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Nazara Technologies IPO - Possibilities For the Indian Gaming Industry

Mar 17, 2021 9:32 AM 5 min read

The 2021 IPO calendar is picking up steam. The latest company to join the pool is Nazara Technologies which will launch its maiden public offer on March 17th. 

As the country's top gaming and sports media platform, this IPO is one among five to launch this week. One may recall its name from its popular games on the World Cricket Championship (WCC), Chhota Bheem, Motu Patlu series etc. The company is issuing 5,294,392 shares entirely as an offer-for-sale by promoters and existing shareholders. 

Quick points to note about Nazara - its leading presence in a cutting edge industry, its cross-continental business and robust support from marquee investors like UK-based Plutus Wealth Management, IIFL, Utpal Seth and Rakesh Jhunjhunwala.

Let's dive into it, shall we?

Nazara's Business Profile 

The company was incorporated in 1999. It chiefly operates in the gaming and infotainment sector with specialisation in developing mobile and online multiplayer games. It offers a wide range of products across a host of specific gaming sub-categories. For instance, interactive gaming (WCC and CarromClash), e-sports (Nodwin), e-sports media (Sportskeeda), gamified early learning ecosystems (Kiddopia) AND skill-based, fantasy and trivia games (Halaplay and Qunami). 

It is also the only Indian gaming company to have a considerable presence in North America, Africa and the Middle East. Operations span as many as 60countries. In FY20, a little less than 60% of its restated consolidated revenues were sourced from operations outside India (p. 152, RHP). 

The market has turned quite receptive to the company's IPO with premium over the IPO price surging quite high. The investor enthusiasm has rallied behind Nazara owing to its affiliation with Mr. Jhunjhunwala who owns a 10.82% stake and is not looking to sell his holdings anytime soon. 


IPO Facts

  • Issue size = ₹582.91cr ($80m) accounting for 5,294,392 shares. 
  • Price band = ₹1,100-1,101 ($15) per share.
  • Face value = ₹4 ($0.05).
  • Market lot = 13 shares (Minimum investment of ₹14,300 ($197) per investor).
  • Issue allocation = QIBs (75%), NIIs (15%) and Retail Investors (10%).
  • Reserved allocation = up to ₹2cr ($275,490) for eligible employees at discounted price of ₹110 ($1.5) per share.

The grey market buzz surrounding this issue is raging with premiums soaring as much as ₹840-850 ($11.7) per share. This is in contrast to the plunging premia trend noticed in other IPOs launched recently like Anupam Rasayan, Kalyan Jewellers, Laxmi Organics, etc. Some analysts have also projected the Nazara subscription to set new records.

FYI: The "grey market" is the unofficial market where investors buy/sell IPO shares before they are officially issued in the stock exchange. The grey market trends are usually considered as some indication for the expected upside immediately post listing. 


A Look At Financials 

The tech mania is at an all-time high in markets around the world. In FY18 and FY19, Nazara generated profits of ₹1cr ($137,745) and ₹6.7cr ($922,892) respectively. However, the pandemic played spoilsport in FY20 with a recorded loss of ₹26cr ($3.5m). 

Gamified early learning and e-sports have been identified as high growth segments for the company. Revenues from these segments cumulatively account for 71.03% of the total revenue from operations for the six month period ending September 30th 2020 (p. 152, RHP) - up from 41.73% as at end of FY2020. The company remains historically EBITDA-positive. Cash flows as at H1 FY21 aggregated to ₹1,842.84m ($25m). 


Nazara's Business Model 

Prominent drivers of growth for Nazara lie in the adoption of long-term expansive revenue models. This means their products are backed by strong unit economics (like Kiddopia) by focusing on recovery of subscriber acquisition costs in just under nine months. 

Besides, some key business decisions have played a major role in enhancing user operations that have directly contributed to increase in the subscriber base. For instance, decisions to own IPs, in-house product creation, preference to lifetime customer value ratio over cost per trial ratio, development of captive game engines etc. 

Similarly, in the e-sports segment, the company owns a handsome 80% market share in India. This has been made possible primarily post its acquisition of Nodwin Gaming in 2018 and capitalisation on its established relationships with gaming publishers and platforms like ESL and Valve Corporation. Exclusive ownership and broadcasting rights over live streaming and on-demand e-sports content, monetisation through media rights licensing AND publication of highly scalable content-based news via Sportskeeda have put Nazara on top of the online gaming spectrum in the country. 

Speaking of acquisitions, Nazara has been on sort of a shopping spree, expanding its portfolio via one strategic acquisition after another. Among its recent buys include Next Wave (FY18), Halaplay (FY19), Absolute Sports (FY20), Paper Boat Apps, etc. 

These purchases have further enabled its entry and access into newer and edgier markets (like gamified early learning, e-sports and fantasy gaming) and the achievement of a geographically as well as demographically diversified revenue mix. 

Market Analysis 

As per Nazara's accounting analysis, the Indian gaming industry is likely to outperform the Indian Bollywood film industry in terms of gross revenue collection by 2023. The chief driver of this trend is presumably the community-based consumption of gaming products and services provided by companies like Nazara which supports an online interactive space for the gamers. 

With the growth of low-cost smartphone services and increasing internet penetration in the country, India presents a ripe opportunity for expansion of gaming businesses. India's gaming revenues stood at a 32.6% CAGR in 2020 leaving behind the USA at 11.4% and China at 7.2%. With raving venture capital investments into the Indian gaming industry ($350m from 2014-2020), a spiralling growth in number of gamers (ten-fold increase in the last decade) and proliferation of game-developing companies in India (from 25 to over 400 in the last 10 years), the industry is looking at a $3.5bn-plus valuation by 2024. 

  1. This population-driven consumer demand is expected to be supplemented with a steady rise in disposable incomes. However, the existing players like Sony Entertainment, Jio, Tencent and Microsoft Game Studios, along with promising startups like MPL, Games 24x7, Dream 11 etc. Make for a highly competitive industry. This competition is only going to intensify with advent of newer technologies, greater resource utilisation and profit maximising strategies. 



The outstanding legal proceedings exceed in the amount of ₹82.51m ($1.1m). The markets in which the company operates are highly fragmented and diverse. Any swing in regulatory or financial parameters could upend business. For instance, in FY18 and FY19, Iran and Sudan combined contributed over 16% to Nazara's revenues. Pursuant to sanctions the next fiscal, revenues were washed out in entirety from these countries in FY20. 

On account of the pandemic, the company has switched to a near-term profitable model rather than focusing on investments into brand-growth and consumer acquisition. This leaves the expansion of the real money business segment in uncertainty. 

Having said that, Nazara is a relatively new entrant in the gaming space. But given its ability to carve a niche for itself in terms of brand recognition, generate steady cash flows and diversify content, it appears as a leading contender in the sector with bankable resource potential. 

The IPO seems opportune in this pretext. Although it might face a possible squeeze in funding, considering the five other IPOs launching simultaneously, it still enjoys good capital and industry backing. Remains to be seen whether the new-age business model coupled with the promising fundamentals turn up the investment heat on Dalal Street tomorrow. 

PS: Read up on some other eminent IPOs - Kalyan Jewellers, Easy TripMTAR, RailTel, IRFC, Burger King India, Brookfield REIT, Gland Pharma, Ant Financial, CAMS, UTI AMC.


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