Update on the Indian Equity Market:
On Tuesday, NIFTY settled lower at 16,125 (-0.6%). DIVISLAB (-6.0%), TECHM (-4.0%), and GRASIM (-3.9%) were the top losers. DRREDDY (+2.0%), HDFC (1.7%), and KOTAKBANK (+1.4%) were the gainers. Among the sectors, MEDIA (-2.6%), IT (-1.9%), and HEALTHCARE (-1.5%) led the losers. FINANCIAL SERVICES (+0.3%), and BANK (+0.1%) led the gainers.
Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Technologies with Economic times on 24th May 2022:
- The company’s revenue mix is an evolving pie chart as it is operating in 5 growth segments viz gamified learning / E-Sports / freemium / ad tech and skill-based real money gaming. All of these areas have a very large Target Audience Market and strong tailwinds based on organic growth momentum and inorganic velocity in different segments.
- Gamified learning was the largest segment in FY21 and now E-Sports is the largest segment in FY22 the company believes E-Sports has the potential to further evolve if mid-size M&A were to happen in skill-based real money gaming.
- The online gaming segment has been on the rise for a few years now. In 2020, this segment grew to Rs 79 billion and had a steady growth of 28% in 2021. Even with the lockdown being lifted, this sector has continued to show growth.
- The Online Gaming sector was valued at Rs 101 billion in 2021, according to an EY FICCI report. The number of esports players doubled from 3,00,000 in 2020 to 6,00,000 in 2021. Additionally, the number of online gamers grew by 8% from 360 million in 2020 to 390 million in 2021, and is expected to rise to 450 million by 2023. The gaming segment is expected to grow exponentially in all verticals including E-Sports for the company.
- The management expects the online gaming industry to reach 500 million gamers by 2025 and will become the fourth largest segment of India’s M&E sector. It is expected to reach Rs 153 billion at a CAGR of 15%. This growth is expected to be mainly driven by three things: NFTs, Metaverse, and esports.
- For the next few quarters – the management expects esports to continue to build on the momentum of Q4 and the opening of offline events and the growth of D2C biz with M&A of Wings and Planet Super Hero will be key drivers of growth for the company.
- The company is present in 5 of the most dominant consumer trends in gaming and will also participate in web 3 so besides this, the management doesn’t think there are any unexplored new opportunity segments. The management’s aim this year is to strengthen leadership in each of the segments that the company operates across emerging markets outside the Indian subcontinent.
Asset Multiplier Comments
- The online gaming sector is still an underpenetrated segment in India. With increasing internet accessibility and smartphone availability, India offers a largely untapped market in the online gaming segment, which has been accelerated by the pandemic and lockdowns.
- Being the market leader in this segment, Nazara Technologies is well poised to strengthen its leadership in the E-sports category for the medium term.
Consensus Estimate: (Source: market screener website)
- The closing price of Nazara Technologies was ₹ 1,200/- as of 24-May-2022. It traded at 28x/ 21x the consensus earnings estimate of ₹ 43/ 58/- per share for FY23E/FY24E respectively.
- The consensus target price of ₹ 1796 /- implies a P/E Multiple of 31x on the FY24E EPS estimate of ₹ 58/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”