“We’ve always been conservative and cautious about regulatory and taxation clarity. That’s in Nazara Technologies’ DNA,” declares Nitish Mittersain, founder and CEO of Nazara Technologies.   

This orthodox approach explains how the gaming start-up successfully raised Rs 510 crore recently—Rs 410 crore from SBI Mutual Fund and a Rs 100 crore from Zerodha cofounder Nithin Kamath’s companies Kamath Associates and NKSquared. What makes this feat remarkable is that it managed to raise this capital despite the government’s recent decision to impose 28 per cent GST on real money gaming (RMG).  

The Goods and Services Tax (GST) Council approved this taxation in August 2023 to bring greater transparency and accountability to the growing sector and ensure fair treatment for real-money and non-money games.  

Finance minister Nirmala Sitharaman announced that the change, which comes into effect on October 1, will apply only on real-money gaming and will not be imposed on skill-based gaming services offered by the platforms. This announcement was met with hue and cry from industry stakeholders who claimed that it would put gaming companies out of business.  

In the backdrop of this doom and gloom situation and the ongoing funding drought, Nazara’s ability to raise capital has caught everyone’s attention. What gave its investors the confidence that the company could weather the headwinds facing the sector?   

Malay Kumar Shukla, secretary of E-Gaming Federation feels it has to do with the way Nazara has smartly diversified its product portfolio, wherein only 5 per cent of its revenue comes from RMG. “Apart from a few midterm setbacks, the company will remain profitable as it will certainly plan to absorb the additional costs to remain profitable,” he noted.  

29 per cent of Nazara’s revenues come from subscription, 20 per cent from platform fees, 14 per cent from advertising and the remainder from brand sponsorship and media rights. Mittersain concurred that since Nazara’s exposure to skill-based is very minimal, the GST rule will have a limited impact on it, which it hopes to manage well. In fact, he feels this presents a good opportunity for the company to consolidate its operations and grow larger in the gaming sector.  

Since it started its operations in 1999, Nazara has also become the parent company for several other brands including Sportskeeda, Halaplay, Qunami, World Cricket Championshi and e-Sports. Ashwin Haryani, country head of esports company Ampverse feels that this forward-thinking approach is why the company is unlikely to battle any taxation woes and is also a lucrative prospect for investors.

“Investors don’t want to bet on one pillar of gaming but on the gaming industry as a whole,” he noted. “It is a fact that the gaming industry will grow, and this is where investors like Nithin Kamath are completely aligned. However, it might be difficult to predict which pillar might grow. Hence Nazara’s entity as an umbrella company gives them a perfect opportunity as it is listed, profitable and is an established player.” he said.

Surfing On Success

While Nazara’s diversification strategy has been its major advantage, it will be interesting to see if the company plans to continue with broadening its business model to stay ahead in the game. While maintaining that the company has got better clarity on regulations and taxation regarding RMG, Mittersain said that it will consider buying profitable game studious as additions to its existing library.  

Jinesh Joshi, research analyst, Prabhudas Lilladher is unsurprised that Nazara is considering an inorganic expansion route. He added Nazara has a major 45-50 per cent library of esports and the company might want to escalate it further. It won't be a major issue for the company compared to the newly built start-ups.

“Considering the lack of clarity in RMG Nazara had before, their aggression in that segment was constrained. However, now that they have it and can easily can pull the trigger as part of their planned approach,” Joshi claimed.  

In July 2023, Nazara’s board approved raising of up to Rs 750 crore, using a combination of equity shares and equity-linked securities. This decision for capital infusion was taken after the company went public in March 2021 and raised Rs 583 crore. 

Talking about raising the remainder Rs 240 crore from its Rs 750 crore target, Mittersain said that the company has a shareholder approval of one year within to raise the entire capital. He added that this balance money will be raised at the appropriate time since there is no immediate need to seek investment after the recent financial backing from Zerodha’s Kamath and SBI Mutual Funds.

Nazara’s ability to raise funds in a sluggish market will only make it ease the way when the company seeks funds in the future too. Haryani said, “It has been profitable even in the last years, so raising funds won’t be difficult. They managed this even before ace investor Rakesh Jhunjhunwala picked a major investment in the company in 2018 and his widow how holds 10.02 per cent stake in Nazara. Prominent endorsements like these reflect the company’s potential and its ability of attract investors.”   

While Nazara has got its game face on, others in the industry are waiting on the sidelines waiting for things to get easier. According to media reports, GST authorities are likely to present show cause notices to around 40 online gaming companies for alleged tax evasion. Will Nazara be the last man standing in the ring after these continual bouts with taxation?