Nazara Technologies is expecting a 35% growth in FY23: Manish Agarwal, CEO

Manish Agarwal, Chief Executive Officer, Nazara Technologies, talks about the partnership with Vodafone-Idea, acquisition of stakes in Datawrkz, Griffin Gaming Partners' second VC fund, acquisition plans, segmental growth, growth drivers and outlook for FY23 among others during a candid chat with Swati Khandelwal, Zee Business.

Edited Excerpts:

Q: Vodafone Idea has announced a partnership with Nazara Technologies to launch Vi games. How much incremental revenue projection do you have for Nazara from this partnership?

A: The partnership with Vodafone Idea is in its initial stages and we are experimenting on how their user base will perform, whether there will be gaming adoption. So, it is very difficult to say how much revenue will increase and how revenue will increase through this partnership. The first objective of this partnership is to know the gaming trend among Vodafone's existing user base, first, we have to see it.

Q: But is it a one-of-a-kind partnership or you can have similar partnerships with other players as well?

A: If you will have a look then it is a one-of-a-kind partnership. But this is a template, which can be followed at an ease. But following the template will make sense only when we look ahead the consumers' behaviour, what is the engagement and how the revenue will increase.

Q: A few days back also, Nazara Technologies has committed Rs 30 crore to Griffin Gaming Partners' second VC fund. What made you invest in a VC fund, as you already have a history of acquiring companies where you see the potential. What potential do you see here?

A: The gaming industry is very small globally. It is very important to maintain your exposure, access and network in the global gaming industry. Griffin is a gaming fund, whose LPs are big companies and in future, if you want to make partnerships with these gaming companies including partnerships within India or investments in the subsidiaries along with those then you will have to maintain your relations and continue discussions with them. Griffin Gaming Partners is a channel to get access to their network.

Secondly, Griffin is a focused fund and a lot of companies curate and invests and see how they grow we constantly add new companies to Friends of Nazara Network. We get a pool of companies and we have an eye on those with the perspective of future M&As. So, these two things are quite strategic for us. Just see, we are investing just Rs 30 crore over three years and it will provide access to that portfolio and global gaming network. Today Nazara is sitting in the Indian market and every global gaming player wants to enter India. So, there is an expectation of a mutual relationship from their end as well as from us. So, both sides will have a need and for that need, you will get a good roadmap for future partnerships.

Q: Earlier in the year, you have announced acquiring about a 55% majority stake in ad-tech firm Datawrkz. What traction is visible on the front and are you planning any more acquisitions in this space for FY23?  

A: Datawrkz consolidation will happen from April onwards because of the final transfer of shares and transaction closure we are looking for by April 15, 2022, and then the consolidation will happen. From the business point of view, they are doing very well on their monthly basis and once they start consolidating then we will do a whole report on how businesses do they have

Q: ) You have 5 different segments, with e-sports and gamified early learning contributing about a total of 80% of revenue. What are your revenue growth drivers for these two major businesses and what segment can be the growth catalyst for FY23?

A: If you will have a look at the e-sports segment - hopefully, COVID is behind us and it will not affect again - we should start the offline events at a great pace. We had our IPs where we were able to bring the gamers, players and their fans to the stadium and create an atmosphere, which was sponsored by the brands but these things have taken a back seat since the last two years. So, this is something that should start in the coming year due to which I can see an upside of Rs 50-70 crore in an e-Sport business where we have IPs like India Premiership, DreamHack, NH7 among others will be launched on the ground due to which the old brands associated with them will come back.

Secondly, gaming is growing very fact were big global publishers are coming to India and establishing their business. They want to create an e-sports community and they will partner with us because we are the market leader by far. And the global guys need an interested local partner and we will be benefited from the same. It will also increase further.

Thirdly, as far as our expansion is concerned in geographies like the Middle East and Africa, we will try our best to create new IPs and do M&A in e-sports. So, this is something we are seeing while growing our business.

So, the e-sports segment is at a very strong momentum this year and will continue to have momentum in the coming years.

Q: What's your strategy for growing the real-money gaming business? Are you thinking about integrating a few entities? Also, when can we assume telco subscription reviving?

A: Opportunity is huge in the real gaming business and 80% of earnings of the gaming market come from real-money gaming. There will be a lot of growth in this market in the last three to five years. Our confidence in this market from the consumer point of view is huge but at the same time, the regulatory issues in the skill-based real-gaming money should be kept in the mind due to which our capital allocation decision is made after brainstorming a lot because when a state shuts then suddenly your business turns zero. And whatever investment has been made on consumer acquisition and making them a brand all of a sudden turns zero. So, we do not want that any of our businesses where we have invested shut down due to binary reasons or statutory reasons. So, our capital allocation decision is made after brainstorming a bit in this segment. Currently, we are completely focused on growing open play that we have taken and post a 50-60% growth on an annual basis. We will integrate Halaplay and OpenPlay and create a common platform so that when the regulatory clarity improves a bit, we will be able to consolidate more companies from the market and create a huge platform. So, our thought process is on skill-based real-money gaming.

Q: In terms of margins, how are you planning to protect it as we understand that amid this huge competition, one needs to incur a lot of marketing expense to garner eyeballs?

A: Unit economics is important in the real-money gaming business. In how many months you can reach a breakeven point in terms of what you have spent on the consumer acquisition. If you have spent Rs 100 in 24 months in marketing then what are you making out of that investment. This is an important focus area for us. We look at recovering our money in five to six months and making Rs 200-250 out of Rs 100 that we invested in 24 months. If these two things are going well for us then we can increase our market spend at a continuous pace. We have no issues in increasing the marketing spending. We do not have a problem even if our EBITDA margin of 10-15% at which we work turns zero in the case when the unit economics is good because we are a very small player in real-money gaming as per the market. If the market size of Rs 12,000 crore then we are doing business of Rs 50-60 crore only. So, if we can drive the growth with a positive unit of economics we do not have an objective of maximising the EBITDA margins.

Q: How do you see margins at the overall company level?

A: For the overall company, we have guided 13-15% margin and we maintain this 13-15% margin. If you a look then we are a unique tech company that is growing at a great pace and also improving the margins. So, keeping that 13-15% margin in the mind, we have an objective to grow instead of increasing the 13-15% margin to a 17-20% margin. The market is huge and the same is the opportunity. It is important to grow by 50-60% by maintaining this EBITDA margin rather than doing a 30% margin without growing.

Q: What kind of growth you are expecting in FY23 in terms of the top line, bottom-line growth with all the levers functioning? 

A: In our segments, due to the open policy gamified learning will grow by 20-25% and if it is solved then it will have fast-paced growth. However, we can see a 20-25% growth at ease as we do not have any issue in that in taking it as a target. e-Sports, as I have said that there is an upside as Nodwin is growing as well as Sportskeeda is growing and we will not face any issues in posting a 50-60% growth in the segment. With consolidation Datawrkz - which earned around $16 million (around Rs 112 crore) last year and is growing this year - will be added to our denominator. The rest of the businesses' premium business and telco subscription business will grow by 10-15%. We decided to give growth guidance for the year in September because there is an M&A, we have to do something in freemium, gamified learning and e-Sports and all these factors will be cleared in the first six months after which we can give the complete year's picture in September at an ease. But, if you will have a segment-wise and calculate it then we do not have any doubt about a 35% growth in the company.

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