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00:00Hello and welcome to NDTV Profit.

00:10This is Rucha Somaiya and today we have with us Mr. Nitish Mithirsen, the founder and MD

00:16at Nazara Technologies.

00:17Hello and welcome to the show, sir.

00:19Hi, thank you for having me.

00:22Thank you, sir.

00:23So firstly, let's talk about the numbers.

00:24So a little bit of weak quarter for the fourth quarter, but what's your outlook for FY25?

00:31I believe from the call that the management had for the earnings, you're pretty bullish

00:35about FY25.

00:37So what's your take in that?

00:38Yes, you know, I think for FY24, you know, we've set a strong foundation.

00:43If you look at a number while we saw a slightly slower revenue growth, our EBITDA has grown

00:48nicely from 109 crores in FY23 to 128 crores in FY24, but also more importantly, the free

00:56operating cash flow came in at 131 crores, which is even higher than the EBITDA.

01:01So the underlying health of the business is very strong.

01:04The company has also raised 950 crores in FY24, taking a total cash balance to almost

01:131500 crores on the balance sheet.

01:15So I think we are very well poised to deliver much faster growth in FY25.

01:22And we also shared on our earnings call that we have a FY27 EBITDA goal of 300 crores.

01:27And we are working very actively towards that.

01:30Sure, sir.

01:31So talking about the fund raise that you had, so pretty good cash balance.

01:36So what's your outlook on utilization of cash?

01:39Do you want to use the cash only inorganically, or would you wish to grow organically as well?

01:45And how?

01:46So, of course, organic growth is always our first priority.

01:50But most of our businesses are cash flow generating businesses.

01:54So they do not need additional funding to grow organically.

01:57They are able to deploy their own cash flows into organic growth.

02:01So most of the funds that we have will be deployed in inorganic growth.

02:05And we have a very strong pipeline.

02:06We also have a lot of experience in M&A over the last many years.

02:10And that model has worked very well for us.

02:12So I would say we are going to deploy these funds on acquiring global gaming studios,

02:19which can be quite cash flow generative for us.

02:23And we have a healthy pipeline.

02:24We're looking at nearly 15 hot deals at this point of time.

02:28And you will surely see us taking action on this in the coming quarters.

02:33So 15 M&A deals is what we can expect for the coming year, is it?

02:37No, sorry.

02:38What I meant to say was, we have a pipeline of 15 deals that we're looking at.

02:42And some of them we will surely convert.

02:45Okay, okay, sure, got it.

02:48Also, what kind of EBITDA margin or EBITDA range can you expect?

02:54And how will FY25 be?

02:55Will it be more front-ended towards first, second quarter, or more towards the third

03:00and the fourth quarter?

03:01Just a bit on that.

03:02We think the real impact of everything we're doing will start showing up from Q2 of this

03:07year and accelerate into Q3 and Q4.

03:10We definitely expect to show higher EBITDA margins in the current year.

03:14We even grew about 100 basis points in the previous year.

03:17I generally believe over a period of time, gaming business margins should be much higher

03:22than where we are today at about 11%.

03:25So every year, we will keep pushing to increase our margins while we grow our revenues as

03:29well.

03:31But Nitish, you also mentioned about closing our entities which are, say, unprofitable

03:36or with very less profit.

03:38So closing down on such segments, won't that affect the net profit as it did in the fourth

03:44quarter as well?

03:47No, there are two things.

03:48I think one is cleaning up the balance sheet every time and every year.

03:52We want to run a very healthy balance sheet because we have large growth prospects and

03:57we want to ensure that our balance sheet is extremely transparent and clean.

04:01So whenever there is an opportunity or need to clean up, we will consistently do that.

04:06And a lot of the companies we have closed down or sold are companies that are non-material

04:12but just unnecessary baggage for us in terms of process and administrative, etc.

04:17So we used FY24 to do some of that cleanup.

04:20And also some items which required impairments, we cleaned that up.

04:24So I think an ongoing process to do that is very healthy for the company and we will

04:29continue to do that whenever required.

04:32Okay, I got that.

04:34So just on the segmental front, I see that the esports segment was quite good for the

04:39company but there was a loss of client in, say, the ad tech business while the gaming

04:45business was also not that great.

04:48But as I can see on the margin front, the esports segment had just 10% of the margin

04:55but there is good traction on this segment.

04:57So do you plan to change the revenue percentage share from the esports segment because it

05:04has lower margin and how do you expect margin to revive in the esports segment?

05:09Look, for us, the esports is a very strategic business.

05:12We are a market leader in that in India with over 80% market share.

05:16So the guidance to the team on the esports side is continue to dominate the market, continue

05:21to grow aggressively, continue to invest in the ecosystem while remaining profitable.

05:26So we haven't really focused on optimizing margins on the esports business at this point

05:31of time.

05:32Actually, that would be a self-poll if we were to do that.

05:35So I think while you see better margins over there, you need to think of this as a market

05:41leadership play where we would really focus on maximizing margins two years, three years

05:46out from this point of time.

05:48The gaming business, we expect it to grow this year quite well, both organically and

05:53due to the acquisitions we intend to do.

05:56And our ad tech business, while we did suffer last year due to the client loss, we expect

06:02our ad tech business to bounce back quite strongly in the current year.

06:07Sir, also, I think Ethiopia is a sort of weak business for you.

06:11And that is why I think you had hiked the tariff as well recently.

06:14But then that led to a churn for customers.

06:19So how do you plan to take this segment going ahead?

06:23Do you plan to increase the tariff hike?

06:26But that comes at a cost of our customers.

06:29So what's your trade off over here?

06:31Yes.

06:32No, we don't expect to increase tariffs further.

06:36If you compare FY23 to FY24 performance, our revenues are flat, but our profitability

06:42or EBITDA grew almost by 50% from about 25 crores out to 55 crores.

06:47So I think overall, the company has continued to generate very healthy cash since the Ethiopia

06:54business itself has about 160 crores of cash accumulated.

06:58And today we are working on some new ideas and strategies that can help us kind of break

07:02through this plateau that we have faced and scale up.

07:05So doing a lot of activities behind the scene over there.

07:09And hopefully in the coming quarters, we will show some results.

07:12Right, sir.

07:14Okay, sir.

07:15So and just a little bit around taxation, you know, the GST has been increased to 28%

07:21in the gaming area.

07:23So will that affect and what kind of regulatory challenges do you expect going forward?

07:29I think the GST impacts the real money gaming space, which is a small exposure for Nazara.

07:35So it doesn't impact us in a very large manner.

07:38That said, GST clarity going forward makes us interested in that business.

07:43And we are looking at certain M&A opportunities that could be attractive for us.

07:48Overall regulations for gaming, I really do think that India is in a fantastic position

07:53to build a very large gaming industry for the Indian market as well as for the world.

07:58India can really become the gaming nation of the world.

08:01And I'm very hopeful that now that the elections are behind us, the government will focus on,

08:05you know, providing a lot of positive tailwinds to this industry so that we can capture the

08:10market in the years to come.

08:13Any plans for international expansion other than the US?

08:18I think the US is a very large market.

08:20And, you know, we had a very small revenues in absolute terms from there.

08:25I think there's a lot of scale-up available there.

08:27So I think for us currently, the US and Indian markets will continue to be the core strategic markets.

08:34Beyond that, we already work in Europe, we work in the Middle East, we work in Africa, etc.

08:39But if you were to ask me, you know, where will the chunk of the revenues come?

08:43It's largely going to be the Indian market and the US market.

08:46Sure, sir. Got that.

08:48And, sir, just to understand a little more, the kind of EBITDA margin that you are expecting going forward,

08:53that will be coming from which segment, of course, not in particular,

08:58but broadly which segment will be beneficial for you going ahead?

09:01So to our viewers, what sort of segment will help you grow in the coming quarters, like just the near term?

09:09Our gaming business will surely grow with healthier margins.

09:12Our esports business will also grow with healthier margins.

09:15So actually, we're expecting all three engines of growth this year to fire for us.

09:19Got that.

09:21So lastly, from my side, any sort of promoter's take sale?

09:25I know that might not be planned, but any sort of outlook on that, promoter's take sale?

09:31There's no additional promoter's take sale planned at this point of time.

09:37Okay. Got that, sir. So that's it from my end.

09:40And we thank you for joining us and looking forward to have more interactions with you.

09:45Thank you very much.

09:46Thank you, sir.

Nazara Technologies: FY25 Growth Outlook | NDTV Profit

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