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Summary: Nazara Technologies is in trouble. Its online-money game platform Pokerbaazi has had to halt operations after a sweeping industry ban. The move has jolted the market and raised pressing questions: Is this the beginning of deeper trouble or is Nazara’s strength still intact? Let’s find out
Investors have wasted no time in punishing Nazara Technologies. The stock has slid over 17 per cent in three days since the government announced a blanket ban on online money games. In the wake of the development, Nazara has suspended operations of its online poker platform Pokerbaazi. But how deep exactly is the damage for Nazara? We assess the impact and the business below.
Hit from Pokerbaazi
Since Nazara owns Pokerbaazi through an associate company instead of a subsidiary, the poker platform does not contribute to Nazara’s reported revenue. However, it will still affect the company's profitability. Nazara’s stake in Pokerbaazi, valued between Rs 800–Rs 1,060 crore, is now at risk of impairment. In simple words, Nazara will likely have to write it down. The accounting hit could mean nearly 30 per cent of the company’s book value might be wiped off. This will also pull down reported profit in the impairment year and lower return on equity. Hence, the market reaction is sound. But it’s worth noting that the company‘s core growth engine is still largely insulated.
The core is protected and growing
The company’s profit engine is built on children’s games, console game publishing and mobile IPs. In fact, more than 60 per cent of its gaming revenue comes from the US, while just 8 per cent comes from India. The core business is robust and growing. In the first quarter of FY26, revenue doubled year-on-year to nearly Rs 500 crore. EBITDA rose almost 90 per cent to Rs 47 crore. Operating margins were a healthy 24 per cent. This growth came from Nazara’s other businesses: Curve Games (publishing of console games), Fusebox (TV-franchise games like Love Island) and Kiddopia (children’s games like Animal Jam).
But the capital allocation question remains
The company’s solid growth is a result of a streak of acquisitions. In turn, to fund these buyouts, the company has been aggressively diluting equity capital. In the last two years, it has raised more than Rs 1,500 crore through fresh equity issues, giving it a war chest to go shopping. With that, it bought WildWorks, Curve, Fusebox, Kiddopia and several smaller businesses. These have pushed goodwill and intangibles close to Rs 1,000 crore, which must be justified by future cash flows. If the acquisitions deliver, the goodwill will quietly amortise itself. If they do not, shareholders will pay again through impairments and weak returns, like with Pokerbaazi.
More importantly, consistent equity dilution could mean that the company’s healthy growth, even if sustained, may simply not reach shareholders due to EPS dilution.
Valuation: execution, not legislation, is the test
After the recent beating, the stock’s valuation has come down a notch and yet it is a rich 87 times earnings, leaving little margin of safety. The pricey multiple is due to the market’s confidence in the company’s core growth story. The fact that it’s entering high-margin segments like PCs/console gaming has added to the optimism. But the valuation is still excessive and does not take into account execution risks related to recent acquisitions and whether the company can grow per-share earnings without more dilution. These remain crucial variables to watch out for.
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