Nazara Technologies shares have been volatile for the last couple of weeks after the GST council approved a levy of 28% on the full value of real money games. Following this decision on July 12, the stock witnessed a decline of 9.5% over the subsequent 10 trading sessions.
However, the company said once the tax is implemented, it will apply only to the skill-based real-money gaming segment of its business, which contributed 5.2% of company revenues in FY23. Meanwhile, from its July lows of ₹606.45, the stock bounced back strongly, and currently, it is up by nearly 16%.
The company on Friday reported a 14% YoY (12% QoQ fall) surge in revenues to ₹254.4 crore.
The revenue from its gaming business segment reported growth of 24% YoY to ₹109.5 crore. The revenue growth from its eSports business came in at ₹117.8 crore, an increase of 15% YoY, while the Adtech revenue witnessed a 16% YoY decline to ₹27.1 crore.
During the quarter, revenue from its real-money gaming business contributed only 4.7% to the company's revenue and 0.5% of its EBITDA. Within the gaming business segment, Kiddopia's revenues increased 10% YoY, and the EBITDA margin increased from 18.4% to 28.0% YoY in Q1FY24.
In Q1, the company's operating profit grew 10% YoY to ₹33 crore, while the EBITDA margin expanded by 340 basis points (QoQ) to 13%. The profit after tax improved by 31% YoY and 122% QoQ to ₹20.9 crore.
Brokerages remain bullish on the stock
Following the Q1 performance, brokerage firm ICICI Securities maintained a 'buy' rating on Nazara Tech, citing the company's strong revenue growth trajectory in the e-Sports business and gradual profitability improvement in GEL.
The brokerage sets a target price of ₹850 on the stock, with a target multiple of 32x FY25E EV/EBITDA (ex-minority). However, the brokerage also highlighted the key risks, which include rising competition in US markets and an inability to identify and integrate acquisitions.
Global brokerage firm Jefferies also maintained a 'buy' call on the stock with a target price of ₹810 apiece. Jefferies has adjusted its FY24–26 revenue and EBITDA estimates by 4–9% to reflect Q1 results and the weak ad-tech segment.
The brokerage raised its target multiples for Kiddopia and Sportskeeda to reflect a better margin and growth outlook. Additionally, the target multiple for Nodwin has increased due to improved growth visibility, bringing the valuation closer to that of the recent capital raise.
Jefferies anticipates a 21% revenue CAGR and 34% EBITDA CAGR for Nazara Tech over FY23–26.
Prabhudas Lilladher has increased its EBITDA estimates for FY24E and FY25E due to strong performances in Kiddopia and Animal Jam, expecting a recovery in the Nodwin business.
Despite some ongoing challenges in Ad-Tech (loss of a large client), Kiddopia (stagnant subscriber base), and Real Money Gaming (GST levy of 28% on full bet value), the return of BGMI and strong traction in SportsKeeda, according to brokerage, are likely to drive a sales/EBITDA CAGR of 20%–39% over FY23–FY25E.
Nazara has a healthy cash balance of ₹6.2 billion as of FY23, and Nodwin raised an additional ₹2.3 billion in May 2023. With plans to raise another ₹7.5 billion in the near future, the cash reserves provide a growth capital for potential expansion through acquisitions, it said.
The brokerage believes the cash ammunition will act as growth capital to expand inorganically from hereon. It retained its 'buy' rating on the stock with a DCF-based price target of ₹834 from earlier TP of ₹804.
10 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
