Sid's Blog
IPO #8 : Nazara Technologies

IPO #8 : Nazara Technologies

Nazara Technologies - a diversified gaming company, is going to debut on the Indian exchanges very soon. On the final day, the issue was oversubscribed by 175 times - not surprising, since the Company is backed by Rakesh ‘Big Bull’ Jhunjhunwala.

The issue is a complete ‘Offer for Sale’ of INR 582 crore, with IIFL & the promoters offloading the majority of the shares.


Nazara was set up in 1999 by Nitish Mittersain - who was an avid gamer himself. For the first 6 years, the Company was really experimenting with mobile games - and it was in 2005 when they got their first big break.

They landed Sachin Tendulkar as a brand ambassador and they were developing several cricket gaming apps.

In 2009, data prices in India started to drop [relatively]. Internet penetration was picking up. Smartphones were becoming more accessible & a lot more people started playing mobile games.

Nazara introduced a subscription model to gaming, offering a pack of games at INR 99.

But, it was only a few years back that the Company started making aggressive moves. They bought Nodwin Gaming in 2018 [a player in e-Sports in India]. In 2019, they bought Paper Boats Apps Private Limited - a company which had developed a gamified learning app in North America called Kiddopia for children aged between 2-6 years.

We analyzed the Company based on several parameters & assigned a score to each parameter.

Parameter #1: Growth of the Industry [Score 8/10]

The Global Gaming industry was worth around $160B in FY2020. The Indian gaming market is expected to grow at a CAGR of 32.6% to become a $3.5B industry by 2023.

The penetration of gaming in India is still only 30% - so there’s a lot of room for growth.

Sub-categories like e-Sports, Fantasy Sports & e-Learning are also poised for strong growth in the future.

Cheap data, high internet penetration & rise in mobile gaming are some key drivers for this Industry. Mobile games like Fortnite, Clash of Clans & PUBG are making billions of dollars in revenue each year from ‘in app purchases’.

Gaming industry, might be one of the top 10 high growth industries out there - and Nazara finds itself in a sweet spot.

Parameter #2: Competition & Risks [Score 7/10]

Nazara doesn’t really have a pure play competition in India. There’s no listed player which is doing what Nazara is doing.

However, in each sub-segment - there are international & domestic competitors.

For eg. In the mobile gaming category, the Company faces competition from companies like Tencent, Microsoft, Sony, Epic Games to name a few.

In the e-Learning segment, the Company faces competition from players like AltSchool, CK12, Dreambox in the North American market. If it wants to venture in the Indian market - it will have to compete with players like BYJU’s and a host of other e-learning startups.

One of the risks for the Company, is the ‘Fantasy Sports’ segment - through which they derive less than 5% of total revenues - but the losses from this sector are pushing pressure on Consolidated EBITDA.

Parameter #3: Advantages of the Company [Score 8/10]

Nazara Technology has cornered the e-Sports market in India with more than 80% market share.

It has key partnerships with global players like ESL, Valve Corporation - which are big names in the e-Sports segment.

They have also started making strategic acquisition - to not be limited to just mobile games, with presence in e-Learning & Fantasy sports.

The diversified revenue mix, is one of the major advantages of the Company. It can bring consumers into different segments and cross sell their product/services.

Also, the fact that Rakesh Jhunjhunwala - is not selling a single share in the Company - shows that he has faith in the Company & that further increases the credibility it commands.

Parameter #4: Financials [Score 7/10]

The Company has a good cash reserve. There is no debt on the books.

They derive a good revenue mix from e-Sports (32%), e-Learning (39%) & Gaming subscription (21%).

The company has incurred losses for FY20 & H1FY21 - on the back of increased spending on advertisement & promotion expenses, to develop more brand awareness.

The next few quarters need to be tracked to see whether the Company can sustain the revenue growth witnessed in FY20 & H1FY21, in part helped by the pandemic.

Parameter #5: Valuations [Score 6/10]

Since the Company is incurring losses, there’s no P/E ratio to track. The adequate valuation parameter therefore would be EV/Sales. [Enterprise Value/Sales]

At the issue price of INR 1101, Nazara is trading at a EV/Sales of 12.7 times - which is quite expensive since the Company is yet to prove itself.

However, if Nazara can grow at a tremendous pace in the next 5 years, and capture the growth in the Indian gaming industry - that ratio could drop substantially & the valuation might be justified.


The future potential for Nazara looks really good - given that it’s operating in a high growth industry. Can it sustain the growth? Will the acquisitions pay off? Will it be able to fend off the Competition?

Those are the questions, you need to keep in mind - if you’re entering this Company for the long term.

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