Jhunjhunwala’s gaming stock bleeds 45% in 4 months. Excessive pessimism?

Analysts largely hold a positive view on the stock and believe the recent fall was unwarranted.

“Nazara’s stock price has seen pressures from both macro factors like selloff in tech and micro factors like stagnating growth in existing verticals. However, we believe this is one of the better names in the tech space. The disruption shall be transitory. The stock price reflects excessive pessimism. We believe that the same shall turn around with sustained execution,” said B&K Securities. This brokerage suggests a target of Rs 3,241 on the stock.

Nazara’s consolidated profit fell 17 per cent to Rs 14.8 crore in December quarter but revenues at Rs 185.8 crore were up 42.48 per cent, which beat analysts estimates.

Ebitda increased 10.8 per cent YoY to Rs 30.30 crore, with a margin of 16.3 per cent. The company had reported a margin of 21 per cent in the year-ago quarter. Ebitda margins in the e-sports and Kiddopia verticals stood at at 22.1 per cent and 12.9 per cent, respectively, while RMG segment achieved Ebitda breakeven.

Prabhudas Lilladher said it has cut its sales forecast as focus is on scale and not profit maximisation, given the hypergrowth nature of the gaming industry. It has cut estimates by 9 per cent for FY23 and 13 per cent for FY24 as change in Apple’s privacy policy has stunted growth in Kiddopia — a net addition of mere 3,000 in last 2 quarters — making subscriber acquisition a challenging task in near term.

“Though Kiddopia is facing growth headwinds, e-sports is expected to grow at 39.4 per cent CAGR over FY22-FY24 backed by consolidation of OML. Further, revenue in RMG segment is also expected to rise 2.4 times over the next 2-years post-acquisition of OpenPlay. The growth story remains intact despite near term challenges,” the brokerage said.

This brokerage has a target of Rs 2,544 on Nazara.

The stock trades at EV/Ebitda of 19.5 times on FY24 Ebitda. Rising smartphone penetration, affordable internet data and improving payment ecosystem continue to support the growth of gaming companies in India, YES Securities said.

“We value the stock at revised EV/Ebitda multiple of 21 times on FY24 to arrive at target price of Rs 1,954 per share,” it said.

Manish Agarwal, Group CEO at Nazara Technologies, said his company witnessed 75 per cent year-on-year growth in the e-sports segment for nine months of FY22, led by strong growth in revenue across all sub-segments in Nodwin and SportsKeeda.

B&K Securities said Nazara is one of the better plays on Indian tech given its play on multiple verticals, profitability with market leadership and relatively reasonable valuations.

It values the stock at 5.4 times FY24 sales and has a target of Rs 3,241 on the stock.

Jhunjhunwala held 10.1 per cent stake in the company as of December 31. His holding was worth Rs 629 crore in Tuesday’s intraday trade.