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Home >Markets >Mark To Market >Nazara Technologies listing stands apart in more ways than one

The Nazara Technologies Ltd initial public offering (IPO) has a rare distinction of being among the biggest gainers on listing and among the biggest losers post-listing. The stock listed at a premium of over 80% in opening trade but ended the day 20% lower than its opening price. Most of those who were allotted shares in the IPO gained. Those who tried to join the bandwagon post-listing are sitting on losses.

The company had issued 2.9 million shares through the IPO at 1,101 apiece. Over 2.2 million shares had been sold by 11.00am. The volume weighted average price of shares traded till then was well over 1,800 apiece. This is in sharp contrast to other IPOs in March, which either listed at a discount or traded below the break-even price of those who borrowed to buy shares in the IPO.

Note that while there was high investor interest about the Nazara IPO, there were also concerns about its acquisition-led growth strategy
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Note that while there was high investor interest about the Nazara IPO, there were also concerns about its acquisition-led growth strategy

After Nazara shares fell 20% from its opening price to 1,592 on the NSE, it triggered the exchange’s lower circuit. When a stock hits a lower circuit, buyers aren’t allowed to bid at prices below these levels, leaving sellers stuck until trading resumes the following day. As pointed out in these pages earlier in March, investors must be wary of buying IPO shares on listing day, as it has resulted in losses in all cases barring one since December 2020.

Note that while there was high investor interest about the Nazara IPO, there were also concerns about its acquisition-led growth strategy and poor profitability. The concerns were brushed aside by investors, since there is no other online gaming company listed in India. They thought Nazara would enjoy a so-called scarcity premium.

Thanks to its string of acquisitions to grow its business, Nazara’s free cash flow from operations and return ratios have been negative. Profitability has also been hit. “While expansion in newer segments has helped Nazara diversify its revenues, it has however had an adverse impact on its profitability as most of these businesses are still in investment phase," JM Financial Institutional Securities Ltd analysts said in a report on 17 March.

The acquisitions were made to offset the decline in its original business, servicing telcos. The telco subscription business accounted for 89% of its revenues in 2017-2018, but dropped to 21% in the first six months of FY21. Gamified early-learning and e-sports now account for 39% and 32% of revenue, respectively.

Nazara entered the e-sports segment with the acquisition of Nodwin Gaming in FY18. The maker of PUBG recently acquired a minority stake in Nodwin, adding to the excitement among investors in the IPO. But note that the firm’s early backer, Westbridge Capital, had sold its entire stake of over 20% at a per-share price of around 820 just ahead of the IPO.

While some were very excited about the listing of a gaming company, some experienced hands saw the IPO boom as an opportunity to exit.

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