Nazara Lands ₹250 cr from ICICI Prudential, Nikhil Kamath, Others

Gaming Firm Nazara Raises ₹250 Crore Rupees from Investors including Nikhil Kamath and ICICI Prudential

Source: News article from ET Bureau published on January 18, 2024

Analysis of this News for a Layman

Nazara Technologies, a publicly listed Indian gaming and media company, has successfully raised ₹250 crore by selling new shares to existing investors, including Nikhil Kamath, co-founder of the stock trading platform Zerodha, and ICICI Prudential, a large Indian mutual fund. These funds will be utilized to invest in Nazara’s business, focusing on mobile games and other digital entertainment ventures.

Some Key Terms Explained:

  • Preferential Issue of Shares: This refers to a company selling new shares to select investors rather than through a public share offering.
  • BSE: Bombay Stock Exchange, which is India’s oldest stock exchange.
  • Stake: The percentage of ownership an investor has in a company. In this case, Kamath will own just under 5% of Nazara after this investment.

Nazara Lands ₹250 cr from ICICI Prudential, Nikhil Kamath, Others

Impact on Retail Investors

This development can have mixed impacts on retail investors in Nazara shares. On the one hand, the infusion of fresh capital signifies continued investor confidence in Nazara’s growth prospects within India’s rapidly expanding gaming market. This validation of Nazara’s business model and future revenue potential can positively influence investment sentiment.

However, the preferential issue of shares at ₹872 per share is below Nazara’s current market price of ₹937. This may exert short-term pressure on the stock price, prompting investors to book profits. Additionally, the equity dilution resulting from the new share issue could impact earnings per share. To navigate these challenges, investors should adopt a long-term perspective and consider using dips to accumulate the stock.

Impact on Industries

This development signals a positive outlook for the Indian gaming industry and related sectors such as media and entertainment. Nazara’s ability to secure growth capital from institutional investors reaffirms confidence in India’s gaming market potential, which is still in its infancy compared to many other countries.

With these fresh funds, Nazara can accelerate investments in expanding its portfolio of games, interactive content, and intellectual property centered on Indian cultural themes. This has the potential to drive further innovation and growth in both the gaming and interactive digital entertainment sectors in India.

Nazara’s success in monetizing gaming intellectual property can serve as an inspiration for other technology and content startups to build valuable intellectual property and platforms for the Indian market, creating long-term value.

This news fosters optimism in high-growth digital sectors, which can have a positive multiplier effect on related industries such as smartphones, animation and VFX, and digital payments, further enabling these themes.

Long-Term Benefits and Negatives

The long-term outlook appears promising for Nazara due to the vast untapped market potential in India. As affordable smartphones and low data costs drive digital adoption, gaming and interactive entertainment are poised for significant growth, similar to the trajectory seen in video content streaming.

Nazara has established credibility and a head start in capitalizing on this market potential through its diverse gaming ecosystem encompassing interactive sports, esports, and both skill-based and traditional mobile games.

Strategic investors like Kamath and ICICI bring valuable guidance, business relationships, and credibility to the table as Nazara scales up rapidly. As Nazara begins generating strong cash flows by monetizing its games and intellectual property through various revenue models, its high growth and margins should sustain in the long term, potentially supporting premium valuations. Investors can consider accumulating shares with a long-term perspective.

However, declining interest in interactive digital entertainment if Indian consumers’ preferences change or potential regulatory roadblocks in the gaming sector due to addiction or social concerns can negatively affect the long-term outlook.

Short-Term Benefits and Negatives

In the near term, the primary benefit is the capital infusion, which bolsters Nazara’s financial strength for its growth plans. The endorsement from prominent investors may also boost positive market sentiment and raise the company’s public profile.

Nonetheless, the fund raise through issuing shares to selected investors, as opposed to a public offering or rights issue, implies relatively rapid equity dilution. This can exert downward pressure on the share price in the short term, as the preferential allotment is at a 12% discount to the current market price.

Yet, significant share price declines can create opportunities for new investors and provide existing shareholders with a chance to increase their exposure to a high-growth story. While Nazara’s undisputed market leadership in various gaming sub-segments reduces risks, potential setbacks in the rollout of key games or content launches, or other execution missteps, could result in short-term share price volatility. Investors are advised to leverage these declines to accumulate shares with a long-term perspective.

Companies Impacted by Nazara Tech’s Funding and Kofluence Acquisition

Indian Companies Gaining:

  1. Nazara Technologies (NSZ):

    • The fresh capital of ₹250 crore strengthens Nazara’s financial position and fuels its growth plans.
    • Increased investments from ICICI Prudential and Nikhil Kamath signify investor confidence in Nazara’s future, potentially boosting market sentiment.
    • Acquisition of Kofluence expands Nazara’s reach through influencer marketing, aiding game discovery and potentially driving user engagement and revenues.
  2. ICICI Prudential Mutual Fund (ICI):

    • Increasing stake in Nazara indicates their bullish outlook on the gaming sector and aligns with their focus on high-growth potential companies.
    • Potential for positive returns on their investment could attract other investors to Nazara, further boosting the company’s valuation.
  3. Plutus Wealth Management (PLUT):

    • Similar to ICICI Prudential, the increased stake in Nazara leverages Plutus’ focus on disruptive sectors and can bring long-term financial gains.
    • A successful Nazara performance could enhance Plutus’ reputation and attract new clients seeking exposure to the gaming market.
  4. Kofluence Tech:

    • Nazara’s investment validates Kofluence’s business model and expands its reach and credibility.
    • Access to Nazara’s vast gaming network opens up new revenue streams for Kofluence through influencer-driven marketing campaigns.
  5. Other gaming and esports companies:

    • Nazara’s success and increased funding in the sector could generate broader industry optimism, potentially benefiting listed gaming companies like Delta Corp, JetSynthesys, and Nazara’s subsidiary Aaquies.

Indian Companies Potentially Losing:

  1. Traditional media companies:

    • Nazara’s growth in gaming and esports could further divert user attention and advertising revenue from traditional media.
    • Declining reach and relevance might negatively impact companies like Zee Entertainment and Network 18 Media Investments.
  2. Unlisted game developers:

    • Nazara’s expansion as a publisher might make it a preferred partner for established studios, potentially increasing competition for unlisted developers.
    • Access to funding and resources could become more challenging for smaller studios without strong market presence.

Global Companies Gaining:

  1. Tencent Holdings (TCEHY):

    • Nazara’s success in India strengthens the global gaming market potential, benefiting established players like Tencent with significant investments in the Asian market.
    • Increased investor interest in gaming could push up Tencent’s stock price and attract further capital inflow.
  2. Activision Blizzard (ATVI):

    • Similar to Tencent, Activision Blizzard, another major gaming giant, stands to gain from Nazara’s positive impact on the global gaming market sentiment.
    • A rising tide in the industry could lift all boats, potentially bolstering Activision Blizzard’s valuation and financial performance.

Global Companies Potentially Losing:

  1. Traditional media conglomerates:

    • The global trend of rising gaming popularity, fueled by Nazara’s success, could further erode the reach and revenue of traditional media companies like Disney and Comcast.
    • Declining viewership and advertising sales could negatively impact their financial performance and stock prices.
  2. Mobile gaming companies:

    • Nazara’s focus on PC and console games might pose a minor challenge to mobile-centric gaming companies like Zynga and King.
    • However, the overall growth of the gaming market is likely to benefit all segments, including mobile gaming, in the long run.

Please note that this is an analysis based on the available information and is subject to change based on future developments. It is not intended as financial advice, and you should always consult with a professional before making any investment decisions.

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