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- 1. Nazara Technologies Ltd Indian Online Gaming Industry Analysis Team PE Fever – Anurag Rathi – Mridul Sureka – Vaibhav Garg – Abhishek Sancheti
- 3. Overview: Indian Online Gaming Industry (1) Industry dynamics 0 20 40 60 0 2000 4000 6000 8000 2016 2017 2018 2019 2020 2021E 2022E 2023E Mobile Gaming eSports Gamified Early Learning Mobile Gaming Growth eSports Growth Gamified Early Learning Growth • Indian Gaming Market is expected to reach US$ 7.5 Billion by 2023 at CAGR of 36.45%. • The Early Learning and Mobile segments are seeing strong growths at an average of 45% and 30% respectively. • These two segments are expected to contribute around 90% of the Indian Gaming Revenues. 0 20 40 60 0 500 1000 1500 2016 2017 2018 2019 2020 2021E 2022E 2023E Mobile Gamers Mobile Internet Users Mobile Gamers Growth Mobile Internet Users Growth • Internet penetration expected to reach 70% by 2023. • The growth in number of mobile gamers is forecasted to reach 15% by 2023 • Growth in revenues > the growth in number of gamers , implying shift towards paid games and users Indian Gaming Market ($ Mn) User Growth Competitive positioning of the industry 0.5 0.7 0.9 1.2 1.5 2 2.7 3.5 2 2.1 2.3 2.6 0.9 2.6 2.7 2.7 2016 2017 2018 2019 2020 2021 2022 2023 Gaming Bollywood 116 125.4 140.5 157.5 41 42 42.2 39.8 17 19.5 20.2 57 2017 2018 2019 2020 Gaming Movie Music • Music & Movies industry are direct competitors, the graphs above show the changing consumer preference • Even though the gaming industry is still at an early stages of growth it is expected to surpass Bollywood • The inherent engagement and social angle to online gaming positions it well against music and movies Global Gaming industry vs Movies & Music ($ Bn) Indian Gaming Industry compared to Bollywood ($ Bn) *Source: Nazara Technologies Ltd RHP, Mar’21 Porters five forces analysis for the online gaming industry Supplier Power Buyer Power Substitutes New Entrants Rivalry App Store and play store which provide platform to the online gaming industry have tremendous pricing power with almost no viable alternative for the gaming industry Chance of disruption by new entrants given buyers focus more on quality than reputation. The industry requires relatively low investment Relatively low buyer power. The extremely high engagement ensures customer stickiness There is no like for like substitute for the online gaming industry. Music, Movies & physical activities bring competition but are very different in terms on engagement and social experience Although the industry has been experiencing rising competition, the industry is at a very nascent stage. This is room for multiple players to become big and evolve the industry
- 4. Overview: Indian Online Gaming Industry (2) Merits of investing in the online gaming industry Supernormal organic Revenue Growth Investment Structure for Nazara Technologies Ltd Indian mobile gaming industry is currently where the Chinese industry was 8- 10 years ago and is expected to grow 40-45% CAGR for the next decade Massive inorganic growth opportunity Indian gaming industry has the opportunity to disrupt & partner with the education / EdTech industry by gamifying learning Demerits of investing in the online gaming industry Developed business models Nascent industry with an established monetization model. Advertising, subscription, media rights, in- app purchases & brand sponsorships are verified monetization models Scalability Smartphone penetration is expected to reach 51% by 2025. Internet penetration to reach 70% by 2023 This gives the gaming industry massive scale to tap Changing consumer preference The inherent engagement in gaming has made it the prime choice of entertainment. People are expected to spend 2x time and money they spend on movies and music combined Increasing per capital income Increasing per capital income rapidly increases discretionary spending. Given gaming is the first choice for entertainment, this provides another boost to industry growth and profitability Prone to disruption The gaming industry is quite prone to disruption by internal as well as external players. The industry has low-to-medium barriers to entry due to less reputational and more qualitative importance All players private and public enjoy premium valuations which might limit the upside of the investment Cash based games could be linked to gambling by authorities which might pose additional regulatory burden. Possibility so “Gaming Tax” equivalent to “Sugar Tax” to promote physical activity by governments High Valuations Regulatory Risks Rising Competition Massive opportunities in the industry has attracted multiple domestic and international competitors leading to rising competition Cyber security risks The gaming industry collects huge amount of financial and personal data and is very prone to cyber attacks. With rising concerns of privacy, security breach could lead to massive sanctions. Platform Risk Given that most of the online gaming industry publishes apps on IOS & android there is a great risk of arbitrary commission increases impacting margins significantly Positive and growing Cash flow from operations High growth opportunities Relatively low Capex going forward Room for margin improvement Nazara Technologies is an ideal LBO candidate Debt free *Source: Nazara Technologies Ltd RHP, Mar’21
- 5. Investment Overview 0 500 1000 1500 2000 2500 30-Mar-21 30-Apr-21 31-May-21 30-Jun-21 Shareholding (%) Promoters 20.7% Institutions & Public 79.3% Rs Crore FY18 FY19 FY20 FY21 Revenue 172 169.7 247.5 468.5 EBITDA 38.7 16.4 9.8 59.6 Net Profit 1.0 6.7 (26.5) 13.6 6% 11% -1% 6% 12% 21% 35% 60% 97% 6% 2% -2% 3% 9% 12% 18% 26% 35% 2018 2019 2020 2021 2022e 2023e 2024e 2025e 2026e ROIC ROCE ROIC & ROCE Share price performance Nazara is a leading India based diversified gaming and sports media platform. It has a large user base of 62.59mn average monthly active users in FY21, a growth of 56% YoY. Nazara in Numbers Business Overview Valuation & transaction structure MCap: Rs 5,650cr Product Select Offerings Overview Revenue Model Gamified Early Learning (39% of Revenue) Immersive, self- directed learning experience with content designed and developed in-house Subscription based eSports (37% of Revenue) #1 player in the fast- growing Indian eSports segment Media rights Brand sponsorship Advertisements Freemium (4% of Revenue) Casual to mid-core, free-to-play sports simulation and children’s games In-app purchases Advertisements Telco Subscription (17% of Revenue) Games Hub Games Club Games Lounge Bouquet of mobile games offered as value-added services to telco subscribers Partnerships with telecom operators Skill-based, fantasy and trivia real money gaming (3% of revenue) Strategic presence in real-money gaming and sports fantasy gaming Platform fee collected from skill games played on the platform Include based on model and structure
- 6. Investment Thesis: Opportunities & Value Addition - Vaibhav
- 8. How to structure the acquisition
- 10. Exit Opportunities M&A and Spinoff Opportunities Secondary Sale EdTech Industry Global Gaming Industry Global Investors 2021/22 Complete the transaction Focus on innovation and ensure expansion of our IPs portfolio 2022/23 Invest resources in the gamified learning and eSports opportunity 2023/24 Gaming for multiple languages Focus on global expansion with emphasis on growth markets 2024/25 Start preparing for an exit Focus on acquiring customers on the lack of innovation. Investment Roadshows 2025/26 Exit the company
- 11. Appendix (1)