Nazaara Technologies- A High Potential Wealth Creator in Gaming Space?

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March 30, 2018

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Strategic Alpha

NazaraLogo

Nazara Technologies: Founded in 2000, Mumbai-based company engaged in the production of mobile games in India, the Middle East, Africa, and Southeast Asia.
Popular Games: Motu Patlu, Chhota Bhim, Speed Racing, Cricket Premier League, etc.For More Info Check: http://nazara.com/

IPO update: Company has roped in ICICI sec and Edelweiss for a 1000 crore IPO by the end of the year which would be the first public listing in the gaming space in India. Company Projects 100Cr PAT for FY19 and IPO would be valued at 3000-3500 crores, 30-35 Times FY19.

NUMBERS-THE LATEST
1.) Company is profitable since 2007
2.) Zero debt company
3.) Revenue and PAT 4 year CAGR of 37% and 46%
4.) PAT margin of 30%
5.) ROCE of 32%
6.) Net Profit of 66 Cr in FY17
7.) Expected Net Profit of 80 Cr in FY18
8.) Company Guidance for 100Cr PAT in FY19

NOTABLE SHAREHOLDERS:-
Total Equity Shares- 26972619-100%

1) Promotor and Group- 27.73%
2) Westbridge Capital- 22.69%
3) IIFL SOF Fund – 22.16%
4) Rakesh Jhunjhunwala – 12.21%

INTERESTING INFO
1) IIFL Special Opportunities Fund Picked 22.16% Stake in Company for 330 Cr So Company was Valued at 1489Cr in Nov 2017 Share Price = 551 Rs.
2) Rakesh Jhunjhunwala Bought a 12.21% Stake for 180 Cr in Dec 2017 so the company was valued at 1474Cr Share Price =545 Rs.
3) Companies Popular Games have around 1 Million App Installs from Google Playstore. Motu Patlu has 5 Million Installations.
4) @770 Rs Per-share is 42% Higher than what IIFL Special Opportunities Fund( Only Focuses on Pre IPO Investments) and Rakesh Jhunjhunwala Paid.

MY TAKE
The company will be the first Gaming Company in India to be listed. At 770 Rs per share, P/E comes around 31x. Though there are no direct peers in the domestic market but known global peers average P/E comes around 63x. I believe since the gaming sector is still in the nascent stage in India, the company would command more premium than peers in developed markets.
Nazaaara has Done a Net Profit of 66Cr in FY17, so this year FY18 Profit would be around 78-80Cr. The company has projected 100Cr PAT for FY19.

Valuation Scenario @ 770 Rs Per Share and with 2076Cr Mcap:-

Trading EPS FY17- 25 PE of 31X
Current EPS FY18- 31Rs PE 24X
Forward EPS FY19- 37 Rs PE 20X

Peer comparison AVG at 63X
Electronic Art: 34x
Take two: 66x
Activation Blizzard: 53x
Zynga: 100x
Average – 63x

As per the global average, even on a 30% Discount to Global Peers, IPO should be around 1150-1200Rs per Share.

Indian Population is 125Cr Apx. Mobile Penetration at 89%. So Around 110Cr Mobile Users. SmartPhone Penetration of 52%.

Around 57Cr Apx Smart Phone Users. Even if 5-7% of People Play Games then the Indian Market is about 3.5-4Cr Users. As a First Mover advantage Company can have Well over 50% Marketshare in Few Years. That’s a Market of 2Cr Users. Current Unique Installations in India around 30 Lakh. The company can Have a Sales of Around 2500Cr and a PAT of 750Cr and EPS of 284 Rs. On a Reasonable PE of 35X Price Could be 10000 In Next 5 Years. Assuming the Same Growth Rate which they have achieved in last Few Years(Highly Possible as Seen in past after IPOS New Age Companies like FB, Snapchat have delivered much higher growth rate than earlier)

Companies However on Exponential Growth Curve can get a Valuation of 100X. So the price would even be at 25000 Rs in 5 Years.

Above all are the stock prices only and only if the story clicks. One of buying the shares of Nazaara should buy on looking at Gamming Story in India.

Above all calculations taken only for Indian Gaming Market, Nazaara as now developing Games Such as Elite Star, more kind of High Definition it could even be a Global player in the Gaming Industry.

In my view Company is Reasonably Valued at 31XFY17, 25X FY18, 20X FY19 @ 770 Rs Per Share against a Global Average of 63X.. 25XFY18 is Very Reasonable for an Exponentially growing Business. Investing Here would be just like Planting a Sapling and Waiting for 5-7 Years for Exponential growth.

* Pre-IPO Opportunity @ Nazara Technologies
We have a mandate to sell Nazara Technologies Shares (Limited Quantity). Last Traded Price is 770 Rs. Price May change as per demand.
Contact on below mail if Interested.

Just In: Apr 7, 2018
https://inc42.com/buzz/mobile-gaming-startup-nazara-partners-amazon-fire-tv/

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The author of the blog Mr.Suyog Dhavan is a Full-time Investor / Value Trader and Value investing/Trading Mentor. His style of Investing is inspired by Mohnish Pabrai, Peter Lynch, and Porinju Veliath. He is the founder of Strategic Alpha Wealth, A Premier stock market mentorship firm with a mission to touch the lives of 1Lakh people through its mentorship program.

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