Nazara Technologies Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Nazara Technologies Ltd (NAZARA) Q4 FY23 Earnings Concall

Management Update:

• [00:01:43] NAZARA achieved a milestone in FY23 with revenues surpassing INR 1,000 crores for the first time and EBITDA of INR109.7 crores.

• [00:08:14] NAZARA said Tamil Nadu’s ban on online games of chance has a short-term negative impact on revenue, but the company is actively mitigating this downcycle.

Q&A Highlights:

• [00:12:39] Jinesh Joshi of Prabhudas Lilladher enquired about the drivers for loss in Adtech business in 4Q23 and when it will be stabilized and also EBITDA expense in telco. Nitish Mittersain Joint MD said NAZARA has not reported a loss. The business remains profitable and is expected to grow aggressively in FY24. On the telco business, the revenue was INR52.8 crores with INR13.9 crores EBITDA and a 26.3% margin.

• [00:16:01]  Jinesh Joshi of Prabhudas Lilladher asked if Nodwin’s content views and distribution ads have increased in FY23, despite the media revenue contribution decreasing from 39% to 31%. Nitish Mittersain Joint MD replied that in FY23, media revenue percentage decreased but absolute revenues remained stable as some media deals dropped out despite the games being banned. NAZARA expects this to normalize in the coming year with established IP having 20-25% EBITDA margins.

• [00:18:57] Abhishek Banerjee from ICICI Securities asked about the driver of CTP decline of about $1.4 and its outlook. Nitish Mittersain Joint MD said the company is prioritizing user acquisition and optimizing cost per trial. 4Q saw improved EBITDA margins at 18.4%, and NAZARA plan to increase spending to scale up the subscriber base with a CPT range of $35-37.

• [00:21:32] Abhishek Banerjee from ICICI Securities queried if there is a tailwind in the sector as the company has stabilized the Kiddopia business and managed to grow subscribers even in a lean season with lower CPTs. Nitish Mittersain Joint MD answered that the Kiddopia app is well-liked and the team is working hard on the product. Tim Cook recently visited India and met with the Kiddopia team and tweeted about the positive impact of the app on kids. This is helping outperform competition.

• [00:22:24] Abhishek Banerjee at ICICI Securities enquired about the acquisition pipeline going forward. Nitish Mittersain Joint MD said that NAZARA acquired Sportskeeda 3.5 years ago and grew its revenue to INR122 crores with INR39 crores EBITDA. The company has accumulated cash and built a strong management team focused on M&A. Bolt-on acquisitions may happen at a more rapid pace at the subsidiary level while NAZARA will take fewer and larger bets on M&A.

• [00:24:43] Abhishek Banerjee at ICICI Securities asked if doing larger acquisition means taking some debt. Nitish Mittersain Joint MD replied that currently NAZARA not considered taking debt. If NAZARA were to take on debt, it would be low and against the cash flows of the target company and not NAZARA.

• [00:27:22] Deep Shah from B&K Securities asked about eSports margins in FY24 and where should the scaling of existing IPs be seen. Nitish Mittersain Joint MD said that for NORDWIND gaming, the focus is on continued strategic growth rather than large investments in EBITDA. NORDWIND has launched Valorant and a chess league and is in the process of launching other leagues to build strong IPs. There is a lot of activity happening with major gaming publishers for a larger India play and this buildup will happen throughout FY 2024.

• [00:32:06] Mukul Garg from Motilal Oswal asked how NAZARA visualize its investment in the mobile gaming space given the weaker performance of WCC vs. last year and the increased stake in Next Wave. Nitish Mittersain Joint MD replied that NAZARA plans to focus on monetizing and scaling up the user base of WCC to achieve a multiplier effect on the overall business. A Chief Operating Officer from a large gaming studio has been brought in to work closely with the team to implement these plans.

• [00:37:56] Abhishek Kumar from JM Financial asked about the overall portfolio growth and margins going forward.  Nitish Mittersain Joint MD said that NAZARA is not giving guidance at this time but intends to enhance margins in businesses where possible and continue strategic growth for market leadership. The overall sense is that there should be some margin improvement in the overall year.

• [00:45:47] Mohana Kumar asked for a qualitative understanding of the growth trend over the next year and if it can continue to grow organically at a rate of 10-15%.  Nitish Mittersain Joint MD clarified that the company plans to focus on both organic and inorganic growth but has not provided specific guidance or growth targets.

• [00:47:02] Mohana Kumar asked which business is expected to drive the margin expansion for the broader group and where the biggest chunk of margin expansion is expected to come from. Nitish Mittersain Joint MD said good margin expansion is expected in the gaming business overall in FY24, driven by Kiddopia, WCC, and Animal Jam. Sportskeeda is expected to do well in margins, but no significant expansion is predicted in the eSports business.