Rakesh Jhunjhunwala-backed Nazara Technologies has enjoyed a decent overall performance given that listing, holding substantially above the IPO value so far. The stock is nevertheless 37% above its problem value, with valuations as well high-priced, according to brokerage and study firm CLSA. Seeing the higher valuations, CLSA has initiated coverage of Nazara Technologies with a ‘Sell’ rating, expecting as significantly as 27% downside from existing levels. Big bull Rakesh Jhunjhunwala, a pre-IPO investor in Nazara Technologies, owns a 10.82% stake in the business. The stock was down as significantly as 12% on Friday.
Gaming sector nascent
Currently in India, mobile gaming, casual, genuine funds and on the net fantasy sports dominate with 90% share of the $1.2 billion sector income. Nazara Tech is a leader in ESports, which tends to make $108 million or beneath 10% of the gaming sector income. “ESports remains niche, despite growing 55% since 2018. ESports audience is 17 million vs India’s 365 million mobile gamers,” CLSA mentioned. Although Nazara finds no peer on the bourses, having said that, on ground the circumstance is anticipated to intensify. Competition from major players contains MPL’s talent-based eSports platform, Paytm First Games, Jio Games, and Dream 11, which is backed by Tencent and owns a stake in PUBG.
Nazara Technologies derives revenues mostly from subscription costs paid by customers for accessing gamified early studying content, as nicely as from eSports company. “The eSports business for Nazara grew by 102% YoY in FY21. The gamified early learning business which was acquired Nazara in FY20 has seen a growth of 3x in FY21 (adjusted for full year) with the addition of over 142,000 subscribers during the year,” CLSA mentioned. The brokerage firm expects revenues to expand at 35% CAGR more than FY21-24CL to attain Rs 11.1 billion. Net profit is estimated to attain Rs 1.6 billion.
Valuations as well higher
“Given the exciting growth potential of India’s mobile gaming industry, the stock valuation will be driven by how Nazara’s growth unfolds and the market at large values the sector opportunities alongside scarcity premium to the first listed mobile gaming company in India,” analysts at CLSA mentioned. However, the CLSA’s India coverage universe (ex-financials) of 111 stocks presently trade at an typical of 2x FY23CL EV/sales, though Nazara Tech’s stock trades at 6x FY23 EV/sales which tends to make valuations high-priced. Even on EV/Ebitda comparison, Nazara trades at 29x FY23 compared to an typical of 10x EV/Ebitda for the CLSA universe implying a valuation premium of close to 3x.
Comparing Nazara to worldwide peers, CLSA mentioned that huge 5 worldwide gaming stocks trade at an typical of CY22/FY23 EV/sales of 5.4x and EV/Ebitda of 17x, whereas Nazara Tech trades at 6x EV/sales and 29x EV/Ebitda which tends to make valuations substantially more high-priced. “Hence with Nazara’s stock valuation running ahead of forecast growth and carrying a hefty scarcity premium,” CLSA noted though pinning a target value of 1,095 on the stock.
At the finish of the January-March quarter, ace investor Rakesh Jhunjhunwala held 32,94,310 equity shares of Nazara Technologies, or 10.82% stake. Nazara Technologies shares have been down 12% on Friday as bears took manage of Dalal Street, trading at Rs 1,463 apiece.
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