Prabhudas Lilladher has given Buy recommendation for Nazara Technologies with a target price of Rs. 2342 in its research report issued on Sep 02, 2021
Prabhudas Lilladher’s research report on Nazara Technologies
We initiate coverage on Nazara Technologies with a ‘BUY’ rating as it 1) is a unique play on rising gaming culture, given Gen Z & millennials constitute ~65% of India’s population demographics 2) has an early mover advantage in evolving Esports category (organized 82% unique Esports events with 73% share in total prize pool as of 2019), that is likely to disrupt traditional sports landscape in next 4-5 years and 3) offers a direct play on emerging Ed-Tech market via Kiddopia. Nazara has created an enviable business model via selective acquisitions (buys stake in gaming companies and lets erstwhile promoters run the show) to ride on the expected gaming sector boom in India. We believe that a portfolio approach to gaming eliminates shelf life risks, as business model can be altered depending on technological advancements, innovations and changing taste of consumers. With net cash balance sheet of Rs4.8bn, Nazara has plans to expand its gaming portfolio inorganically which offers distinct option value, in our view.
Outlook
We expect revenue/EBITDA CAGR of 36%/49% over FY21-24E as key categories viz; Kiddopia, Esports and Freemium offer huge scalability in the long term. Recent acquisition of OpenPlay acts as an additional growth kicker, in an otherwise competitive Real Money Gaming (RMG) segment fraught with regulatory hurdles. Initiate with a ‘BUY’ and DCF based TP of Rs2,342.