Nazara Technologies IPO: Rakesh Jhunjhunwala has stake here I Key highlights for investors on this stock from Elara Capital

Rakesh Jhunjhunwala, known as the Big Bull of the market is one of the ace investors who is confident about the growth of this company. He himself has invested in this company and believes that the future of Nazara Technologies will be extremely Bright. Also, Rakesh Jhunjhunwala has stake in Delta Corp which is also in the gaming space.

Nazara Technologies is a leading India-based diversified gaming and sports media platform with a presence in India and globally. It has offerings across interactive gaming, eSports and gamified early learning ecosystems. The company owns some of the most recognizable IP, including WCC & CarromClash in mobile games, Kiddopia in gamified early learning, Nodwin & Sportskeeda in eSports and eSports media, and Halaplay Technologies Halaplay and Qunami in skill-based, fantasy & trivia games. Nazara was among the first entrants in India, in eSports through Nodwin and cricket simulation through Nextwave.
Compelling play on digital:

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Nazara Technologies looks like a compelling play in the digital space, which has end-to-end offerings, from eSports to casual & fantasy gaming; further, the edutech play is a silver lining and appears to have bigger potential in terms of scale vs gaming. Digital advertising is expected to report a CAGR of 25% over the next five years at the cost of traditional mediums, such as print and out of Home (OOH) losing share.

Elara Capital are confident 25% growth primarily on the back of a big shift in eyeballs and consumption, due to:

1)     rising smartphone penetration
2)     higher youth population
3)     cheaper data prices

Elara Capital believes digital advertising, which is almost 31% of revenue in CY20 (Source: Madison Media) is lower than global averages where digital is 55% (China is 73.8% and the US is 52.7% digital-led) of ad spend. We expect the shift toward 44% of ad revenue for digital to happen at a rapid pace until CY25 post which growth in digital may converge slightly. Further, all forms of digital advertising (social media, gaming & search) are expected to grow largely in line with industry average, with video reporting the bigger delta in terms of outperformance and slated to grow >40% due to an increased number of OTT apps and bigger demand for video consumption.

Elara Capital believes the shift from a browser-led economy toward an app-based one also augurs well for gaming, video and social media to grow faster as business segments vs mere display & search advertising.

Valuation of Nazara Technologies:

Nazara Technologies may trade at an even higher multiple vs expectations, as:

1)     it is a pure-play digital company offering potential of 30% CAGR as per our estimates
2)     scarcity premium with almost no traditional company showing capability to grow at this pace in the medium term

Global gaming and eSports companies are trading at 3.3x one-year forward EV/sales despite much lower growth rates than in India; given Nazara Technologies is India’s gaming play with higher growth rates, it should command a premium valuation on EV/sales.