NAZARANSEQ2 FY23October 28, 2022

Nazara Technologies Limited

6,593words

43turns

9analyst exchanges

6executives

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Management on call

Nitish Mittersain

JOINT MANAGING

Manish Agrawal

CHIEF EXECUTIVE

Rakesh Shah

CHIEF FINANCIAL

Anupriya Sinha Das

HEAD OF CORPORATE

Sudhir Kamath

CHIEF OPERATING OFFICER – NAZARA TECHNOLOGIES LIMITED

Abhishek Banerjee

ICICI SECURITIES

Key numbers — 40 extracted

INR 2,638 million

ough the same. On behalf of Nazara, I'm happy to share that for Q2 FY23, we generated revenues of INR 2,638 million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 m

104%

lf of Nazara, I'm happy to share that for Q2 FY23, we generated revenues of INR 2,638 million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, u

INR 214 million

at for Q2 FY23, we generated revenues of INR 2,638 million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we

enerated revenues of INR 2,638 million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we genera

INR 169 million

million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we generated revenues INR 4,869 million, which is u

11%

ear-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we generated revenues INR 4,869 million, which is up 87% ye

INR 4,869 million

nd a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we generated revenues INR 4,869 million, which is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PA

87%

up 11% year-on-year. Similarly, for H1 FY23, we generated revenues INR 4,869 million, which is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 mill

INR 514 million

for H1 FY23, we generated revenues INR 4,869 million, which is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 million, up 17% year-on-year. Our approach to

nues INR 4,869 million, which is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 million, up 17% year-on-year. Our approach to capture growth op

INR 324 million

ch is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 million, up 17% year-on-year. Our approach to capture growth opportunities across segments has been instr

17%

-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 million, up 17% year-on-year. Our approach to capture growth opportunities across segments has been instrumental

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Guidance — 20 items

Nitish Mittersain

opening

“We are now revising this upwards to 70% to 75% for FY23 and we will achieve this while maintaining our EBITDA margins at a minimum of 10%.”

Nitish Mittersain

opening

“As you would have already read our CEO, Manish will be stepping down effective November 30th, and I would like to take this opportunity to thank him for all his efforts over the years at Nazara.”

Nitin Jain

“So, as we can see that this quarter, the margins have dipped below the last quarter guidance of 12% to 14%.”

Nitin Jain

“Now we know that the management keeps reinvesting for growth, but was the reinvestment not factored into the guidance that was given last quarter?”

Nitin Jain

“And also a follow-up on that is what gives us the confidence that the 10% guidance will be defended until the end of FY23?”

Nitin Jain

“And does the guidance of 5% to 6% still hold?”

Nitish Mittersain

“So firstly, on the earlier guidance of 12% to 13%, it was linked to our revenue guidance of 50% for the year.”

Nitish Mittersain

“And therefore, it's a very conscious decision, which you can see are actions reflecting in our revenue guidance, increasing from 50% to 70% to 75% and also the much higher-than-expected revenue growth.”

Nitish Mittersain

“So I think as long as we are able to maintain positive margins as we have guided right now, we will maintain a minimum level of 10% and maintain positive cash flow that we have done in this quarter as well as H1.”

Nitin Jain

“Just wanted to clarify whether the entrepreneurial venture will be in competition with Nazara?”

Risks & concerns — 4 flagged

And so from that perspective, building blockchain gaming space in India is so nascent that it will take a lot of time and more and more entrepreneur risk appetite.

— Manish Agarwal

Any further decline to be stemmed and we expect that we should start showing growth in the coming quarters and we also expect that we will increase the spend as we get the opportunity to do so.

— Nitish Mittersain

So is there any challenge in that ad tech world because of either because of demand or change in Apple's policy, the impact are we seeing on datawrkz growth as well?

— Abhishek Kumar

We're also very keenly looking to watch how the a positive impact of Google play for our products.

— Nitish Mittersain

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Q&A — 9 exchanges

Yes. Congratulations on the good revenue growth. So my question is relating to the profitability. So, as we can see that this quarter, the margins have dipped below the last quarter guidance of 12% to 14%. Now we know that the management keeps reinvesting for growth, but was the reinvestment not factored into the guidance that was given last quarter? And also a follow-up on that is what gives us the confidence that the 10% guidance will be defended until the end of FY23? The next question is related to NODWIN. So, during the Q1 call, the management was confident that the NODWIN margins should

Nitish Mittersain

This is Nitish and I'll answer your questions. So firstly, on the earlier guidance of 12% to 13%, it was linked to our revenue guidance of 50% for the year. But however, as the year has gone by, we have seen many more opportunities for growth and we took a strategic call that we want to press that accelerate and versus optimize or achieve higher margins because we have this unique opportunity to really build for market leadership and for scale. And therefore, it's a very conscious decision, which you can see are actions reflecting in our revenue guidance, increasing from 50% to 70% to 75% and

I have a question on a Kiddopia. I think we spent about 3 million on Kiddopia in marketing in Q2. So, with these kind of things, are we back to hitting the trial figure, which we used to get the pre-Apple policy change? Basically, just a thought of asking has the activation / churn more or less constant? And does the trial figure has improved, there should be no further subscriber losses from these levels? Because sequentially, even if I look at our subscriber base, it is more or less constant as such and from here on, how should we look at the subscriber growth, given the fact that CPT has st

Nitish Mittersain

Sure. Thanks for that question. This is Nitish and I’ll answer this one. So with Kiddopia, what we are feeling very good about this. If you see in this quarter, we spent $3.1 million, which has been higher than the preceding quarters. Our spend has dropped after the Apple-IDFA issue and if you will see the cost per trial has actually declined from $39.3 to $37.9. What that really shows is now we are able to scale back spend not at the cost of increasing our trial cost, but actually improving it. So I think we are very comfortable, as you also mentioned in the last call with the $37 to $38 cost

My first question is around this BGMI event that we had. So yes, I think it's very clear that the ban might not be over any time shown. So, what is the way out now? Do we hold these events somewhere else? Or do we host other games as part of the same IP? What is the idea there? That is one. Second, we have highlighted that freemium will be a focus area for acquisitions. So, any update on that? And the Halaplay integration is now done, how should we think about real money gaming? Are we still looking to add more apps to increase liquidity on that portal? So any update on that would be really he

Manish Agarwal

Thanks for asking Manish here. So you have asked three questions, let me answer them. BGMI ban is a hit for the entire eSports latency market because when you have a very large game, it creates a massive amount of viewership influencers the entire ecosystem activity really keeps growing. And that's where the eSports such events are not great for highly very-very early days kind of an ecosystem, which has a very strong tailwind of consumer behavior. The good thing is there are three levers which NODWIN has. One, the gamers are really kind of playing and if you look at what is popular in India i

Yes. So congratulations and all the best to Manish for your new role, and welcome to Sudhir to Nazara Family. My first question is on guidance, Nitish, first half of this year, we have grown at 87% Y-o-Y. So that essentially looks like there is going to be some deceleration in the second half, which is traditionally the stronger quarter. And also the fact that we have actually acquired WildWorks and some of the other acquisitions, which are not there. So, any specific areas where we're seeing trends slowing down, which has resulted in, or is there just some conservatism built in the guidance?

Nitish Mittersain

I think there are a couple of things here. One is if you see our numbers, right, usually, Q3, Q4 have been larger numbers even in the previous year, which means that the base is much higher compared to Q1, Q2. Q2, in fact, for last year, if you look, it was a much smaller number compared to the increase in Q3, Q4. The Q2 growth has been higher because with our gaming accessories business and wins, Q2 now becomes a key peak period, I would say, because of festivals. The major sales happened through Flipkart and Amazon, and they run these large sales and business really happens in this quarter,

So I have a couple of questions. One on -- if you can just help us with the revenue split in NODWIN to OML and D2C? And other one being there is one line item on balance sheet as to borrowings of 106 million. So can you just help us with that?

Manish Agarwal

Yes. Let me take the second one with me, Manish here. On the borrowing part, yes, there is a brandscale which is our gaming accessories business, which has a working capital spent always because you are kind of ordering your stocks before and you are paying to a manufacturers and all that stuff. So that company would continue to have working capital requirement, and that's what you see in your balance sheet items, which in other parts of the Nazara's business is not required. So that's the addition to the balance sheet line item. On your first question on the split of NODWIN, we have always gi

I have a couple of questions. Firstly, on this Animal Jam business, it's been some time this business is integrated now. So any input in terms of how the metrics or the strategy have evolved ever since it has come into our fold and what kind of growth or margin thought process we can think of in this business in the current fiscal? Secondly, to the question specific to COO, basically is coming from a -- if my understanding is the right coming from a background from running kind of a business, which he has also created. While that kind of a business for us right now is pretty small. So any thou

Nitish Mittersain

Sure. So let me answer all of them one by one. So on WildWorks, as you know, the acquisition has been fairly recent, less than a couple of months back. And we are in an institute case of understanding and integrating our thought process into that business. What we have already achieved is well, I would say, to some very crucial hires over there. For example, Director of Data Engineering was missing and data analysis was missing, and we found a very good resource who has already joined and started to throw up a lot more in-depth data, I would say, which can be actionable by as well as the WildW

Congratulations on good set of numbers Nitish. Just a small bookkeeping question. So what is included in media and what is included in non-media, I'm not looking at granular data, just a head?

Manish Agarwal

What is included in media is any money which you collect from the platforms such as OTT platforms, Media-TV platforms, that's the money which comes in media. What generates that revenue, your live content, your on-demand content your talent content, talent stream. So these are the things which you really look at in the part of media. And anything which is there on the non-media, it comprises of D2C. It comprises of white label events. It comprises of any brand sponsorship from your own IPs. And these are the three big components from your non-media. We also brand the whole infrastructure for t

Sir, there is an impairment loss of around 76 million, may I know it is related to what?

Nitish Mittersain

We took a write-down on Halaplay investment partially and this is impairment of that. Raj Joshi Okay. And sorry, if this has been asked, but what level does eSports starts making money as we had a very low EBITDA margin despite a substantial revenue growth? Yes. Well eSports can start making money as of today also, it's upto the direction you want to take that business. Like I stated earlier, I think being a nascent market, which will become a very large market and Nazara being a market leader over there and NODWIN being market leader over there are priority today is to really drive scale and

Sure. I would once again like to thank all of you for joining the call. And I hope we have been able to address all your queries if there's any further information kindly get in touch with Anupriya or SGA, our IR firm. I would like to sign off by saying that the opportunity in India's gaming landscape for Indian companies to dominate the global gaming landscape is huge. And I think Nazara has a fantastic foundation to continue building on. As the incoming CEO from December, I'm very excited about the opportunity. And I would like to sign off with a quote from my favorite poet Robert Frost The

Management

Speaking time

Moderator

Nitish Mittersain

Manish Agarwal

Nitin Jain

Jinesh Joshi

Abhishek Kumar

Ankit Zope

Rahul Jain

Abhishek Banerjee

Sudhir Kamath

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Opening remarks

Abhishek Banerjee

Thanks, Rutuja. Hello. Welcome, everyone, to the Q2 FY23 Results Conference Call of Nazara Technologies. The management here is Mr. Nitish Mittersain, Joint Managing Director, Mr. Manish Agarwal, Group CEO, Mr. Rakesh Shah, Group CFO, and Ms. Anupriya Sinha Das, Head of Corporate Development. I would hand over the call to Mr. Nitish Mittersain for his opening comments. Over to you, sir.

Nitish Mittersain

Thank you. Good morning, and a very warm welcome to all of you to Nazara's Q2 and H1 FY23 Earnings Call. First of all, I would like to wish all of you a very Happy Diwali and festive season. We have already uploaded our results presentation on the exchanges, and I hope you all have had an opportunity to go through the same. On behalf of Nazara, I'm happy to share that for Q2 FY23, we generated revenues of INR 2,638 million, up 104% year-on-year and an EBITDA of INR 214 million, up 9% year-on-year and a PAT of INR 169 million, up 11% year-on-year. Similarly, for H1 FY23, we generated revenues INR 4,869 million, which is up 87% year-on-year, an EBITDA of INR 514 million, which is up 4% year-on-year and a PAT of INR 324 million, up 17% year-on-year. Our approach to capture growth opportunities across segments has been instrumental in us achieving better numbers in our growth estimates. And we continue to reinvest our profits for faster growth to achieve revenue scale and market leadership

Sudhir Kamath

Nitish, thanks for a very warm welcome, and good morning to everyone. I'm very excited to be part of Nazara. I think Nazara's clearly the pioneer in the Indian gaming ecosystem and has built a great platform. But I do believe there's a lot of potential in the coming years and I look forward to working closely with Nitish and the entire leadership team as we continue to build a large and profitable business. I'm looking forward to having great interactions with all the analysts and others on this call. Thank you. I request Manish or Nitish to take over.

Manish Agarwal

Good morning. Hope everybody is doing well. Again, wishing you a very happy Diwali from team Nazara. It is a great kind of results, which very happy to have a real sign off with essentially kind of a growth and very-very privileged to be working with Nazara for the last 7.5 years and working with Nitish and the entire leadership team of our founders to be able to kind of build a platform, which can deliver these kind of growth and not just the revenue growth, but also operating cash flows as well as profitability increase. So very, very happy to share that, and I'll again reiterate that all our multiple growth engines strategy is really kind of firing and which is all contributing to this growth. We grew 104% in the quarter 2 year-on-year, and we grew 87% in first half year-on-year, which are amazing numbers. As the company continues to grow in size and scale, maintaining that kind of growth, usually, people really are very-very skeptical, and we are very happy to really revise our est

Anupriya Sinha Das

Thank you, Manish. Good morning to everyone. So I'll quickly walk you through our segmental performance, and then we'll take on questions. So, if you look at eSports, our revenue growth for the quarter has been around 174% and 132% for half year as NODWIN revenues grew by 240% in the quarter, and 144% in H1. Sportskeeda revenues grew by 76% in the quarter and 89% in H1. The growth in NODWIN is driven by growth in media revenues, led by Master Series and Playground IPs, and taken along with strong growth in the gaming accessories business. At Sportskeeda, we continue to grow our US revenues, which grew 2.6x in the quarter driven by increase in video revenues and strengthening offering in eSports as well as core American sports like American football, basketball, tennis and baseball. Now, NODWIN EBITDA has reduced to 0.8% in H1 versus 4.8% in H1 FY22 due to one, an investment in the gaming accessories business, where we have achieved leadership position within the gaming headphone catego

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