IIFL Special Opportunities Fund has acquired a minority stake in mobile game developer Nazara Technologies from Westbridge Capital for about Rs 330 crore, marking the largest private investment in the gaming space in India.
The stake sale will give Westbridge Capital multi-bagger returns of over 40 times the price at which it invested. The deal will see its stake in the company drop to a little over 30% from about 55% now, a person aware of the development said, requesting not to be named.
ET had recently reported that Nazara has roped in ICICI Securities and Edelweiss Financial Service for a Rs 1,000-crore IPO it plans to float in the next six months. Founded in 2000 by Nitish Mittersain, Nazara could be valued at between Rs 3,000 crore and Rs 3,500 crore in its IPO expected by middle of 2018.
The good thing about Nazara is that they are not a gaming developer which drives most of revenues from one hit release, but a diversified publisher. And they are also diversified across global markets and not just India.
This makes the predictability of cash flows much stronger," said Prashasta Seth, CEO of IIFL Asset Management, which made pre-IPO bets on companies like AU Financiers, ICICI Lombard, Reliance Nippon AMC, National Stock Exchange and Indian Energy Exchange.
"Right now, they generate most of the revenues from subscription revenues. But now we see an opportunity to increase revenues through in app purchases in games," he added. Nazara is one of the rare highly-profitable companies in India's digital market.
In September, an industry executive had told ET that the company is planning to finish the listing process by the end of March 2018 and is expecting a valuation of 30-35 times projected profit after tax (PAT) of Rs 100 crore in FY19.
Nazara, popular for its 'Chhota Bheem' game, had gross customer billings of over Rs 550 crore with PAT of Rs 66 crore, according to the company's report. It has been profitable since 2007.
India's mobile gaming market is expected to expand from $200 million in 2016 to $3 billion in 2019, according to a FICCI-KPMG report last year. With telecom operators lowering voice and data rates amid intense competition, smartphone penetration in the country is expected to deepen, which in turn could push up adoption of mobile games.
Over the last decade, Nazara has also expanded to 74 countries as publisher, diversifying its revenues across Africa and the Middle East as well. The company's plan for an IPO comes at a time when it is looking to expand from its focus on casual mobile gaming to become a broader ecosystem player. In February, ET had reported that Nazara Games has committed to investing Rs 136 crore in its eSports venture over the next five years.
Another area it is looking to foray into is real money skill-based gaming, for games like 'teen patti' and poker. It is also looking to actively pick stake in gaming startups—last month it invested in game development studio Moong Labs, which it had partnered with to launch a 4D cricket game featuring India's Virat Kohli.