Nazara Technologies

Stock Opportunities
20

First of all thanks @GARP_niveshak for your extensive coverage in this thread as well as your video in youtube on this topic. I also found the below analysis from Prabhudas Lilladher very useful. Most of the screen-shots I used in this analysis are from the below pdf from PL.

Here is my analysis of Nazara Technologies

Gaming Theme
Nazara technologies is a gaming company is started in 1999 by Nitish Mittersain.
It is one of the early movers in the nascent gaming industry in India and it understood the economics of gaming industry from early 2000s.Their tie-ups with Telcos across different geographies in its early days and able to withstand in this highly disrupted industry is worth mentioning.Nazara is a big contributor to the gaming ecosystem in India with its presence across different business segments.

Gaming is a highly disruptive industry and the revenues can suddenly perish. The management understands this and started building the “Friends of Nazara” network from 2015.
This way it mitigates the risk of disruption in single games by diversifying into multiple games which are run by its respective owners/creators. This is similar to the Airbnb business model but not completely asset light as Nazara has a majority stake in each of the network companies.

From what I understand, Nazara majorly intends to position itself as a platform for

  • Game publishers(developers) to scaling up their revenues/downloads – Ex – Paper Boat Apps(Kiddopia), OpenPlay etc
  • High profile gamers in Esports contests via Nodwin Games & Esports followers via SportsKeeda website

Pros

  1. Sunrise sector - Early mover advantage & Low penetration in India

  2. Listing benefits and also scarcity premium as it is the only gaming company listed in India

  3. Games are addictive and the revenue can be huge if there are multiple successful games like Kiddopia. The room for margin expansion is too huge

  4. Scalable & network moat in some of the segments – Esports, Sportskeeda

  5. Nodwin gaming(subsidiary) which conducts Esports has prominent shareholders including the likes of PUBG owners(Krafton)

  6. Ability to scale up quickly. This is one of their key success criteria for their business model. As long as it works, Nazara will be on the path of growth trajectory

  7. Localised gaming experience – the company has trademarks for super hero characters like chota bheem etc which are very much in demand

Cons

  1. Less promoter holding – Prone to takeover

  2. Equity dilution as Nazara is actively looking for inorganic growth

  3. Highly disruptive industry – Also includes big local players like BYJUs,Vedantu,Unacademy as competitors in some segments(gamified early learning) and many international players, some of which are not subscription based

  4. Global competition and with Covid, more digital penetration is being witnessed from big fishes with deep pockets who were traditionally into land based casino businesses

  5. The success criteria is majorly defined by how to hold multiple partners together. There are many lose ends here

  6. Regulatory hurdles & litigations possible especially with real money games & freemium(social casino) games

  7. You cannot value this company using traditional metrics as their business model is kind of dependent on inorganic growth and how efficiently they can scale up

The game actually started changing into a fast lane after the advent of new CEO Manish Agarwal(IIM Ahmedabad) in 2015, who is also into gaming industry.

As part of their growth plans, they approached Rakesh Jhunjhunwala in 2018 and secured 180 Cr funding for ~11 percent holding
Nice video on how & why Mr. Jhunjhunwala invested in Nazara How did Nazara Tech Get Rakesh Jhunjhunwala To Invest In A Startup? | Startup Central - YouTube
To further expand their growth ambitions, they listed the company in 2021 however, they did not dilute their equity which means they are not interested in further equity dilution

I will be tracking the below activities to decide my position size in Nazara

  1. Acquisitions
  2. Stock holding pattern of Mr. Jhunjhunwala & the promoter as they will be the first people to know about visibility of hyper growth if any

Disclosure – Invested 1% of portfolio. Closely tracking

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