Nazara Technologies IPO opens today: Should you bid for Jhunjhunwala-backed firm's share sale?

Ace investor Rakesh Jhunjhunwala-backed Nazara Technologies launched its three-day initial public offer (IPO) on March 17. The firm is India-based gaming and sports media platform and known for its games on World Cricket Championship, Chhota Bheem and Motu Patlu series.

Nazara Technologies plans to raise Rs 582 crore from IPO through offer for sale (OFS) of up to 5,294,392 equity shares. Price band has been fixed at Rs 1,100-1,101 per share. The bid lot size is of 13 shares and in multiple thereof. Equity shares of Nazara Technologies will be listed on BSE and NSE.

The IPO will conclude on March 19.

On Tuesday, the firm raised a little over Rs 261 crore from anchor investors ahead of its initial public offer. The company's initial public offer (IPO) committee has decided to allocate 23,73,395 shares to 43 anchor investors at Rs 1,101 per piece.

At this price, the firm has raised Rs 261.31 crore, Nazara Technologies said. Among the anchor investors are Government of Singapore, Abu Dhabi Investment Authority, Goldman Sachs India Ltd, Noumura Funds Ireland Public Limited Company, Steadview Capital Mauritius Ltd.

Those selling shares in the IPO include Mitter Infotech LLP, a promoter of the company, IIFL Special Opportunities Fund, Good Game Investment Trust, IndexArb Securities and Azimuth Investments.

The offer includes a reservation aggregating up to Rs 2 crore for purchase by the company's employees.

ICICI Securities, Nomura Financial Advisory and Securities (India) Private Limited, Jefferies India Private Limited and IIFL Securities have been appointed as the merchant bankers to manage the company's initial public offer.

Rakesh Jhunjhunwala-backed Rs 582 crore Nazara IPO opens on March 17; issue price at Rs 1,101

Jyoti Roy - DVP- Equity Strategist, Angel Broking has given a subscribe call to the IPO.

"After posting a degrowth of 1.4% in FY2019, the company has posted strong revenue growth of 45.9% in FY2020 to  Rs 247.5 cr. The company has already posted a revenue of  Rs 200 cr. in H1FY2021. The company has been reporting losses as they have increased their spending significantly on advertising and promotion from FY2020 onwards which will help drive strong topline growth for the company. Advertising and promotion expenses which  accounted for 16% of the company's revenues in FY2019 has increased sharply to  53.7% of  revenues in FY2020 and 59.7% of revenues in 6MFY2021. At current levels, the stock is trading at EV/Sales of 11.6xFY20 revenues and we recommend a "SUBSCRIBE" rating to the IPO given strong growth potential for the company considering the vast potential offered by the gaming industry," Roy said.

This stock held by Rakesh Jhunjhunwala rose 232% in one year, hit all-time high today

Motilal Oswal Financial Services has given a subscribe call to the IPO.

"We like Nazara given its leadership in highly under-penetrated mobile gaming, wide product portfolio and strong relationship and network. Nazara is expected to witness strong growth for next 2-3 years given its recent acquisitions and first mover advantage. The issue is valued at 5.5x FY21 P/BV and 7.6x FY21 EV/Sales on an annualized and post issue basis. The issue is first of its kind listing and has no peer comparison in India. We believe that the market would like to give premium valuation to emerging growth stories like mobile gaming. We recommend Subscribe,", the brokerage said.

Choice Broking has give a subscribe call to the IPO.

"At  higher  price  band  of  Rs  1,101,  Nazara is   demanding  an  EV/Sales  multiple  of  12.8x  (to  its  FY20  sales  of  Rs 2,475 mn). However,  if   we annualize  the  H1  sales,  the  demanded valuation  comes  out  to  be  8.4x,  which  is   attractive  considering  the prevailing valuation  of  internet  technological  companies  in   India.  Thus,  considering the  nascent  stage  of  domestic  gaming market and the dominant position of the Nazara in  key growth segments, we assign a "SUBSCRIBE" rating for the issue, the brokerage said.

Geojit too has given a subscribe rating to the IPO.

"At the upper price band of Rs 1,101, Nazara is available at EV/Sales of 8.5x based on H1FY21 (annualised numbers) which is on the higher side. But this premium valuation is supported by the high scalability of new digital business. The company will also enjoy limited competition from domestic players and strong backing from a fast-growing Indian gaming market, we assign a 'Subscribe' rating for the issue on a short to medium-term basis."

The company has undertaken investments and acquisitions in various gaming categories, including e-sports, edutainment, infotainment, fantasy sports, multiplayer games like carrom and mobile cricket games, among others to strengthen its position in the gaming and sports media space.

Nazara owns IPs, including WCC and CarromClash in mobile games, Kiddopia in gamified early learning, NODWIN and Sportskeeda in esports and esports media, and Halaplay and Qunami in skill-based, fantasy and trivia games.