Buy Nazara Technologies; target of Rs 898: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nazara Technologies

While we increase our FY23E EPS estimates by 21% due to higher than expected other income, we cut our FY24E/FY25E EPS estimates by 13%/4% respectively and our TP to Rs898 (Rs1,012 earlier) as we re-align our margin assumptions for Nodwin. While benefits of operating leverage would kick in once new Esports IPs and D2C brands become well established, it would put pressure on margins in the interim due to ongoing investment drive. Hence, we expect Nodwin to report EBITDA margin of 0.5%/3.5%/7% in FY23E/FY24E/FY25E respectively. Nonetheless, despite margin pressure, one of the key positive highlight was improvement in KPIs of Kiddopia with subscriber growth returning back after 3 quarters with yet another price hike of 11% in Dec.

Outlook

Overall, we expect sales/PAT CAGR of 27%/36% respectively over FY23E-25E and retain our BUY rating with a DCF based TP of Rs898. The stock trades at EV/Sales multiple of 2.8x/2.1x our FY23E/FY24E estimates and we maintain our positive stance on Nazara as there is huge runway for growth ahead since it operates in a sun-rise industry.

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Nazara Technologies - 30 -01-2023 - prabhu