ICICI Securities has initiated coverage on Nazara Technologies with a buy rating and a one year target price (TP) of Rs 700, implying a 44 percent upside potential over March 20 closing price of Rs 487.
“We initiate coverage on Nazara Technologies with a ‘buy’ rating, given visibility of strong revenue growth in eSports and gradual profitability improvement in gamified early learning (GEL),” the brokerage said in the report.
The gaming and e-sports platform recently made news after it announced two of its subsidiaries, Kiddopia and Mediawrkz, held cash balances of Rs 64 crore in the collapsed Silicon Valley Bank. The company has since been given unrestricted access to the entire amount, of which Rs 60 crore has been transferred to bank accounts outside of SVB.
The stock has corrected around 70 percent from its peak (of Rs 1,601) and is now trading at its all-time low of Rs 486, the brokerage said.
It sees strong revenue outlook in the company’s e-sports segment and expects it to grow at 45 percent on-year in FY24, led by growth in NODWIN Gaming and Sportkeeda. “Margin outlook is also positive as we expect scale efficiencies to accrue from the new IPs created in FY23 and gaming accessories business,” it said.
On its GEL Segment, the brokerage sees signs of stabilisation, with Kiddopia witnessing subscriber addition at 4 percent on-quarter in Q3FY23 for the first time since Q4FY21 adding that increased subscription charges are unlikely to impact it given it is favourably positioned 20-30 percent cheaper than competitors.
“We believe headline operating margins in the segment have now bottomed out (4.9 percent in Q3FY23 vs 10 percent in Q3FY22). We estimate sequential improvement hereon,” adding GEL EBITDA margin will likely stabilise at 22 percent by FY27.
Other segments, including ad-tech business, are expected to grow in the medium term given the current fast growing market with few entrenched players and is expected to contribute 17-18 percent of revenues and 19-20 percent of operating profits by FY25/26.
In freemium gaming, revenue growth is assumed at 20-25 percent CAGR for the medium term given low visibility on ad-revenue trajectory overall and already high operating margins.
“We expect limited action on RMG (Real Money gaming) until more clarity emerges on the regulatory front. However, a favourable regulation on RMG could trigger acquisitions in the space,” it said.
At 12.46pm, the scrip was trading 0.33 percent higher on the NSE at Rs 487.50, while the benchmark Nifty IT was down 0.77 percent at 28,223.15 points.