This Software Co.'s Revenue Grew 70% YoY, Stocks Surged 33.14% In 1 Month, Buy For 34% Gains

Nazara Technologies in Prabhudas Lillader's recent report published on August 1, gets buy call for a target price of Rs 911 apiece. Nazara Technologies is a small cap software company. Last year the company made its debut on the stock exchange. Considering the stock's current market price and the estimated target price, stocks could surge and deliver gains of 34% in 12 months. Targeting 50%+ top-line growth with an EBITDA margin of 12-13% in FY23E.

Stock Outlook & Returns

The current market price of the stock is Rs 683.55 apiece, opened at Rs 695.95 apiece, trading 2.71% below the previous close. Yesterday, the stocks of the company closed at Rs 702.60 apiece.

The current market price is trading at Rs 208.5 above its 52 week low which the company hit on 22 June 2022 at Rs 276.90 apiece. On the other hand, its 52 week low was recorded last year in October at Rs 1678 apiece.

Over the week, the shares of the company gained 32.49%. Whereas, in the past 1 month, the stocks moved up by 4.99%. In the past 1 year, the share price has fallen 28.08%. Nazara Technologies got listed last year in March on the stock exchange, and since then its stock has fallen 14.37%.

Revenue & EBITDA

Revenue increased 70% YoY: Revenue increased 70% YoY to Rs2,231mn. Kiddopia revenue growth was stunted at 0.8% YoY to Rs525mn while E-sports revenue was up 92.3% YoY to Rs1,023mn.

EBITDA margin at 13.5%: EBITDA remained flat YoY at Rs301mn (PLe Rs269mn) with a margin of 13.5% vis-a-vis 22.9% in 1QFY22. PAT increased 117% YoY to Rs115mn with a margin of 5.2%.

Con-call highlights

1. Datawrkz's EBITDA margin is expected to be in the range of 10-12%.
2. Kiddopia's blended ARPU for new/total subscribers is US$8.4/US$6.7 respectively.
3. US$0.9-1mn per month will be spent towards performance marketing in Kiddopia.
4. Kiddopia's CPT to stabilize at US$38-39 while LTV/CAC to be 2x or higher.
5. Nodwin's top-line growth expectation of 50%+ to remain intact in FY23E despite ban on BGMI as IPs planned for the year were exclusive of it.
6. Nodwin's EBITDA margin to be at 5-6% in FY23E.
7. Revenue run-rate of Wings accessories has improved to Rs35mn per month and has achieved EBITDA breakeven post-acquisition. The yearly run rate will improve from Rs220mn to Rs700mn in FY23E.
8. Within SportsKeeda, the strategy is to add new sports catering to the US markets as US ad-inventory yields are 6x more than India.
9. Two personnel have been hired to explore M&A opportunities in Freemium, Kiddopia and SportsKeeda.

KPIs stabilize in Kiddopia; concerns subside, Buy for Rs 911 apiece

Nazara reported decent set of numbers with a topline beat of 7.9% and an EBITDA margin of 13.5% which was partially impacted by continued investments to fund growth initiatives of Nodwin. Nonetheless, key highlight was stabilization in unit economics (LTV/CAC of 2x) of Kiddopia after taking a price hike of 13% in June. "We believe further headroom exists as Kiddopia's monthly subscription plan of US$8.99 is still at a discount to other players. Further, even on Esports front performance was encouraging with 11.7% sequential growth in top-line despite seasonality effect (typically more events accrue in 2H). However, scaling in Freemium business remains sub-par while RMG segment is under the web of regulatory uncertainty restricting further investments, albeit temporarily," the brokerage has said.

It added, "We have increased our sales estimates by 2%/6% for FY23/FY24 respectively as we fine tune our assumptions for Esports and DataWrkz. Overall, we expect revenue/PAT CAGR of 39%/58% respectively over FY22-24E and believe the growth story remains intact as Nazara's portfolio approach to gaming not only diversifies unforeseen risks (Apple's privacy policy or regulatory uncertainty surrounding RMG) but also creates additional growth levers via inorganic route. Consequently, we retain our BUY rating with a DCF based Target Price of Rs 911. The stock currently trades at EV/sales multiple of 3.6x/2.8x over our FY23/FY24 estimates and provides a good entry point given valuation is now more in sync with global peers (see exhibit 7 for more details) despite better growth prospects."

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lillader'. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.