What’s Nazara?
It is a 20-year-old social gaming and new-age sports media company based in Mumbai that is involved in the acquisition, value addition, and distribution of smartphone games in 60 countries. It estimates that 130.43 million monthly visitors from 61 countries, including India, the Middle East, Latin America, and Africa, use its subscription services. It appears to have a paying user base of over 4.08 million (1).
Rakesh Jhunjhunwala’s gaming business, Nazara Technologies, became the first Indian gaming technology company to list on the stock exchange. On Friday, the Mumbai-based startup filed its initial public offering documents with India’s market regulator. Nazara is one of India’s largest digital gaming and sports media firms, established in 2000 by gamer Nitish Mittersain. The business is renowned for its World Cricket Championship games and the Chhota Bheem and Motu Patlu television shows. Nodwin Gaming, a subsidiary of the group, hosts a range of gaming events throughout the region. It operates in over 60 emerging market countries, including India, Africa, the Middle East, Southeast Asia, and Latin America (2).
Subscription business, Freemium business, and Esports business are among the content types available on the company’s website. Nazara has accrued a large network of millions of subscribers in recent years due to the global boom in mobile gaming. WCC and CarromClash in mobile games, Kiddopia in gamified early learning, NODWIN and Sportskeeda in esports and esports media, and Halaplay and Qunami in skill-based, fantasy, and trivia games are among the IPs owned by the organization. Other notable investors include Special Opportunities Fund and Turtle Entertainment. Plutus Wealth Management LLP and its partners purchased shares in the company worth over Rs. 500 crore from WestBridge earlier this month.
The Securities and Exchange of India issued its authorization for its initial public offering in 2018. And according to draught listing documents, Nazara will sell 5,543,052 equity shares in its public offering. The consolidated revenue of Nazara Technologies for the financial year 2019 was Rs. 183 crore. For the year 2018, it brought in Rs. 180 crore in revenue. “The listing would also include a public market for equity securities in India,” the company said in explaining the reasoning behind the IPO. According to draught documents, the company’s IPO will be controlled by ICICI Securities and Edelweiss Financial Services (3).
Financial Stats
According to Statista, India’s gaming industry had a market size of about 6,200 crore rupees in 2019 and was projected to rise to more than 25000 crore rupees by 2024, with more than 40,000 people working in the sector. On the other hand, Mobile gaming was projected to reach a market size of around 2965.4 crore rupees by 2022, with the number of mobile phone gamers in India expected to reach around 62.8 crores by 2020. While Nazara is profitable in the current fiscal year, which is the financial year 2021, the holding firm, which owns 21 subsidiaries including Halaplay, Sportskeeda, and Nodwin Gaming, posted a consolidated loss in the financial year 2020, according to regulatory filings. During the fiscal year, which ended on March 2020, the Rakesh Jhunjhunwala-backed firm’s annual income increased by 41.3 percent to about Rs 263 crore. During the time, Nazara’s revenue sources diversified, and revenue from operations increased by 45.8 percent to Rs 247.5 crore in financial year 20 from Rs 169.8 crore in the financial year 2019 (4).
Revenues from selling game pack subscriptions on its online gaming sites accounted for about 33 percent of total revenue or 81.8 crore rupees. Nazara made 42.64 crore rupees from real money gaming on Halaplay, Carrom Clash, and the rest. In contrast, subscriptions and interactive technologies on its game-based e-learning platform Kiddopia brought in 19.1 crore rupees. Advertisements and virtual goods selling on its freemium model games accounted for 8 percent of overall revenue. To remain competitive in the global paradigm of the online gaming industry in India and worldwide, the two-decade-old technology business changed its financial performance in the financial year 2020.
Nazara, on the other hand, cut its spending on employee benefits by 24 percent to 21 crore rupees in the Fiscal year 2020 and cut its rental payments by 440 percent to 1.9 crore rupees. Besides, content, activities, and web server costs increased about 14.3 percent, around 44.3 crore rupees in the Fiscal year 2019 to 50.65 crore rupees in the Fiscal year 2020. As the company handled more payments during the time, commission and payment gateway expenses increased threefold to Rs 9.5 crore in the Fiscal year 2020. Again four crore rupees were invested in IT and communication, bringing the total expenditure to 286.9 crore rupees in the Fiscal year 2020, up 63 percent from the previous year’s 175.9 crore rupees. In the Fiscal year 2020, Nazara spent 1.16 rupees to gain a single rupee (5).
What’s their main revenue?
In which players play against other players for cash, Skill-Based Games are how Nazara makes money. Subscribers are charged for playing games. Nazara Software makes money in this way. Sports fantasy games, such as Hala, are an example. The company produces popular games and publishes them on the Google Play and Apple App Stores, where smartphone users can easily download them for free. When playing these games, users can come across advertisements. Nazara Tech makes money from these commercials. As a result, the more successful the game is, the higher the revenue (6).
In India, they are reliant on telecom companies. Telecom companies sell gaming subscriptions to their subscriber base, emphasizing selling simple games to counter the low propensity to pay. The subscription services were sold via sachet pricing, with regular, weekly, and monthly subscriptions. The Telecom operators received payment, who shared 50 percent of revenue with service providers such as Nazara. On OTT platforms, amateur players can watch a live stream of a match being played by professional players and listen to live commentary. This is a brand-new idea (7).
Let’s take an example: we’re all watching a live cricket match on platforms like Hotstar. Star Sports, for example, buys the live streaming rights to cricket matches from the organization or board that organizes the game. This is how the company that organizes cricket makes money. Sports then make money from advertisements and other sources. This is how the cricket organizing company makes money. Star Sports then makes money from advertisements and other sources. Consider a game like PUBG, played by professionals in an indoor stadium and broadcast live on television or an OTT network. Assume you’re watching a live game from the comfort of your own house. This is a recent idea that is quickly gaining popularity in India. Such games will be organized by companies like Nazara, which will sell media rights to players like Star Sports.
Nazara aims to serve the billions of mobile internet users in emerging markets who have embraced social multiplayer interactive gaming as the most common type of entertainment. With this target in mind, I’ve invested in various gaming companies to capitalize on the evolving gaming trends over the last two years. They have also invested in games like, Kiddopia (8), a multi-award-winning edutainment app that teaches a wide range of skills to children of all ages. Shapes, colors, the alphabet, spelling, arithmetic, logic, and patterns are all covered, as well as imagination and self-expression. Blackbuck (9) is an app for Indian homemakers to enter Indian competitions to win prizes and explore new items. Nodwin Gaming, the largest gaming solutions and esports company in South Asia, has increased its revenue by 300 percent. ESPORT properties, gaming activation & agency, media sports rights, and gaming software infrastructure are among its services.
Gaming: Why back it?
As shown in research by consulting firm KPMG and its self-regulatory body, the Indian Federation of Sports Gaming, India’s online gaming industry is expected to generate revenue of 11,900 Crore rupees by 2023, rising at a 22 percent CAGR. In 2020, there will be 300 game development firms, up from 20 in 2010, and the number of players will be 300 million, up from 25 million in 2010. India has the world’s second-largest cell phone population. The United States and China largely govern the gaming industry. With a market capitalization of fewer than 1 billion dollars, India hardly qualifies. Though China’s gaming industry is said to have surpassed 30 billion dollars, the United States comes in second with 24 billion dollars.
The Nazara IPO, should you go for it?
The company intended to issue 55.43 lakh shares to the public and institutions, according to the red herring prospectus filed with SEBI (10) in 2018, and the company will file for DRHP again this year. The business had planned to launch its initial public offering in 2018 but postponed it due to the market downturn. According to the EDM notice, up to 201,020 equity shares with a face value of Rs. 4 will be issued at a premium of Rs. 724 in March 2020. Link Intime India is the registrar for Nazara Technologies’ initial public offering. Rakesh Jhunjhunwala purchased a share in Nazara Technologies for 180 crores.
The initial public offering is scheduled to begin next week. In its upcoming public offering, There will be no new equity shares issued in the initial public offering; it will solely be an offer for sale by current shareholders. Mitter Infotech LLP’s promoters will also reduce their holdings through the IPO. Rakesh Jhunjhunwala holds a 10 percent stake in the firm and says he has no plans to sell. Beginning March 17, investors can bid for Nazara Technologies’ IPO in the price range of 1100 rupees to 1101 rupees per equity share with a face value of Rs 4. Bids for a minimum of thirteen equity shares and multiples after that can be placed, resulting in a minimum investment of 14313 rupees per investor. Employees of the company would be liable for a discount of 110 rupees per equity share if they purchase a portion of the question. Qualified Institutional Buyers will receive 75 percent of the issue, while Non-Institutional Investors will receive 15 percent and retail investors will receive only 10 percent. Next week, on March 19, the IPO closes (11).
Nazara Technologies shares have been commanding a high premium in the unlisted room for weeks. Nazara Technologies shares were trading at 1060 rupees apiece in the unlisted market earlier in February, even before the price details were announced. The gaming firm’s shares are now trading on the black market with a premium of 620 rupees per share. Despite far lower growth rates than in India, global gaming and eSports firms are trading at 3.3 times one-year forward revenue; considering that Nazara is India’s gaming play with higher growth rates, it can command a premium valuation on sales.
With the rising popularity of gaming among people of all ages, from children to the elderly, this is one of the biggest companies with massive growth potential and competent, trustworthy management. When it comes to investing in private companies, investors like Rakesh Jhunjhunwala and IIFL provide reassurance.
