Segment Rev Mix Opportunity Reach Gamified Early Learning 38.7% 2.5mn Kids 0.34mn Age 2-7 in USA subscribers eSports (Nodwin) 130mn 28mn 29.9% Mid & Hardcore live stream views Gamers by 2025 eSports (Media) 528mn 89mn 7.6% MAUs for large sports website Monthly Visitors Freemium 4.3% 330mn 12.7mn MAU India Mobile Gamers WCC Franchise Real Money Gaming $947mn 10mn 3.8% Market Size users Telco 2.2bn 58 countries Games Club, 16.5% Gamers Worldwide Covered Games Hub Nazara Technologies VP - Research: Rahul Jain Associate: Divyesh Mehta Tel: +9122 40969771 Tel: +91 22 40969768 E-mail: [email protected] E-mail: [email protected] June 28, 2021 June 28, 2021 2 Nazara Technologies Nazara Technologies BUY Dopamine Overload! CMP Rs 1,559 Nazara Technologies is a unique play (acts like a Gaming-sector-fund) that Target / Upside Rs 2,400 / 54% offers an unmatched opportunity to participate in Gaming industry. The NIFTY 15,791 exquisiteness is in the fact that it covers investments in businesses in all the relevant segments within ecosystem viz. gamified learning, Scrip Details simulation games, eSports, league games, eSports media & events, Equity / FV Rs 122mn / Rs 4 branding & networking, fantasy sports, subscription, game-packs etc. and Market Cap Rs 49bn thus have been able to expand its access to diversified cohorts of gamers and enter new geographies in a cost-effective manner, and built a USD 663mn network of over 63mn MAUs across all games in FY21. 52-week High/Low Rs 2,025/ 1,432 With India expected to have 130mn Mid-Hardcore gamers by FY25 we Avg. Volume (no) 5,19,927 expect competitive spirit to kick in amongst Gamers; driving up ARPUs in Bloom Code NAZARA IN India ($9/pa), thus company would gain both in volumes and value Price Performance 1M 3M 12M driving up multi-year growth trend. Nazara offers an opportunity to buy on a portfolio approach thus neutralizing the risk while opening up doors Absolute (%) (10) to play a part in megatrend of Gaming in India with significant optionality Rel to NIFTY (%) (12) and thus should commands premium valuations. We initiate our Shareholding Pattern coverage on Nazara with DCF based price target of Rs. 2,400 implies 5.2x on its EV/Rev in FY24E (implies PER of 84x and Price to Growth ~2x). Sep'20 Dec'20 Mar'21 Gamified Learning (39% of rev): Screen-time is unavoidable for kids and Promoters 0.0 0.0 20.7 thus need for showing curated content that entertains and can help in MF/Banks/FIs 0.0 0.0 14.6 learning sub-consciously is gaining impetus and is witnessing major FIIs 0.0 0.0 13.6 adoption and strong monthly ARPUs (Kiddopia App - $7/month). The Biz Public / 0.0 0.0 51.1 boasts multiple growth triggers in near-to-medium term such as a) Pricing Others increased in Q1, b) tested just 4% of US market and c) entering Europe. NAZARA Relative to SENSEX eSports: eSports is the confluence of entertainment, sports, social 130 networking, streaming, profession for e-athletes and can provides compact 20-30-min adrenaline rush to both players and viewers. Here, it is helping 120 game-publishers in community activation of their games in specific geos/markets to drive up popularity by getting both gamers/viewers 110 Initiating Coverage (online/offline) and in turn is creating massive powerful content library that can be sold at huge media-licencing fees as the popularity improves of 100 the content with every passing season. Sportskeeda (eSport Media App) is also witnessing massive traction given focus on curated content that matches taste of target market, driving organic traffic and improved eCPM. 90 Freemium: On Appstores Out of 3mn+ apps only 3% are paid. Competitive 80 spirit among gamers which along with esthetics factor (on Social) is Apr-21 boosting potential growth of In-App-Purchases. Nazara owns WCC game Mar-21 May-21 which is the most popular Cricket Simulation game with 12.7 MAUs and holds potential to scale the business multifold like EA-FIFA, 2K-NBA. NAZARA SENSEX FINANCIALS (Rs Mn) Particulars FY19A FY20A FY21A FY22E FY23E VP - Research: Rahul Jain Revenue 1,697 2,475 4,542 6,297 9,264 Tel: +9122 40969771 Growth(%) (1.4) 45.9 83.5 38.6 47.1 E-mail: [email protected] EBITDA 163 (56) 452 887 1,373 OPM(%) 9.6 (2.3) 10.0 14.1 14.8 Associate: Divyesh Mehta PAT 175 (21) 92 330 518 Tel: +91 22 40969768 Growth(%) (54.4) (111.8) (544.5) 259.0 56.9 E-mail: [email protected] EPS(Rs.) 6.4 (0.7) 2.9 10.5 16.4 Growth(%) (57.8) (111.7) (491.3) 259.0 56.9 PER(x) 244.1 (2091.1) 534.5 148.9 94.9 ROANW(%) 4.6 (0.5) 1.6 4.9 7.2 ROACE(%) 2.2 (4.5) 2.4 6.7 10.0 June 28, 2021 INDEX Sr. No. Particulars Page 1 The Company Summary 5 2 Investment Thesis 7 3 Gamified Early Learning – Kiddopia 20 4 eSports – Nodwin 34 5 eSports – Sportskeeda.com 56 6 Telco Business 63 7 Freemium Business 69 8 Real Money Gaming 78 9 Other Investments 85 10 Outlook – Way forward 90 11 Risks 92 12 About Company 94 13 Peer Group 98 14 Financial Performance 105 15 Valuation 113 16 Annexure 115 17 Financials Tables 117 June 28, 2021 4 Nazara Technologies The Company Summary Nazara Technologies is a diversified gaming platform company with presence across the globe (India, Other Emerging economies and North America). It operates in multiple high-growth segments within the fast growing gaming industry (CAGR: 30%) with offerings across Freemium Segment (Nextwave), Paid eLearning Apps (Kiddopia), Real-money based Gaming (Halaplay, Carrom Clash and Qunami) and eSports (Live Events, Sportskeeda News portal). Nazara is clearly the visionary in the gaming industry in India and owns several strong IPs (WCC Cricket, Kiddopia, Nodwin) that covers variety of business aspects within the industry. The Company is founded by Mr. Vikash Mittersain and Mr. Nitish Mittersain (Joint Managing Director) in 1999. Nitish believed in Indian Gaming Market story right from his college days. He has successfully steered business from being a strong Gaming VAS provider (Telecom Service Provider led Biz) to a diversified gaming platform company with help of several niche and strategic acquisitions. Nazara is operating across the Globe with US being its largest market, wherein it has a strong presence in Gamified learning space with the ‘Kiddopia’ App with 340,282 paid subscribers bulk of them in US (39% of Revenue). India is its 2nd largest market wherein it has multiple lines of businesses across the gaming ecosystem. The largest being Esports where-in it has huge first-mover advantage and its strong market leadership position in a nascent market along with strong IP partnerships (segment accounts for 37% of Revenue). Nazara also owns Cricket Mobile Simulation Games IPs under Freemium Games which have highest mind-share in Cricket Mobile Games around the Globe (4% of Revenue). It also owns assets in Real Money Gaming apps which is large part of the Indian industry but has been under cloud given regulatory concerns about its legality in Indian Markets (3% of Revenue). The Legacy Business of being a Value Added Services provider (Gaming Subscriptions Packs ~1000 odd games for Android Appstore) to Telcos customers is scaling down (16% of Revenue). It is one of the leader amongst the Gaming players in the country and achieved Revenue of Rs. 4.5bn in FY21 with 62.6mn Monthly Active Users (MAUs) across its various gaming assets. Business Overview Rev Target Segment Offerings Overview Revenue Model share Demographics Gamified Immersive, self-directed Children aged Subscription based 39% Early Learning learning App for Kids 2-6 years Model Media rights & Largest Esports Brand Sponsorships Tournament Organizers Rev driven by eSports and eSports 37% with strong IP Partnerships Tournament sports fans and Leading Sports News Viewership. Ad Website Revenue from News Website Viewership Free to play sports Advertisements & Players aged Freemium 4% simulation and children’s In-app purchases 15-35 years games based on DAUs Bouquet of mobile games Games Hub, Telco offered as value-added First-time Sachet Based Pricing 16% Games Club, subscription services to telco subscribers mobile gamers (Subscription Model) Games Lounge on subscription Platform fee Strategic presence in real Real money Youngsters & collected from skill 3% money gaming and sports gaming Sports Fans games played on the fantasy gaming platform Source: DART, Company June 28, 2021 5 Nazara Technologies Nazara Journey Year Event 1999 Company was Incorporated 2000 Acquisition of Nazara.com portal for Rs. 8mn 2004 Launched java games pay per download with BPL and Hutch (Now Vodafone Idea). 2004 /05 Signed an exclusive agreement with Cricketers (Sachin Tendulkar) for Marketing 2005 First round of investment by WestBridge (Rs. 66mn) 2006 Took Decision to be Mobile First Company 2006 / 07 Commenced work with telecom operators such as Tata Teleservices Limited, Vodafone and Bharti Airtel 2007 Second round of investment by WestBridge ($ 1.5Mn) 2008 Signed an exclusive wireless content distribution agreement with Electronic Arts for India Region 2009 Launched the subscription based ‘Games Club’ model for Casual Games (Rs. 99 Pack) on Telecom Channels 2011-13 Commenced business operations in the Middle East, Zambia, Uganda, Nigeria, Singapore, Mauritius and Kenya 2013 Started a Seed Fund of Rs. 100Mn to invest in Indian Gaming Based Startups 2014 Acquired Exclusive Rights from Fox Studios to develop games based on Movie Titles 2014 Made first Investment from Seed Fund in Hashcube worth Rs.