Rakesh Jhunjhunwala-backed Nazara Tech IPO oversubscribed; grey market premium doubles the issue price

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Updated: Mar 17, 2021 7:06 PM

Interest in the shares of the company was strong even in the grey market as premium climbed further to nearly double the IPO price.

Nazara Technologies ipoNazara Technologies IPO was subscribed 8.65 times by retail investors within the first three hours.

True to the heightened investor interest in initial public offerings (IPO), Rakesh Jhunjhunwala-backed Nazara Technologies’ issue was oversubscribed within hours on the very first day. Nazara Technologies IPO received bids for 2.32 times the issue with retail and non-institutional investors oversubscribing their portion. Interest in the shares of the company was strong even in the grey market as premium climbed further to nearly double the IPO price. The diversified gaming and sports media platform is looking to raise Rs 582 crore through the issue which is an offer for sale (OFS) by existing investors of the company. Nazara Technologies will not generate any funds through the IPO.

Subscription update

Retail investors have been rushing to subscribe to IPOs this fiscal and the story has not changed. Nazara Technologies IPO was subscribed 8.65 times by retail investors within the first three hours of the subscription window opening. Non-institutional investors (NII) have also not shied away, subscribing to the issue over 2 times so far. Employees of the firm, who have the option to subscribe to the IPO after a Rs 110 per share discount, have bid for 85% of the quota reserved for them. Qualified Institutional Buyers (QIB) were not eager to rush their bids, subscribing only 37% of their portion so far.

Grey market premium soars

Nazara Technologies shares are being offered in the price band of Rs 1,100 to Rs 1,101 per share and investors can bid for shares in a lot size of 13 shares. However, shares in the grey market were at a significant premium. “Nazara Technologies is quoting a strong premium in the grey market right now. The stock is running at a premium of Rs 990-995 per share,” said Abhay Doshi, Founder, UnlistedArena.com, dealing in Pre-IPO & Unlisted Shares. He added that the trend for Nazara Technologies shares has been strong and the premium has only increased as the issue opened today.

On the financial side, Nazara Technologies revenue has grown from Rs 172 crore in the financial year 2018 to Rs 247.5 crore in the previous financial year. However, net profit has gone from Rs 36.7 crore to Rs 26.6 crore during the same period. “Over FY18-20, Nazara’s revenue grew at 20% CAGR, while in 9MFY21 it achieved ~81% of FY20 revenue. EBITDA however went negative in FY20, as the company reduced its dependence on the high margin telco subscription segment to 21% of revenue in order to diversify and expand in fast emerging segments,” brokerage firm Motilal Oswal said in a note. 

“We believe that the market would like to give premium valuation to emerging growth stories like mobile gaming,” the brokerage firm said while adding that the issue is valued at 5.5x FY21 P/BV and 7.6x FY21 EV/Sales on an annualized and post-issue basis. At the upper end of the price band, Geojit Financial Services values the company at EV/Sales of 8.5x based on H1FY21 (annualized numbers) which is on the higher side. But the premium valuation is likely to be supported by the high scalability of new digital business, Geojit said. Both Motilal Oswal and Geojit Financial Services have a ‘subscribe’ rating to the IPO.

Owing to Nazara Tech’s market leadership status, strong topline growth, and robust outlook investors who wish to take exposure to an under-penetrated Indian gaming and global gamified early learning market could consider investing in this issue, INDmoney said in a report.

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