Nazara Technologies is coming out with an Initial Public Offer (IPO) through an offer for sale (OFS) of equity shares up to 52,94,392 equity shares with a face value of Rs. 4 per share, aggregating to Rs. 582 - Rs.583 cr (at the lower and upper price band). Nazara Technologies has reserved shares aggregating up to Rs 2 cr for eligible employees, which would get a discount of up to Rs 110 per share.

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The Nazara Technologies offer includes an OFS of up to 6,91,900 equity shares by the Promoters, 43,87,863 equity shares by the investor selling shareholders, and 2,14,629 equity shares by the other selling shareholders. Nazara Technologies has fixed the price band of Rs 1100 - Rs 1101 per share. Since this is an OFS, Nazara will not receive any proceeds from the Offer and all such proceeds (net) will go to selling shareholders.

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Nazara Technologies Valuation:

On the market cap/revenue metric, the offer is valued at 8.4x its annualised FY2021 revenue, which is slightly higher compared to global companies’ average. The premium valuation is justified given its dominant position in the faster growing Indian gaming market. Huge addressable market for its flagship app (Kiddopia) in the gamified early learning space, leadership position in the fast-growing Indian eSports segment, and offering casual to mid-core sports simulation games are the major drivers for its growth going forward.

Gamified early learning, which was the largest contributor to revenue in the first half of FY21 has been witnessing strong traction in North America with long-term customer retention and strong conversion rate.

Further, Nazara Technologies plans to expand into Spanish, French, and German speaking regions by developing quality and relatable content in the gamified early learning space. eSports, the second largest revenue contributor to revenue, has largescale IPs, media rights, publisher and brand partnerships, and on-demand premium e-Sports content. EBITDA margin of the company turned positive to 3.0% in the first half of FY21 from negative 2.2% FY2020. Strong retention rates with strong unit economics, increasing contribution of media rights to esports revenue and higher revenue contribution of freemium products would help to enhance its profitability in the coming years.

The Indian gaming industry:

An opportunity The Indian gaming industry is projected to grow over 31.7% yoy due to growth of digital infrastructure and significant rise in quality and engaging of gaming content. By 2024, the gaming industry in India is set to be valued at $ 3544 mn. India’s online gaming industry has already attracted over $ 350 mn in investments from venture capital firms between 2014 and 2020 (FICCI and IBEF).