Stock To Buy: Brokerage Bets On This Online Gaming Stock For Massive 193% Gains

Stock Outlook

On Friday, the stock of Nazara Technologies witnessed a heavy decline of 40.50% from its previous close ending at the Current Market Price (CMP) of Rs 619.85 per share. On Friday, it was opened at Rs 576 per share, while the previous close on Thursday was Rs 1,041.80 per share. Stock's 52-week low is Rs 475.05 per share, recorded on June 22, 2022, and the 52-week high is Rs 1,678 per share, recorded on October 11, 2021. 

The stock has a potential gain of 193% over the brokerage's suggested investing period of 12 months, based on the CMP and the predicted Target Price.

BGMI IP expected to be profitable in 1st year itself

Nodwin Gaming, a subsidiary of Nazara, has tied up with Star Sports to live telecast BGMI Master Series for the first time on Indian TV. Tournament will be aired from 24th June-17th July during prime time for 2-3 hours.

ESports tournaments are typically broadcast on OTT platforms. For instance, Nazara has tie-up with HotStar, Viacom and YouTube to broadcast ESports events. However, this is the first time that an event will be live telecast on linear TV in partnership with Star Sports. Digital rights are with Glance while highlights of the event can be accessed on LOCO. Swiggy and Spotify have been roped in as partners.

Management highlighted that production cost of the event would range between Rs150-200mn and the IP is expected to be profitable in first year itself. We believe TV broadcasting will not only increase popularity of ESports as the medium has wide reach but also boost the media rights licensing revenue of Nazara.

Incremental spends on Kiddopia curtailed

Kiddopia ad-spends in May and June 2022 were set to rise from US$800K per month to ~US$1.5-1.6mn per month. Incremental spend of ~US$400K~/US$300-400K was earmarked for YouTube/brand building respectively. However, of the US$400K earmarked for YouTube, Nazara expended just US$100K as LTV/CAC went beyond guard rate and thus incremental spends have been curtailed. Even the brand building exercise which was conducted for ~15-20 days did not yield desired results and hence fresh spends have been paused.

ESports guidance intact

Incremental revenue upside of Rs600-700mn (more or less in-line with earlier guidance) from off-line events in ESports is intact. Of this, ~Rs400-500mn will be from OML IPs. Even after excluding offline events revenue, management expects 50% growth in ESports business in FY23E.

Regulatory clarification to drive M&A in real money gaming (RMG)

RMG segment is witnessing steady growth since OpenPlay acquisition and monthly revenue run-rate has increased from ~Rs35mn to ~Rs50mn. Moreover, in near term, Nazara plans to integrate HalaPlay into OpenPlay's platform (by July-August) so as to draw benefits from network effect. Management is not averse to M&A in this segment provided regulatory risks wade off. Lack of framework for online skill based gaming and uncertainty surrounding GST rate is acting as a hindrance for sustained growth in RMG segment.

Valuation

Prabhudas Lilladher said, "Overall, we have increased our EPS estimates by 2-3% and expect sales/PAT CAGR of 35%/54% respectively over FY22-24E. Though growth challenge in Kiddopia persists, Esports is likely to emerge as key growth lever as TV broadcasting during prime time will help increase viewership and popularity multi-fold in future. Retain BUY with a DCF based TP of Rs1,813 (earlier Rs1,747)."

About - Nazara Technologies Ltd

Nazara Technologies is the leading India-based diversified gaming and sports media platform with a presence in India and across emerging and developed global markets such as Africa and North America, and offerings across the interactive gaming, eSports and gamified early learning ecosystems.