Nazara Tech receives tax demand of ₹1,120 cr; gaming stock falls 8%

Shares of Rekha Jhunjhunwala-backed Nazara Technologies plunged over 8% in intraday trade on Thursday after the gaming company’s two subsidiaries received cumulative tax demand of ₹1,120 crore. These tax claims are in relation to calculation of GST based on the sums pooled by players as opposed to gross gaming revenues, Nazara said in a regulatory filing on Wednesday.

The diversified gaming and sports media firm in the exchange filing said that real money gaming subsidiaries OpenPlay Technologies and HalaPlay Technologies have received GST notices for ₹846 crore and ₹274 crore, respectively, from the Director General of GST Intelligence, Kolkata. The tax demand is for the period from 2017-18 to 2022-23, the release notes.

 “Both subsidiaries are reviewing the notices with their legal counsels and tax advisors to determine their future course of action,” the company said.

For the January-March quarter of 2024, these subsidiaries collectively contributed to less than 2% of Nazara’s revenues and less than 1% of its profit, the release highlighted.

According to Jinesh Joshi, Research Analyst at Prabhudas Lilladher, the tax claim has risen due to retrospective taxation of levying GST on amount pooled by players as opposed to gross gaming revenue (difference between money wagered and amount that is distributed as prize money – basically it is platform fee/revenue of gaming companies). “While the current GST rate is 28% on full pot value (amount wagered) given the demand is retrospective in nature we doubt it reflects true liability,” he says.

Meanwhile, Prabhudas Lilladher has retained ‘HOLD’ call on Nazara with a target price of ₹878 per share.

Weighed down by the development, Nazara Tech shares declined as much as 8.4% to ₹845.65, driven by strong volume. As many as 1.6 lakh shares changed hands over the counter compared to two-week average of volume of 0.56 lakh stocks.

At the time of reporting, Nazara shares were trading at ₹922.80, down 0.04%, paring most of early losses. The market capitalisation of the company stood at ₹7,063 crore. The gaming stock touched its 52-week high of ₹989.55 on January 15, 2024, and a 52-week low of ₹590.85 on May 27, 2024.  

In the fourth quarter ended March 31, 2024, Nazara saw its net profit declining sharply to ₹0.18 crore from ₹9.4 crore in the year-ago quarter. The profitability was impacted due to a loss of ₹16.87 crore from discontinued operations during the quarter, amid write-offs in many of the company's legacy businesses including its real-money gaming business Halaplay.

However, the net profit from its continued operations stood at ₹17.1 crore in Q4 FY24, up 43.6% from ₹11.9 crore profit in the same period last year. Revenue from operations was down 8% at ₹266.2 crore versus ₹289.3 crore in the corresponding quarter last year. EBITDA grew to ₹29.3 crore as against Rs 27.8 crore in same quarter last year, while margin improved 140 bps to 11.2% in Q4 FY24.

Segment wise, gaming business generated revenue of ₹91.03 crore in Q4 FY24 (down 17.4% YoY), while eSports segment revenue was at ₹148.17 crore, (up 5.78% YoY). The Ad tech segment reported revenue of ₹27.49 crore in March quarter of FY24, down 29.59% YoY.

For the full year FY24, Nazara clocked a net profit of ₹74.75 crore, up 21.8% from ₹61.4 crore in the previous fiscal. Revenue increased by 4.3% to ₹1,138.3 crore as against ₹1,091 crore in FY23.

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