Media and entertainment firm UTV Software Communications is in the process of selling its stake in UTV Indiagames - the online and mobile gaming subsidiary of the group, said two sources involved in the deal.
Sources said Vishal Gondal, founder of Indiagames, along with existing investors Cisco and Adobe, are in talks with both private equity consortia and strategic investors to buy back the stake they'd once sold to the parent firm. The deal is expected to be in the range of $80-100 million (Rs 360 crore-Rs 450 crore).
UTV in 2006 had invested Rs 68 crore to acquire 51 per cent stake in Indiagames. UTV had further increased its holding in the company to 58 per cent.
The acquisition was an attempt by UTV to get into the mobile gaming segment. At the same time, it had acquired 70 per cent stake in UK-based Ignition Entertainment, a console gaming firm.
Indiagames is expected to clock revenues of $10 million (Rs 45 crore) for the year ending March 31 and has an operating profit of Rs 2 crore.
According to a research report by Equirus, an advisory firm, it is estimated to have a compounded annual growth rate of 18 per cent from 2009-10 to 2013-14.
"The process is still underway. In all probability, the promoter will buy back the stake from UTV along with either a PE player or a strategic investor. However, this time the promoters are hoping to keep the majority shareholding with themselves," said a source.
"It seems there is a general consensus within the group and the promoters about the sale. If UTV would not have given a go-ahead, it would have been difficult for the sale to happen," said another source in the know.
When asked, Vishal Gondal, also CEO of UTV Indiagames, denied any such development. Calls to Ronnie Screwvala, founder and chairman, UTV Software Communications, did not elicit any response. An email to the company was not answered.
The deal is happening at a time when dotcom firms have again become favourites in the investing community.
Especially so after the successful listing of online travel portal - MakeMyTrip. In the recent past, Intrasoft Technologies, an online greeting card portal which owns 123Greetings, listed successfully on the Indian bourses.
Online automotive auction portal MotorExchange raised around $5 million from Epiphany Ventures and existing investors Canaan Partners. In 2009, the firm had received its Series-A funding.
Local search firm Justdial.com is also planning for a listing this year. Indigames is one of the major players in the Indian online and mobile gaming segment and has a market share of around 50 per cent, according to market experts.
It competes with players like Reliance Group's gaming firm, Zapak, and casual game developer Games2Win, founded by Alok Kejriwal.
UTV has presence in console and online gaming, as well as PC, mobile and direct-to-home platforms.
It has entered the PC and online gaming space through the acquisiton of UK-based Ignition Entertainment and US-based True Games. For the first half of financial year 2010-11, the gaming and interactive segment contributed 12 per cent to revenue.
For the second quarter ended September 30, 2010, UTV's gaming and interactive segment clocked revenue of Rs 35.7 crore, a drop of 40 per cent compared to the same quarter last year.
However, the company expects this segment to contribute 20-30 per cent to the revenues for 2010-11.
Based out of Mumbai, Indiagames has close to 250 employees. The company's Games on Demand subscription model has a base of 60,000 users.
It is one of the three firms from India to have logged a million downloads on Nokia's Ovi store. Indiagames is also a distributor of games of Electronic Arts.
"The mobile gaming space has a very small base. Hence, the growth will only get better. With 3G coming in, we think the mobile gaming space will see improvement. More important, gadgets like tablet PCs and increaed usage of applications on these handhelds will give a boost to the gaming segment," said Jhehil Thakkar, Executive Director- Performance and Technology, KPMG.
According to the Ficci-KPMG 2010 report, the mobile gaming market is expected to be Rs 240 crore (Rs 2.4 billion) in 2010 and will be a Rs 1,430 crore (Rs 14.3 billion) market by 2014.
Meanwhile, the PC and online game market is expected to have a compounded annual growth rate of 37.8 per cent from 2009 to 2014, to clock revenue of Rs 610 crore (Rs 6.1 billion) by 2014.