After strong Q1 results, this Rakesh Jhunjhunwala stock surges 16%; do you own?

Rakesh Jhunjhunwala Portfolio: In intraday trading on Monday, shares of Rakesh-Jhunjuhunwala-supported Nazara Technologies rose 16% to Rs 616 per share. The increase follows the mobile gaming company's announcement that its consolidated net profit increased by nearly 22% year over year (YoY) to Rs 16.5 crore in the April–June quarter (Q1FY23). In the meantime, revenue increased by 70% YoY to Rs 223.1 crore from Rs 131.2 crore in the corresponding period last year.

At Rs 30 crore, the company's Ebitda was unchanged year over year. Sequentially, it increased from Rs 14 crore in Q4FY22 to 102%. Ebitda's margin, meanwhile, dropped from 22.9% in Q4FY22 to 13.5% in the quarter under review.

With revenues of Rs 102.3 crore in Q1FY23, up 92 percent YoY from Rs 53 crore in Q1FY21, e-Sports was the segment that contributed the most to overall revenues.

With revenues of Rs. 52 crore and Rs. 32 crores, respectively, gamified early learning and ad tech businesses were the other two leading contributors to business revenues. However, due to increasing advertising expenditures, spending increased to Rs 207 crore in Q1FY23 from Rs 114 crore in the equivalent period of the previous fiscal.

The management is still convinced that it will be able to achieve the growth goals outlined for FY23.

"Both organic and inorganic expansion will be continued by the company. Going forward in this fiscal year, we intend to increase our position in the "Freemium" area, particularly in developed regions, said Mohit Agarwal, CEO of Nazara Technologies.

The company had invested in businesses like Datawrkz Business Solutions, Paper Boat Apps, Godwin Gaming, and Absolute Sports during the quarter. The company's board has earlier authorized the issuance of bonus shares to current shareholders in a 1:1 ratio on May 13, 2022.

As of June 30, Jhunjhunwala owned 65,88,620 shares, or 10.03 percent of the firm, with a market capitalization of over Rs 400 crore.

Share Price History

Despite today's increase, Nazara Technologies' stock is still down more than 66% from its 52-week high of Rs 1,601 on October 11, 2021. The stock has lost almost 48% so far this year. In contrast, throughout the same period, both the Nifty50 and the S&P BSE Sensex had declines of nearly 2%.

Should You Invest?

JM Financial analysts predict that the company will record more growth in FY23 as a result of acquisitions. They continue to be wary about their medium-term growth, nevertheless.

"Except e-Sports, we struggle to piece together a cohesive growth strategy from Nazara's varied, frequently disjointed assets. In addition, the corporation has a modest presence in real money gaming (RMG), the main source of income for the Indian online gaming industry. With a target price of Rs 540 per share, the brokerage firm stated that the Q1 beat should aid in reversing recent market losses. The firm also shared a 'hold' position.

Both sales and EBITDA margin for YES Securities met forecasts. According to the brokerage, the Adtech consolidation was what caused the revenue to increase sequentially.

"In general, the results for the quarter were in line. The stock currently has a worse rating than us. Due to low entry barriers and an acquisition-based growth strategy, the company is subject to long-term risks. The stock trades at 12 times EV/Ebitda on FY24E, according to YES Securities.

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