Rakesh Jhunjhunwala-backed Nazara Technologies IPO opens tomorrow, should you subscribe?

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Ace investor Rakesh Jhunjhunwala-backed Nazara Technologies Ltd Rs 546.70 crore initial public offering (IPO) will hit the market tomorrow, March 17. The price band for the issue has been fixed at Rs 1,100-1,101 per share. Investors can bid for a minimum of 13 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,313 at the higher end of the price band. A retail investor can at max apply for 13 lots or 169 shares for 1,86,069.

The public offer comprises is a complete offer-for-sale (OFS) worth Rs 546.70 crore by promoters and existing shareholders.

Nazara Technologies is a leading India-based diversified gaming and sports media platform with a presence in India and globally. It has offerings across interactive gaming, eSports and gamified early learning ecosystems. The company owns some of the most recognizable IP, including WCC & CarromClash in mobile games, Kiddopia in gamified early learning, Nodwin & Sportskeeda in eSports and eSports media, and Halaplay Technologies Halaplay and Qunami in skill-based, fantasy & trivia games. Nazara was among the first entrants in India, in eSports through Nodwin and cricket simulation through Nextwave.

Grey market premium

In the grey market, shares of Nazara Technologies rose from Rs 1,756 last week to Rs 2,011, implying a premium of Rs 910 or 83% over the IPO price.

“A strong fancy may be seen in this counter as it will be the first gaming company to list in India. Such companies cannot be valued traditionally and will get premium valuations,” commented grey market tracker Abhay Doshi, Founder, UnlistedArena.com.

Brokerage view

Angel Broking – Subscribe “Nazara Technologies is present in the fast-growing segment of interactive gaming, eSports and gamified early learning solutions. After posting degrowth of 1.4% in FY2019 the company has posted strong revenue growth of 45.9% in FY2020 to Rs 247.5 crore. The company has already posted a revenue of Rs 200 crore. in H1FY2021. The company has been reporting losses as they have increased their spending significantly on advertising & promotion from FY2020 onwards which will help drive strong topline growth for the company. Advertising & promotion expenses which accounted for 16% of the company’s revenues in FY2019 has increased sharply to 53.7% of revenues in FY2020 and 59.7% of revenues in H1FY2021. At current levels, the stock is trading at EV/Sales of 11.6xFY20 revenues and we recommend a “SUBSCRIBE” rating to the IPO given strong growth potential for the company considering the vast potential offered by the gaming industry,” said Jyoti Roy, DVP – Equity Strategist at Angel Broking

BP Wealth – Subscribe “Nazara Technologies is one of the diversified mobile gaming companies in India that has a presence in developing and emerging global markets. The company’s IPO will be the first pure-play gaming company that would get listed on stock exchanges. On the valuation front, the company is valued at 12.7x EV/Sales based on FY20 numbers. Considering its leading position in the mobile gaming industry in India with a presence across emerging and developing countries and ongoing positive sentiments for new IPO’s in the current scenario. we believe a decent listing gain is possible,” stated the brokerage firm in a report.

Marwadi Shares and Finance – Subscribe “The company is going to list at an EV/Sales of 12.80X based on its FY20 revenue with a market cap of Rs 3,352.9 crore. As there are no listed peers in India so valuations cannot be compared on a relative basis. We recommend to “Subscribe” this IPO as it is a pure-play digital company and there is a rise in smartphone penetration and higher youth penetration towards gaming. Portfolio of premium intellectual property and content across regions and businesses are the key competitive strengths of the company,” noted the report.

SMC – Neutral “Company has negative earnings so valuation cannot be done on P/E basis. Moreover, as the company is a technology-based gaming company, the price to book value valuation parameter will not justify the valuation. Therefore, we are considering the P/S (Market cap to sales ratio) valuation of expected annualized sales FY21, on the upper end of the price band of Rs. 1101, the stock is priced at post issue, P/S of 8.36x on its market cap of Rs. 3352.86 and sales of Rs.400.91.

The company has a diversified presence across verticals, with gamified e-learning and e-sports accounting for the largest share of revenue in FY21. Given its market-first position in India across sports simulation and eSports, Nazara is well placed to leverage the opportunity that interactive mobile games, eSports content and gamified early learning apps offer. Along term investor may opt the issue,” the report said.

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