At a time when many recent initial public offerings (IPOs) have listed below their issue price, Nazara Technologies Ltd’s market debut stands out. The stock listed at a premium of over 80% in opening trade, although by the time of writing, the gains had reduced to around 50%. The shares are trading at ₹1,652 a piece.
For high net worth investors, who borrow heavily to buy shares in ‘hot’ IPOs, the break-even cost, including financing costs, was around ₹1800 a piece.
Given that the stock has been declining since it listed, some analysts say it would be interesting to watch where it closes today. “It is currently trading at the lower end of the day’s trade; anything is possible,” said an analyst requesting anonymity.
There was high excitement about Nazara hitting the bourses, despite concerns about profitability and an acquisition-led growth strategy. The fact that there is no other online gaming company that is listed was expected to offer Nazara a scarcity premium. Further, existing investors had made decent returns with the company so far, raising hopes of a similar experience for new investors.
Nazara’s free cash flow from operations is negative thanks to the acquisitions it has done in recent years to grow its business. The acquisitions were made to offset the decline in its original business servicing telcos. The company’s dependence on the telco subscription business has reduced over time. For instance, the telco subscription segment had accounted for as much as 89% of its revenues in financial year 2018. In the half year ended September (H1FY21), the share of telco subscription revenues had dropped to 21% of revenues. In H1FY21, gamified early learning and e-sports accounted for 39% and 32%, of the revenues, respectively.
Nazara has entered the eSports segment via the acquisition of Nodwin Gaming in FY18 and eSports media through Sportskeeda, through the acquisition of Absolute Sports in FY20. The maker of PUBG recently acquired a minority stake in Nodwin, adding to teh excitement among investors in Nazara’s IPO.
Note that while expansion has helped Nazara increase its revenues, it has hit profitability. “While expansion in newer segments has helped Nazara diversify its revenues, it has however had an adverse impact on its profitability during this period as most of these businesses are still in investment phase,” said analysts from JM Financial Institutional Securities Ltd in a report on 17 March.
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