Nazara Technologies Ltd, a darling of the Indian gaming market, is sailing through rough waters. After the stock hit a 52-week high of ₹1,453 on 13 August, it is currently struggling around the ₹1,100 level.
Blame the online gaming law, which banned real-money gambling games in India. Pokerbaazi, operated by Moonshine Technologies, in which Nazara invested ₹832 crore for a 47.7% stake plus ₹150 crore via preferential shares, has been hit hard as real money gaming operations have stopped.
But the good news is that Moonshine is only an associate company, so its revenue isn’t consolidated into Nazara’s books. The bad news? Nazara will likely have to write down this massive investment, which will drag its profits down and could wipe off 30% of its book value.
Notably, the new gaming law doesn’t affect Nazara’s main operations. Nazara is a diversified gaming and sports media company, operating across three main verticals. First is e-sports, through subsidiaries Nodwin Gaming and Sportskeeda, which contribute about 55% of its revenues. Second is gaming itself, which makes up roughly 36% of revenues and is the real profit driver. Third is ad-tech, which adds another 9% through digital advertising solutions.
The company’s core business is growing fast, and esports is a sunrise industry. Nazara also loves buying companies. It has acquired 17 companies since 2018. These acquisitions have added ₹977 crore in goodwill to its balance sheet by FY25.
So, should the nearly 25% drop in Nazara’s share price from recent highs entice investors? Sure, some may argue that while the new law is bad news for the company, it could be good for investors looking for an entry point.
Future earnings and return ratios might take a temporary hit. This means the price-to-earnings multiple, currently at about 90x as per NSE, could see some downward adjustment because of the uncertainties. When profits eventually recover, return ratios could improve, thanks to the lower equity and asset base. In other words, the stock might look cheaper soon if you enjoy a little drama.
Also, keep a close eye on the company’s capital allocation. The ₹982 crore investment in Moonshine turned out to be a slip-up for Nazara. If the management keeps making these questionable choices, more write-downs and profit hits could be on the line. In short, Nazara stock is not exactly a ‘buy and forget’ investment.
