No sole firm can pass on GST burden to gamers: Games 24×7 co-founder

Six months after the government decided to levy 28% goods and services tax (GST) on players’ deposits, Games 24×7 co-founder and co-CEO Bhavin Pandya believes  it won’t be prudent for any gaming company to pass on higher tax burden to consumers.

Unless the entire gaming industry decides to pass on the GST burden, anyone who does this solely might lose consumers. “A lot of gaming companies are looking for ways to engage their players more, and not changing their business models,” Pandya told FE in an interaction.

“The industry is in no mood to pass on GST right now as this may have a worse effect than you bearing the cost right now,” he said, adding that the impact on the bottom line with higher GST is better than losing consumers by passing the GST burden.

Gaming companies have so far been absorbing the GST burden; they have been trying for a middle ground that does not affect user experience and enthusiasm of gaming, and also helps them sustain their operations. Even as the larger players have absorbed the impact by taking a hit on their bottom line, the outlook remains bleak for smaller startups in the segment.

“A lot of hyper personalisation will really determine whether this burden gets passed or not. We will have to analyse which player is okay being passed on that burden, given why they are coming to play, and which player is very price sensitive,” Pandya said.

Even as the companies are taking a hit on their businesses, Pandya doesn’t see the burden being passed on to gamers in the near short term. For the longer term, he expects the decision can be taken only when the industry collectively agrees.

According to EY estimates, the online gaming market in India is expected to slow down to a 15% compound annual growth rate (CAGR) till FY28, compared to the 28% CAGR over FY20-23. Of that, the real money gaming segment share may fall to 75.4% by FY28 from 83% in FY23, due to regulatory changes.

“I will not not shy away from sharing that we’ve been pushed back 18 to 24 months because of the changes. But the idea is that, in this new normal, we can expect the industry to grow between 20-30%,” Pandya said.

With regard to increasing engagement on the platform, the gaming company is focusing more on product innovation, to make it worth for users to play on the platform. Games 24×7 operates games such as RummyCircle and My11Circle. The company has been investing in its fantasy sports business to grow engagement.

My11Circle recently also outbid competitor Dream11 as the official partner of the upcoming Indian Premier League (IPL). The platform will be spending Rs 125 crore annually for a period of five years. “We feel very confident that even though we may have spent some money to get all these sponsorships. In the long run, it will help us,” Pandya said.

While Pandya did not share details about the company’s performance in FY23 and FY24, in FY22 Games 24×7 revenue fell 24.4% y-o-y to Rs 1,169 crore. The company’s losses stood at Rs 282 crore in FY22, compared to Rs 110 crore profit in FY21.

When asked about the company’s focus on growth at the expense of profitability, Pandya said, “the focus has always been on the bottom line but it doesn’t necessarily mean that you will be profitable every year.”

“It means that you are playing the right balancing act to make sure when is the time to accelerate to spend more money and when is the time to really conserve costs and focus on profitability,” Pandya added.

Under its corporate investment arm, Games 24×7 Ventures, the company is looking to invest Rs 400 crore in early-stage technology startups.

On the ticket size of these investments, Pandya said, “we’re open to writing small cheques between Rs 1-2 crore, but also larger cheques between Rs 10 and Rs 20 crore”.

The company is also currently contesting a case regarding retrospective GST demand from the government, in the Supreme Court. The government sent 71 notices to online gaming firms demanding retrospective GST of around Rs 1.12 trillion. Games 24×7 has got a tax notice to the tune of about Rs 20,000 crore, according to industry estimates.