Nazara Technologies Limited (NAZARA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the update call for the fundraise by Nazara Technologies' subsidiary Nodwin. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitish Mittersain, CEO and Joint Management Director, Nazara Technologies Limited. Thank you and over to you, sir.

Sure. Thank you. Good afternoon, everyone. Thank you for joining us at this short notice for a big business update to discuss the recently announced fundraise at Nodwin Gaming, our subsidiary on esports. I have with me Akshat Rathee, who is the founder of Nodwin. Anupriya Sinha Das who is Head of Corporate Development and SGA, our Investor Relations adviser. Nodwin has announced a fundraise which consists of a primary fundraise of INR 197.2 crores, through private placement and the secondary sale of shares of INR 34.76 crores by the founding shareholders to Nazara. Accordingly, the total transaction value amounts to INR 232crores These funds are envisaged to be channelized towards growing the esports ecosystem in India by Nodwin as well as expanding and incubating new IPs, growing the emerging market footprint and carrying out strategic acquisitions that will drive value to the overall ecosystem. All the existing investors of Nodwin Gaming, which includes us as the majority owner of Nodwin, as well as Krafton, Inc. and JetSynthesys, will join new incoming investors which include Sony Group and Innopark India Private Limited in this funding ground. Post this round of fundraise, Nazara will continue to hold 52.71% stake in Nodwin. I will now open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Abhisek Banerjee from ICICI Securities.

Just a couple of questions from my side. First of all, with the dilution, how much stake is left with the original promoters?

Can you repeat your question? I think I...

Akshat, post this round how much stake is left with the founders, that's the question..

Yes.

Yes. The founders have approximately 17.5% to 18%.

Understood. And any clarity that you can provide on what the infusion is for? I see an interesting name in the investors, you mentioned as Sony. So, does this indicate a bigger foray into the devices part?

Great question and thank you for that. I think, I'll try to answer this as much as possible to go ahead and not wishy-washy. I am not one of those people, or some of the people who have talked a little bit before, you won't see the same. I think it is an intent that we have. Sony, if you go ahead and look at it versus what margin we are trying to go head and build, has very similar overlaps on multiple vectors. For example, we have a Devices division, which we know, which is called WINGS. They have a -- Sony have a great devices business. Sony has a music business. Nodwin has a gaming music business that we have where we do our Weekender and various other festivals, so we have a live event business. We have a live events business. Sony has a cameras business which becomes very interesting for us as part of our broadcast solutions. Sony has a OTT business that we believe we can go ahead and find synergies on. And finally, Sony has obviously the PlayStation in the gaming business, which is very, very core to us. So on multiple -- and we also have a scripted content business, which we have through Rusk, which allows us and again synergies with Sony Pictures and Sony Entertainment. So across different sectors, we have multiple opportunities to go ahead and cooperate. We don't have any specifics that we have and discussed. I think we are all getting into this, both together, all going towards the same road trip. And I think we have lots of commonalities and IPs of interest. I think cooperation is going to be a tactical layer, we will be going to assess, as we go forward.

So did you say cooperation will be on tactical layer?

Correct. Because look, they are not a majority shareholder of us, right? So, suppose tomorrow if we want to go ahead and do a festival together or a music line together or a device together or a gaming events together and esports IP together. That's tactical layer for us.

Understood. But you can always do something with the tech, right? I mean you can utilize your tech capability royalties so that you don't need them to be major shareholders in this.

No, no. And it doesn't matter, what I think the answer to your question here is, they have shown an intent that we are very similar and this is great partnership potential for everyone in the future. And they have taken a stake in the ground to go ahead and invest into us. Sony Corp has not invested for a very long time. If you have looked, we're not being invested in by Sony Music, by Sony Entertainment, by Sony Pictures. We are being invested in from Sony Corporation. It's a...

So basically, you are being -- by the holding company, right?

No. Sony corporation is not holding company. Sony Corporation is a listed entity in Japan.

[Operator Instructions] The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Limited.

Yes. Sir, I just wanted to know, out of this [ $28 million ] that is coming in from new investors, how much is Sony bringing in? And what will be their stake in Nodwin's money.

Anupriya, can you help answer that specific question?

So in terms of the investments, I [indiscernible] taxable now, on the post-money basis. So Sony after the investment will roughly have around 3.2% stake.

And then the amount invested by Sony is [ $10 million ]?

$10 million. Yes, perfect. It's a simple calculation, $10 million on $349 million.

Correct. Sure. Got that part. And secondly, if you can also provide an indicative breakdown as to how much money will be utilized for new IP development or for that matter, is planned for increasing geography? And any specific funds which you have earmarked for M&A?

I think the best way to go ahead and answer your question is, this is not a specific use -- utilization of funds that we are looking at. The way Nodwin looks at is -- it's not like I'll say [Foreign Language] for my new geography I have, for, I don't know, Africa, I am going to allocate $1.2 million and then we'll pull out of it. We believe we're armed with a bank and some dry powder at this time, gives us [indiscernible] territories or it's across the world of gaming, everywhere in the world developing market and lets us be flexible around we want to go ahead and do for those markets. We are going to look out for companies that will go ahead and get us great gaming IPs, which are multiple-year running properties that has renewability of profitability or we are looking for capacity, which is the availability to have delivery centers that can go ahead and deliver things profitably by going and reducing costs from developed markets or we are looking at capabilities. We're looking for people and companies that go ahead and bring the aha factor and the differentiating factor for quality of delivery. So there's no specific breakdown. Nearly all of it is for both, either for mergers and acquisitions or capabilities.

Sure. I get that. One last question. Since Sony will be holding 3.2% stake in the post-money...

Sorry to interrupt, Mr. Joshi. Sir, your audio is breaking up. We are not able to hear you clearly.

Yes. Is this better now?

Sir, slightly better.

Jinesh, you go ahead but speak slow, just speak slower and louder. I can then hear you.

Yes. Yes. So basically, Sony will be holding a 3.2% on a post-money basis. So will it just be a financial investor into Nodwin, or will they also quite any kind of strategic guidance, as such?

The -- Sony, I guess, for Sony that you have asked because I couldn't hear the first word you were saying. Is that your question, saying, is Sony just a financial investor? Or would that also be a strategic guidance part?

Yes, yes.

Yes. The answer in this is, look, we -- every one of our cap table people is a strategic investor with us. We believe in the strategic nature of investors because they give us patient long-term capital to go ahead in building what we like to go ahead and build over a long term. And obviously, for that, they will go ahead and join as an observer in our Board. And as part of the observer, we will continue to go head and interact on strategy and growth and that we can go ahead and have together.

[Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital.

So essentially, my first question is, first of all, congratulation on this development. And my question is, we also saw Krafton infusing fresh money into this transaction. So just wanted to understand, are there a rationale into it? And incidentally, also, we saw some media article now that there is a lift on the BGMI ban. So anything more on that, if you could share?

Yes. I think it is just lucky for us, I guess, where our funding and the game ban happened simultaneously. Sometimes, you have [indiscernible] and the deals get done and sometimes it becomes, both together. So -- and thank you for the well wishes that you said at the start of this. We truly appreciate it and respect everyone's opinion here of what we are building. Your specific question was, why has Krafton done an investment? It's not my place to ahead and talk for them. But the intent for Krafton is, they appreciate what we have built. If you remember, they were our last investors. And in this tumultuous market across the world, the stock market for tech companies and everything has gone -- taken a hit and everything has been repriced. We have gone and given them a 2.7x, 270% return on their investment in approximately 25 months. So they're very, very appreciative of what we are doing. They see what we are. They were happy to go ahead and join in their support to us. We run multiple IPs for them, not only in India now but we believe Krafton has been a great partners and as you know, it's been great. And some of their IPs are extremely relevant to those markets. We also provide the [ mettle ], let's just say, of having any esports companies within the Krafton family ecosystem to go ahead and help them across the world and what they want to go ahead and do. So that's the short answer to what you had asked.

Sure. And another question, extended to that is that we saw that in FY '23, in the second half, we saw a significant drop in the media rights revenue and some where these things are also related to the kind of frequent ban that kept on coming on different games that we were more supporting. And as a result, media right revenue specifically in H2 and also over from FY '21 till '23, has not grown to the true potential. Now with 2 aspect: one, a, BGMI coming back that -- how you see that on the media right side? And secondly, as we already saw Star taking some interest in taking it to the linear TV and now with Sony coming in, do you see that the media right opportunity both from having the key title back and also from multiple media companies having interest in the India gaming ecosystem, both way the vector should help highlight potential in next 2, 3 years?

You answered most of the question yourself. So yes. We are a sports media company, right? We are fundamentally, what we are trying to go ahead and build is a sports media business. Our sport of choice is esports, we're not doing cricket or kabaddi or any other sport. Our choice of sport always remains as esports. And when we try to build this ecosystem around that, which is there -- whether it is sports entertainment with our playground series, that is a scripted content series had 400 million reach. On Amazon, we had our [ IP ] series, which you saw with Star Sports, which we have 3-year contract with Star or any of the properties that people would then keep on manifesting. We believe in the business of sports media rights and anything we can go ahead and do to invest short term, long term, medium term into that, either building through IPs or to bring in partners and investing in the business of sports media for esports is -- we'd invest in. The outcome of the totality, it's just like in the past, every year, whether it was the PUBG mobile ban 3, 4 years ago, whether it was the Free Fire ban or the BGMI ban, we have given this example multiple number of times, right? Nodwin has had to give this exam 3 times already in the kind of past with the 50%, 60%, 70%, 80% CAGR over different times. And we've been able to go ahead and do that because of the robustness of the revenue streams that we have from different parts of the business. So while we might have the media rights business for BGMI, which is the largest game in the world -- in our country, as a portfolio going and tanking because the game was banned, we have been able to go ahead and supplement some of that with our scripted [ manual ] series or we've been able to go ahead and supplement that with white label services. So that is just market evolutionary. As far as the guidance, I don't like giving guidances and forward-looking statements. But I do believe with the game coming back, we are in a happier place today than we were yesterday.

Sure, sure. So a more short-term kind of a question that some of the partnerships that you think can potentially happen with Sony and also with BGMI coming in, do you think some of this could play out in this year second half itself? Or when will -- you have to wait a little longer for these things to play out?

I'll tell you one thing about our business and there's a lot of analysts here today and it's a very important thing to do. We can't control futures. It's impossible. Unlike any kind of a cyclical business, which is there, we can only promise [indiscernible] which are there. And I'll give you an example, and I'm not joking about it. Day before yesterday, I landed in Delhi from Dubai and there was this big storm in Delhi and the pilot side, the outside temperature is 25 degrees. It's 15th of May. And I have this as an answer, which is that, we are living in a world of war. We are living in a world where everything is topsy-turvy. Nobody knows any kind of this. All I can go ahead and tell you is look at what we are doing. We've got a great strategic partner. We'll put in the effort. Nobody has like, example, if there is a sports or cricket tournament happening on Star Sports that was booked 5 months ago or 1 year ago, no one is going to change that tournament because we have now BGMI coming back, right? We will have to find the next slot that is available. Now that's this quarter, next quarter, next to next quarter, April, May, June next year. That is just when we can find that slot. This affects -- I'll just come to that [indiscernible] we go there and evaluate the impact of this effect. Will we have something in that? Of course, we will. When [indiscernible], it's not something that I can control or whatever. We talk to your partners. We sit down with them, we figure out the opportunities. And the people who can go ahead and figure out the opportunities is the team that actually go, have that ability to go ahead and execute and which is what we've been always exhibiting during this time also. And we have the ability to execute if and when the opportunity comes first.

Sure, sure. Just last bit from my side. Regarding the utility of this one, you said that there are many areas where you may like to work on. But specific to understand from a M&A perspective, so whatever allocation goes towards that, what are your thought process in terms of; a, in the area if you think some of the gaps, which you need to participate on? And secondly, what kind of EBITDA margin profile you would have in your filter because some of the recent transactions that we have done was not very accretive to our profitability.