Nazara Technologies Limited (NAZARA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Nazara Technologies, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.

Thank you, Rituja. Good morning, everyone. On behalf of Dolat Capital, I would like to thank Nazara Technologies for giving us the opportunity to host this earnings call. The management team is represented by Mr. Nitish Mittersain, who is Joint MD; Mr. Manish Agarwal, who is Group CEO; and Mr. Rakesh Shah, who is Group CFO. And now I would like to hand the conference over to Nitish to take the proceeding forward. Over to you guys.

Thanks, Rahul. Good morning, and a very warm welcome to all of you to Nazara Technologies Q3 and 9 Months FY '22 earnings call. I hope you and your families are fit and safe and healthy. I have besides me Mr. Manish, our CEO; and Rakesh Shah, our Group CFO and Strategic Growth Advisor and our Investor Relations Advisors. We have uploaded our results presentation on the exchanges, and I hope everyone has had an opportunity to go through the same. It is the golden decade of gaming for the Indian gaming industry. It is right on track to achieve stupendous hikes in this decade. We are expecting to scale faster and become a meaningful contributor to the [indiscernible] industry with a significant spike in the number of online gamers ailing in India, expected to reach nearly 0.5 billion in the next few years. In 2021, gaming start-ups in India attracted approximately $1.6 billion in investments in the first 9 months, exceeding the total value of investments in the sector in the past 5 years. We believe that gaming in India will get further acceleration with very positive and concrete announcements made in recent project by our Honorable Finance Minister, Sitaramanji, like 5G auctions, setting up of a dedicated task force gaming and focused SEZ in partnerships with state governments, et cetera. It is heartening to see the positive steps being taken by our government towards the gaming industry. Nazara has already established itself as a leader in the Indian gaming business, and it is now strategically positioned to capitalize on the positive sense. With over 1 billion consumers and enormous potential, India will remain our primary core market we are going to focus on. The results for the first 9 months of FY '22 demonstrate our company's strong operating performance, and I am happy to share that Nazara has declared revenue of INR 4,466 million in the first 9 months of FY '22 versus INR 3,308 million for the same period last year, a growth of 35% on a year-on-year basis. Our 9 months EBITDA surged at 141% to INR 797 million as compared to INR 331 million in the same period last year. For Q3 FY '22, Nazara reported revenues of INR 1,858 million versus INR 1,304 million in Q3 of FY '22 -- sorry, FY '21, a growth of 42% on a year-on-year basis. Our Q3 EBITDA came in at INR 302 million as compared to INR 273 million in the same quarter of the previous year. Overall, we are pleased with our growth in strategic areas of focus while we continue to maintain healthy profitability and cash flows as has been our stated goal. Coming to specific business segments. Esports segment led growth in 9 months of this year and in Q3 with 75% year-on-year growth and 89% growth in Q3 over Q3 of the previous year. We are seeing strong growth in revenues across all subsegments of our eSports business including Nodwin and Sports Keeda, the addition of many original IPs, including that of NH7 weekender as well as expansion of our eSports business into the Middle East via our acquisition of Publishme. We will further accelerate the growth momentum in the coming quarters in this very exciting space. Nazara's strategy of having a diversified portfolio across business segments in gaming continues to provide us with a very stable and strong platform on which we can continue to build future growth and success. We remain committed to building multiple growth levers across gamified learning, freemium, eSports and skill-based real money gaming via growth in the current portfolio as well as the addition of more offerings in the Friends of Nazara network. We will continue strategic investments and acquisitions to extend our company's offerings as well as use current strategic alliances to improve our capabilities and market position. Increasing stakes in existing assets, growing our user base, enhancing market penetration and expanding our production solutions into complementary categories and new markets is what we are intending to do in the foreseeable future. I would like to extend a thank you to all our customers, colleagues and business partners, our shareholders, and we believe we are on a great journey to build something substantial and lasting together. I'm looking forward to our most exciting years ahead of us. Now I would request Manish to walk through our quarterly highlights in more detail. Thank you.

Thanks, Nitish, for the opening remarks. A very good morning to all of you. It is indeed my pleasure to share another quarter of stellar performance from friends of Nazara network. And I'm happy to kind of really take you through the numbers on behalf of the entire group and all the efforts of all the founders and the team together, which we are presenting here. So this is an outcome of the collective effort, I'm privileged to be sharing with you and taking you through it. I'll just reiterate what Nitish said is that we delivered INR 446.6 crores of revenue in the first 9 months, which is 35% growth year-on-year. We also delivered INR 79.7 crores of EBITDA, which is 141% growth over last year in the first 9 months. As you also know that we also are very upfront and we want to really take you to the PAT and then, we delivered INR 42.8 crores of PAT versus INR 9.4 crores of PAT, which is a growth of 355% in the first 9 months. This is the first 9 months performance, and we have always kind of really requested all of you to look at the company on a YTD basis, because we have M&A impacts, we have seasonality impacts, and we also have certain big cost items like marketing advertising expense, variability across context. However, we do not want to shy from kind of taking it through quarter performance also. We have grown 42% quarter-on-quarter. We delivered INR 185.8 crores of revenue in Q3 versus INR 130.4 crores of revenue last year same quarter. We have also looked at our businesses from EBITDA lens, as we have always said, and Nitish mentioned that. We delivered INR 30.2 crores of EBITDA versus INR 27.3 crores. Now I just want to kind of highlight 2 things here on the quarter performance, which have come to my attention in the over weekend the -- some of the press release picked up. There is a decline as per our numbers of 17% impact, which is -- needs to be explained and put in context and has been reported as a decline impact quarter-on-quarter of Nazara, which is -- I just want to put it in the right context. If you were to look at our reported PAT for Q3 is INR 14.8 crores versus INR 17.9 crores in Q3 FY '21, which is indeed a decline of 17%, however, just to kind of give 2 data points. One, these numbers in quarter 3, there is a change in accounting policy in Paper Boat Kiddopia, where we are now recording revenues based on the day the subscriber came in that month versus taking the whole month because we were earlier not getting a full day-wise data, now Apple and Google is providing us day-wise data. Our auditors, Walker Chandiok requested us that as per the right accounting policy, we need to take only the revenue, let's say, if the subscriber is from on the 12th of the month, you should only take 18 days of revenue, not 30 days of revenue. So there has been a normalization in the revenues, which has impacted INR 6.1 crores of revenue impact, translating to INR 4.6 crores of impact on EBITDA. And that, if you add back to the PAT, you will go to INR 19.4 crores versus INR 14.8 crores, which means that you have grown 8%. So this is one step. The second step is that there have been acquisitions of OpenPlay, Publishme and OML, which come in the amortization as somebody will go through our balance sheet and go through the notes. And you would see that there is an additional INR 3.8 crores of impact, which is not apple-to-apple between Q3 of last year and Q3 of this year, which if you were to add back, you get an adjusted PAT of INR 23.2 crores, which means that you're growing 30% year-on-year on PAT also versus -- so that makes it that you will grow 30% year-on-year on PAT versus kind of declining, which has been from the accounts numbers, it appears that we have declined 17% year-on-year for the same quarter. I just wanted to kind of address it upfront. And I -- these are all part of our notes and financial and those who wish to kind of really double-click and validate that please do so. So overall, if you see across all markets, our revenue growth, our EBITDA growth, our PAT, everything is kind of really doing really well in 9 months as well as on quarter. And this is exactly built on a very strong foundation, which we have led off a very diversified portfolio with 4 growth engines of eSports, our gamified learning, freemium and skill-based real money gaming. This quarter and first 9 months, eSports has really kind of led the performance with 75% year on growth in eSports segment. I'll walk you through the eSports segment now. If you look at, eSports segment grew -- delivered INR 212.3 crores versus INR 121.5 crores compared in the first 9 months, which is a growth of 75%. What is even more heartening for me is that this has been coming on top of a very strong growth for the last 2 years. We have been almost -- we did 102% growth in eSports segment last year and before that, we again grew by almost 100%. So it's a very, very strong growth momentum, which we are carrying forward. And if you were to look at this growth momentum in Q3. Q3 of FY '22 over Q3 of FY '21, we grew 89%. So the momentum continues, but the growth is not coming at the cost of EBITDA. We have grown 75% to 71% in EBITDA also in first 9 months. The segment delivered INR 38.2 crores of EBITDA versus INR 22.3 crores of EBITDA, which means the margins have been broadly the same from 18.4% to 18%, but your growth is not coming at the cost of your EBITDA margin. And that is where we are really, really very, very happy and pleased with the performance. As I mentioned, we have a 70% CAGR over the last 3 years. And the eSports segment is now contributing to 48% in first 9 months versus 37% in the last year 9 months. So our conviction around eSports is further kind of really get solidified that the way we see eSports really becoming the largest -- second largest sports entertainment in this country in coming years. We are firmly further reinforced and validated with our performance here. And what I'm very happy and pleased to share that with the inclusion of eSports into Asian games, Commonwealth games, with government really interacting and they would be interested in saying that how do we really send the best team and athletes, so that they can bring medals and we are kind of looking at national sports championships working on eSports championship working with government. I think the future is really bright about how do we really create an ecosystem which can create athletes, coaches, game houses, teams, brands. And when I kind of really go into subsegment, if you look at Nodwin, which is the largest company in the eSports segment, Nodwin grew 48% in 9 months. They delivered INR 141.8 crores versus INR 95.6 crores. This is coming on top of your 79% growth last year, which they delivered. And not only they delivered a 48% growth, Nodwin has also delivered a 76% growth in EBITDA, which means that their EBITDA margins have improved from 8.6% to 9.4%. If you look at from a simple momentum, which Nitish also alluded to, with the acquisition of the key IP, whether it's an events IP, whether it's talent IP and the capabilities of production and sales with the OLM business transfer, which we did in the September time frame. We believe, hopefully, fingers crossed, the COVID is behind us, and that will really give massive impetus to this business, because we had a real negative delta of a couple of million dollars last year because of no offline events. We didn't do our India Premiership, we didn't do Dream Hat, we didn't do [indiscernible] which are all existing established IPs with the revenues and we didn't do all of it. Similarly, on the OML business, NH7 Weekender is a very big property and has not happened. So we believe there's a massive data in demand for off-line events within the community, within gamers, teams, brands and that's going to really give a really huge momentum going forward. We are very committed on building our own IP, and we have been able to launch some of our own IPs like Chess Super League and then with the addition of OML, we've got new more IPs, plus we have been able to talk to our publishing partners like Tencent in South Asia and create that from a white label to IP, where [ Zee Now ] will have monetization rights, and that really makes it almost a joined IP kind of a structure. So overall, it's really going nicely and the momentum continues on Nodwin and some of the innovative ideas like PVR partnership, like partnership with EISL, with sports -- EA sports for FIFA in India, These are all building blocks for future in terms of building more touch points with the consumers and more offerings. The second one, sports era, some of you have really kind of -- in my interactions have said this is kind of a big surprise, which most of you had not looked at it during IPO and have not really kind of deep dive. Our view is these are the kind of companies which we work together, we like to build them out of the public player and once they kind of been some scale and size, the analyst community will do a lot of scrutiny on them. And we would like to keep building these companies while continuing to have an air cover of big partners in the same portfolio driving the growth momentum. The Sports Keeda has grown 127% in first 9 months, INR 58.9 crores of revenue versus INR 25.9 crores and that is also really not coming at the cost of EBITDA again. They have delivered INR 23.8 crores of EBITDA versus INR 14.1 crores, which is 69% growth. That is the power of when you really have a right product, right unit economics, like cost structures, you can really grow very fast. The 59% or 54% kind of margins are very high, but expecting a 35%, 30%, 35% margins as you continue to grow from here would be a good number, but the team continues to surprise us with very high growth and high EBITDA margins. What is driving the growth here? The driving the growth is the 3 sports, which is eSports, Cricket and WWE. That's really kind of continues to drive the growth. And now we are -- we have found a playbook, and we want to really kind of expand our offering into more sports, which are adjacent to us like [ MMA ] and then kind of monetize them. And there is green shoots of good growth in user data as well as of the revenue. That is really what is very encouraging for us in the coming quarters next year, where we are very, very confident of this growth momentum continuing. So that was the eSports segment. I'll quickly cover the Kiddopia. Kiddopia as you all know, 26th April '21, Apple change its policy and after that, the Kiddopia business which grew 8x in FY '21 over FY '20, has really kind of seen some headwinds in our ability to spend marketing dollars. However, what is encouraging is that your consumer engagement retention, conversion from trial to activation, nothing has changed. So your product is very strong. That gives me huge confidence, which also means that our ability to find solutions to get more and more consumers to try this product is what is needed to be cracked and there is no other problem statement, which we need to really figure out. I'm pleased to inform that we grew 3,000 added net subscribers in quarter 3 over quarter 2, which is a 4% growth. If you see here the revenue numbers that some of you would have seen, INR 153 crores is what they delivered versus INR 125 crores, which is 22%. However, whenever you are looking at these numbers, you should look at the onetime normalization impact of INR 6.1 crores in revenue and INR 4.6 crores in EBITDA, when you are doing your analysis, because that is only a onetime effect and the next quarter onwards it gets normalized because the rollover of the revenues happen. So if you were to kind of really look at summary here, consumer KPIs of churn, engagement, retention, ARPUs are all constant. Cost per trial I want to highlight here. The cost per trial is still $33, $34. We do not see that $33, $34 really coming down till we have found a track and solution with Google at a global level. So we'll continue to operate at $33, $34, which is also fine with us because that doesn't really regress any kind of unit economics for us. And as you would have seen, the EBITDA growth is 843%. So this is an amazing annuity business with your high retention, it leads that more and more consumers continue to pay you, while you are still figuring out how to grow not just 4% quarter-on-quarter, but 5% to 6% month-on-month. So our marketing spend are the key reason why the EBITDA spend is down. For the first 9 months, if you see, we have spent $7 million versus $9.4 million last year, which is 25% reduction from the same time and that is directly attributed to our A, Apple attribution policy and our approach of having some kind of [ leverage ]. I'm not really going and taking a blind base on marketing spend. And that is directly reflecting in your marketing -- in your EBITDA margins, which is also why I kind of really urge people to look at a 9-month data and not a quarterly data. Yes. I will move to Skill-based Real Money gaming. Our acquisition of Openplay, we did in September month. This is the first quarter of full consolidation. We are really working here with the team to do 2 things: one, how do we really build a huge amount of data analytics platform so that we can increase our ARPU from existing users as well as create predictive modeling to optimize our user acquisition on different platforms. So we are very -- we have seen a great result. And that effort of building a very strong data platform under led by the founder, and he has kind of picked up a very strong team of Chief Data Science Officer and the CTO. That's what is really helping us. Second thing which we are doing is, we are in the work in progress of integrating Halaplay platform into Openplay platform so that we have one vies of users. We really are able to harness all the kind of the text to [ act ] strength, which attracted us to Openplay into Halaplay, and then kind of be ready for us to leverage that into growth of fantasy. But we are not going to really look at Halaplay, only just fancy as we have mentioned in my previous call also, this is going to become a super gaming app where you'll have multi-game offerings and fantasy would be one and again Openplay has built that platform and will integrate it in a couple of months going forward. So this segment, if you see, I had also kind of promised that we will not like to just have a loss-making segment and if you see in quarter 3, it's a breakeven. In the full year 9 months, it's INR 1.9 crores versus INR 18 crores of revenue. And as we -- this is only first quarter of Openplay, as we move along, we'd like to keep this as a breakeven or positive EBITDA and not really have this segment as a loss-making segment. Freemium, Freemium commentary on the business continues to be the same, where we have the World Cricket Championship as our IP, consumer metrics in terms of MAU, DAU, retention time spend, everything remains same. We continue to be the market leaders in the kid sports simulation genre. And if you look at it, we delivered, it's a kind of flattish number because we are not spending marketing dollars. And why are we not spending? Because we still don't see a paid user acquisition being supported by the LTV and that's why this business continues to remain in this own orbit, and we are still working on how to finance velocity for this orbit. Last Telco Subscription business has seen a decline of 17% year-on-year for the first 9 months. Predominantly, it's coming from India operations. The India operation has declined while rest the world is flat. We continue to maintain that this is not the business today for us to really look at growth drivers. This is for us a cash flow business, and our core growth businesses continue to be gamified learning freemium, Skill-based real money and eSports. With that, I would like to kind of open it for Q&A because that really helps you to get more flavor of the business, more color of the business.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Nitin Jain from Fairview Investment ].

So the 9-month EBITDA growth has been strong, and the margins have come in around 18%. So this is comfortably above our FY '22 guidance, which you gave last quarter of around 13% to 15%. So would you still stick to your earlier guidance for FY '22? Or is there any revision here?

I would like to stick to that guidance.

Okay. Is there any particular reason? Like do we see the margins dipping this quarter? Or can you see the leverage?

See, our view is we would like to continue to work from a revenue growth point of view and not really maximize or optimize EBITDA, right? So as a DNA, we like to have a very feeble spend and very judicious spend. But for me to really kind of look at that is my EBITDA margins of the maximum priority or the first priority, I would like to have first priority as revenue growth rather than saying that I would really throttle my growth to deliver an 18% EBITDA.

Okay. You also mentioned that you would continue to operate the Kiddopia business with the cost per trial around $33 to $34, and it won't impact the unit economics. So can you please elaborate how it will not impact the unit economics?

No, I think, slight correction -- statement. I said we will continue to operate at $33, $34. It will not impact the EBITDA in the near term because we have got a very high retention annuity business, which is giving us that EBITDA cushion. It definitely does impact unit economics.

Yes. Yes, that's what I thought. Okay. And the follow-up on that is, like, is there any reason we are moving away from our last quarter position where we thought it would come down to $26 to $29 in the near term.

We are because we were seeing some green shoots in the Google partnerships, but those have not been sustainable, and that's why I'm not confident about reiterating my statement about $26, $28, $29 CPT. And I do not want to exactly have this question in the subsequent quarters. I would rather be far more conservative and once I've seen a quarter performance of sustained growth scale then only I will kind of guide you there.

Okay. Makes sense. Also, last quarter, in the Media Rights business, you mentioned that you would start selling the ad monetization slots like around 4 minutes per hour or something. So have you started that yet? Is there any revenue flowing in from there?

No, that is still not done. And for us to build that competency of media selling is what we are really working on and the addition of the sales team from OML should help us.

Okay. And my last...

Sorry to interrupt you Mr. Jain, may I request you to please -- the next question is from the line of Mukul Garg from Motilal Oswal.

Manish, first on the Kiddopia business, I think this was supposed to be a seasonally better quarter, but you continue to remain fairly flat lined on this space. Is there anything you would like to highlight compared to last quarter, which you're working on and which can help you recover growth in this particular business? And also, do you expect the near-term margin pressure to continue? Or as you're offsetting IDFA impact? Or are there levers where margins can start improving from current levels?

So Mukul 2 questions, and I'll answer them separately. One is what are we really looking at? Let me break down your question into 3 parts. One is the seasonality of this quarter, which is supposed to be very good. Second question is around the unit margins. And third, what are we doing really differently to get back to growth. If you -- you're absolutely right on the seasonality that this quarter is the holiday season and all of it. But I think the challenge there is how do we get more parents and children to really sample our app. And that is the crux of the challenge. And as I mentioned, our consumer KPIs are absolutely same, which -- and they are very strong and very, very attractive for any unit economics that we were to go back to $26, $28. So the challenge is about how many people can you really create as sampling and sampling through performance marketing, as you are aware, that we are figuring out multiple options, but we have not been able to crack at scale so that we can spend more marketing dollars even at $33 or $34 of CPT. And that's a key bottleneck for us to really see this December quarter as a big 40%, 45% kind of a quarter for overall revenues. Our margin pressure, if you see, because of the monthly retention numbers and annual numbers, in the near future, I don't see a pressure there. In fact, I would like to sacrifice the margin for growth and not keep such high margins, which have been delivered by Kiddopia because I would rather have a 5%, 6% month-on-month growth rather than 4% growth in net subs over quarter. Net subscriber growth is very important for us to keep building because we are a 4%, 5% share player. We need to get to a 15% share player. And that can only happen when we have a lot of people sampling us and lot of -- and we are very confident of the conversion thereafter. And hence, I would like to find options. Now the third thing which we are looking at, we are seeing that performance marketing, we have tried in quarter 2, quarter 3, all options. This is where we are. Let's kind of do -- and we have spoken to a lot of industry folks, everybody is kind of doing a combination of performance and then not just performance like we were doing, and we are embarking on a strategy of building our brand for the first time and then taking it on the different right media mix in U.S. in the April time frame. And our -- already in this quarter, quarter 3, INR 3 crores of media production budget has been built. So we are very well on course to -- and we have engaged a top-notch creative agencies, which understand this cohort of audiences to really help us with creating the [indiscernible].

Sure. And one question on Freemium, if I may. You have been talking about LTV CAC dynamics as the gating factor to scale up investment for a while. Do you see a risk that the focus on LTV CAC might lead to missing or kind of being delayed and catching up the opportunity as you kind of key retain or hold your aggression in the space. We recently saw that we look after invested in Nautilus and Real Cricket obviously has been coming up quite well on the app stores. So any thoughts on how to look at the Freemium space?

So Mukul, Freemium space for us is -- and I'll answer it in 3 parts. First, let me answer your thoughts on Real Cricket part. Real Cricket when you say it's coming up, just to put in perspective, whether it's look at DAU, MAU or revenue, it is still not half of us. Right? Even if you look at other parameters of community, community channels, community engagement, they are still very, very behind for us. But that does not mean that we should be compliant and sit back on our laurels and say that nobody is worth patches. You're absolutely right. On the word Cricket, we need to find more aggression and aggression in a different manner rather than saying that we will spend money on Facebook, Google and try to kind of do brute force. How do we really work through building more community and word-of-mouth through eSports and other partnerships is what we are really looking at this year and ramping up our temperature. The third point is Freemium for Nazara is not going to be limited only to World Cricket Championship, as I mentioned before. We are looking at a few more additions to friends of Nazara network in freemium space, so that this opportunity, as you rightly identify, is super big, and Cricket is just a very tiny winning part of this opportunity. How do we really play into this whole freemium space, which is $140 billion business globally. And India also, it is almost now $0.5 billion plus. How do we really kind of partake in that opportunity and that can only happen through finding good game development studios, which have found the product-market fit and we can do both capital investment and work with founders like we have done with Nodwin, Sports Keeda and Paper Boat. So that's a job which we need to do. And you are absolutely right, Mukul, we need to really accelerate on that rather than kind of saying that Cricket is something which we are waiting for LTV CAC to happen for us to say freemium is the growth driver for us.

Great. I'll get back into the queue.

The next question is from the line of Mohan Kumar from Emkay Financial.

Manish, a couple of questions from my side. The first one is with respect to the eSports segment with Nodwin and Sports Keeda. Fairly strong bump up this quarter. Do we expect this trend to continue on for the foreseeable future to which is when you think about the overall revenue of the firm. December last year was a really strong quarter. And then the next 3 quarters, we had revenue largely in line on a Q-on-Q basis, but this quarter, we've had a really strong comp. Is that a trend we can continue to see? Or is this more like a onetime success?

So 2 things again here. One, Q3 or December quarter is always a very strong quarter for Nodwin. For very simple reasons that this is the right where the brands and publishers want to really open their first strings and activate community because of weather, no exams, festive, all of that stuff. So Q3 will always be a very strong quarter for Nodwin. This time, Sports Keeda also became a very strong quarter because of addition of 1 half leg of IPL and the World Cup ticket, which is where we got a lot of direct sales revenue coming from our efforts with entity players, which wanted to really attract this to same audience for building their brand. So a combination of Cricket as well as the traditional Q3, you see a very strong bump up. Now if you add a further element of M&A, Nodwin has been very aggressive on their M&A because they raised funds in January, [ formation ] closed in April, May time frame and then the pipeline building. So Q3, you saw OML really happening. And then after that, you would have seen some more announcements going in future. And all of those activities will really add to the revenue of Nodwin going forward and which is where I'm very, very confident that you would see a very strong growth trajectory in this segment with a combination of organic growth as well as synergies being derived from inorganic growth.

So is it possible for you to break down what the organic growth and what the inorganic growth was in Q3?

So we don't look at it like that because we are not buying a company here. We are aligning the business capabilities. So if you look at, we have got sales, we have got content production. We have got some IP, we've got talent, and that permeates into different lines of business of Nodwin, which is about white label IVs, joint IPs, content production, media revenue. So this is not a separate company, which is riding the team has been merged into different functions, and that's why we don't look at it and expand upon.

Got it. Got it, sounds good. And with respect to the advertising spend Kiddopia business, -- have you thought about approaching it on a cost per converted user basis? Because I understand that Apple and Google, that's not the approach that they pay with respect to advertising. So do you think that's probably a better way to engage the advertisers and the customers.

Can you talk more about cost to converting? What do you mean by that before I answer?

So with respect to advertising spend, you've got either cost or click where you pay the advertiser for the number of clicks that they are generating versus other cost to convert you get paid -- you pay the advertiser based on the conversion that you're getting. So 1,000 people click...

So essentially, what you're talking about is affiliates, right. Affiliates is what really take the risk of cost of conversion. Most of the publishers do not want to take risk of cost of conversion. They talk about click or even just the impression a step above. So impression in clicks is what publisher likes to do, let's say, next wave or in Sports Keeda, we don't take cost of conversion at all, because that's not our risk, that stuff, guy who's running the service its their risk. So when you take [ cost ] about the cost of conversion, it's an affiliate and typically, the affiliate business is not something which is a very scalable business.

So we've seen the likes of Byju's in India and Zomato, Swiggy, all of them have seen some success over here. That's the reason why I kind of asked that.

They are very different models. Byju's is a more push model. Kiddopia is a very full model. There's a very intrinsic inherent difference. Second, you are selling 20,000, 40,000, 60,000 kind of transaction buying Byju's, while we are selling a $8 kind of a monthly subscription.

Got it. So -- and you emphasized that you expect a strong growth to come in within the growth side over the coming quarters, the 5% to 6%. Is that something that you've already started to see in January of this quarter? Or is it going to [ fluctuate coming ] forward?

No, I'm not seeing a 5%, 6% growth month-on-month. That's my -- that was the growth we had planned for this year before 26 April IDF issue. And we are right now seeing a net new subscriber growth of 4%, 5% quarter-on-quarter, which is the desired thing is to get that on month-on-month. Are the auto boots on that? No. Are we working towards multiple other options, not just performance marketing and keep breaking ahead on this problem, yes, that's what we are doing. And that may -- to answer your question, that may also lead to some EBITDA margins decrease because when you launch brand films or spend on brand films, your immediate performance is not something you can count on. These are top of mind recall or share of mind recall investments, which have a lag effect on your revenues.

Got it. And just one final question. So the way that eSports and that side of segment is growing, so do you expect that to become probably 55%, 60% of total revenues in the coming quarters?

If you look at first 9 months, it's already 48%. If you look at Q3, it's, I think, 53%, right? But to my limited point here is take back 1 year, we were talking about gamified learning being 41% and the largest segment in [indiscernible] driving. The way we look at our businesses, there are 4 growth drivers: gamified learning, freemium, skill-based real money and eSports. And they all are operating in very strong tailwinds and large TAM and different times of quarters or years, they will start having a rocket ship kind of a phenomenon. And hence, I'm not really worried about the revenue mix. But broadly, we are looking at that this is a great decade of gaming, and we are in the right segments, which are all going to grow. As Mukul asked on the question that you guys need to do something on freemium, so that that also becomes a very strong growth driver. And a couple of acquisitions there with very strong product market, which will just change this mix, because the non-linearity capability in freemium business is same as what you have seen in gamified learning. It's a product-driven and once you kind of really take word to your roster, you can grow it very fast.

The next question is from the line of Depesh from Equirus.

Sir, firstly, on eSports, the media revenue proportion you have given for the third quarter, so just wanted to know the contribution of the white label events and your own IT events in the overall revenues. And secondly, with the recent change in ownership of ESL, do you think there is any change in the licensing agreement?

Depesh, good hear you again. Depesh on the ESL, as I mentioned and passed to you on other calls, ESL was a very, very important partnership for Nodwin when they started 7 years back to build credibility. Today, with Nodwin juggernaut having established its own IT, its own name in the market doesn't require those crutches of ESL. Having said that, ESL partnership is absolutely a discussion which we will have and [ Happen Lal ] who is the founder of ESL is not going anywhere. He's also a Board member of Nodwin and ESL is also an investor in Nazara. So I don't see an apprehension at all on that front. However, do we have a dependency on ESL? No, we don't. So I just wanted to clarify that on first point. On the second point, on the media revenue, if you look at Q3, as I think in the earlier question, which I answered, the seasonality of Q3 is very strong. And our partner base, and as you would have read in our presentation, has increased from 20-odd to 60-plus partners. And that includes more publishers also coming on the way. Our ability to kind of create more white label or joint IPs plus addition of OML with more brands wanting to reach to this audience through gaming. All of them has contributed in the increase in the white label as well as the joint IP, your own IP kind of businesses. To answer your question, Depesh, are 3 or 4 bulk line, data service is flat constant, which we have seen in the past. It is about white label, own IP, media revenues and now what we are building is our D2C business within Nodwin. So at the right juncture, I will start giving you the breakup of it. At this juncture, I would like to continue with the media revenue as a contribution and then kind of not get into the second level of detail because that also has some competitive info, which I don't want to diverge.

Got it, sir. So on Kiddopia, given our reduced marketing activities and increase in pricing that you have done, have you seen any drop in the rankings on markets of Kiddopia in the U.S.?

No.

Okay. Got it. And then lastly, like what is the net revision at the end of December? And which segments are you aiming for acquisition apart from freemium that you already talked about?

Which segment I'm aiming for acquisition? I have told before, I have a very simple thought process that freemium, gamified, eSports as well as Skill-based real money, all of them are growth drivers, and we will buy and as Nitish also articulated in his opening remarks, we will buy capabilities, capacity, geography expansion, synergies and users. And in these segments, this is a very large white spaces, which we can really go and look at. And it's not a particular segment we want to focus on a particular thing or a particular geography we want to focus on. The beauty of our model is that the strengths of Nazara network is constantly looking on plugging those white spaces within our portfolio, whether at corporate level or whether at the subsidiary level, wherever there is a cash. And our group has a lot of cash generation, whether it's Paper Boat, which is sitting, I think, on INR 50 crores odd of cash or Nodwin which is sitting on some INR 60 crores odd of cash or we are setting ourselves on INR 500 crores of cash. So cash is not an issue, plus the little stock attractiveness for the founders and their investors has always played out much better for us than cash, because every investor and founder, which has come to Nazara, taking Nazara equity has founded minimum 2x, 2.5x returns of their investments or their swap of Nazara equity with their own equity. So we have seen that the attractiveness and the desire to own Nazara share is very, very high. And that really helps us to not just look at the cash on balance sheet, but the total ability to do the right acquisition. One thing which is very clear, Depesh, as you know, that for us, the founder, founder connect and comfort is very important because we truly believe it's a fence on the Nazara network. And that's why any discussion, any deal will not happen in haste. It will happen with the GU comfort built on the founder and their thought process and vision besides the tangible growth levers, plural, not singular.

Got it.

The next question is from the line of Divyesh Mehta from Dolat Capital.

Sir, can you share the Openplay -- can you explain the open KPI, which you have shared? And can you link a specific revenue post tax, which said how is it laying to the normal revenue? And also the Openplay founder has some other investments in this innovate company. So how are those going to get managed? Because he has several offers on investments in some companies right? And because he's going to manage [ RNG ] business. And the last question is related to Super [indiscernible] acquisition. So from what I get a sense of is that if you scale this partnership even in the friends of Nazara network like putting gas in the premium space or eSports, you could easily cover up the investment amount which you have done. But when I look at the merchant balance space as a whole, it's very competitive like anyone can open, there are many people who have rights? It's not that anyone has excluded right, and anyone can open a website and start selling stock because everything is manufactured in local common plants, right?

So let me answer the last one first. Two things. One, the reason for us to really look at merchandising is very simple that we see a huge amount of community which we attach to Nodwin through Sports Keeda, through WCC and more importantly, very, very [ indigenous ] and emerged community in Nodwin. Over the years through a variety of tournaments and they all come to the platform to participate to register to really kind of play. So there is a very strong contextual entry point which you have where you can make your tax 0 and you can put in your merchandise. Second thing, you can -- we work with publishers very closely and merchandise for a publisher is nothing but a community-building activity, community engagement activity. Our ability -- and we are working so closely with global leaders. Our ability to work with them as a merchandising partners, licensing partners in this country also becomes much easier because we already have their trust and they have trusted their brand, they have trusted with their community with us. So for anyone to really do that, they don't have these things and they will have to really constantly figure out how to release, make in unit economics, scalable, sustainable, and that's what we don't need to really kind of worry because we have so much of consumers touch point already existing to us for us to create this D2C business. Third thing, if you see, we are already building in B2C, we almost have INR 10 crores to INR 12 crores of business coming in every year. Now we started at 1, 1.5 years back on selling e-pins and that is really helping us big time on unlocking communities. Our thought process is going forward, while the IPs are being built and the purpose of IP is building is they have stickiness of BOS, stickiness of player and community, how do we unlock that community and start looking at an ARPU of a community in next 2 years, 3 years, 4 years' time. And while media raised its -- partnership revenue continues to grow. So we are creating multiple growth levers in Nodwin from the activities which we are already doing. However, the more of it, I would love to talk about in Q4 end when we can meet again because by that time, we would have understood this business, started working on it, looking at what is our strategy and plan. This is -- as we speak, the money has also not been transferred. So the transaction is not closed and for us to really build a vision for this thing. Why we are doing explain to you. What is what I would like to meet you in the Q4 results when we announce the full year. Yes. On the Openplay part. Openplay part is a very simple business. It's like any other real money gaming business where you need to look at 2 parts. One, what is your return on advertising spend in terms of months breakeven? And second is, how do you really look at your LTV CAC while you are growing your paying user base. So that's a very simple 3 KPIs, growing paying user base growth, return on advertising spend in terms of months and your predicted LTV CAC based on your initial 30-day, 60-day, 90-day data. If you are seeing those 3 -- and everybody in the team needs to work all their respective functions to drive these 3 KPIs and optimize them and that's the work we have been doing, and we have seen good success on all of these parameters for us to really put more fuel for growth in the coming quarters. And as far as [ Mr. Nitish ] is concerned, in his investment, he has declared that in our SHA also, plus there's a very strong leadership team importantly, which has been old, it has been there and which has been very, very capable team, which is running it. From operations point of view, that's how really the company has done.

Manish, actually, so I have a follow-up on -- what I meant by expanding the Openplay KPI, is that in Slide 52 and 53, you've given net gaming revenue post tax. I wanted to understand what does that exactly mean? And how do I link it to the normal revenue?

Good one. I'll explain you that. So you get your platform commission, which is called gross gaming revenue, right? Which has got most of the gaming -- real money gaming companies really quote in their numbers when you hear about the investment -- private gaming companies really quote when you hear about their numbers coming out. What we are doing is gross gaming revenue has an 18% GST. So we've reduced that -- and then there is bonuses which you give to your players for first-time users or coming users, you also like to reduce that, because then you have the real visibility of what business you are getting into. And that's the Slide #52 or 55, you see because net gaming revenue is then a true picture of your consumer data. Gross gaining revenue is like a gross minus GST minus bonus. So you may see it net gaming revenue at CM1 level rather than the gross number.

Okay. That answers my question. And in terms of Planet Super Heroes, so what do you explain me on that. I completely get that in the friends of Nazara ecosystem itself, you have a lot of entry points where you can easily monetize it. Also you have existing relationships where it is easy to get access to. But if you look at the whole merchandising space for the -- like Marvel and all other things, what's happening around is that people are still able to get a lot of exclusive contracts, even if you scale up in a matter of 2 years, eventually, other people will also look where they would also get those contracts and then it's just a pricing game because you can easily manufacture the T-shirt. The only advantage you'll get is that you have your own off-line presence advantage in finance year '22 plus your off-line presence advantage in the eSports segment and WCC?

So you're absolutely right. Our gain is not dependent on Marvel kind of deals, okay? Marvel kind of -- and if you look at publishers, publisher is not looking at Marvel and they're kind of really looking at our setting up the whole merchandising business from as a business P&L point of view. When a publisher is looking at, they are looking at a community engagement and building for brand and cult around it. So the objectives of a game publisher is different than a Marvel which has a merchandising team, which is only looking at the P&L. For us to really work with publishers, it is very important that we are not looking at the T-shirt deal or as a Bermuda deal, the lunch box deal. We are looking at how do we help you in getting more endorsed to the community. Second, we are also looking at how do we work and licensing, for example, we work with PUBG for Mountain Dew and created cans which is inside the game and where people can really do that. So those kind of relationships is what we really want to do that. Publisher needs a trusted partner where they can give their merchandising. If we can create a business out of it, that's great. However, that is not something which is going to be a key driver of revenues. That's just a head or a search in general, whatever or a relationship, whatever you want to call it. Second thing is the business is not about just t-shirts, merchandising is not equal to T-shirt. Merchandising, the way we are looking at is, we are looking at entire gamer life cycle and what are the things which a gamer really needs and how can we cater to that? It could be a headphone design for gaming, it could be a mouse-pad design for gaming. It could be a mouse design. So all of that stuff is what our thought process is. Our thought process is not just a T-shirt. T-shirt business, I completely agree in [ bandra ] you can find a lot of fakes and that's not something which you want to compete with.

Okay. Got it. And you will just be working...

Mehta, please rejoin the queue.

Okay. Fair enough time.

The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

Sir, I have a question on Openplay. I think it had an annual revenue run rate of about INR 80 crores odd and you also mentioned in the opening remarks that in this quarter, we saw the full consolidation impact. Yet the revenue accretion was only about INR 8.6 crores, which appears to be lower. So if you can just explain this part 3.

I think that's exactly the question which the Dolat guy was asking, was gross versus net?

Sorry to interrupt sir, but that is the case in the base as well, right? When you mentioned that figures in the past, whatever the numbers are given that is there in the base as well, right?

No, no. So that's what I'm saying. The INR 80 crores is not the number, which is in the P&L. INR 80 crores is a gross revenue. Okay?

Okay.

It's pure P&L passed, also, you will see the same net gaming revenue.

Okay. So if I net off, I mean, whatever you have explained. So what is the net revenue run rate, which was INR 80 crores at the gross [ level ]?

INR 3.5 crores per month.

INR 3.5 crores. Okay. And sir, one small clarification. I think the kiddopia pricing is at about $8. But in the presentation, we have stated that the monthly ARPU is at about 6.7%. So if you can clarify on that part? And secondly, also with respect to revenues of eSports, we have given the revenue of Nodwin which is about INR 81 crores, but I think the consolidation impact of OML is also there in this quarter. So if you can share the quantum of OML business as well.

So on the Kiddopia piece, we have 70% contribution broadly coming from monthly and 30% coming from annual. Annual is at $60, while your monthly is $8. As a weighted average, you will get 6.5%, 6.6%. Is that clear?

Yes, sir.

Right. On the eSports fee, as I mentioned in the earlier call, we -- OML has a business integration, not a company. So we are not reporting OML separately, Nodwin separately. OMLs different businesses lines have got merged into different lines of Nodwin. And hence, the consolidated number is of 141, just a second, what is the quarter number? Give me a second. I will just tell you now the numbers are here, INR 141.8 crores is what we are really talking about.

Okay.

So INR 141.8 crores versus INR 95.6 crores 9 months to 9 months.

Okay. Okay. Fair enough. And sir, one last question. I think there was some article which stated that next wave is going to launch in NFT. So any progress on that front? And how do you see the NFT market shaping up in India, considering the fact that the count of mid and hardcore gamers is not very high. So any thoughts on that?

Absolutely, I have thoughts on Web3.0. I believe that WEB3.0 done rightly has a huge opportunity for low per capita income countries like India. Because now when you buy an item inside the game, you are just not buying it for progression in the game, but you can really have a secondary market where you can sell and that really creates a moneymaking opportunity for the player of a mobile game, which today, it is not there. And if you just oppose this with India market, 80% of the Indian market is real money gaming, Why? Because there is a money-making opportunity while 20% is a nonreal money because it's played for entertainment. Now if you can mix a very clean cosh are entertainment with moneymaking opportunity, the magic really happens because you're talking about 400 million people playing entertainment-based games, but no money-making opportunity. So I believe that 3.0 blockchain-based solutions, if done right, will open up the monetization potential of these 400 million people, which is still very small compared to anywhere in the world. Now, as far as we at Nazara are concerned, we do not want to have a promo and rush into some kind of just a marketing positioning and then kind of really look at because we are -- we want to really dominate the space and focus on execution operation like always. And that's what we are working and building internally our own strategy. And once we have complete thinking ready on that, we will come back to you guys. But we truly believe that this is a very important area for us to really look at how we start working and operating on this because it's evolving, but it's going to be a huge money of money generation or revenue unlocking business model in the future.

Sure, sir.

The next question is from the line of Dipesh Mehta from Emkay Global.

I have 2 questions. First, can you give some number about the operating cash generated in 9 months consolidated level? Second question is about the change in accounting we have made in gamified learning. Do we expect details any implication on cash conversion in that business?

Yes. So I'll answer the second one first. Just to simplify this, if a subscriber has come on 12th of a month, previously, we were not getting a data whether he comes from 12 or not because we were getting a monthly report. And of total subscribers, which we have got. And as you understand, the money is received upfront for annual and monthly payment. So cash flow is not impacted. But when you are accounting for it, you are accounting for a full month in case of monthly subscriber, in annual, you were accounting for 1 by 12. Now in case of month also, since we have started receiving day-wise reports, our auditors have said that given that information is there, if the consumer is coming on 12th, you cannot take 30 days, you have only served the consumer for 18 days and hence, just take 18 days of revenue and that 12 days of revenue goes into balance sheet as contract liability and will come into P&L in the next month. So this is the revenue normalization based on day-wise data rather than month-wise data, which is really has a rollover impact of INR 6.1 crores. But at some quarter, you'll have to take a hit. And Q3 INR 6.1 crores is what the revenue hit and INR 4.6 crores is the EBITDA hit. But this is a noncash hit. It's an accounting policy hit. It does not impact cash flows and also going subsequent quarters. This is enrolled --normalize because it starts rolling in.

Understood.

On the operating cash flows generated, I will just ask my CFO, Rakesh Bhai. Rakesh Bhai do we declare 9 months cash flows or it is only done because it's not an audited number, hence, I'm kind of refreshing...

No, Manish, we don't declare.

Because it's first half and then it's a full year. That's what we do as an audited number. I don't want to see a nonaudited number here on the call.

The next question is from the line of Prateek Kumar from Antique Stock Broking.

I have a couple of questions. Firstly, are we seeing any signs of off-line gaming events starting in any way or any meaningful way in near term?

So we had planned in March -- sorry, February, March. In November 30, November, when we sat down, we thought lives coming back normal, and we had already planned and thankfully, we didn't book venues and all of it would have costed us. We are very, very hopeful that the off-line events will start given that now most of the states are opening up. Today morning, Bihar has removed all RTPCR things and other states are also following. Delhi has done that. So I believe that is happening, but you are in the same boat as me, these things keep surfacing. So I can't say with 100% certainty, but as of, I'm very optimistic about that happening.

And my second question, given we have a bit of challenges around growth in unit economics in U.S. business for Kiddopia business. The other -- expansion into other geographies would still be slow, right?

Yes. So we are -- there are 2 parts of it. One is our own focus on U.S., and we want to sort it out. B, what are the other large geographies where really the subscription plays out? And combination of those 2 is what we will decide. As I mentioned in the previous call, after U.S., the largest market is China, which requires amazing amount of thinking, planning, partnership, all of it. At this juncture, we believe that may be a distraction and hence, we want to just double down on U.S.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Nitish?

Yes. Once again, thank you very much for spending your time on Monday morning with us. We look forward to continuing to make maximum effort in our positive intent to grow this business. We see large opportunities ahead of us, and we will continue to strive to deliver. Thank you all very much.

Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.