A Jhunjhunwala-owned stock in bear market may be best bet for 2022

Much of the correction in the stock has been attributed to profit-booking by investors and cautiousness towards richly valued technology stocks in the backdrop of rising interest rates and tightening liquidity conditions.

That said, brokerage firm B&K Securities believes that Nazara Technologies should be among the top bets for investors in 2022 given the unique opportunity it provides to play the e-gaming revolution in India.

The brokerage firm has initiated coverage on the stock with a buy rating and a price target of Rs 3,287, implying expected returns of close to 44 per cent over the next 12 months.

“Market leadership positions across verticals shall enable robust revenue growth over the next decade as the gaming ecosystem continues to evolve,” said B&K Securities analyst Deep Shah in a note.

Shah believes that the company’s eSports vertical will become a transformative force in the coming years as it exploits its market leadership.

The strength of the eSports business and its leadership positions allows ascribing rich valuations, further supported by exponential growth, Shah said.

Nazara Tech originally started operations as an aggregator of games that business has steadily entered a decline due to the advent of fourth-generation telecommunication. The company in recent years has focused on acquisition in various businesses but the game-changer has been the buyout of Nodwin Games in 2017-18.

eSports is still a nascent industry not only in India but globally but is considered to be a major industry in the future especially as humans transition towards the Metaverse in the coming decades. The success of games like Fortnite and platforms like Roblox has accelerated investor interest in this sector. Globally, the industry stood at $780 million in 2018, which is expected to rise to $1.6 billion by 2023.

B&K Securities also sees potential in Nazara Tech’s real money gaming operations which provide optionality especially if the software-as-service model is well-executed. The brokerage firm believes that Nazara Tech’s acquisition of OpenPlay Technologies could signal the beginning of a new dawn in the real money gaming vertical.

Given the robust growth visibility and absolute domination of Nazara, B&K Securities has ascribed 16 times FY24 sales valuation to the stock.