- EBITDA margin jumped to 16.7% – well above the 15.4% consensus.
- De‑consolidation of Nodwin shifts focus from scale to profitability.
- Revenue CAGR of ~11% projected for the next three years.
- Target price remains Rs276 on a solid‑to‑solid (SoTP) valuation.
- Hold rating persists, but upside remains if margin trajectory accelerates.
Most investors skim the headline EPS cut and walk away – that’s a missed opportunity.
Why Nazara's Margin Expansion Beats Industry Trends
Nazara Technologies reported an EBITDA margin of 16.7% for the latest fiscal year, outpacing the consensus estimate of 15.4%. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is a key profitability metric that strips out non‑operational costs, giving a clearer picture of cash‑flow generation. This margin uplift was driven primarily by two engines: the console publishing arm and the offline entertainment segment (SMAASH + Funky Monkey). Both segments showed higher‑than‑expected operating leverage, meaning each incremental rupee of revenue contributed more to profit than before.
De‑Consolidation of Nodwin: Profitability Over Scale
The research note highlights the strategic decision to de‑consolidate Nodwin, Nazara’s esports subsidiary. While the move reduced the consolidated top‑line, it sharpened the focus on core gaming IPs. Nodwin’s own revenue rose 1.6x, and its EBITDA margin settled at 15.3%, indicating a sharp turnaround. By shedding the consolidation drag, Nazara can present a cleaner balance sheet and a higher‑margin profile, which is attractive to investors who prioritize earnings quality over sheer scale.
Sales Growth Outlook: 11% CAGR and What It Means
The analysts project an 11% compound annual growth rate (CAGR) in sales over the next three years. CAGR is the geometric mean that smooths out year‑to‑year volatility, offering a realistic view of growth trajectory. Coupled with an improving margin ladder—12.6% in FY26E, 15.6% in FY27E, and 16.8% in FY28E—Nazara’s earnings per share (EPS) could rebound despite the current downward revision of 11% for FY27E and 8% for FY28E due to adjusted depreciation assumptions.
Competitive Landscape: How Tata Gaming and Adani’s Play Impacts Nazara
India’s gaming sector is heating up. Tata Group’s recent foray into mobile gaming and Adani’s investment in e‑sports infrastructure create both headwinds and tailwinds. Tata’s focus on large‑scale distribution could pressure Nazara’s console publishing margins, but Adani’s infrastructure push may expand the offline entertainment market, benefitting Nazara’s SMAASH and Funky Monkey venues. The key differentiator for Nazara remains its diversified IP portfolio and the ability to monetize both digital and physical gaming experiences.
Historical Parallel: Past Gaming Spin‑offs and Market Reaction
When Ubisoft spun off its mobile division in 2019, the market initially penalised the parent for reduced revenue, yet the focused mobile entity later outperformed expectations, delivering a 20% margin uplift within two years. Similarly, Nazara’s de‑consolidation could be a short‑term pain point, but the long‑run narrative aligns with a profitability‑first strategy that has historically rewarded patient capital.
Investor Playbook: Bull vs Bear Cases
Bull Case: If Nazara sustains its margin expansion and the 11% sales CAGR materialises, EPS could recover to pre‑revision levels by FY28E. The SoTP‑based target price of Rs276 would translate into a 12‑15% upside from current levels, rewarding investors who enter on the hold recommendation.
Bear Case: A slowdown in offline footfall post‑pandemic or intensified competition from Tata and Adani could compress margins. Additionally, any further depreciation adjustments could erode EPS, pushing the stock below the Rs276 target.
Given the current data, a “Hold” stance remains prudent, but positioning a modest allocation now could capture upside if the profitability narrative holds.