Thread by @aditya_kondawar

Thread on Nazara IPO -

Finally, got 4 years of standalone info (attached in img)

They haven't given standalone no's in RHP which is damn uncool (shows lack of transparency, anyways)

As suspected standalone numbers are not good 👇

(1/n)

#IPOwithJST

Let's see Consol and Standalone now (images attached)

Now I understand why they must have chosen not to disclose standalone financials

Look at the standalone cash flows - the company is continuously investing cash to acquire or invest in gaming startups

(2/n)

And that one single metric tells us everything about the business model of Nazara

They have to continuously use cash to acquire assets (games, IP, rights, licenses, etc)

(3/n)

Let's understand why - Before that let me tell you that I have wasted a lot of my life's valuable hours (during school) playing MMORPG (massive multiplayer online role playing games) such as CS, DOta, FIfa, Half-life, etc

The new age MMORPG are Smite, Pubg, etc

(4/n)

Why is MMORPG so crucial to the gaming piece?

What is esports? what is e-sports spectatorship?

Below tweets that I did long back answer -

https://twitter.com/aditya_kondawar/status/1265622074091024384

https://twitter.com/aditya_kondawar/status/1307562736293875714

(5/n)

Ok now, we know how big the prize pools are in E-sports and we have also established the fact that I have wasted a lot of my time on such games :P

Back to MMORPG - During 2010-12 - Dota, Counter-Strike, Fifa were widely played

(6/n)

But then came League of legends, more FIFA games, Dota 2, Smite, World of Warcraft (note these are MMORPG - team format - 5 versus 5, etc)

There are also MMORPG in single player (God of war, assassin's creed, Modern Warfare, Hitman, etc)

(7/n)

You can see the number of games I have named!

What is the moat for such games?

You guessed it right - very thin moat - The format (PC/gaming console) , the platform (Steam/Garena which are online aggregators that let u play worldwide) , the game itself play a part

(8/n)

I remember we changed overnight from CS and Half-Life to Dota - Why?

Because one of Hong Kong's top players joined our school and he taught the game to us

And in 2014 overnight again we shifted to DOta 2

Preferences shift overnight - as simple as that!

(9/n)

This problem has a solution but a very expensive one!

Let's look at Tencent - World's largest gaming company

You see Tencent outright acquires every company whose game becomes famous!

Nazara seems to be doing this on a small scale

(10/n)

Tencent Holdings owns stakes in Riot Games, Ubisoft, Activision, and many more famous game makers trades at 45.2x PE ratio and is worth 810 BN $

Games include - LOL, clash of clans, PUBG mobile, Honor of kings GkArt, crossfire (google these names and see the headlines)

(11/n)

Ok, so where were we?

Back to Nazara

Niche company, promoter capability, ace investors holding, data usage spurt, India full of millennials, everyone using mobiles, First pure-play gaming company to get listed, other chatter is well known

Let's look at facts -

(12/n)

My concerns -

Loss Making company (6MFY21 and FY20)

Dismal Cash Flows

Cash of 180 cr on the Balance sheet (what if it runs out?)

Free cash flow isn't enough to finance more acquisitions

(judging more than 100-200 cr of acquisition and not assuming FCF)

(13/n)

My concerns continued....

Wild Margin movements (plz check images again)

Many Acquisitions - what if they write down that? (Just assuming worst-case scenario - we all know of big-ticket acquisitions by Indian companies that had to be written down)

(14/n)

Concerns continued....

The Issue is OFS (giving exit to existing shareholders)

rapid technological change in the mobile games, eSports, and gamified early learning businesses (From RHP)

(15/n)

Concerns continued .....

A relatively recent entry into gamified early learning (Kiddopia) - competitors include established players such as Spin Master, with their app Toca Life: World, and Playrix, with their app, Township

(16/n)

Online childhood education, particularly through gamification, is still rapidly evolving and has low barriers to entry, and Nazara expects competition in this sector to intensify as more players enter this market

(17/n)

They derive a big portion of revenues of eSports business from a few customers, most of whom they do
not have long-term contractual arrangements with.

The attrition rate of the Company for FY 2020, FY 2019, and FY 2018 was 37%, 29%, and 25%, respectively.

(18/n)

Regulations - A big risk

The company says and let me quote this "focused on near-term profitability rather than investing in brand building and consumer acquisition at scale"

As a business owner - I always think long term and the above statement did concern me :|

(19/n)

The above mentioned are all the concerns for me. And I haven't even completed the RHP yet.

I know people will troll me saying that I don't understand the 'niche' business or they will say that management has guided for Rs 450 cr for full FY21. I know that as well.

(20/n)

I have read the RHP closely and I know the risks that can come - An Avoid for me (at this point in time)

We all know what will happen in the short term and I have no view for that :)

I will monitor this company as it is an interesting business

Thanks for reading

End

(n/n)