Nazara stock tanks 12% after CLSA puts sell rating

Shares of Nazara Technologies tanked 12 per cent to ~1,463.75 on the BSE in intra-day trade on Friday after foreign brokerage firm CLSA put a ‘sell’ rating on the stock and a target price of ~1,095, citing hefty premium valuation.

The shares ended the day’s trade with a decline of 147 points, or 9 per cent, to close at 1,518.

“In Indian mobile gaming, e-sports is niche at 10 per cent of $1.2 billion sector revenue as of [Calendar Year 2020]. Nazara Tech, a leader in e-sports in India, is targeting tournament intellectual properties (IPS). However, competition is set to intensify, led by Jio Games, Dream 11, MPL, and Paytm First Games. We forecast Nazara’s revenue and Ebitda CAGR (compound annual growth rate) to be 35-73 per cent over FY21-24, but with these still at $117-123 million by FY23, valuation is expensive at 6x FY23 Ev/sales and 29x Ev/ebitda,” Deepti Chaturvedi, an analyst at CLSA said in a report.

In e-sports, Nazara has led with partnerships like ESL and Nodwin/krafton and sponsors like Airtel for a PUBG mobile tour. However, sector competition will intensify. Jio Games in a tie-up with Mediatek and is partnering to bring Microsoft xcloud to India.

Ace investor Rakesh Jhunjhunwala-backed Nazara Technologies had made a stellar debut on the bourses on March 30 as the shares of the firm listed at ~1,990, an 81 per cent rise over its issue price of ~1,101 on the National Stock Exchange (NSE). After listing, it moved higher to 2,026.90, up 84 per cent. Jhunjhunwala held a 10.82 per cent stake in Nazara Technologies as on March 31, 2021, the shareholding pattern data shows.

Nazara has a presence in India, North America, Africa, and West Asia. Its product portfolio includes offerings across interactive gaming, e-sports and gamified early learning ecosystems like World Cricket Championship and Carrom Clash in mobile games, Kiddopia in gamified early learning.

The company derives revenues mainly from subscription fees paid by users.