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CLSA noted that Nazara’s revenue rose in Q1 of FY22, but was 5% below its estimates

Nazara’s shares were trading at INR 1,801.40 on the National Stock Exchange (NSE)

Nazara posted a consolidated net profit of INR 5.3 Cr in the Q1 FY22

Global brokerage firm CLSA has set some alarm bells ringing with its report claiming that Nazara Technologies’s stock will plunge over 40% from current levels to INR 1,095. At the time of publishing, Nazara’s shares were trading at INR 1,801.40 on the National Stock Exchange (NSE). CLSA has handed Nazara a sell tag in its latest report. 

CLSA noted that Nazara posted a revenue of INR 130 Cr in the first quarter of FY22, which was up by 6% since Q1 FY21, but this is 5% below the brokerage firm’s estimates. It added that key businesses including esports and gamified online learning (Kiddopia) accounted for 81% of the consolidated revenue, but the company ‘missed’ the revenue estimates for Q1 FY22. 

Though Nazara’s esports revenue saw a rise by 10% on a quarterly basis, the lower media rights revenue due to fewer number of events in the backdrop of the pandemic were a worrying sign. Nazara’s esports vertical includes the business performance of its subsidiaries Nodwin Gaming and Sportskeeda. In Q1 FY22, esports posted a revenue of INR 53.2 Cr whereas, gamified early learning reported a revenue of INR 52.1 Cr. Sportskeeda, the sports news portal acquired by Nazara in 2019, witnessed a 487% growth in monthly active users in FY21. Nazara acquired a majority stake in Nodwin, an esports gaming company in 2018. While Nodwin recorded 28 Mn live stream views, Sportskeeda witnessed 89 mn monthly visitors in FY21.

CLSA said that Kiddopia’s paying subscriber base shrank to 321,763 in Q1 FY22, which was 5% down from the previous quarter. Kiddopia’s paying subscribers stood at 340,282 in FY21, (March 2021), a 172% rise from March 2020, but the drop in subscriber count is a worrying sign for the company.  Nazara CEO Manish Agarwal recently told ET that the company will continue to make investments in strategic growth, rather than looking at margins. The company acquired a majority 69.82% stake in Turkey and West Asia-based mobile gaming publishing agency Publishme in June. 

Nazara Technologies grabbed headlines earlier this year by becoming the first Indian gaming company to list publicly. Founded by Nitish Mittersain in 2000, the diversified gaming and sports media platform made a strong debut. The company posted a consolidated net profit of INR 5.3 Cr in Q1 FY22, a sharp improvement from the INR 27.9 Cr loss it posted in the same period last year.  Nazara’s Q1 FY22 EBITDA at INR 30.1 Cr and gross profit at INR 13.5 Cr (vs estimate of INR 11.2 Cr) were both ahead of CLSA’s estimates, however. This has been attributed to the fall in advertising and promotion expenses, which the brokerage believes will increase in the coming quarters. 

“Despite the Q1 FY22 miss, we retain our forecast of 35-73% CAGR in consolidated revenue and EBITDA by FY24 CL. However, even with revenue at $117 Mn and EBITDA at $23 Mn by FY23CL, the stock is expensive at 6x FY23CL EV/sales and 32x EV/EBITDA,” the brokerage said in its report. As India’s first listed gaming company, Nazara carries a hefty scarcity premium and we retain SELL with a 12M (months) target price of INR 1,095,” the brokerage firm concluded.