Mumbai-headquartered Nazara Technologies on Wednesday became the first gaming company to list its shares on the Bombay Stock Exchange (BSE), in the world’s second-most populous country.
The company’s listing marks one of the first high-profile IPOs of 2021, which is expected to see a slew of big startups like food giant Zomato, e-grocery firm Grofers, and beauty retailer Nykaa going public.
Founded by Nitish Mittersain in 1999, the diversified gaming and sports media platform counts marquee Indian investor Rakesh Jhunjhunwala, IIFL Special Opportunities Fund, Turtle Entertainment Gmbh, Seedfund2 International, and Good Game Investment Trust as its key backers.
Nazara has operations across diverse segments including interactive gaming, gamified early learning, e-sports, and telco-based subscriptions, with footprints in 62 countries. Some of its popular games include Chhota Bheem, Motu Patlu, Oggy and the Cockroaches, World Cricket Championship 3, World Table Tennis Champions, and CarromClash.
Nazara’s IPO, which comprises secondary share sale wherein existing shareholders are looking to sell stakes worth INR 583 crore (USD 80 million), was subscribed 3.8 times on the first day. The company has fixed a price band of INR 1100-1101 (USD 15.16 to USD 15.18) a share.
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Though the company will not raise fresh cash through the IPO, the listing will raise the company’s profile globally and open the doors to more investment opportunities in the future, the company’s management said in an interview with local media Mint.
“We have sufficient cash reserves for near-term needs. All our companies were able to grow on their own steam, so we did not feel the need to raise additional cash immediately,” said Nitish Mittersain, MD and founder, Nazara Technologies. “If we require cash in the future, we will come back to the market.”
Nazara currently has cash reserves of INR 300 crore (USD 41.3 million), according to the Mint report. Last month, the company raised INR 100 crore (USD 13.7 million) in fresh funding from Instant Growth Limited (IGL), an investment vehicle of the limited partners of Hornbill Orchid India Fund, a Mauritius-based hedge fund.
“It is a very positive development for the sector. Gaming is a very fast-growing space in India and there has been a fair amount of PE investment in the space,” Pankaj Karna, founder and MD of Maple Capital Advisors, told KrASIA. “We expect this IPO to be very significant because it formalizes the gaming sector in the listed space.”
Karna said investors are already looking at this space because the gaming firms in India are demonstrating growth, engagement, and some level of unit economics.
“These are the fundamentals that investors typically look at,” he said. “They are hungry for more and more new-age businesses, especially in the listed space. I think it is just the start.”
According to a recent report by Maple Capital Advisor, the gaming sector has attracted USD 544 million in investments between August 2020 and January 2021. In comparison, Indian gaming startups received USD 350 million in venture capital in the previous six and a half years–between 2014 and May 2020.
Karna believes that this is an opportune time for the company to list as “fundamental of the sector are strengthening with deeper mobile penetration and increasing gaming awareness.”
Last year, homegrown gaming companies saw a steep spike in user traction and engagement as millions of Indians were forced to stay indoors due to the spread of COVID-19. Sensor Tower data shows Indians in 2020 downloaded the highest number of gaming apps on App Store and Google Play clocking 9.8 billion game downloads.
“This has reflected in the numbers of Nazara, which has demonstrated phenomenal growth over the last six to 12 months,” he said. “People are now valuing growth in this market.”
This is the second time Nazara has filed for the issue. Back in 2018, the company had secured the necessary approvals to list its shares, but it didn’t go ahead because investors’ sentiment changed due to market regulator SEBI implementing reclassification of mutual fund categories.
In a recent interview with local media Economic Times (ET), Narara’s CEO Manish Agarwal said it was a “great blessing in disguise” as the gaming industry has changed tremendously, growing manifolds, over the last three years due to increased internet and smartphone penetration, and rise in digital payments.
“Investor awareness has evolved and the company today is in a much better shape—both from micro and macro perspective—from its own portfolio perspective,” Agarwal told ET.
Nazara’s journey to the top
Nazara began its journey 20 years ago as a game publisher, which partnered with telecom service providers to offer games to their subscribers on a revenue share basis. It started deploying the freemium model to earn money through advertising and in-app purchases from 2011 onward while signing licensing deals with other game developers.
Around the same time, the company kicked off its overseas expansion across Southeast Asia, Middle East, and Africa.
Over the last few years, the company evolved from being a curation and distribution platform of mobile gaming content to owning, developing, and publishing gaming and media content.
Beginning 2018, Nazara started expanding aggressively beyond the telco-driven subscription and freemium business to chase high-growth verticals like e-sports, gamified learning, and real money games.
Since then, it has added e-sports firm Nodwin Gaming; Paper Boat, the publisher of Kiddopia, the gamified learning app for kids aged between two and six; Sportskeeda, a multi-sports news destination; Halaplay, a fantasy sports platform; Qunami, a quiz and live trivia app; and Bakbuck, a vernacular social game, in its kitty.
In the process, it has emerged as a platform player with diversified offerings in the gaming space and now targets users of all age groups.
“Nazara has a unique business model with a pretty wide spectrum of offerings in gaming. They have moved with the times. (Business with) telcos was great, but telecom carriers are not important anymore, and you have to be present in the internet ecosystem,” Karna said. “They have multiple formats and multiple verticals where they are active in, and thus have accumulated users across multiple gaming engagements of various types across the world.”
“The platform strategy has worked,” he added. “That’s a good strategy to have as it is risk-averse.”
Sanjeev Kumar, forecast analyst at Forrester, believes that Nazara has created a gamut of gaming services, and has thus become probably the biggest gaming player in India.
“Nazara is first of its kind getting listed in the Indian equity market. They have created a solid product with offerings in every segment,” he said. “While e-sports and subscription-based kids learning app contribute to the majority of its revenues, freemium is not as big for the company. But given the potential of the Indian market, it is going to blow for them.”
“They have not tapped digital marketing much yet, so there is an immense potential there as well.”
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Nazara believes e-sports and gamified learning are the major key growth drivers for the company at a time when the gaming industry is fast becoming a major segment within the media and entertainment space.
For the six months ended September, the company’s revenue from operations stood at INR 2,00.4 crores (USD 27.6 million). Of the total, gamified early learning segment contributed 39.25%, followed by e-sports at 31.78%. Telco subscription accounted for 21.33% of this income, while freemium and real money game contributed a mere 4.5% and 3.1%, respectively.
Geographically, while the Indian market has been the major revenue generator for years, in H1 2020, operational revenues from North America bumped up dramatically, accounting for 41.6% of the total, thanks to Nazara’s acquisition of Kiddopia, which is popular in North America. India, meanwhile, contributed 41.1% of its total income from operations.
The company’s consolidated revenue stood at INR 207 crore (USD 28.5 million) for the first half of 2020, while the losses hovered around INR 10.1 crore (USD 1.4 million) due to the expenses the company incurred on advertisement and promotions.
According to Maple Capital, the Indian gaming industry, with over 400 million players, is expected to grow at a CAGR of 32% to become a USD 3.7 billion market by 2024, from USD 930 million in 2020.
