Nazara Technologies shares plunged sharply in trade today, even as the online gaming firm, before market hours, clarified the 28 percent GST proposed by the GST Council would apply only to the skill-based real money gaming segment of its business, whose share in its financial year 2022-23 consolidated revenues was 5.2 per cent. The stock plunged as much as 14 percent to hit a low of Rs 605 on BSE; however it later recovered ground and was trading at Rs 680.60, still down 3.67 per cent.

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Below is the verbatim transcript of Nitish Mittersain, Founder & CEO, Nazara Technologies’ interview on CNBC-TV18.

Nigel: I have looked at the clarification you have given on real money, while gaming forms only around 5 percent of your revenues. So safe to assume that the remaining 95 percent of your business doesn't get impacted at all. But you have mentioned that there will be various merger and acquisition (M&A) possibilities in this segment – that is real gaming. Will that be shelved now, or will you go ahead?

A: It is important to understand that Nazara is a very well-diversified gaming platform. We operate in multiple segments of gaming across multiple geographies and across multiple business models. So, to that extent, the impact of this announcement potentially on our skill-based real money gaming business, which is limited to 5 percent of our revenues in FY23 will be minimal. And that is what we have clarified already. Of course, Nazara has been acquisitive in nature, we are always interested in partnering with great companies, founders, and management teams in the gaming space and we continue to pursue these opportunities across all the categories and segments that we are operating quite aggressively. This includes the skill-based real-money gaming (RMG) space. But of course, with this development, which just happened yesterday, we will of course have to see how this plays out the relevant impact to the industry and our own strategy there. It is all a work in progress at this point in time.

Nigel: So, you will not be pulling back on your plans. I mean, you will have to alter those plans because now the viability of the business itself has taken a hit.

A: Our M&A plans do not get impacted across various segments that we operate in; as I said in a particular segment of RMG, we will, of course, have to review our plans there.

Surabhi: Just to clarify, even on the other aspect, I mean, your other segment eSports, which forms the bulk of your revenue or even Kiddopia; eSports or some of the other games there, where at the end the player does get a reward of sorts, and sometimes that can be a monetary reward. And I don't know how many of your games have that model at play and could there be an interpretation issue over there because if there is any online game where there is a monetary reward towards the end, then perhaps it could come under this 28 percent ambit?

A: No, I think the difference here is that this taxation is linked to the amount that the players are wagering betting on the skill-based real money games, which do not have eSports, there is no entry fee charged, and therefore this would not be relevant in that case.

Surabhi: But just to clarify this, the whole outcome of the meeting yesterday was that the GST council is making no distinction between the game of skill and the game of chance. I know this was a matter of litigation and in the courts, in the Karnataka High Court, if I am not mistaken. But at the council level, all online gaming is being treated equally and is to be taxed at 28 percent if it's real money gaming, and there is no distinction, whether it's a game of skill or a game of chance. So, does that impact any other part of your business as well?

A: No, in our understanding it does not.

Surabhi: To take Nigel’s point forward, you said that you will have to review your future plans with respect to real-money gaming. That was a big focus area that you were looking at. So, I just want to ask you and of course, you will go back to the drawing board and see how things play out. But a lot of people are already questioning the viability of real money online gaming with the developments that took place yesterday. Where do you stand on the debate?

A: So, I think first of all, you will appreciate that it's very early. It's just happened yesterday. And we as well as the industry are reviewing what has come out. And there are very active associations such as the All India Gaming Federation (AIGF) and others, which will definitely pursue how the challenges posed by this can be mitigated. From a Nazara perspective, it is a bit early for us to define a clear-cut strategy. Obviously, we will have to pause and review our RMG strategy. But if you will appreciate, Nazara has grown in the last many years across several categories of business very rapidly, and therefore, while RMG of course was a prospective area that we were getting quite interested in, you will also appreciate that since the time of our IPO, we have always said that we are waiting for regulatory clarity to take a larger move in this particular segment. So, we do not have any limitations on growth opportunities. In fact, in the last year or so, we have very actively pursued many M&A opportunities because globally due to market sentiments, we have seen many assets available at a very attractive valuation. So, we have a very strong pipeline of investments that we look to make even outside of RMG and we will continue down that path very aggressively.

Sonia: One clarification, players pay money to participate in the eSports competitions that you conduct and when they do they have to pay tax, right?

A: That's incorrect. In eSports, players do not pay any participation fee.

Sonia: Okay. I want to understand what the industry would be doing according to you. Do you think the industry will challenge this going forward and what do you see as the consequences of this, a lot of the smaller startups, etc., do you see them move abroad?

A: I think you will definitely see the industry try and challenge or work on trying to find a solution here because this is going to be very painful for the industry and I can see the association's getting very active and trying to get a consensus on what we can do here. So, I think you will see that play out over the next few days. In terms of startups, of course, the younger startups, especially in this skill-based RMG space are going to struggle a lot because raising any capital will become impossible for them and sustainability will become a challenge. So, a lot of them will potentially also go out of business. And lastly, I think moving abroad may not really solve the problem, you still have to pay taxes if you are operating in, Indian consumers; unless you go underground, which is not a way any startup can really work. So, I don't think that is really a solution for anybody.

Surabhi: To wrap things up and to go back to the main clarification that you issued today. The understanding is that for your eSports segment, which is the bulk of your revenue, I think over 50 percent, you are saying since players don't have to pay any entry fee upfront, there is no question of taxation, and therefore this 28 percent doesn't apply. If you could just finally tell us that for all these other segments, what is the rate of tax that a player needs to pay? And I ask you once again, how many of your games or let's say what part of your revenue segment involves a monetary reward maybe towards the end of the game? Right now, the whole thesis is on the upfront money a player is paying on chips, etc., but I am just trying to understand in how many of your games is there a monetary reward involved at some stage of the game, maybe at the end at the winning stage, we just need to keep that in mind given that taxation is a moving piece here.?

A: One of our main segments of revenue generation is through the gamified learning space with our popular apps like Kiddopia and Animal Jam. And these are because they tend to younger kids to not obviously have any inputs or outputs of winnings or money related to winnings. So, that segment itself contributes to about 30 percent of our overall revenues. Even in the eSports segment, we are only tournament organizers, the games are not even ours, in most cases, and within the game, there are no payouts that happen. These are tournament prizes that are paid out and the teams that participate also do not pay for participation. So clearly also come under the ambit of this current law.

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