Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Established market position in the mobile entertainment industry: With presence of over two decades, the group has become a reliable player in the mobile entertainment industry for telecom operators across several geographies. It has significant presence with over 65.93 million monthly subscribers and is associated with around 122 customers across 68 countries. Healthy relationships with customers in multiple regions and large end-user base will continue to support the business risk profile over the medium term.

Healthy financial risk profile: At the group level, capital structure was comfortable owing to lower reliance on external debt, yielding total outside liabilities to adjusted networth ratio of less than 0.49 time in the three fiscals through 2024. Interest coverage and net cash accrual to adjusted debt ratios were healthy at 3.99 times and 2.04 times, respectively, in fiscal 2024. In the absence of any large debt-funded capital expenditure (capex) plan, leverage is expected to remain healthy over the medium term.

Weaknesses:

Subdued revenue growth from the traditional RBT and video streaming segments: The RBT and video streaming businesses contributed around 55% of revenue in the third quarter of fiscal 2025, compared with around 85% in fiscal 2024, and have seen a gradual decline in revenue over the past few years. However, the group has been investing significantly, especially in the mobile gaming segment, to diversify revenue streams, mitigating the risk. Revenue contribution from the gaming segment improved to 45% in the third quarter of fiscal 2025 and is expected to rise to more than 50% over the medium term. Any significant decline in revenue from traditional segments along with delay in scaling up of newly added segments may constrain the business risk profile.

Susceptibility to risks inherent in the mobile gaming business and high fixed costs: The mobile gaming business is highly fragmented with numerous players across platforms, highly technology driven, and subject to various regulations. Intense competition constrains profitability and bargaining power with stakeholders; players have to invest significantly in marketing to remain relevant and also invest to avoid technology obsolescence. Any technological disruptions, loss of major customer to competitors or adverse regulatory changes may impact the business risk profile. The group’s longstanding presence with operators, recent investments in new products and technologies, and their strategy to stick to kids and family-friendly games may mitigate these risks.

Most of the expenses are fixed (employee costs, royalties, software and license cost, and marketing expenses); this exposes the company to economic cycles or downturns in revenue. The operating margin fell to 2.36% as of December 2024 from 4.98% in the corresponding period of fiscal 2024 owing to higher fixed cost for software and licenses.