rakesh jhunjhunwala: Nazara IPO: Should you bet on this Rakesh Jhunjhunwala-backed firm?
On the block is an offer for share (OFS) of 5.29 million shares in the Rs 1,100-1,101 per share price band, representing 16.7 per cent stake in the company. At the upper limit of the price band, the issue will garner Rs 582.91 crore.
IIFL is partially exiting the venture, selling 14 per cent stake in the company, out of its overall holding of over 21 per cent. The promoters — who own over 22.5 per cent stake — will offload 2.25 per cent stake, and hold the remaining 20 per cent.
Rakesh Jhunjhunwala, who is one of the largest shareholders with 10.8 per cent stake, has decided to stay invested.
“It will be the first pureplay gaming company to go public. On the valuation front, the company is valued at 12.7 times EV/sales based on FY20 numbers. Considering its leading position in the mobile gaming industry in India with presence across emerging and developing market and given the prevailing sentiment in the IPO market, we believe a decent listing gain is possible. Therefore, we assign a ‘subscribe’ rating to this IPO only for listing gains,” BP Equities said.
The company posted strong revenue growth of 45.9 per cent at Rs 247.50 crore for FY20 after clocking a 1.4 per cent degrowth in FY19. In the first half of FY21, the company recorded Rs 200 crore revenues.
That said, “the company has been reporting losses as it has increased spending significantly on advertising & promotion from FY2020 onwards, which should help drive strong topline growth going forward. Advertising & promotion expenses, which accounted for 16 per cent of the company’s revenues in FY2019, have increased sharply to 53.7 per cent of revenues in FY2020 and 59.7 per cent of revenues in 6MFY2021. At current levels, the stock is seeking an EV/sales of 11.6 times FY20 revenues,” Angel Broking said and recommended a ‘subscribe’ rating to the issue.
Among the key business segments, the company earns 39 per cent revenue from gamified early learning, 23 per cent from e-sports, 21 per cent from telco subscriptions, 5 per cent from freemium mobile games and 3 per cent from fantasy and real money games.
The global gaming industry size stood at $157.50 billion in 2020, while the size of the Indian gaming industry stood at merely at $1.5 billion, roughly 25 per cent of Bollywood. Rising smartphone and internet penetration is driving this growth.
“The gaming industry is set to grow at over 30 per cent CAGR over 2020-2023E on the back of high mobile growth, rising Internet penetration and increasing number of gamers. Nazara has widespread presence both in terms of geography and product portfolio, which offer strong growth visibility. The IPO is valued at 8.3 times on H1FY21 (annualised) price/sales, which we believe is reasonable compared with the newly-listed technology stocks (average 13 times),” said Aditya Birla Money.
