Nazara Tech Shares Plunge 7% on Ties to Crisis-Hit Silicon Valley Bank

Two companies in Nazara Tech, backed by Rekha Jhunjhunwala, have deposits of Rs 64 crore with Silicon Valley Bank.

Shares of Nazara Technologies plunged 7% ahead of the market opening on March 13 after news that two subsidiaries of the Indian gaming platform held cash balances at crisis-hit Silicon Valley Bank (SVB) in the United States.

Shares of Nazara Tech were down 4.2% at Rs 496.05 on the BSE at 9:17 am. The stock has disappointed investors in terms of returns. Regarding the prominent investor, Rekha Rakesh Jhunjhunwala holds a 10% stake in Nazara Technologies.

Amid the collapse of US-based SVB, digital gaming and sports platform Nazara Technologies, the largest provider in the start-up ecosystem, said on March 12 that two of its relegated subsidiaries, Kiddopia Inc and Mediawrkz Inc, held cash balances there.

The cumulative balance held by the subsidiaries in SVB is $7.75 million (approximately Rs 64 crore). SVB is now taken over by the Federal Deposit Insurance Corporation (FDIC).

Kiddopia Inc is a subsidiary of Paper Boat Apps (51.5% owned by Nazara), while Mediawrkz Inc is a subsidiary of Datawrkz Business Solutions (33% owned by Nazara).

The FDIC has said it will pay depositors a prepaid dividend within the next week, with future payments to be made on asset sales. Regardless of the eventual outcome and timing, both subsidiaries will continue to be well capitalized and generate positive cash flow and profitability, Nazara Technologies said in an exchange filing.

“As such, we do not expect the SVB incident to have an impact on their day-to-day operations, business performance and growth plans,” it said, adding that Nazara Group continues to maintain a healthy cash and cash equivalent reserve of over Rs 600 crore, excluding those funds affected by SVB.

Analysts like Nazara Technologies’ approach to expanding its business. Last year, it acquired WildWorks, an American game development studio focused on early gamified learning, to expand beyond the 2-7 age group Kiddopia is involved in. The WildWorks acquisition helped bridge that gap (the target market is 8-12-year-olds).

Gamified early learning from Kiddopia and WildWorks accounted for 24% of the company’s total revenue in the first nine months of fiscal 2023, while ad tech services provided by Datawrkz contributed 14%, according to the company’s latest investor presentation.

Prabhudas Lilladher had recommended buying the stock as Nazara Technologies’ gaming portfolio approach not only diversifies from unforeseen risks, such as Apple’s privacy policy issues or regulatory uncertainty surrounding RMG, but also creates additional growth leverage through inorganic avenues.

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