Rekha Jhunjhunwala stock is down 4% post Q4 results, brokerages recommend buy

On Wednesday, the company’s share price, in which Rekha Jhunjhunwala owns a stake was down by 3.94 per cent to ₹566.05 on BSE. On a year-to-date basis the company’s share declined by 7.83 per cent, however it has risen about 6 percent in the last one month. The stock hit a 52-week high of ₹789 on September 12, 2022 and 52-week low of ₹481.95 on March 20, 2023.

The consolidated revenue from operation rose by 65 per cent to ₹289.3 crore for the quarter under review as compared to ₹175.1 crore in the year ago period, said Nazara Technologies. 

However, brokerages remain upbeat about the stock.

Nazara has ₹630 crore in cash.  Brokerage firm ICICI Securities in its report said that this could be used to acquire scale through acquisition in real money gaming, once regulatory clarity emerges. Also, Nazara could benefit from inexpensive acquisition opportunities in the current liquidity situation, it said.

In case these triggers play out, the brokerage sees a bull case valuation of ₹800 for March 2024. In case growth slows or margin improvements do not play out, it sees a bear case valuation of ₹400 for March 2024, implying a risk reward of 1.1:0.

Brokerage Prabhudas Lilladher said that  Ebitda (earnings before interest, taxes, depreciation, and amortization) margin came broadly in-line, but profit after tax (PAT) differential driven by higher minority interest. The brokerage has a ‘Buy’ tag on the tech stock with a target price of ₹872.

“We maintain our BUY rating on Nazara, given its strong revenue growth trajectory in eSports business and gradual profitability improvement in gamified early learning (GEL). We have a target price of Rs700 on the stock for Mar’24. Our target multiple is 41x FY25E EPS (1.5SD below the 2-year average historical P/E),” said ICICI Securities.

Key risks include company’s inability to establish its gaming accessories business leading to lower margins, impact due to increased competition or slowdown in US markets, continued delay in RMG regulatory clarifications and inability to identify and integrate acquisitions.