Nazara Technologies shares drops by 12% after CLSA initiates coverage with ‘sell’ call

Rakesh Jhunjhunwala backed Nazara Technologies shares got dropped by 12 per cent on Friday global brokerage house CLSA initiated coverage on stock with a ‘sell’ call due to expensive valuation. It has set a target price of Rs.1,095 per share for the stock. The stock has witnessed a fall of nearly 12 per cent to its day’s low of Rs 1,463 per share.

As per CLSA, the valuation is expensive at 6x FY23 EV to sales and 29x EV to EBITDA. It further stated that the valuation is at 10-75 per cent premium when compared to global gaming peers.

CLSA assumes that the eSports section that accounts nearly 37 per cent of Nazara’s revenue is expected to come under pressure considering the intensified competition with JioGames, Dream11, MPL and Paytm First Games.

The firm further disclosed its first acquisition after the IPO. It confirmed that it has signed a binding term sheet to obtain a majority stake in Arrakis Tanitim Organizasyon Pazarlama (Publishme) for around Rs.20 crore.

In a BSE filing, it asserted that Nazara Tech is set to acquire around 69.82 per cent stake in Publishme to intensify its presence in the Middle East and Turkey. 

Publishme works with gaming publishers in Turkey and the MENA region. It is a full-service games marketing and publishing agency. Nazara services are already existing in India and across emerging and developed global markets namely, Africa and North America.

The filing stated, “With this acquisition, Nazara will expand its international footprints in the freemium segment.” It further stated that the main objective behind this is to build local execution capabilities cutting across key growth segments like, freemium, gamified learning and eSports.

On March 17, Nazara Technologies became the first Indian gaming company to go public with its initial public offering (IPO) launch. The IPO received a good response with the Rs 583 crore offer being subscribed for 175.46 times. Investor Jhunjhunwala is reported to posses around 32.92 lakh share in the firm aggregating to 10.8 per cent stake according to the shareholding pattern at the March quarter end.

The firm experienced an 84 per cent rise in consolidated revenue at Rs.454.2 crore for FY21 against Rs 247.5 crore in FY20 pushed by strong growth momentum in sections like gamified learning and e-sports . The firm put a consolidated profit of Rs.13.63 crore in FY21 against a loss of Rs.26.77 crore in the past year.

The company affirmed that in the Q4 it placed a consolidated profit of Rs.4.2 crore for the quarter that concluded in March 2021 against a loss of Rs.7.02 crore in the previous year. It further stated that the revenue in Q4FY21 increased by 41.7 per cent to Rs.123.38 crore when compared with the previous year.

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