Jhunjhunwala portfolio stock: ICICI Securities initiates coverage with 44% upside

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Nazara Technologies has fallen 70% from its top of $1,601 and is currently trading at an all-time low of $486, according to a research report from domestic brokerage house ICICI Securities.

The brokerage house has begun coverage on Nazara Technologies shares with a ‘Buy’ rating and a target price of 700 per share, indicating a 44% upside potential. This is due to the visibility of significant revenue growth in eSports and steady profitability improvement in gamified early learning (GEL).

“It is trading at 45 times 1-year ahead P/E at the present market price. For March 24, we set a target price of 700 for the stock. Our target multiple is 41 times FY25E EPS, which is 1.5 SD less than the historical 2-year average P/E “The message read.

6.6 billion in cash and an additional 40 million in Silicon Valley Bank are held by Nazara. Once regulatory certainty is established, the brokerage believes this might be exploited to increase scale through acquisition in real money gambling.

value in the bull and bear cases
Also, given the current cash scenario, Nazara might profit from affordable acquisition opportunities. The firm expects a bull case valuation of $800 should these triggers materialise (for March 24).

The brokerage, however, sees a negative case value of $400 (for March 24), implying an upside:downside skew of 3.7:1, which makes it an appealing Buy if growth slows or margin gains do not materialise, it added.

In FY24E, ICICI Securities projects a 37% increase in revenue year over year, driven by eSports’ 45% YoY growth and GEL’s 25% YoY growth. The brokerage forecasts 86 percent year-over-year growth in EBITDA for FY24E, driven by a 250 basis point increase in EBITDA margin as eSports IPs expand and GEL profitability rises as a result of new subscriber additions and pricing increases.

The company’s inability to establish its gaming accessory business, which would result in lower margins, the impact of increased competition/a slowdown in US markets, the ongoing delay in RMG regulatory clarifications, and the company’s inability to identify and integrate acquisitions are among the key risks, according to the brokerage.

Investor Rekha Jhunjhunwala holds 65,88,620 shares, or approximately 10% of the tech company, as of December 2022, according to current shareholding patterns on the BSE.

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