3 years. However, he believes that the company’s game studio business will likely become the largest revenue-generator for the firm in this period.

The company is now planning to ramp up its investments and acquisitions as well as look at bigger deals. In March, it earmarked a $100-million war chest for global expansion over the next 24 months.

Nazara currently operates in three key sectors - gaming (World Cricket Championship, Kiddopia, Animal Jam, Classic Rummy etc), esports (Nodwin Gaming, Sportskeeda) and advertising (Datawrkz). It also announced a game publishing unit last year.

With artificial intelligence (AI) reshaping every sector, Mittersain says that deploying this nascent technology across its network of various businesses is also a “strong focus area”.

Edited excerpts:

How has the past three years been since your market debut? What have been the key takeaways for you?

I think there is a perception that a lot of startup founders regret going public and running a public company. Recently, Nikhil Kamath (Zerodha co-founder and an investor in Nazara Technologies) also asked me this question, saying that nine out of 10 founders regret going public.

I think I am among the ones out of 10 founders who has no regret in going public.

The key reason is that I have always believed that as long as founders, as CEOs, are putting in their best efforts, with a positive intent backed by positive effort, there will be fewer problems.

Business may do well or not do well. You may try 20 things, 10 may work. One year may be good, two years may be bad, three years may be good. That is a business cycle. But as long as you have a positive intent, you will feel that everything is okay.

If you don't have a positive intent, public markets start becoming difficult, because you have to be transparent, you have to disclose etc.

At Nazara, we have always tried to follow good governance, transparency. While we are a gaming company, we don't like to play any games, as such, when it comes to these things. That makes it a bit easier for us.

We have also been in the business for 20-25 years. There is maturity in terms of understanding business cycles and market cycles. So we're not overly under pressure to do anything in the short term to show results.

My focus is to make decisions which are good for the company in the medium to long term. And if you make a mistake, rectify that mistake also quickly, without feeling embarrassed.

For example, we invested in Wings (a gaming-turned-lifestyle tech brand that Nazara’s subsidiary Nodwin Gaming invested in 2022), thinking it was a good opportunity. But after a year, we realised that it is not really our business. We don't understand inventory business, stock piling up in our books, etc.

So, we publicly deconsolidated it (in February 2024) and moved forward. My learning is that the more transparent you are, and the more long-term you are, the less you are impacted by the short-term movements of stock price and you are willing to take it in your stride.

On the positive side, Nazara has got a lot of branding and credibility over the last three years.

But am I happy with the value we have created so far? No, I don't think so. There's a lot of work to be done and a lot of value to be created for our shareholders. The single vision we are driving is how Nazara can be 10X from here in the next five years.

Three years is important for us, especially for me, because in my life everything runs in numbers of three.

Our Nazara IPO price was also Rs 1,101 because I wanted it to add up to three. Three years is a good measurement cycle to see how you are progressing. It's not too long, and it's not too short.

Nazara's revenue and profit has tripled in the past three years

Is it tougher to conduct experiments, now that the company is publicly listed, compared to when it was private?

There are two aspects to this. One is doing experiments with a worry about people seeing me fail in experiments and what they will think.

But I think communication to the investor base is more important, more than anything else about what you're doing and they will appreciate it.

If you clearly communicate that you are doing these experiments, some may succeed. If you take measured risks with a smaller bet and some guardrails, it should be okay.

It is like startup investing. One may really succeed and have a big impact while nine may fail. If you communicate properly, investors will appreciate it.

The other type of experiment happens in terms of quarterly pressures on P&L (profit and loss), where I want to do something but it may hit my P&L.

For instance, we have recently started a lot more branding for Nazara at game developer conferences, including having a full booth at GDC (Game Developers Conference) in the United States, which is the world's largest gaming conference. Now, these are not cheap but they don’t have an immediate impact. So, it's going to hurt my EBITDA.

Similarly, if I am going to do experiments, I am going to burn some money and there will be an EBITDA pressure. So we have to see how to balance that. We take measured investments while trying to balance it.

The rule of thumb is that if we really believe it is important to do, we shouldn't avoid doing it to show a higher profit for the quarter.

We are not trying to build value for the very short term. We have to do the right thing, so that the company grows in the long run.

Since you went public, what has changed at the company level? Has your deal appetite become bigger or has your risk-taking ability increased?

Our ability to raise capital has become easier. We have raised a lot more capital after going public than we ever raised in our entire lifetime. So that has been one benefit to us and the ability to attract good high-quality investors.

We have also almost tripled our annual revenue in three years. It was about Rs 450 crore when we went public. Now, it is around Rs 1,100 crore. We have also doubled or tripled our profits in these three years.

So now, obviously at our scale, we want to take M&A opportunities which are a little larger, so that they can grow faster. Our target is to increase our revenue from Rs 1,200 crore to become a Rs 10,000-crore company in five years. That won't happen with small bets.

So, our need to take larger, well-measured bets and our ability to finance and manage them have improved.

In a way, being public can actually be a positive pressure. In a private company, nothing beyond a point matters. You have a VC, he's got a long- term, 10-year view and you're doing your own things. As a public company, you're on the public stage and it's also positive pressure that I want to show that I can deliver. So, I think that is what has changed. We are definitely three years down, thinking bigger, looking to take bigger bets.

We've established some playbooks, which we now feel confident that we can implement on a bigger scale. For instance, the game studio business.

When we acquired Wildworks (in August 2022), I was wondering at that time if we can effectively manage a US studio. Now I'm a lot more confident.

So, I bought that as a Rs 100-crore revenue business. Today, I am also looking at a Rs 500-crore revenue business. So, the scale has definitely increased. Our ambition and how we can achieve it, we have got a lot more clarity in the last three years. We now hope to execute aggressively in the next three years.

Read: After Zerodha’s Kamath, Nazara Tech to raise more capital to scale up its verticals, says Nitish Mittersain

Private versus public market valuations remain a hot topic of debate. Do you believe that private companies are valued higher as compared to public companies? What is your view?

In the short term, yes. Because in the private market, one big investor comes and puts a value to it. Beauty is in the eye of the beholder. So one guy really loves something or takes a long-term view and gives it a crazy value, and the company will get valued at that.

Since public market is the wisdom of the crowds, it tends to be more reactive, more practical in terms of valuations.

But in the long run, if you create a strong business, the value in public markets also goes very high as you can see in a lot of tech companies. Markets also pay a premium for things like governance, transparency, etc. A lot of public market companies fail on that front, get penalised very bad, and then, it would appear like public markets are not paying properly.

I think the founders should look at taking the company public in India. It's a great place to be, to create wealth for themselves and for everybody here in the country. I've been telling a lot of startup founders. In 5 years, we should convert NSE into India's Nasdaq.

You're actually seeing a lot of companies moving their bases to India also. What do you think is driving that trend?

One is that Indian markets are outperforming globally. India is the brightest spot in the world. There is a strong government, there is a fast GDP growth. The public markets are deep, SEBI governance is strong. Investors have to have confidence and having a strong regulator is helping.

All these factors are helping the market become deeper now. Now we have $2 billion of domestic investments coming through SIP every month. India is no longer a shallow market . So, for an Indian company to go and list somewhere else has no logic.

How are you expanding your deal flow? I remember a few years ago, you had also invested in gaming-focused venture funds like Bitkraft Ventures and Griffin Gaming Partners?

Our investments in gaming funds are working out quite well for us. We are interacting a lot and getting a good knowledge pool on what's going on in the market, and also, they keep passing us opportunities. In fact, we are going to be making many more such investments in some additional funds.  You will hear about it in a month or two.

In addition , taking Nazara out to every gaming conference, making ourselves a lot more visible has been helpful.

So we are making our presence felt not only in India, but outside of India also. Hence, the deal momentum is quite strong. In fact, we have been a little patient or taking our own time to be more selective because we have so many opportunities. We are not just jumping at anybody who comes to us.

Are you also setting up a presence in markets like the United States to evaluate deals?

We haven't done it yet, but we will probably have some feet on the ground soon.

Esports has been your mainstay in terms of revenue. Do you see that continuing? Or do you see other verticals taking a significant revenue share?

In the next 2-3 years, you will see esports growing quite fast. In fact, in this year, I would say growth has been relatively slower but I am seeing momentum pick up again.

Our core gaming IP business or the game studio business will grow very fast for us. So, over the next two or three years, core gaming will probably become the largest revenue generator for us.

Read: Nazara Tech hires industry veteran to grow its freemium gaming business

We are also seeing many local gaming studios now attempting complex and ambitious games. How are you viewing the market and what is driving this change?

People have seen games like Krafton’s Battlegrounds Mobile India (BGMI) or Garena’s Free Fire come to India and make decent amounts of money here. Consumers are more willing to pay now. The digital payment ecosystem has developed a lot. Therefore, many companies and developers are now feeling that India is reaching a certain level.

It would be interesting to see how some of these games perform once they launch. I am hopeful that we won't be dependent on global titles, and see a strong breakout of Indian titles.

How is the developer ecosystem evolving in India?

I think we are seeing more and more developers every year. The ambition is high on developers.

AI is going to be very helpful. AI will help Indian developers bridge a lot of the knowledge gap very quickly. So my only suggestion to all developers right now is please start thinking AI-native or AI-first. Then you can really leap ahead of the pack.

Look at Generative AI. A single developer sitting in some small town of India can now develop world-class graphics, which are normally really expensive. There are a lot of assets available now but the mindset has to be there that I will leverage the new technologies to move ahead of the game.

We are doing a lot of work on AI right now. We're looking at rebooting a couple of our studios with a completely AI-first approach.

How is AI reshaping game development across the lifecycle?

Firstly, how you make games, graphics or design the game, and how you create the game-balancing economics, and port a game etc., can be done much better, much faster, much more efficiently.

Second is how you engage with the player and how you personalize for each individual player. Only AI can do it. I can't manually do it.

Third is how do you use AI to analyse the big data that has been generated and deliver a more rewarding experience to the user, thereby increasing your engagement, retention and monetisation. These are the three immediate use cases for game developers.

You're also bullish on other frontier technologies, be it AR (Augmented Reality) or VR (Virtual Reality). Do you think that can present a sizable opportunity in the coming years?

Absolutely. It's like EVs (electric vehicles). Five years ago, we knew that EVs are eventually going to come and petrol and diesel vehicles are going to go away. The trend has now accelerated.

The same is true for VR and AR. We all know it is going to come but is still far away, right now.

AR/VR will be transformative for gaming. Hence, it is an important focus area for us. We will most definitely acquire a couple of VR studios in the near future.

You recently invested in a Web3 gaming company also. Do you see a revival of sorts in that industry after the massive crash in the past couple of years?

The crash was more related to the token crisis, because there was hype around it, and that is why we stayed away earlier.

I am however a strong believer that digital assets and smart NFTs in gaming have a significant use case and for Web3 as a layer on gaming will have benefits for the end user. Therefore, we are looking at how Nazara can start learning more about it, and how we can start integrating them into some of our games etc.

All these are small investments. The idea is to build an ecosystem, and getting ‘friends of Nazara’ network in the Web3 space, so that people know we are active there. So we are closely watching Circle of Games: What are they doing, how are they doing, talking to them, engaging with them. It's a low-cost way for us to get into that space before we try and take larger bets.

Do you see more investor interest now in India, compared to other markets?

In India, the investor interest in gaming business got impacted negatively in recent years because of the whole issue with the RMG (real-money gaming) sector.

Investors don't understand well enough which is an RMG company and which is non-RMG and what is happening in the industry. It scared a lot of investors. So, there is a bit of negative sentiment at the moment. Either this GST issue gets sorted out or you see breakout success in the freemium games that will see investors coming back in a bigger way.

Generally, investors understand that India is a large consumer market. So, they will eventually come in a big way.

How do you see the RMG segment evolving, going forward?

It will take some time to settle down because the sector has taken a big impact and all the regulatory overhang has to go away. But if it is run properly in a responsible fashion, there's no reason that it will not continue to grow. The market is still very large.

Read: India's real-money gaming sector had a rough 2023. Will 2024 be any better?

For Nazara, what do you think is the biggest challenge, right now?

One is to get growth back in some of our core businesses such as Kiddopia (gamified early-learning product). They have flatlined for a while and we need to find a way to break out of the plateau.

Second is to leverage M&A to continue expanding our playbook. While we cannot know anything for sure, we are trying to minimise the risks and failures on the front, especially as we take bigger bets. If something really goes wrong, it will hurt us. We'll never take a bet which can kill us. This is why patience is important.