Shares of Rakesh Jhunjhunwala-backed Nazara Technologies tumbled 12 percent on Friday global brokerage house CLSA initiated coverage on the stock with a 'sell' call due to expensive valuation. It has a target price of Rs 1,095 per share for the stock.
The stock fell as much as 12 percent to its day's low of Rs 1,463 per share.
According to CLSA, the valuation is expensive at 6x FY23 EV to sales and 29x EV to EBITDA. It also said that the valuation is at a 10-75 percent premium compared to global gaming peers.
CLSA also believes that the eSports segment, which accounts for 37 percent of Nazara’s revenue is likely to come under pressure on the back of intensified competition led by JioGames, Dream11, MPL, and Paytm First Games.
In other developments, the firm announced its first acquisition post the IPO. The firm has signed a binding term sheet to acquire a majority stake in Arrakis Tanitim Organizasyon Pazarlama (Publishme) for Rs 20 crore.
Nazara Tech will acquire around 69.82 percent stake in Publishme to strengthen its presence in the Middle East and Turkey, it stated in a BSE filing.
Publishme is a full-service games marketing and publishing agency that works extensively with gaming publishers in Turkey and the MENA region. Nazara’s offerings are already present in India and across emerging and developed global markets such as Africa and North America.
"With this acquisition, Nazara will expand its international footprint in the freemium segment. Nazara will aim to build local execution capabilities cutting across key growth segments namely, freemium, gamified learning and esports," the filing added.
Nazara Technologies became the first Indian gaming company to go public, with the launch of its initial public offering (IPO) on March 17. The IPO got a good response, with the Rs 583 crore offer being subscribed 175.46 times.
Ace investor Jhunjhunwala holds 32.92 lakh shares in the firm aggregating to 10.8 percent stake as per the shareholding pattern at the end of the March quarter.
The firm clocked an 84 percent jump in consolidated revenue at Rs 454.2 crore for FY21 against Rs 247.5 crore in FY20 driven by strong growth momentum in segments like gamified learning and e-sports. Nazara posted a consolidated profit of Rs 13.63 crore in FY21 against a loss of Rs 26.77 crore in the previous year.
For Q4, it reported a consolidated profit of Rs 4.2 crore for the quarter ended March 2021, against a loss of Rs 7.02 crore in the year-ago quarter. Revenue in Q4FY21 grew sharply by 41.7 percent to Rs 123.38 crore compared to the year-ago quarter, the company said.
(Edited by : Ajay Vaishnav)
First Published: IST