Jhunjhunwala portfolio stock: ICICI Securities initiates coverage with 44% upside
1 min read 21 Mar 2023, 01:01 PM ISTIf growth slows or margin improvements do not play out for Nazara Technologies, the brokerage see a bear case valuation of ₹400 (for March 24), implying an upside: downside skew of 3.7:1
PremiumNazara Technologies has corrected 70 per cent from its peak of ₹1,601 and is now trading at an all-time low of ₹486, said domestic brokerage house ICICI Securities in a research note.
Given the visibility of strong revenue growth in eSports and gradual profitability improvement in gamified early learning (GEL), the brokerage house has initiated coverage on Nazara Technologies shares with a 'Buy' rating and a target price of ₹700 apiece, suggesting a 44 per cent upside potential.
"At current market price, it is trading at 45 times 1-year forward P/E. We have a target price of ₹700 on the stock for March 24. Our target multiple is 41 times FY25E EPS (1.5SD below the 2-year average historical P/E)," the note said.
Nazara has ₹6.6 billion in cash, an additional ₹40 million in Silicon Valley Bank. The brokerage believes this could be used to acquire scale through acquisition in real money gaming, once regulatory clarity emerges.
The bull and bear case valuation
Also, Nazara could benefit from inexpensive acquisition opportunities in the current liquidity situation. In case these triggers play out, the brokerage sees a bull case valuation of ₹800 (for March 24).
However, if growth slows or margin improvements do not play out, the brokerage see a bear case valuation of ₹400 (for March 24), implying an upside: downside skew of 3.7:1, which makes it a compelling Buy, it said.
ICICI Securities estimates a 37 per cent on-year revenue growth in FY24E, led by 45 per cent YoY in eSports and 25 per cent YoY growth in GEL. The brokerage 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.
Key risks, as per the brokerage, includes company's inability to establish its gaming accessories business leading to lower margins, impact due to increased competition/ slowdown in US markets, continued delay in RMG regulatory clarifications and inability to identify and integrate acquisitions.
As per the recent shareholding pattern on the BSE, investor Rekha Jhunjhunwala holds 65,88,620 shares that constitutes about 10 per cent stake in the tech company as of December 2022.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
