Target: ₹878

CMP: ₹910.40

We increase our EBITDA estimates by 4.5/6 per cent for FY25/FY26 taking into consideration the acquisition of Freaks and downgrade Nazara Technologies to Hold with a revised TP of ₹878 (earlier ₹806) amid 31 per cent appreciation in stock price since our last update.

We believe the acquisition not only paves the way for Nodwin to access developed markets where Esports has better penetration, but also lends expertise in PC-based games. The buyout has also re-ignited growth prospects of the Esports segment, which has been facing some challenges of late due to deferment in media rights deals. Post consolidation, we expect revenue/EBITDA CAGR of 23.7/45.1 per cent over FY24-FY26.

Con-call highlights: During the pandemic, Freaks expanded its capacity, thus boosting revenues, but incurred higher personnel costs. Challenges in reducing staff count in CY23 has impacted profitability; After the acquisition of Freaks, Nodwin’s stake in Nodwin Singapore will come down to about 75 per cent; While most global Esports operators are running into losses, Nodwin expects to turn around Freaks and achieve profitability; Freaks has several IPs like 99Damage, Challengers, Valorant, and Prime League; Consolidation within the media industry in India has made it increasingly difficult to bag large TV/OTT deals.

We believe re-rating from hereon will hinge on capital allocation decisions, as Nazara has a cash balance of ₹1,450 crore.

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