Nazara Technologies Stock Research Report

Acquisition spree over, all eyes now on organic growth…..

Nazara was very active in the dealmaking space over H1FY25. The deals can be classified into three broad categories: 1) increasing its stake in subsidiaries (Nodwin, Kiddopia and Sportskeeda); 2) acquisitions to expand its geographical presence (Freaks4U, Fusebox, Stan, S&T etc); and 3) acquisitions to enter new business segments (Pokerbaazi, SoapCentral etc.). While Nazara’s strategic call to use equity to purchase assets at distressed valuations has been appreciated by investors, the next trigger for the stock hinges on organic growth delivery. In particular, Kidoppia’s subscriber growth and Nodwin Gaming’s profits improvement will be key monitorable. Investors will also closely track the performance of Pokerbaazi, which will not be consolidated but reported separately. Maintain BUY.

Q2FY25 performance

In Q2FY25, consol. revenue was INR 3.2bn, up 27.5% QoQ/7.3% YoY (2.9% below I-Sec est.). Consol. EBITDA was ~INR 252mn (up 1% QoQ/down 9.8% YoY) with margin at 7.9%. In Q2FY25, PAT (from continuing operations) was INR 162mn (down 31.2% QoQ/18.1% YoY). eSports business grew 5.7% YoY to INR 1.8bn, gaming business grew 9.3% YoY to INR 1.1bn while Adtech’s revenue grew ~7.1% YoY to INR 241mn. eSports’ EBITDA margin was 4.9% (vs. 5.8% in Q2FY24), gaming business’ EBITDA margin was 18.3% (vs. 20.9% in Q2FY24) and Adtech’s EBITDA margin was 7.5% in Q2FY25 (vs. 5.3% in Q2FY24).

Sportskeeda (SK)

SK’s revenue was at INR 459mn (up 10.9% YoY). EBITDA grew ~2.1% YoY to INR 98mn. Revenue and EBITDA growth was impacted by Google’s volatility, which affected traffic flow to the PFN site. Management believes this to be transient and expects revenue to recover in ensuing quarters.

Kiddopia

Kiddopia’s revenue declined 13.3% YoY to INR 488mn. Its subscriber base declined 18.9% YoY. Among other key operating metrics, ARPU has improved to USD 6.95 (from INR 6.92 in Q1FY25); churn has also reduced to 6.5% in Q2FY25, from 6.6% in Q1FY25.

Nodwin

Nodwin Gaming’s revenue was INR 1.4bn (up 4.3% YoY) in Q2FY25 with EBITDA loss of INR 9mn. However, revenue growth was 111% YoY (excluding revenue from Wings for Q2FY24). Excluding Freaks 4U Gaming, Nodwin’s revenue grew by 40% YoY Revenue growth was led by strong performance from Nodwin proprietary IPs and live events.

Animal Jam

Animal Jam reported revenue of INR 240mn in Q2FY25 (up 9.6% YoY). Metrics for retention, engagement and monetisation of users are healthy. EBITDA of INR 39mn (EBITDA margin of 16.3%).

Freemium

Freemium reported revenue of INR 285mn (428% YoY) due to consolidation of Fusebox, which contributed 66% of total revenue. EBITDA was INR 39mn in Q2FY25.

Ad-tech

Ad-tech revenue was at INR 241mn, up 7.1% YoY due to the shift away from lower margin business. EBITDA was INR 18mn in Q2FY25 (INR 14mn in Q2FY24). Management stated that the company continues to move away from lower-margin business.

M&A

Nazara has raised INR 9bn through a QIP to fund both organic and inorganic growth initiatives. Nazara has acquired an additional 48.42% stake in Paper Boat Apps (developer of Kiddopia), making it a fully owned subsidiary, for an aggregate consideration of INR 3bn. Has also increased its stake to 91% in Absolute Sports, the parent company of Sportskeeda. These moves align with Nazara’s strategy of consolidating its core gaming businesses under the parent entity, enabling fungible cash flows that can be utilised for future growth initiatives.

Has acquired 47.7% stake in PokerBaazi, dominant online poker platform for INR 8.3bn and has invested INR 1.5bn in convertible preference shares of Moonshine, which would convert into equity at a later stage. They have also acquired minority stake in esports community app called Stan for INR 184mn.

Additionally, through its 100%-owned step-down subsidiary, Datawrkz Operations UK Ltd, Nazara acquired Space & Time Media Limited (S&T) for INR 523mn. This acquisition allows Datawrkz to leverage S&T’s presence in the UK and European markets to expand its revenue opportunities by selling its products in these regions.

Management commentary

Management anticipates a strong performance in H2FY25, both in terms of revenue growth and margin expansion. On operations, management emphasised on the creation of Centres of Excellence (CoE) in key strategic areas such as data analytics, user acquisition, M&A, artificial intelligence (AI) and in back-office operations such as HR, compliance and finance. These initiatives are expected to foster knowledge sharing and drive cost optimisation and will likely be rolled out over the next 12 months.

Management views core gaming studios as a business with significant growth potential and aims to scale it on a large scale within India. They are actively exploring opportunities to acquire gaming studios and expand them further. The company’s new initiative of CoE is expected to aid in cost optimisation in this business. Management believes this segment has the potential to deliver high margins and generate strong cash flows.

Management is in advanced discussions to license and integrate popular global children’s intellectual properties (IPs) into Kiddopia’s platform, with a planned launch by Q1FY26. These IP integrations are expected to drive organic subscriber growth. Kiddopia is also focusing on global expansion, particularly in emerging markets like LATAM. To address the higher cost structure of Freaks 4U Gaming, which is Europebased, Nodwin plans to leverage its Indian and Turkish teams to reduce costs. Aims to achieve improved EBITDA margins in Nodwin business.

Management stated that PokerBaazi is growing ~30–40% YoY and expects its margin to expand as it scales up. Management anticipates this to become a highly cash generating business. Regarding the cost structure of RMG companies post GST implementation, management highlighted those costs have increased fourfold.

Valuation

We maintain our BUY rating on the stock with a target price of INR 1,080. Our target multiple stands at 37x FY26E EV/EBITDA (ex-minority). Key risks: 1) Increased competition/slowdown in US markets; and 2) inability to identify and integrate acquisitions.