We cut our FY24E-FY26E Ebitda estimates by ~3-4%, amid persistent weakness in Kiddopia and Ad-Tech business. Despite downgrade at operating level, our FY24/25E earning per share estimates have witnessed an upgrade of 14%/6% as we raise our other income assumptions and re-align our tax rate for FY24E given write back during the quarter.
Nazara’s operational performance was broadly in-line with our estimate with Ebitda margin of 9.4% (our estimate: 8.3%) while profit after tax beat was driven by tax credit of Rs 13 million (our estimate tax outgo of Rs 47 million) arising from demerging of the fantasy sports business of Halaplay into OpenPlay.
Despite ongoing challenges in Ad-Tech (loss of a large client), Kiddopia (stagnant subscriber base) and Real Money Gaming (goods and services tax levy of 28% on full bet value), return of BGMI and strong traction in SportsKeeda is likely to drive sales/Ebitda compound annual growth rate of 17%/34% over FY23- FY26E.
Retain ‘Hold’ rating on the stock with a discounted cash flow based target price of Rs 840 (earlier Rs 836).
Post recent fund raise, Nazara has cash balance of Rs 13.3 billion (cash per share of Rs 183 on diluted equity base) and we believe capital allocation decisions from hereon will be a key to re-rating.