3-month recap: Nazara Tech
GST @28% | BGMI unbanned | Nodwin funding round | Goa and more...
If you have been following me for a while, you must have sensed my love for one of my top-holding Nazara Technologies. Though a sense of affection brings bias, which you as a reader must keep in the back of your mind, here is my 3rd blog note on this ‘Gaming VC’ named Nazara. Even though the valuations aren’t as attractive as they were when Nazara was previously covered, we continue to hold on to our shares despite the recent run-up in the last 3 months.
Why do markets act irrationally?
What pushed me to write this blog today is how a news flow affected Nazara’s share price. On 11th July, post-market hours, the government’s GST cabinet outcome came out which taxed real money gaming involving both skill-based/luck-based games wherein you put in some money first to play for a reward at 28% GST. Firstly, this is not coming out of the blues. This decision was pending since many previous GST meetings, regarding taxing it at 18% or 28%, with the governement always signaling they want that 28% to be charged without any confusion. And it finally came as the news article shows:
Before coming to the impact of this news on Nazara’s share price the next day, one must know that real-money gaming (regarding which the 28% GST has been applied) contributes only ~5% of its total revenues. This is also right that Nazara’s management has always been looking for acquisition opportunities in the real-money gaming space as per recent conference call post results. And why not, this space is quite interesting to be in. With IPL’s ever-growing popularity in this cricket-loving nation, year after year, companies like Dream 11, MPL, etc. have broken many global records during the months when tournaments are happening. Even Ashneer Grover’s 3rd Unicorn too is focused on this space.
For Nazara, whose revenue grew over 75%+ in FY23 year over year, a negative regulatory ruling which was on expected lines and affected only its 5% of revenues shouldn’t be a big deal, right? But no, the market gave a different answer to you at 9:15 am when it opened ~14% down🔻. This happened despite Nazara putting out notices on exchanges including BSE, informing markets at ~8 am that the impact would be negligible of this ruling on their business and its founder and CEO Nitish coming on popular channels to clarify the situation before the market opened.
Have a look at this chart. What you see on the chart is a ~16% swing in the market cap of the only listed gaming company in India because of misinterpretation/ misunderstanding of the potential impact of a ruling which was very much on expected lines. The share finally closed at ~Rs 690, which is a healthy ~13% up move from Rs 610 where it opened.
This move in stock surprised me a lot, and probably we can blame it on the company being a small market cap, market perception of what the company does, or maybe something else led to this knee-jerk reaction which we aren’t aware of.
Esports suddenly got a new life, what next?
On 19th May 2023, the IT Ministry removed the ban on BGMI for 3 months after it complied with non-linkage with China for data protection and other safety. Credits should be given to the owner of the game, Krafton, which had been putting in a lot of effort before in convincing the government, and now in ensuring that the old charm of the game comes back along with ensuring that the expectations of the government are met successfully and BGMI turns out to be a win-win for all stakeholders.
Coming to Nodwin Gaming, India’s largest esports tournament organizer in which Nazara Tech owns about ~53% stake. A day before the government removed the ban on BGMI, Nodwin had a fundraising of $28Mn from existing & new investors including South Korean digital games developer Krafton, Japanese conglomerate Sony Group, and its own parent Nazara, valuing it at ~$350Mn.
Let’s talk tournaments! Last year just before the BGMI(formerly PUBG) got banned, Nodwin organized the first-ever esports event which got telecasted on Star Sports and was a super hit event. Post the upliftment of the ban, Nodwin quickly came out with BGMI Champions Cup tournament having a prize money of Rs 25 lacs. Up next, a mega event is rumored to happen outside India(maybe), in a new arena; as an all-star event. Any sort of official details regarding the sponsors, media players involved, and location are officially yet to be out. If it turns out to be a success, this can be a big money machine for Nodwin in the short term as the audience is eagerly awaiting something along the lines of what happened last year. With experience from last year’s event at Star Sports, Nodwin’s founder Akshat can surely negotiate better deals this time around. And as the craze of esports returns, Nodwin can cross-sell its gaming accessories brand Wings (where it owns 35%+) which has been growing crazy over the last year.
Someone is enjoying Goa
Sportskeeda, another esports subsidiary of Nazara, had their offsite this June, and here’s a picture of the team shared by its CEO Ajay Pratap Singh over LinkedIn.
On the business front, post the busy season of IPL till May, action now can be seen in their US subsidiary named Pro Football Network which they acquired recently and has been hiring aggressively in the last few months.
No major update on the rest of its subsidiaries in the last few months. Kiddopia did get featured on the Apple developer page post the meeting of Kiddopia founder with the CEO of Apple.
One Negative
In a recent happening where the shareholders were voting to approve the ESOP plan (allotting shares to employees for free/very low cost) for Nazara Tech, about 32% of Public Institutional shareholders voted against its ESOP allotment plan. This isn’t a big red flag as such, since a single big investor might have distorted the stats, but shall be keeping an eye on how the voting for future shareholding approvals is panning out.
That’s it for today! Hope you enjoyed our analysis!
Note/Disclaimers: Nazara Tech is a high-risk investment. Our bias is involved due to ownership in personal and client portfolios. This blog isn’t investment advice but rather written from research motive only; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the Decision maker is responsible for any outcome.