Rakesh Jhunjhunwala-backed Nazara Technologies IPO opens; check GMP, analysts take before subscribing

Rakesh Jhunjhunwala-backed Nazara Technologies on Wednesday hit the primary market with its Rs 583-crore IPO. The company has fixed a price band of Rs 1,100-1,101 a share for the public offer, which will conclude on March 19. The gaming firm on Tuesday said it has mopped up a little over Rs 261 crore from anchor investors. The company had earlier filed preliminary papers with Sebi in February 2018 and had received approval from the market regulator to float the IPO but the firm did not launch its public issue.

Here are 10 key things to know about the issue and the company:

About the company: Nazara Technologies is a leading India based diversified gaming and sports media platform with a presence in India and across emerging and developed global markets such as Africa and North America, with offerings across the interactive gaming, eSports and gamified early learning ecosystems. The company has undertaken investments and acquisitions in various gaming categories, including e-sports, edutainment, infotainment, fantasy sports, multiplayer games like carrom and mobile cricket games, among others to strengthen its position in the gaming and sports media space. Nazara owns IPs, including WCC and CarromClash in mobile games, Kiddopia in gamified early learning, NODWIN and Sportskeeda in esports and esports media, and Halaplay and Qunami in skill-based, fantasy and trivia games.

About the issue: Nazara’s public issue will see the sale of 52,94,392 equity shares by the promoters and existing shareholders. Those selling shares in the IPO include Mitter Infotech LLP, a promoter of the company, IIFL Special Opportunities Fund, Good Game Investment Trust, IndexArb Securities and Azimuth Investments. The offer includes a reservation aggregating up to Rs 2 crore for purchase by the company’s employees.

Strategic leadership with marquee investors: Company’s promoters are highly experienced, with Vikash Mittersain having several years of experience in multiple business sectors, and Nitish Mittersain, who has been associated in the promotion of the company for 20 years. The company’s
CEO, Manish Agarwal, has approximately 20 years of experience in various fields including the gaming space and marketing. It also counts well-respected funds and individual investors as the company’s investors, including IIFL, Rakesh Jhunjhunwala and Utpal Sheth. Earlier, WestBridge had sold shares to IIFL Special Opportunities Fund and Rakesh Jhunjhunwala, who had invested Rs 327 crore and Rs 182 crore, respectively, in Nazara during 2017.

Grey market premium: Nazara Technologies is trading at a premium of Rs 950-975 in the grey market, indicating a premium of nearly 90% against the price band fixed by the company.

Brokerage take: According to Hem Securities, the company is bringing the issue at EV/sales multiple of around 12.8x at a higher end of price band on FY20 sales basis. Nazara being the leader in India across diversified gaming and sports media platform has a successful business model and established presence in India, a market with economic, technical and cultural complexities, has given it a competitive advantage. Also the company being the pioneer in the field will get the first-mover advantage. Hence, Hem Securities recommends investor subscribe to the issue for the short and long term.

Nirmal Bang Securities also gave a ‘Subscribe’ rating to the issue. “Over FY18-20, the company sales have grown at a CAGR of 19.8%, both organic and inorganic way, growth in revenue is despite the decline in telco business revenue which was the major business. Going ahead, being into the online gaming space, which over FY20-FY23, is expected to grow at a CAGR of 31.7% in India, and 11.8% in the USA we feel the company can sustain higher growth,” Nirmal Bang Securities said.

“Having a diversified business, acquisition or creation of new games and with cross-sell, opportunities available to different geographies will help the company to grow ahead. The company is looking for growth through acquisition as well. Being a loss-making company in FY20 ROE stands negative. At the given upper price band of issue of Rs 1,101, Nazara technologies is offered at EV/Sales of 7.8x H1FY21 annualised sales which is attractive. We recommend subscribing to the issue,” the brokerage said.