How Nazara's lost opportunity in 2018 turned out to be a blessing in disguise

NEW DELHI: Nazara Technologies was looking forward to launching its IPO way back in 2018 and had also got necessary approvals from Sebi in April that year.

But a strong selloff in midcap and smallcap stocks in the wake of the implementation of Sebi's reclassification of mutual fund categories changed investor sentiment overnight. The highs of January 2018 proved to be the record highs for midcap and smallcap indices for next two years before they came to alive again recently.

Nazara, a smallcap firm, thought the situation was not ideal for an IPO as risk aversion increased.

But in hindsight that proved to be a ‘great blessing in disguise,’ recalls Nazara CEO Manish Agarwal as the gaming market has evolved manifold since then.

Fundamentally, what has really changed since 2018 is the appreciation and understanding of the Indian gaming industry in the investing ecosystem, says Agarwal.

“Three years ago, explaining gaming was quite a difficult task. We did a lot of gaming education in 2017 and 2018 in the domestic investor ecosystem. We also detailed the foreign investor ecosystem about the Indian gaming industry. That's why Nazara is being tracked consistently. We spoke of the reality, what is going to change and also how it may pan out,” he said.

Agarwal said the infrastructure of digital payments and the speed and quality of Internet changed substantially during this period, which enabled multiplayer gaming in India.

This, he said, was unthinkable before due to poor Internet connections. That led to PUBG and Free Fire getting millions of active users. And those users, he noted, pay.

“Suddenly, India, which was always seen as a market that will create downloads and users, began to be seen as a paying user market. From an investor’s point of view, India always had the potential,” Agarwal said.

Agarwal said because of the lockdown, Internet consumption grew over the past one year, which proved to be another tailwind for the gaming industry.

“Investor awareness has evolved and the company today is in a much better shape -- both from micro and macro perspective -- from its own portfolio perspective,” Agarwal told ETMarkets.com.

He believes gaming could form a very large part of entertainment. That's what made it a very interesting space, he said. “We were a smallcap in 2018. We were told that if we were to take risk, we would have to calibrate valuations accordingly. It was an offer for sale for us. And there was no urgency for us to do that,” Agarwal recalled.

Nazara will come out with its Rs 583 crore offer for sale on March 17. Existing shareholders IIFL Special Opportunities Fund, Mitter Infotech, Good Game Investment Trust, Seedfund 2, Porush Jain and Azimuth Investments would sell shares through the offer.

Ace investor Rakesh Jhunjhunwala, who held 3,294,310 shares, or 11.51 per cent stake, in the company as of September 30, is not selling any share through the IPO.

Nazara offers many free-to-play games such as Chhota Bheem, Motu Patlu and Oggy and the Cockroaches. In e-sports, it offers games such as World Cricket Championship 3, World Table Tennis Champions and Carrom Clash. The company generates nearly 40 per cent of its revenues from India, 40-41 per cent from North America and the balance from Africa, West Asia and South Africa.

Gamified learning, a vertical the company has focused strongly of late, today brings in 39 per cent of its revenue, while e-sports contributes 32 per cent, premium offerings 5 per cent and real money gaming 3 per cent. The remaining 21 per cent comes from legacy telco businesses.