Nazara Tech shares: At all-time low, this Jhunhunwala stock has 45% upside potential, suggests ICICI Securties

Nazara Technologies shares, which are down 70 per cent from record high levels, have potential to hit Rs 700 level in the next 12 months, an initiation note by ICICI Securities suggested. The domestic brokerage is bullish on Nazara’s strong revenue growth visibility in eSports and gradual profitability improvement in gamified early learning (GEL). The base case target by ICICI Securities suggests 45 per cent upside potential for the stock. Its bull case target of Rs 800 suggests 66 per cent potential upside ahead.

Rekha Jhunjhunwala, the wife of late billionaire investor Jhunjhunwala, held 65,88,620 shares, or 10 per cent, stake in the gaming company as of December 31. The scrip hit a new low of Rs 481.95 on March 20.

At the prevailing market price, Nazara Technologies shares trade at 45 times 1-year forward P/E multiple. ICICI Securities’ target is based on 41 times FY25E EPS. The brokerage expects a 37 per cent YoY revenue growth for Nazara in FY24, led by 45 per cent YoY in eSports and 25 per centYoY growth in GEL. It estimates Ebitda growth of 86 per cent YoY in FY24E led by Ebitda margin improvement of 250 basis points YoY, as eSports IPs scale up and GEL profitability improves due subscriber additions and price increases.

Nazara, ICICI Securities said, has Rs 660 crore in cash, which could be used to acquire scale through acquisition in real money gaming, once regulatory clarity emerges, ICICI Securities said.

"Also, Nazara could benefit from inexpensive acquisition opportunities in the current liquidity situation. In case these triggers play out, we see a bull case valuation of Rs 800 (for March 2024). In case growth slows or margin improvements do not play out, we see a bear case valuation of Rs 400 (for March 2024)," it said.

This implies an upside: downside skew of 3.7:1, which makes Nazara a compelling BUY, the brokerage said.

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