Rakesh Jhunjhunwala Portfolio: Shares of Rakesh-Jhunjuhunwala backed Nazara Technologies rose 16 percent to Rs 616 apiece in Monday’s intraday trading. The spike comes after the mobile gaming company reported a more than 22 percent year-over-year increase in consolidated net profit to Rs 16.5 crore in the April-June quarter (Q1FY23). Meanwhile, sales increased 70 percent year-on-year to Rs 223.1 crore from Rs 131.2 crore in the same period a year ago.
The company’s Ebitda was flat year on year at Rs 30 crore. However, it rose sequentially to 102 percent from Rs 14 crore in Q4FY22. The EBITDA margin, meanwhile, narrowed to 13.5 percent in the quarter under review from 22.9 percent in Q4FY22.
By segment, e-Sports contributed the most to total revenues of Rs 102.3 crore in Q1FY23, up 92 percent year-on-year from Rs 53 crore in Q1FY21.
Gamified early learning and Ad tech firms were other top contributors to the business revenue of Rs 52 crore and Rs 32 crore respectively. However, spending rose to Rs 207 crore in Q1FY23 from Rs 114 crore in the corresponding quarter of the previous fiscal due to higher advertising spending.
Going forward, management remains confident to achieve the growth plans outlined for FY23.
“The company will continue its growth trajectory both organically and inorganically. We are looking to expand our presence in the ‘Freemium’ segment, especially in developed markets, this fiscal year,” said Mohit Agarwal, CEO of Nazara Technologies.
During the quarter, the company had acquired stakes in companies such as Datawrkz Business Solutions, Paper Boat Apps, Nodwin Gaming and Absolute Sports. Earlier, on May 13, 2022, the company’s board approved the issuance of bonus shares to existing shareholders in a 1:1 ratio.
On June 30, Jhunjhunwala owned 65,88,620 shares or a 10.03 percent stake in the company, which was valued approximately at Rs 400 crore.
Share price history
Despite today’s rally, Nazara Technologies stock is down more than 66 percent from the 52-week high of Rs 1,601 it reached on October 11, 2021. So far, the stock has fallen more than 48 percent this year. In comparison, the Nifty50 and the S&P BSE Sensex have fallen more than 2 percent each over the same period.
Should you invest?
Analysts at JM Financial expect the company to report higher growth in FY23 as a result of acquisitions. However, they remain cautious about their medium-term growth.
“Except for e-Sports, we find it difficult to match a coherent growth strategy with Nazara’s diverse, often disparate assets. Besides, our conservative view also stems from the company’s limited presence in real money gaming (RMG), the largest revenue pool in India’s online gaming space. While the first quarter beat should help reverse recent stock corrections, we await more evidence that growth is taking root organically,” said the brokerage firm, which shared a hold stance with a price target of Rs 540 per share.
For YES Securities, both sales and EBITDA margin were in line with estimates. The sequential increase in revenues was driven by the consolidation of Adtech, the brokerage said.
“Overall it was an inline performance for the quarter. We currently have a downgraded rating on the stock. The company faces long-term risks due to low barriers to entry and its acquisition-based growth strategy. The shares are trading at 12-times EV/Ebitda on FY24E,” said YES Securities.
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