Jhunjhunwala stock: Nazara Technologies shares tumble 8% on tax demand; should you buy, hold or sell?

Shares of Rekha Jhunjhunwala-led Nazara Technologies Ltd fell over 8 per cent Thursday's trade after two of Nazara's subsidiaries, OpenPlay and HalaPlay received tax demands amounting to Rs 1,120 crore. The tax liability is 16 times that of Nazara’s FY24 profit. At the end of FY24, Nazara had a cash balance of Rs 1,450 crore.

The fresh tax demand is in line with similar tax demands received by most gaming companies operating in the RMG space post the GST Council’s decision to tax the total amount wagered by all the players at the time of buy-in and not on gross gaming revenue (GGR).

ICICI Securities said while the gaming sector remains hopeful that the government will provide some relief with regards to tax demands for the period prior to the GST Council’s clarification, there could be some volatility in the stock’s price in the near term
given the quantum of the tax demand. On Thursday, the stock fell 8.4 per cent to hit a low of Rs 845.65 on BSE.

"We believe that the contingent liability on Nazara (parent company) is unlikely to be meaningful, given both HalaPlay and OpenPlay are private limited companies. We maintain BUY and our target price of Rs 1,080," the brokerage said while valuing the stock at 37 times FY26E EV/Ebitda (ex-minority).

Rekha Jhunjhunwala held 65,18,620 shares, or 8.52 per cent stake, in Nazara Technologies at the end of June quarter.

The tax demand claims are in relation to calculation of GST on the total wagered amount, as opposed to gross gaming revenue (GGR). Both subsidiaries are reviewing the notices with their legal counsels and tax advisors to determine their future course of action. The Nazara’s management, meanwhile, clarified that the subsidiaries represented less than 2 per cent of the company’s revenue and less than 1 per cent of its profit for Q4FY24.

"The claim has risen due to retrospective taxation of levying GST on amount pooled by players as opposed to gross gaming revenue (difference between money wagered and amount that is distributed as prize money – basically it is platform fee/revenue of gaming companies). While the current GST rate is 28 per cent on full pot value (amount wagered) given the demand is retrospective in nature. we doubt it reflects true liability. Retain HOLD on Nazara with a target price of Rs 878," Prabhudas Lilladher said.