Nazara Technologies Falls 5% on Rs 1,120 Crore GST Notices

Nazara Technologies share price, led by Rekha Jhunjhunwala, fell by more than 5% on Thursday due to substantial tax demands on its subsidiaries, OpenPlay and HalaPlay, totaling ₹1,120 crore. This tax obligation is 16 times Nazara's FY24 profit.

By 9:26 am IST, Nazara Tech share price were down 4.8%, trading at ₹880 on the National Stock Exchange (NSE). This year, the stock has risen about 2%, lagging behind the benchmark Nifty, which has gained nearly 13% in the same timeframe.

The Director General of GST Intelligence, Kolkata, issued Openplay Technologies a show-cause notice for a proposed liability of ₹845.72 crore. Meanwhile, HalaPlay Technologies faces a liability of ₹274.21 crore. Both subsidiaries are seeking advice from their legal and tax consultants on the next steps. The tax demands are based on GST calculations on the sums pooled by players rather than on gross gaming revenues, covering the period from 2017-18 to 2022-23, as reported in a regulatory filing by Nazara Tech.

Nazara’s management stated that these subsidiaries contributed less than 2% of the company’s revenue and under 1% of its profit for Q4FY24. As of the end of FY24, Nazara had a cash balance of ₹1,450 crore.

This tax demand mirrors similar claims faced by other gaming companies in the real money gaming (RMG) sector following the GST Council's decision to tax the total amount wagered by all players at buy-in, rather than on gross gaming revenue (GGR).

Nazara Tech informed the exchange, "We wish to inform you of the following developments related to ongoing GST matters of the gaming industry on behalf of our subsidiaries." The company emphasized that for the quarter ending March 2024, these subsidiaries collectively contributed less than 2% of Nazara Tech's revenues and less than 1% of its profit. Despite the tax demand, the stock's 31% return over the past year has outperformed Nifty's 24% return.

In August, the GST Council clarified that a 28% tax would be imposed on the total value of bets placed on online gaming platforms. Last year, GST officers issued approximately 71 show-cause notices to online gaming companies for alleged GST evasion totaling over ₹1.12 lakh crore during FY23 and FY24. Many companies have contested these notices, with cases still pending.

ICICI Securities noted that although the gaming sector hopes for government relief regarding tax demands for the period before the GST Council’s clarification, Nazara's stock price might experience short-term volatility due to the substantial tax demand. On Thursday, the stock fell 8.4% to a low of ₹845.65 on the BSE.

"We believe the contingent liability on Nazara (parent company) is unlikely to be significant, given both HalaPlay and OpenPlay are private limited companies. We maintain a BUY rating with a target price of ₹1,080," the brokerage stated, valuing the stock at 37 times FY26E EV/Ebitda (ex-minority).

"The claim has increased due to retrospective taxation of levying GST on the amount pooled by players instead of gross gaming revenue (the difference between money wagered and the amount distributed as prize money – essentially the platform fee/revenue of gaming companies). While the current GST rate is 28% on the full pot value (amount wagered), we doubt the retrospective demand reflects true liability. Retain HOLD on Nazara with a target price of ₹878," said Prabhudas Lilladher.

Nazara Technologies Limited operates as a diversified gaming and sports media platform, offering interactive learning, reporting, subscriptions, and a variety of games, including kids, skill-based, and sports simulation games. Nazara Technologies serves customers in India.