Shares of online gaming company Nazara Technologies in which the Jhunjhunwala family owns a stake, tumbled nearly 4 percent after the firm posted a consolidated net profit of Rs 2.6 crore for the March quarter, up 18 percent from Rs 2.2 crore a year ago. Revenue from operation, meanwhile, rose 65 percent to Rs 289 crore for the quarter under review as compared to Rs 175 crore in the year-ago period.

Share Market Live

NSE

At 10.35 am, the scrip was trading 3.56 percent lower at Rs 567.65 apiece over its last day's closing price of Rs 591 apiece. The stock has risen about 6 percent in the last one month, however, it has fallen 7 percent on a year-to-date basis. The stock hit a 52-week high of Rs 789 on September 12, 2022 and 52-week low of Rs 481.95 on March 20, 2023.

ALSO READ: Vaishali Parekh of Prabhudas Lilladher recommends these 3 stocks to buy today

Analysts have listed key risks that may hurt profitability, but brokerages are optimistic about the company's prospects. They see up to 55 percent potential upside on the counter.

Bull vs bear case valuation

Nazara has Rs 630 crore in cash. Domestic brokerage ICICI Securities believes 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.

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

EBITDA (earnings before interest, taxes, depreciation, and amortization) margin came broadly in-line, but profit after tax (PAT) differential driven by higher minority interest, says analysts at Prabhudas Lilladher. The brokerage has a 'Buy' tag on the tech stock with a target price of Rs 872.

ICICI Securities has maintained a '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 Rs 700 on the stock for March 2024," the note stated.

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.

According to data from Trendlyne, the average target price for the stock goes up to Rs 865.5, which shows an upside potential of 51 percent from the current market prices.