Shares of Nazara Technologies crashed 7 percent on March 13 in the pre-open itself, following news of two subsidiaries of the Indian gaming platform holding cash balances at the crisis-hit Silicon Valley Bank (SVB) in the US.
At 9:17am, the Nazara Tech shares were trading 4.2 percent lower at Rs 496.05 on the BSE. The stock has disappointed investors in terms of delivering returns. Talking about marquee investors, Rekha Rakesh Jhunjhunwala holds 10 percent in Nazara Technologies.
Amid the collapse of the US-based SVB, which is the largest vendor in the startup ecosystem, digital gaming and sports platform Nazara Technologies on March 12 said two of its step-down subsidiaries - Kiddopia Inc and Mediawrkz Inc - hold cash balances there.
The balances held at SVB by the subsidiaries cumulatively account for $7.75 million (approximately Rs 64 crore). SVB is is now under the receivership of the Federal Deposit Insurance Corporation (FDIC).
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Kiddopia Inc is a subsidiary of Paper Boat Apps (owned 51.5 percent by Nazara), while Mediawrkz Inc is a subsidiary of Datawrkz Business Solutions (owned 33 percent by Nazara).
FDIC has stated that it would issue an advance dividend to depositors within the next week with future payments coming as asset sales took place. Regardless of the ultimate outcome and its timing, both subsidiaries continue to be well capitalised and are generating positive cash flows along with profitability, Nazara Technologies said in an exchange filing.
“Therefore, we expect no impact on their day-to-day operations, business performance and growth plans due to the SVB event,” it said, adding that the Nazara Group continues to maintain healthy reserves of cash and cash equivalents in excess of Rs 600 crore, excluding the SVB-impacted funds.
Meanwhile, the company’s CEO and Founder Nitish Mittersain told CNBC-TV18 that the firms were still in good shape and that the parent firm doesn’t need to step-in to support the subsidiaries. In fact, he says the overnight statement by the US Federal Reserve gives hope about recovering the entire amount.
Analysts like Nazara Technologies’ approach to expand the business. Last year, it had acquired a US-based game development studio focused on gamified early learning, WildWorks, to expand beyond the 2-7 age group where Kiddopia has a presence and WildWorks’ acquisition has helped plug this gap (target market is 8-12 years).
Gamified early learning, which is Kiddopia and WildWorks, forms 24 percent of the company’s total revenue during the first nine months of FY23, while advertising technology services provided by Datawrkz contributes 14 percent, according to the company’s latest investor presentation.
Prabhudas Lilladher had recommended buying the stock as Nazara Technologies’ portfolio approach to gaming not only diversifies unforeseen risks like Apple’s privacy policy issue or regulatory uncertainty surrounding RMG, but also creates additional growth levers through the inorganic route.