Even as it charts a turnaround strategy, Nazara Technologies is looking to expand the gaming & e-sports production businesses overseas. Last week, its subsidiary Nodwin Gaming bought Ninja Global, an acquisition that will give the company a foothold particularly in the West Asian and Turkish markets.
Meanwhile, Nazara’s performance in the last couple of quarters has been less than exciting. In the December quarter, the top line rose by an anaemic 1.8% year-on-year (y-o-y). Specifically, adtech revenues were down a sharp 44% y-o-y thanks to the shift in focus towards high margin customers and the loss of a large client. Gaming revenues fell 12%. However, the revenues from the core e-sports business rose a good 27% y-o-y aided by Sportskeeda and Nodwin.
Again, Kiddopia, the learning app for children, saw a sequential fall in the subscriber base. It has now lost
38,509 subscribers in the last three quarters leaving the base at 273,000 in December 2023.
The concerns, especially, the 28% GST levy on the full bet value for the real money gaming piece—Classic Rummy— are unlikely to fade away soon. The company has no plans to pass on the GST burden to consumers and awaits clarity on the matter. The absence of revenue from media rights owing to delays in large TV/OTT deals for hosting games could persist for awhile as could the weakness in telecom subscriptions.
As Jinesh Joshi at Prabhudas Lilladher has pointed out, the problems such as the 28% GST levy or for that matter the change in Apple’s privacy policy, might not be easy to resolve. As such, Joshi expects the company’s top-line to grow at a modest pace of 14% CAGR over the next 3 years, which is way below Nazara’s target of 30%.
Joint managing director and CEO, Nitish Mittersain is hoping to grow the company by at least 20-30% every year. “We are not playing a vanity game of just showing larger revenue growth without good margins,” Mittersain asserted. To be sure, the company was able to earn a reasonably good operating profit margin of 11.5% in the December 2023 quarter, which helped it grow the Ebitda by 24%. It’s now aiming to hit margins of 20% in the next couple of years.
But that will depend on how the business shapes up. To boost subsbcribers for Kiddopia, the company is now looking to licence popular kids IPs which includes popular cartoon characters, etc, from specific brands. Globally, companies in this space are enhancing their offerings by licensing popular IPs of well-known characters. These are licensed from companies like Hasbro, Mattel or Disney. Nazara’s speaking to some of these firms. “Many of these companies are keen to work with us because the quality of product is well proven,” Mittersain says. He believes this will give the segment an organic boost as the engagement with users will be better and they can be acquired at a lower cost.
To revive the adtech business, the Datawrkz team, which provides solutions such as digital media planning, social advertising, search campaigns and analytics, has been told to focus on high margin clients and products. A team has been hired in the US, which is on the ground building a sales pipeline. “So we think we will show a better topline revenue growth in the coming year as well,” says Mittersain, adding the margin trajectory is in the right direction.
Some hard work will be needed to turn around Nodwin, which posted an ebitda loss of Rs 2.2 crore in Q3FY24. Mittersaid explains the idea is to get scale and market leadership. “We expect that in about 1-2 years, we will start focusing on profitability for Nodwin. And then you will see a much larger jump in margins,” he says.
Investors appear confident about Nazara’s prospects. ICICI Prudential and Zerodha cofounder Nikhil Kamath have reposed their faith in the business and will buy more into it; the Nazara board recently cleared a proposal to issue preferential shares to a clutch of existing investors at a price of Rs 872.15 apiece; that’s not far away from the 52-week high of Rs 989.55 and will fetch the firm Rs 250 crore.
Their confidence possibly stems from the fact that the country’s gaming space is poised to grow in double digits and achieve revenues of $7.5 billion in FY28 up from $3.1 billion in FY23. The compounded 20% growth rate will be driven by not just the rising penetration of smart phones. The sharp jump in the number of mid and hard core gamers, as also the increase in in·app purchases, will fuel growth.
Given it has some Rs 1,500 crore in the bank, Nazara will continue to pursue bigger acquisitions of businesses valued at close to Rs 500 crore rather than smaller buys of Rs 100-200 crore. Mittersain says he is comfortable doing transactions in the range of Rs 500 crore. “Ideally, we would want to get to a situation where we can deploy our own cash rather than dilute stake or raise external cash,” he says, confirming the lower valuations have prompted it to look at acquiring RMG businesses.
Nazara is also banking on its publishing business to provide capital —a minimum of Rs 1 crore per game—and services to assist developers develop games. The response has been good and five developers have so far been onboarded.
That’s good going but to ensure good top line growth, Nazara’s adtech and gaming businesses need to pull their weight.