India is one large market that game publishers are looking at: Manish Agarwal, CEO, Nazara Technologies

By Urvashi Valecha

India with its young population and being entertainment-driven is one large market that game publishers are looking at, says Manish Agarwal, chief executive officer, Nazara Technologies. In an interview with Urvashi Valecha, he explains why the company is not raising any growth capital with its Rs 583-crore initial public offering slated to hit the markets. Edited excerpts:

You seem very optimistic about the gaming market in India in the sense that it would become bigger than Bollywood going forward. Can you explain more about the gaming market in India and the potential it offers?
I don’t say that the gaming market will be bigger than Bollywood in the future, it is already bigger than Bollywood. In gaming you don’t need to pay upfront, you download a game and you pay after. When you are gaming you overcome some challenges in it. That makes you feel good about yourself. When you are playing multiplayer gaming, every game play that one engages in the outcome is never alike and the experience is fresh. All of this makes it a very engaging entertainment format compared to content which one will watch once or twice. This is what we are seeing in the country where the number of gamers has shot up and the number of hardcore as well as midcore gamers is increasing rapidly. The revenue from gaming in China is at $14 billion and from the US the revenue is $9 billion. South Korea and Japan generate $5 billion and more in gaming revenue. India with its young population and being entertainment-driven is one large market that game publishers are looking at.

With this IPO you are not raising any growth capital, why has that been the case?
We have approximately Rs 200 crore of cash and our businesses are profitable and cash flow-positive businesses. Even if we were to invest for growth, the requirement of cash is not significant in our portfolio. Also, we did Rs 100 crore of primary just before the IPO. To add to that further, recently Krafton, which is the South Korean gaming giant, came into Nodwin and invested Rs 109 crore as a primary.

Our strategy is to pursue strategic acquisitions in future in freemium, esports and gamified learning and we have been prudent in cash utilisation in M&A in the past by using a combination of cash and other rights issues. For us, the IPO is a strategy to pursue acquisitions because your ability to attract good companies with liquid capital becomes easy when you are listed. We will be able to demonstrate the wealth, which we have created for the founders and investors of the past acquisitions, to the new set of founders as we add more founders to what we call the friends of Nazara network.

What are the specific verticals you are present in?
We have five verticals, of that the vertical that contributes the most at 39% is gamified learning, which is for children aged two to six years. It is a very fine balance on the content where the child wants to be entertained and parents want edutainment and that’s the niche that we provide through a subscription service on an app called Kiddopia.

Our understanding is that the propensity to pay for a subscription-based service is a habit which will take time in India to evolve. That’s why we chose to operate in the North America market.

The second vertical we have is the esports vertical. It has a large community of gamers where they like to watch professional players of those games play matches and they like to consume that content live. For us, we provide premium content to the OTT platforms where the grassroots communities can watch the professional players playing in the professional tournaments organised by Nazara. We make revenues from these OTT platforms and TV and also we get money from the game publishers and money from brands, which sponsor our tournament.

Today, India has 360 million gamers out of that only 50 million to 70 million would be midcore to hardcore gamers. As the base of 360 million becomes 500 million to 600 million gamers, base of midcore and hardcore gamers will grow to 150 million to 200 million gamers and this growth of midcore and hardcore gamers will drive growth for esports business.

The third segment is our telco subscription business, which has a share of 21%. The fourth business is the freemium which is 5% of our business. The last segment is the fantasy sports segment which is 3%.

What are the risk factors that your different lines of business see?
The gamified learning business is 100% North American, the guidelines which come from FTC and the government of America and COPA are guidelines we adhere to. There are audit firms which have been empanelled by the government, so any changes in rules there could have an impact.

Our business comes from Apple and Google, any changes in their policy could impact gamified learning business. On the growth potential of esports and freemium, its purely a function of how large will the midcore and hardcore segment grow in India. Growth of the market itself is a risk there, otherwise for both those segments, we have a very strong leadership and strong ability to take advantage of growth and how fast can the market grow that’s a risk.