Nazara Tech shares slide 4% after Tamil Nadu clears ordinance to ban online gaming

Shares of Nazara Technologies declined almost four percent on Tuesday, a day after the Tamil Nadu cabinet approved an ordinance to ban online games with stakes in the state. The ordinance will become effective following the governor's approval.

At 2:33 pm, Nazara Technologies shares were trading 3.07 percent lower at Rs 659.15 on BSE. In the run-up to the government’s decision, the stock has slipped 10 percent in the last five days, and in 2022 (year-to-date), it has erased almost 45 percent of investors’ wealth as against the benchmark Sensex, which has dropped close to 3 percent during the period.

Tamil Nadu cabinet led by Chief Minister MK Stalin said that teenagers and adults were losing their entire savings and earnings in these online betting games. For instance, rummy may be a game of skills but the game using stakes will be considered gambling.

This comes at a time when Nazara Tech and other players are looking to expand in the online gaming space, which is still at a nascent stage in the country. The industry has been witnessing frequent regulation and taxation changes.

Many of these bans were challenged by skill gaming startups and industry associations in their respective state courts, which overturned the suspensions.

Earlier in July 2021, the Supreme Court upheld fantasy sports as a game of skill.

Tamil Nadu government has filed a petition challenging the Madras High Court's judgment that had struck down a similar ban on online gambling by the previous state government in August 2021.

On September 9, the top court issued notices to all respondents of the petition, giving them four weeks to file their replies with the case expected to be listed after 10 weeks. The respondents include skill-based gaming companies Junglee Games, Play Games24x7, Head Digital Works, and industry body All India Gaming Federation.

Meanwhile, states like Telangana, Andhra Pradesh, Kerala, and Karnataka have also sought to prohibit the game of skills.

Nazara is known for its games in the World Cricket Championship, Chhota Bheem, and the Motu-Patlu series. The late Rakesh Jhunjhunwala also owns a 10 percent stake in the company.

The firm also acquired a 100 percent stake in Wildworks for $10 million in August. Wildworks is a game developer that caters to kids between the age of 8-12. Jefferies expects the acquisition to add $12 million to Nazara's revenue and help solidify its presence in the game field learning segment in the US.