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Nazara Technologies to consider its first-ever stock split next week

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  Nazara Technologies Ltd

Nazara Technologies Set to Deliberate on Stock Split and Bonus Shares in Upcoming Board Meeting


In a move that has sparked considerable interest among investors and market watchers, Nazara Technologies, a prominent player in the Indian gaming and esports industry, has announced that its board of directors will convene on August 12 to consider proposals for a stock split and the issuance of bonus shares. This development comes at a time when the company is navigating a dynamic landscape in the digital entertainment sector, aiming to enhance shareholder value and broaden its investor base.

Nazara Technologies, founded in 1999 and headquartered in Mumbai, has established itself as a diversified gaming and sports media company. It operates across various segments, including esports, gamified early learning, and real-money gaming through subsidiaries like Nodwin Gaming and Sportskeeda. The company went public in March 2021, listing on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), and has since been a favorite among tech-savvy investors due to its exposure to the burgeoning online gaming market in India. With the Indian gaming industry projected to reach $5 billion by 2025, according to industry reports, Nazara's strategic moves are seen as efforts to capitalize on this growth trajectory.

The primary agenda for the August 12 board meeting, as disclosed in a regulatory filing with the stock exchanges, includes evaluating a potential sub-division of the company's equity shares—commonly known as a stock split—and the possibility of issuing bonus shares to existing shareholders. A stock split involves dividing existing shares into multiple units, effectively reducing the face value per share without altering the overall market capitalization. For instance, if Nazara opts for a 1:2 split, a shareholder holding one share would receive two shares, each with half the original face value. This maneuver is often employed by companies to make their stock more affordable and attractive to retail investors, thereby increasing liquidity and trading volume.

Bonus shares, on the other hand, are additional shares distributed to shareholders free of cost, typically funded from the company's accumulated profits or reserves. This not only rewards loyal investors but also signals confidence in the company's financial health and future prospects. Nazara's consideration of these actions aligns with a broader trend in the Indian stock market, where several firms, including tech giants like Infosys and Wipro in the past, have used similar strategies to democratize ownership and boost market participation.

To understand the context, it's worth delving into Nazara's recent performance. In the fiscal year ending March 2023, the company reported a consolidated revenue of approximately ₹1,091 crore, marking a significant increase from the previous year, driven by robust growth in its esports and gaming divisions. Net profit stood at around ₹61 crore, reflecting efficient cost management amid inflationary pressures. The company's stock has shown resilience, trading at levels that have appreciated over 50% from its IPO price, though it has faced volatility due to global economic uncertainties and regulatory changes in the gaming sector, such as the imposition of a 28% GST on online gaming in India.

Market analysts believe that a stock split could be particularly timely for Nazara. Currently, the company's shares are trading at a premium, with the closing price on the last trading day hovering around ₹900-₹950 per share on the NSE. A split would lower the per-share price, potentially attracting a wider pool of small investors who might find the current price point prohibitive. "Stock splits often lead to a psychological boost in investor sentiment, as they perceive the stock as more accessible," noted a Mumbai-based equity analyst in a recent commentary. Furthermore, bonus issues could help in retaining earnings within the company while distributing value, thereby improving the earnings per share (EPS) metric over time.

This isn't the first time Nazara has engaged in shareholder-friendly initiatives. Since its listing, the company has focused on inorganic growth through acquisitions, such as the buyout of PublishME, a game marketing agency, and investments in blockchain-based gaming ventures. These efforts have positioned Nazara as a leader in the metaverse and Web3 gaming spaces, areas expected to explode in popularity. The board's decision on August 12 could also be influenced by the company's strong cash reserves, which stood at over ₹500 crore as per the latest quarterly results, providing ample headroom for such corporate actions without straining liquidity.

Investors are keenly awaiting the outcome, as these proposals could trigger short-term price movements. Historical precedents show that announcements of stock splits and bonuses often lead to a rally in share prices, as seen with companies like Reliance Industries and Tata Consultancy Services in recent years. However, experts caution that the actual impact will depend on the ratio of the split or bonus, market conditions, and broader economic factors. For Nazara, this could also serve as a buffer against competitive pressures from global players like Electronic Arts and Tencent, who are increasingly eyeing the Indian market.

Beyond the financial mechanics, the move underscores Nazara's commitment to inclusive growth. By potentially making shares more affordable, the company could democratize access to its success story, which includes popular titles and platforms that engage millions of users daily. The esports arm, Nodwin Gaming, has been instrumental in organizing major events like the BGMI Masters Series, further cementing Nazara's role in India's digital economy.

As the board meeting approaches, stakeholders will be monitoring for any additional announcements, such as dividend declarations or updates on strategic partnerships. The regulatory filing emphasized that the meeting will also cover routine business matters, but the spotlight remains on the stock split and bonus proposals. If approved, these would require shareholder approval at a subsequent general meeting and compliance with SEBI guidelines, potentially rolling out in the coming months.

In summary, Nazara Technologies' deliberation on August 12 represents a strategic pivot aimed at enhancing market appeal and shareholder returns in a competitive industry. This could mark a new chapter for the company, reinforcing its position as a trailblazer in India's gaming ecosystem while navigating the challenges of regulation and global competition. Investors and enthusiasts alike will be watching closely, as the decisions made could ripple through the stock market and beyond, potentially setting a precedent for other tech firms in the sector. (Word count: 928)

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