Q1FY24 Review: Nazara Technologies: Growth moderates on seasonality and one-offs

1 Aug 2023 , 11:42 AM

Nazara Technologies (Nazara) reported Q1FY24 revenue growth of 14% YoY (~4% organic) — below IIFLe — due to broad-based growth moderation with eSports growing +15% YoY, Gamified Early Learning growing +52% YoY (+10% organic) and Datawrkz declining -16% YoY. At 13% (+340bps QoQ/flat YoY), Ebitda margin was above IIFLe, as Nazara improved profitability in key segments despite growth slowdown. Management expects to continue investing to drive strategic leadership in segments like eSports/RMG/Adtech, while improving margins in FY24 over FY23. Analysts of IIFL Capital Services reduce their FY24 EPS by 6% on weak Q1, but maintain FY25-26 estimates; their 12-month SoTP-based TP increases to Rs760 (from Rs730) on roll forward. Analysts of IIFL Capital Services forecast Nazara to deliver 22%/47% revenue/EPS Cagr over FY23-26. The stock is trading at 48x on FY25 P/E. Maintain ADD. 

Broad-based growth moderation across key segments: 

Among segments, Kiddopia growth moderated in Q1 clocking 10% YoY growth, due to a technical issue with Google Play Store, which has been resolved in June. Wildworks revenues were flat sequentially. Nodwin grew by 7% YoY on the back of deferment of key IPs into Q2, on the return of BGMI. Sportskeeda grew by 53% YoY, driven by growth in US. Real Money Gaming declined by 13% YoY, on TN ban. Datawrkz fell by 16% YoY, due to loss of a large client and management focus on higher-margin business. 

Margins see sequential uptick: 

Ebitda margin stood at 13% (+340bps QoQ/ flat YoY), as profitability improved across segments (ex-Nodwin). Nodwin’s margins fell further to -7% (vs 4.4% in Q4FY23) on lower growth and investments in gaming accessories business. Sportskeeda’s margins improved sequentially to 34.3% (vs 27.5% in Q4FY23), on continued growth momentum from Americas. Gamified Early Learning margins improved sequentially, on lower marketing spend and Wildworks profitability.

Risk-reward balanced, given multiple moving parts: 

The stock is trading at 48x on FY25 P/E. Analysts of IIFL Capital Services SoTP-based 12-month TP is Rs760; they would look for continued organic revenue growth momentum across business segments and improved visibility on margin trajectory to turn more constructive. Key risks: Aggressive M&A, regulations.