After raising about Rs 510 crore from Zerodha co-founder Nikhil Kamath and SBI Mutual Fund, Mumbai-based Nazara Technologies is now open to look at large-size mergers and acquisitions (M&A) deals in the gaming sector, the company’s chief operating officer Sudhir Kamath told Fe in an interaction.
With the recent fundraise, cash in the company’s books now stands at Rs 1,300 crore, which gives it room to go for larger deals as well with companies having valuation upwards of Rs 100-200 crore.
“Historically, the company has been acquiring majority stakes largely in companies with Rs 100-200 crore valuation. Now, we are also looking at larger-size deals with more capital on our books after the placement,” Kamath said.
Nazara, which is a diversified gaming and sports media platform, also operates on a model wherein it acquires fast growing gaming businesses and then scales them up into higher revenue generating businesses for the company. As on March 31, 2023, Nazara group has invested in about 25 companies, according to the company’s annual report.
“The pipeline (of potential M&A deals) is very strong, we are looking at games in all our three segments – gaming, eSports, and adtech,” Kamath said, adding that the company typically looks for a majority stake of about 51% to have control in the board and prefers founders and promoters of the acquired company to continue in the business.
Lately, the company also announced Nazara Publishing, to provide capital and services to assist developers in bringing quality games to the growing consumer base. The company will provide a support of minimum of Rs 1 crore per game and plans to roll out up to 20 games within the next 18 months.
In the real-money gaming sector also, Nazara is open to look at acquisitions as the company said it has more clarity on the regulatory structure in terms of tax deducted at source (TDS), and goods and services tax (GST), etc. “We are in discussions with companies in the real-money gaming as well, right now. The discussions are being done to arrive at a fair price of the deal at present keeping in mind the retrospective taxation issues and prospective changes in GST (if any after six months review),” Kamath said.
“There is still an interest from investors in the real-money segment. The valuations, have changed quite a lot. People were earlier looking at much higher multiple earlier compared to now,” Kamath said, adding that a smaller company with this kind of GST structure will not be able to survive, and therefore consolidation will happen.
For Nazara, the real-money gaming segment accounts for nearly 5% of the revenue with Classic Rummy game, and therefore, the 28% GST tax notification will not have a significant impact on the company, Kamath said.
In the first half of the current financial year, the company’s revenue from the segment fell 4.5% YoY to Rs 25.2 crore. The Ebitda in the segment too fell to Rs 3.3 crore, from Rs 5.6 crore.
“Due to the implementation of new GST taxation from October 1, 2023 we expect Classic Rummy to post an Ebitda loss in Q3 FY2024 before stabilising to break even by Q4 FY2024 again,” the company said in its July-September investors’ presentation.
Lately, companies in the segment have been absorbing the GST rate hikes, taking a hit on the profit margins. “I think in the overall industry we will see mostly firms will end up breaking even, at least at a scale. The smaller players will struggle but the medium to large players will be breaking even, and might be profitable as well going further, and without passing on the GST burden,” Kamath added.
In the first half of FY2024, Nazara reported a 13.3% YoY increase in revenue to Rs 551.7 crore. The company’s net profit rose 42% to Rs 45 crore.