Its 583 crore rupee (about USD$80 million) initial public offering (IPO) was oversubscribed 175.5x, and the company is now valued north of US$600 million (4,762.67 crore rupees).
This was the game publisher and distributor’s second attempt at a listing after it had aborted its first try in 2018 despite having the necessary approvals.
Nazara founder Nitish Mittersain / Photo courtesy: Nazara Technologies
Founded in 1999, when the word “startup” was still bright and shiny and Mittersain was still a 19-year-old college student, Nazara’s beginnings were prompted by two factors.
One was that its founder, an avid gamer since he was five, didn’t want to join his family’s textile business. Second, as Mittersain tells Tech in Asia, “everyone was setting up dotcoms [back then],” so he set up Nazara.com to develop Flash-based Indianized games like Housie (Bingo).
The young company was just beginning to find its footing when it got swept up in the dotcom crash of the late 1990s. Mittersain had hoped to raise a few million dollars then, but that dream popped alongside the dotcom bubble.
Since then, Nazara went through many twists before reaching this current point in history where it is the only gaming company in India that has its fingers in almost every sub-category of the gaming industry pie.
Its recent moves have drawn comparisons with Tencent Games’ playbook, with both companies using mergers and acquisitions (M&A) to get ahead, though the parallels end there.
While Tencent Games made a record number of 31 M&A deals last year alone, Nazara has acquired only five companies in the last five years.
Yet these deals have carved a fresh identity for the Indian firm as a holding company with diverse interests. Once known as a publisher and distributor of casual mobile games, Nazara now dabbles in edutainment, real-money games, and fantasy sports, among other verticals in the gaming industry.
It’s certainly been a long, winding road for a company that had to sell its computers following the dotcom crash just to pay the salaries of its 50-odd employees.
“It’s very different from what it used to be. Nazara has had multiple avatars, like a cat,” says Akshat Rathee, managing director and co-founder of esports company Nodwin Gaming, where Nazara has been a majority stakeholder since 2018. (PUBG creator Krafton recently picked up a minority stake in it.)
Float like a butterfly
Leaving behind the days of web-based browser games, Nazara’s first pivot involved making Indianized games for mobile phones.
It also began putting out Bollywood-inspired content for mobile phones such as wallpapers, ringtones, screensavers, video clips, and SMS trivia.
This non-gaming turn was done for one reason alone: to pay off the US$500,000 loan Mittersain had taken out from friends and families to keep Nazara afloat in its early days.
A storyteller who has told his company’s tale several times over, he likes to talk of how boxer Muhammad Ali’s quote, “Float like a butterfly, sting like a bee,” has helped shape Nazara’s vision.
Managing a company’s cash flow, as any business owner knows, is crucial to helping it stay afloat. And Nazara hopes that the partnerships and acquisitions it has made are potent moves that can help it expand into new business lines.
One of Nazara’s earliest hits include Chhota Bheem Race, an Indian cartoon series-inspired mobile game developed in 2015 in collaboration with local developers. That same year, it became the first India-developed game to top the country’s Google Play free games download charts. (India is largely powered by android phones.)
Nazara hasn’t looked back since, seeking out partnerships among both new and established industry players.
It’s not hard to see how it chooses its newer partners: In 2015, 2016, and 2017, the mobile cricket game World Cricket Championship 2 was consecutively listed as one of the top 10 games in India on Google Play. In 2018, Nazara acquired a majority stake in its developer NextWave Multimedia.
One of Nazara’s popular mobile games, Chhota Bheem Race, is based on an Indian cartoon series / Photo courtesy: Nazara
Nazara’s offerings currently include esports, gamified learning, and sports and eports news (through the website Sportskeeda).
It also offers a subscription-based gallery for telcos. “Think of this as Netflix for casual gaming,” describes Mittersain. For a fixed price, telcos can offer their customers a curated bundle of games that Nazara has put together.
By partnering with telcos for gaming subscriptions, Nazara has expanded to over 50 countries, including Southeast Asian nations Malaysia, Thailand, and the Philippines. The company’s telco partners today include the Indonesia-headquartered Telkomsel, Myanmar’s MPT, and Norway’s Telenor.
At one point, Nazara had about 100 games in its gallery, solely from American gaming company Electronic Arts.
Meanwhile, its real-money games business includes fantasy sports platform HalaPlay and quizzing application Qunami, among others.
Now, when Mittersain looks back, he likens the years after the dotcom crash to “a really expensive MBA.” What significantly reversed the company’s fortunes was getting an endorsement from cricketer Sachin Tendulkar in 2005, he recalls.
The founder had approached India’s most favorite cricketer to waive off the bulk of his million-dollar endorsement fee and support one of Nazara’s cricket games.
While Tendulkar’s representatives wouldn’t budge on the matter, Mittersain says it was the cricketer’s personal interest in how the mobile gaming technology resounded with the youth that convinced “Master Blaster” Sachin to override his advisers and sign a three-year contract as brand ambassador for Nazara’s mobile cricket game.
“We weren’t able to monetize that game very well,” recalls Mittersain, but the endorsement had other important benefits.
The association with Tendulkar brought the company credibility and media attention, which then brought it to the gates of investment firm WestBridge Capital. Mittersain says it also helped seal a deal with telco major Airtel, and deals for mobile content with other telcos soon followed.
By 2015, the company had nearly 250 crores rupees (about US$33 million) in cash even though it had raised only 12 crores rupees (about US$1.6 million), says Mittersain.
Encouraged by the cash pile it was sitting on, Nazara spent the next few years working on a slew of investments and acquisitions to build what the founder refers to as a “Friends of Nazara” network.
On a consolidated basis, the company’s revenue stood at 2,629.65 million rupees (about US$35 million) for FY 2019-2020 against 1,861.39 million rupees (about US$24.8 million) for FY 2018-2019.
Going public then made sense, after all of Nazara’s diversification. “It was the next level of evolution,” says Mittersain.
Besides the obvious benefits, such as creating liquidity for stock, “we also thought it will give us credibility and more reputation to build on, and not just in India.”
Apart from creating credibility for itself in the industry, Nazara’s IPO also ensured that its early backers would get their money back with hefty returns. WestBridge Capital, for example, had invested a total of 22.6 crore rupees (about US$3 million) in the company, and upon its exit in January, it pocketed nearly 1,000 crore rupees (about US$134 million).
A surprising edtech move
Nazara’s approach to acquisitions is based on three pillars, says Mittersain. First, founders of the companies it acquires should continue to have a sizable stake in their startups.
“Second, we give them equity in Nazara so that they become aligned with us as far as our platform success is concerned. Third, we give them 100% operational freedom,” he says.
This hands-off approach has particularly worked with Nodwin Gaming, says the esports company’s Rathee. “They’ve let us do what we think is right. They’ve actually acted as an investor, which is great.”
Diversification has served the company well.
Kiddopia, a subscription-based pre-school edutaninment app for gamified learning, currently accounts for 39% of Nazara’s revenues, shares Nazara CEO Manish Agarwal.
Meanwhile, about 32% come from esports through Nodwin, which runs tournaments such as ESL India Premiership. The fifth edition of this tournament, which has been a hit among sponsors, was livestreamed on Disney+Hotstar last month and saw teams competing in games such as CS:GO, Clash of Clans, and FIFA21.
For the rest of Nazara’s revenues, about 21% come from telcos and 5% from NextWave (through the mobile game World Cricket Championship) while sports fantasy brand HalaPlay brings in about 3%.
While Nazara has no competitors in India on the whole, its verticals have competitors to look out for.
“We are in the top five in the market where Kiddopia (edutainment) operates in the US, but we have a lot of catching up to do, and while we have a dominant share of the esports market [in India], there’s going to be a lot more competition in that vertical in the future,” says Mittersain.
As financial documents show, Nazara has been the most aggressive investor in the Indian gaming ecosystem, investing over 300 crore rupees (US$41.3 million) in a mix of cash and stocks over the last five years.
Much of the money goes to early-stage startups, so the success-to-failure ratio can be high, admits Mittersain.
“These are young concepts with their monetization models not proven yet. Some of them will do well, some will stagnate, some will die. But going forward, we would like to strengthen our incubation platform,” he says.
These new relationships are forming at a time when older ones are fading out: Telcos’ contribution, for example, to Nazara’s revenues has been steadily falling.
The reason for this is an altered industry. “It isn’t changing; it has already changed,” says Nazara CEO Agarwal. The India business, for instance, which has contributed more than half of the 170-odd crore rupees (about US$22.7 million) from telco subscriptions in 2017 and 2018, has been disrupted with the entry of Reliance’s Jio.
While low-priced data offerings have helped Jio dominate the market, it has also disrupted the business model that had changed Nazara’s fortunes.
“Games and other services used to be impulse purchases, often influenced by advertisements, and were catered to non-tech savvy consumers who wouldn’t directly go to the Google Play store to download games,” says Agarwal.
Before Jio floated its dirt-cheap data in the market, customers would keep a certain amount of money in their telco-affiliated wallets and use that to make calls and download games, music, and more. Money would come to Nazara through these wallets since it offers a bundled service to telcos.
Jio then stomped in with offerings that wrecked this system: The use of wallets has been diminishing since Jio charges a fixed amount of money, irrespective of the number of services a customer uses. Previously, music and game downloads were standalone offerings.
With (almost) unlimited, affordable internet in peoples’ hands, demand for bundled games has been falling. This is reflected in the decline Nazara is seeing from telco contributions.
Missed the boat? Buy a flight
A new world of challenges now awaits Nazara, including an expansion to Southeast Asia that would require going beyond telco partnerships.
While other markets have responded to it well, Nazara acknowledges it has missed the bus with Southeast Asia’s gamers.
So far, the company has focused in places where the gaming system is in step with India’s or is a little behind. But the Southeast Asian market is pretty evolved from Nazara’s perspective, says Mittersain.
We see a great opportunity to carry out inorganic mergers and acquisitions in (Southeast Asia’s) freemium space.
Not only do majority of the games developed there have Chinese-influenced art sensibilities rather than Indian-themed ones, the gaming developer ecosystems in places such as Vietnam are also “some of the very best,” he says.
“We can’t replicate the playbook we have used in India. Instead, we see a great opportunity to carry out inorganic mergers and acquisitions in the freemium space.”
Mittersain is likely to finetune Nazara’s strategy for Southeast Asia soon. He often talks about being restless about where the company is; leaving things static isn’t quite part of his constitution.
The thing to look out for now is the company’s next move. Nodwin’s Rathee predicts, “There should be another pivot; precedence says so. And the next one will be better than the previous one.”