• 3 months ago
Transcript
00:00Our first management in focus is Nazara Technologies and my colleague Rucha spoke to the joint MD and CEO Nitish about the company's growth prospects ahead.
00:10Here's what he had to say.
00:12You know, for us, Adobe, which is the main IP of the promote, has been a fantastic outcome.
00:22It's got established as a global IP and game for kids in the age of two to eight.
00:27And we believe that by acquiring 100% stake in this business and making it a wholly owned subsidiary of Nazara, there's a lot more we can do and grow this business to the next level.
00:38So I think we are very excited about this opportunity and to take it over to the next level and have a positive impact on kids all over the world.
00:48Right. So as you had mentioned in the exchange filing, you've been a total cash consideration of around 300 crore, of which around 225 has been paid in the first tranche.
00:59Can you tell us more about the second tranche for this transaction?
01:03Yeah, sure. There's a certain transition period post which they will make the remaining payments.
01:09Also, it's important to note that the company, Paperboat Apps, has cash of approximately 160 crores, which will also get added to our balance sheet after this transaction.
01:21Right. OK. And amongst the revenue from Paperboat, in which of the segments do you expect the revenue to be included?
01:29I think it'll be you. You have largely eSports and ad tech as your major businesses, if I'm not wrong.
01:36We also have a gaming business, which is our primary business. We have gaming, eSports and ad tech.
01:41So Kedoke is already included in the gaming business and will continue to be reported in there.
01:49So the revenue from Paperboat is to be included in which segment again?
01:53In the gaming segment.
01:54In the gaming segment. All right. OK. So talking more about the revenue growth in terms of say CAGR, the compounded annual growth rate,
02:02what kind of growth percentage do you expect to come from this kind of acquisition?
02:07So, you know, we have been, as you know, we had acquired majority stake in Paperboat Apps nearly four or five years back,
02:15and the company's almost grown 6x to 8x in that interim period.
02:21In the last year and a half, two years, you know, the growth was a bit muted.
02:25But now with the takeover and new strategies that we are putting in, we hope the growth will resume on an accelerated phase.
02:31I think it is possible if we do everything correctly, that this business could, you know, double in the next three to four years.
02:39OK. Double is, I think, great for the company.
02:43But then can you tell us about the margin profile that could be coming from this one?
02:47So initially, do you expect margin dilution, say for the next two, three quarters, is it?
02:53You know, the business has been generally in the 20 to 22 percent kind of margin rate.
02:59And as you try to accelerate for growth, you may see some drop in margins because we spend more money in acquiring users and we get revenues from these users we acquire over a two year period.
03:11So from an accounting standards perspective, you know, we have to expense all the user acquisition costs upfront.
03:17So as we move into a larger growth profile, you may see short term margin pressure,
03:23but that will eventually deliver very healthy margins at scale.
03:29Right. So talking about the Q1 numbers, the margins were at 4 percent around.
03:33So dilution at this stage would mean what? Muted margins going ahead?
03:38No, I'm not sure which numbers you're referring to, because our overall margins were closer to 10 percent on EBITDA side of the company.
03:47And Kidokobe actually had much higher margins. Their margins were closer to 20 percent.
03:52Right. OK. Actually, I was referring to the EBIT margin, but nevertheless, 10 percent margin to be diluted to around what level?
03:59Around 7 percent levels is what do you expect?
04:02Again, just to clarify, you know, I was talking about margins specifically to Kidokobe.
04:07OK. 10 percent margin.
04:09We're looking at the overall business of Nazara, which is, as you know, is a very diversified business.
04:14And I believe our margins will continue to improve this year and in the years coming ahead.
04:20So we don't expect pressure on the overall margins of the company.
04:24So, sorry, coming back, the margin dilution, which you talked about, you were only talking about the Kidokobe business?
04:30Yes, that is right. So won't that have an effect on the overall margin?
04:34No, it will not have. I mean, because we are, like I said, we are a diversified platform.
04:38And while we may expect some minor correction on margins on Kidokobe as we try to grow the business,
04:45we have many other engines of growth and of margin enhancement, which will make up for it as well as deliver additional margin.
04:52Right. Got that clarity on margins. Thank you.
04:55Moving on to the new pact with Telangana government for the AI Innovation Hub, which the company has entered into.
05:02Can you tell us more about this kind of pact?
05:08Sure. You know, we think that artificial intelligence for a business like ours,
05:12which is in technology, new media, is extremely important to focus on.
05:17I think in the next three to five years, you're going to see significant disruptions, both on the positive and negative side.
05:24And therefore, we want to make sure that as a company, we are, you know, paying a lot of attention here and doing a lot of active work here so that we can leverage and benefit from AI as it comes.
05:34In gaming, especially the way you make games, the way you engage with players, the way you monetize these players.
05:41I think AI can make a world of a difference.
05:44And therefore, we want to create a center of excellence where we are going to have a core team that is going to focus on continuous innovation on this space.
05:52And the Telangana government has offered us, you know, a lot of benefits that we are quite excited to promote this.
05:59And we are very excited to kind of work together to build the center of excellence over there.
06:05Right. Got that. So any kind of revenue potential, not really from this one, right?
06:10There's no direct revenue potential, but I think indirectly, it would have a lot of benefit to a variety of the businesses that we do.
06:20Right. Do you expect any kind of pact with some other government as well going ahead?
06:26Sure, we may. We're always open to working with, you know, government, both at state level and national level.
06:32You know, our belief is that India has a massive opportunity on the gaming side.
06:37The Prime Minister in this Independence Day speech actually had a vision statement on how Indian gaming can build and Indian gaming developers can build for India and for the world.
06:46So I think from a Nisara perspective, wherever we can engage with all the relevant stakeholders to grow gaming in India, we'll be more than happy to do so.
06:56Right. OK, got that. Again, moving on to some very interesting and talked about topic is the GST on gaming.
07:05Do you expect the government to, say, increase that kind of GST on the gaming services as was talked about, say, last year towards the end of October?
07:16So how do you see that as a threat to the company?
07:19I think the government has already significantly increased the GST in October of 23.
07:25And in fact, the GST council's review that just happened showed that the GST revenues from gaming have increased by 400 percent.
07:34So I think that action has already been taken by the government.
07:37And various gaming companies are kind of hoping on how to accommodate the increased taxes while continuing to grow and deliver a profitable business.
07:46That is a work in progress. Right.
07:50Got that. So I think the threats are already priced in, and I think that will not be a major sort of effect on the company's operations going ahead, if I'm not wrong.
08:00That is correct. Right. Sure.
08:02Moving on to, say, the outlook for the second half of FY25.
08:08You said that in the last call, you said that you anticipate announcement of partnerships in the Kidopia segment,
08:15and you also expect expansion in the e-sports segment to grow in the second half.
08:19So how do you stick by to the outlook for FY25 going ahead?
08:24We remain very positive. The company is very active.
08:27We've also been very focused on new M&A.
08:31We announced a transaction about three weeks back with a UK-based studio called Fusebox.
08:37So we built a very strong deal pipeline and I think we will continue to invest very actively in the coming months.
08:43So we remain very positive on FY25 and even more positive so in FY26.
08:51Right. You remain positive so in FY26. Got that.
08:56Okay. You also mentioned about the publishing division, the new contract for that.
09:01And you also mentioned about targeting 5 million pre-registrations before the launch.
09:05I mean, that's huge. So how's your progress towards that?
09:08Very good. We recently launched the pre-registrations for 4G,
09:12which is a game, you know, made in India game, I would say, which we believe can be very popular.
09:18That's one of the first key games that we are publishing on the Nazara publishing platform.
09:24And we're off to a good start. It's a bit early to share numbers.
09:27We are confident that we will get a few million registrations before we launch the game.
09:32And the game should launch in a couple of months' time.

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