By Suhani Adilabadkar
Casino company Delta Corp (where Rakesh Jhunjhunwala holds near 7.4% stake) is waiting for the roulette wheel to spin in its favour, pecially after its stock price melted down since April this year. Impacted by political backlash, uncertain regulatory timelines and increasing competition, Delta Corp stock has declined 30% YoY making investors wary of India’s largest gaming company and biggest casino operator.
Quick Takes:
- Delta Corp is the country’s largest and the only listed company in India engaged in the casino, gaming and hospitality industry.
- June quarter was impacted by dry docking of its (Deltin Jakq vessel), general elections and IPL season.
- Net Profit for June quarter stood at Rs. 42.3 cr compared to Rs. 41.70 cr, rising mildly by 1.5% YoY but with sequential decline of 25%
- Delta Corp forayed into cruise gaming through its investment in Mauritius based Jalesh Cruises.
- Delta acquired stake in Halaplay Technologies, India’s second-largest fantasy sports gaming portal.
Delta Corp – Gaming King
Delta Corp is the country’s largest and the only listed company engaged in the casino, gaming and hospitality industry with casinos located in Goa, Sikkim and Daman, operating over 2,000 gaming positions. Primarily concentrated in Goa, Delta Corp operates 3 offshore and one land-based casino, followed by another land-based casino in Sikkim. Casino operations in Nepal and Daman are yet to commence. Casino Gaming is the mainstay business and spins roughly three fourth of total earnings followed by Online Skill Gaming and Hospitality Division contributing 35% and 9% respectively.
Delta entered online skill gaming with the acquisition of Adda52.com in 2016, expanding its offerings to Poker and Rummy and consolidated further through investment in HalaPlay Technologies, the fantasy sports website. On the other hand, Hospitality business complementary to its prime gaming business includes Deltin, a 176-room five-star hotel in Daman, and Deltin Suites, a 106-room, all-suite hotel in Goa, with land-based casino - this vertical is now breaking even at EBITDA level and generating strong cash profit.
No Bounce, Flat Pitch for June quarter FY20
Impacted by dry docking (service & repairs) of its Deltin Jakq vessel, general elections and IPL season, Delta Corp battled a flat pitch in June quarter FY20. Revenue for the quarter stood at Rs. 195 cr flat growth YoY with sequential decline of 8%. The company's growth engine, Casino Gaming Division grew 2.6% YoY, but negative YoY growth was reported by both online skill gaming and Hospitality divisions. EBDITA came out at Rs. 68 cr growing 3.5% YoY from Rs. 65 cr in Q1 FY19.
With expenditures flat on a YoY basis, EBDITA margin expanded 138 bps, reported at 36.31% in Q1 FY20 against 34.93% corresponding quarter previous year. Net Profit for June quarter stood at Rs. 42.3 cr compared to Rs. 41.70 cr, rising mildly by 1.5% YoY but with sequential decline of 25%. With online gaming exhibiting low traction and Casino business impacted by rising competition in Goa, Delta Corp needs to gear up fast to win back investor confidence.
Driving growth in a regulation heavy sector
Gaming Industry in India is highly regulated by two main enactments Public Gambling Act, 1867 (PGA) and the Prize Competitions Act, 1955 (PCA). As per the Seventh Schedule our Constitution, state governments have been authorised to make their own laws on betting and gambling. And where a state legislation on gambling exists, it prevails over the PGA.
States like Goa, Daman and Diu, Sikkim have created exceptions within their gambling acts, allowing for authorised gaming. Goa is the major gambling hub, attracting huge customer base propelled by foreign tourism. Delta Corp has three offshore gaming casinos in Goa, Deltin Royale, Deltin JAQK, Deltin Caravela and Deltin Suites Casino, its first onshore casino. To buttress its casino business further, Delta forayed into cruise gaming through investment in Mauritius based Jalesh Cruises and becoming their preferred partner for gaming centres and casinos for all their cruise liners. Mr Hardik Dhebar, CFO Delta Corp, further added, “ As far as Jalesh’s game plan is concerned they are looking at adding at least another 3 to 4 vessels in the next 18 months to 24 months which means that Delta will have the right to operate all those casinos over the next 18 months-24 months”.
To give strong impetus to its online gaming division, Delta acquired stake in Halaplay Technologies, India’s second-largest fantasy sports gaming portal, thus strengthening its position in the online gaming space.
But the scrip has nosedived since early April this year, mainly as the list of uncertainties seem to be adding against the company over the past few months. First and foremost, Goa state’s plan of shifting offshore casino business to onshore which would provide strong long term stability to the company is yet to be implemented and is in limbo for the past 2-3 years, Daman Casino is not operational as the matter is Sub Judice and Nepal Casino is also non-operational. In this respect, Mr Hardik Dhebar clarified in the earnings call with analysts,” Delay is on account of Hotel management not getting five star certification and thus hopefully, operations will start this quarter”. Moving on to Sikkim casino, Deltin Denzong will "commence shortly and meaningful contribution would be visible within one year" was the management assessment.
Online gaming revenues are also not exhibiting strong traction as the Rummy platform is yet to be relaunched and Halaplay remains a distant second to market leader Dream 11. The Delta scrip was hammered first on account of speculative tax evasion news and later political backlash took a toll with a call to shutdown casino businesses in Goa, which threatened non-renewal of offshore casino licenses by a major political party in May. The stock has bowed to such systematic environmental threats, declining 40% from its 52-week high of Rs. 280 levels. But the management seems to be optimistic and Mr Dhebar said, “The year-end targets will be maintained and 20-25% growth should remain intact”. But the investors are wary that the fortunes of this stock may not spin in their favor.