CLSA gives ‘sell’ rating to Rakesh Jhunjhunwala’s gaming bet

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Shares of Rakesh Jhunjhunwala-backed Nazara Technologies plunged as much as 12% to Rs 1,461.95 apiece on Friday as CLSA initiated coverage on the company with a sell rating. The brokerage firm has set a price target of Rs 1,095 for the company implying a discount of 28% from its prevailing market of Rs 1,526.85 (down 8.15% at 12:10 pm).

“Nazara’s balance sheet has net cash of Rs 480 crore in FY21, but promoter ownership is low at 21%. Compounded annual growth rate of 35-73% by FY24, but with consolidated revenue of Rs 850-1108.5 crore and earnings before interest tax depreciation and amortization at Rs 169-234 crore by FY24, stock valuation is expensive at 6x FY23 enterprise value to sales and 29x enterprise value to earnings before interest tax depreciation and amortization. As India’s first listed gaming company, Nazara carries a hefty scarcity premium of 3x to CLSA’s India coverage and ~10-75% even to global gaming peers,” said the brokerage firm in the report.

Intensifying competition

Nazara has led with partnerships like ESL and Nodwin/Krafton and sponsors like Airtel for a PUBG mobile tour. However, sector competition will intensify. Jio Games in a tie-up with MediaTek launched Gaming Masters eSports event and is partnering to bring Microsoft xCloud to India. Competition from other top players includes MPL’s skill-based eSports platform, Paytm First Games and Dream 11, which is backed by Tencent and owns a stake in PUBG, added the report.

New acquisition

In other developments, Nazara Tech said it will acquire around 69.82% stake in Publishme to strengthen its presence in the Middle East and Turkey.

Publishme is a full-service games marketing and publishing agency that works extensively with gaming publishers in Turkey and the MENA region.

Nazara’s offerings are already present in India and across emerging and developed global markets such as Africa and North America.

“With this acquisition, Nazara will expand its international footprint in the freemium segment. Nazara will aim to build local execution capabilities cutting across key growth segments namely, freemium, gamified learning and esports,” the filing added.

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