Rakesh Jhunjhunwala Portfolio: Shares of Rakesh-Jhunjuhunwala-backed Nazara Technologies surged 16 per cent to Rs 616 apiece in Monday’s intra-day trade. The spike comes after the mobile gaming company reported over 22 per cent year-on-year (YoY) rise in consolidated net profit to Rs 16.5 crore in the April-June quarter (Q1FY23). Meanwhile, revenue soared 70 per cent YoY to Rs 223.1 crore from Rs 131.2 crore in the year-ago period.
The company’s Ebitda was flat YoY at Rs 30 crore. However, sequentially, it rose to 102 per cent from Rs 14 crore in Q4FY22. Ebitda margin, meanwhile, contracted to 13.5 per cent in the quarter under review from 22.9 per cent in Q4FY22.
Segment-wise, e-Sports contributed the most to overall revenues at Rs 102.3 crore in Q1FY23, up 92 per cent YoY from Rs 53 crore in Q1FY21.
Gamified early learning and Ad tech businesses were other top contributors to business revenues at Rs 52 crore and Rs 32 crore, respectively. However, expenses rose to Rs 207 crore in Q1FY23 from Rs 114 crore in the corresponding quarter of the previous fiscal due to higher advertising spends.
Going forward, the management remains confident of meeting the growth plans charted out for FY23.
“The company will continue their growth journey both organically and inorganically. We want to augment our presence in the ‘Freemium’ segment, especially in developed markets, going ahead in this fiscal year,” said Mohit Agarwal, CEO of Nazara Technologies.
During the quarter, the company had acquired stakes in companies like Datawrkz Business Solutions, Paper Boat Apps, Nodwin Gaming, and Absolute Sports. Earlier, on May 13, 2022, the board of the company approved the issue of bonus shares to existing shareholders in a 1:1 ratio.
Jhunjhunwala held 65,88,620 shares or a 10.03 per cent stake in the company as of June 30, which was valued roughly at Rs 400 crore.
Share Price History
Despite today’s rally, the stock of Nazara Technologies is down over 66 per cent from its 52-week high of Rs 1,601 that it had touched on October 11, 2021. So far this year, the stock has bled over 48 per cent. In comparison, Nifty50 and the S&P BSE Sensex have declined over 2 per cent each, during the same period.
Should You Invest?
Analysts at JM Financial expect the company to report higher growth in FY23 due to acquisitions. However, they remain cautious of their medium-term growth.
“Barring e-Sports, we find it difficult to string a coherent growth strategy from Nazara’s diverse, often disparate, assets. Besides, our conservative view also stems from the company’s limited presence in real money gaming (RMG), the largest revenue pool in India’s online gaming space. While Q1 beat should help reverse recent stock corrections, we await more evidence of growth taking roots organically,” the brokerage firm said, sharing a ‘hold’ stance with a target price of Rs 540 per share.
For YES Securities, both revenue and EBITDA margin were in line with estimates. The sequential uptick in revenue was driven by Adtech consolidation, the brokerage said.
“Overall, it was an inline performance for the quarter. We currently have a reduced rating on the stock. The business faces long-term risks due to low entry barriers and the acquisition‐based growth strategy. The stock trades at EV/Ebitda of 12 times on FY24E,” YES Securities said.
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