Billionaire investor Rakesh Jhunjhunwala-backed gaming and technology company – Nazara Technologies shares have a potential to grow up to 68 per cent, several brokerages expect post its March quarter earnings for the financial year 2021-22 (Q4FY22).
Rakesh Jhunjhunwala, who is also called the Big Bull of the Indian stock market, holds 3,294,310 equity shares, which translates into 10.1 per cent stakes in Nazara Technologies, as per the latest shareholding pattern of the company available on the BSE.
Given the infancy stage of the gaming industry in India with an Average Rev Per Gamer of just $10 p.a. (versus US/China at $73/$35), Dolat Analysis and Research believe the company can compound its revenues by 10x over a decade.
The brokerage currently factored in revenue CAGR (Compound Annual Growth Rate) of 39 per cent over FY22-25E in its hyper-growth stage and gradual deceleration to 26 per cent CAGR over FY25-30E, average EBIT margin of 15.6 per cent, and terminal growth rate of 4 per cent.
Dolat Analysis has arrived DCF (Discounted Cash Flow) based target of Rs 2100 per share, which translates to over 74 per cent upside and assigned a Buy rating to the stock.
Prabhudas Lilladher expects revenue/PAT CAGR of 28%/52% respectively over FY22-24E and the growth story remains intact despite near term challenges. Consequently, it retains a Buy rating on Nazara with a DCF-based target price of Rs 1,747 per share, which implies 45 per cent in the stock.
The stock currently trades at EV/sales multiple of 3.9x/3.2x our FY23/FY24 estimates and post recent correction, valuation is now more in sync with global peers like Electronic Arts and Zynga which trade at 1 year forward multiple of 3-4x.
YES Securities inline financial performance in the quarter with Q4 seasonality in eSports impacting the sequential revenue growth. The increased cost of content and higher other expenses impacted the operating margin for the quarter, the brokerage said.
“The outlook for the gaming industry remains strong in India led by an expected rise in the number of mid/hardcore gamers. The business faces long-term risks due to low entry barriers and the acquisition‐based growth strategy,” YES Securities said in its report.
The brokerage maintained Reduce rating on the stock with a revised target price of Rs 1,295 per share (7 per cent upside) valued at EV/EBITDA of 16.0x on FY24E EBITDA.
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