Delta Corp Ltd. share price target

Revenue came in flat YoY driven by a multifold expansion in the online business profitability (+2,150bp were flat YoY, while EBITDA/adj. Casino revenue declined marginally by 1% YoY to INR2,002m, while the segmental EBIT margin contracted 370bp YoY to 32.8%. Margin compression can be attributed to higher spend on offerings/deals to drive visitations. On the other hand, online revenue increased 17% YoY, driven by a boost from higher promotional spend in the prior quarter. However, such incremental spend were avoided in 2QFY20, leading to improved profitability. We expect the online margin to sustain at ~20% as DELTA attempts to stay competitive. (b) Land policy is likely to be taken up in the winter session. (c) Clarity on GST taxation is likely to emerge soon. While the GST-related hangover remains, the operational performance is intact and will likely continue improving hereon. We largely maintain our estimates and expect sales/EBITDA/adj.

9 July 2019 DELTAs revenue came in flat YoY at 3% YoY we note that growth would have been higher if not for the maintenance work at its vessel Deltin JAQK in dry dock for 19 days, due to which the segment incurred a revenue loss of ~INR190m. EBITDA margin expanded 70bp YoY to 36.3% Casino biz incurred a loss due to maintenance work, and thus, the muted growth therein is not very concerning. Consequently, revenue growth is likely to bounce back from 2QFY20, and we estimate 18% growth in the Casino biz in 9MFY20. Also, margins in online gaming are likely to remain under pressure as the company invests aggressively in advertisement and marketing to remain competitive. The stock price has corrected sharply following media reports of (a) DELTA being issued huge GST demand notice and (b) closure of Goa-based casinos. Maintain Delta Corp Nepal Casino at Fairfield by Marriott, Kathmandu, likely to commence operations in 2QFY20.

EBIDTA stood at INR879m versus our estimate of INR784m, with the recovery in the online gaming margin (EBIT margin at 24% v/s 14% in 4QFY18). There was an exceptional item related to the gain on the sale of its Fantasy League business to Halaplay Technologies Private Limited. Adj. PAT grew 19% YoY to 31%/29%/29%. revenue grew 21% YoY to INR1,981m, with the segmental EBIT margin expanding 40bp YoY to 36.8%. Online gaming revenue grew 11% YoY, with the segmental EBIT margin up 1,000bp YoY (+500bp QoQ) to 24% (expected to remain at 18-20%, going forward). Hospitality revenue grew 8% YoY to INR236m, with an EBIT loss of INR29.5m. (a) Investment in Jalesh Cruises is ideal, as DELTA has the right to operate casinos in all its cruises. Jalesh plans to add 3-4 new cruises over the next 18-24 months. (b) On Halaplay investment, the platform has already grown 3x, given the ongoing T20 cricket series.

DELTA will invest Rs700m to acquire over 25% stake in Jalesh Cruise (promoted by Mr. Amit Goenka of Essel Group). Jalesh will commence operations with one cruise ship from April 2019. The first cruise comprises 837 cabins with capacity of 1,689 passengers. The cruise will be operational full year with routes across India, the Middle East and South East Asia. It...

EBITDA margin contracted 150bp YoY, recovery in the online gaming EBIT margin (19% in 3QFY19 v/s 2% in the last quarter). However, higher-than-expected tax restricted PAT growth to 13% YoY (INR505m v/s our estimate of INR497m). Casino gaming revenue grew 30% YoY (flat QoQ) to INR2,021m in the quarter, supported by increasing visitations (+18% QoQ to 118K). Online gaming revenue grew 33% YoY (+8% QoQ); EBIT margin contracted 2,100bp YoY, but expanded 1,700bp QoQ to 19% (expected to sustain at 15-20% levels) on account of cost and promotional spend rationalization DELTA aims to cautiously invest in the right channels to sustainably grow a loyal user base. Hospitality revenue declined 17% YoY to INR193.8m; the company recorded segmental EBIT loss of INR59.3m. We roll forward our target price to Dec20E EPS of INR11/share. We continue valuing the stock at 30x P/E to arrive at a target price of INR320/share.

The management expects momentum to continue in Goa backed by rising footfalls and improving gross gaming revenue. The performance of online gaming business suffered due to high marketing spends. However this was offset by strong performance of Goa casinos. 1H forms 58% of our full-year earnings forecasts. We raise our FY19/20 EPS forecast by...

of +31%) to INR1,873m, primarily led by robust growth in Casino gaming revenue (+53% YoY). EBIDTA margin of 35% (flat YoY) exceeded our estimate of 33%. EBIDTA of INR654m, too, came in ahead of our estimate of INR558m. Adj. PAT grew 96% YoY to INR414m (est. revenue grew 16% QoQ; EBIT margin shrank 200bp QoQ to 12% (online gaming segment commenced reporting revenue 2QFY18 onward) due to high promotional expenses. Hospitality revenue grew 30% YoY to INR227m; it recorded an EBIT loss of INR53m. However, robust growth in Casino gaming revenue in a seasonally soft quarter (EBIT margin of 35% exceeded our revenues are gross of tax). Casino revenue was driven by a robust pick-up in tourism and unserved demand (spillover from casinos that shut down operations), and dynamic pricing on weekends. promotional expenses of INR230m in FY18 and INR130m in 1QFY19 (excl.

Revenue rose 59% YoY (est. of +42%) to INR1,716m in 4QFY18, led by higher gaming revenues. EBITDA margin expanded 750bp to 39.3% (est. of 45.7%) on a YoY basis, but shrunk 310bp on a QoQ basis due to a sequential contraction in the online gaming margin to 14% from 40%. EBIDTA stood at INR675m (est. of INR702m). Adj. PAT rose 2.8% YoY to INR437m (est. of INR440m).

DELTA stock is down 20% since the Goa government increased license fees last week (down 40% from Jan' 18 peak levels). In our view, this correction is overdone as DELTA is the dominant Casino operator in Goa and will be least impacted from license fees hike. DELTA operates 4 casinos is Goa with overall EBITDA margins of 40%. The company...

Delta Corp (DELTA) operates three floating casinos (Deltin Royale, Deltin Jaqkand Deltin Caravela) and one onshore casino (Deltin Casino- part of Deltin Suites) in Goa. Deltin Royale and Deltin Jaqk are DELTA's major casinos with vessel passenger capacity of 200-400. Deltin Caravela and Deltin Casino are relatively small with passenger capacity of 200 or less. DELTA incurs INR370m as license fee to operate the four aforementioned casinos. However, the outlay for the four licenses would increase to INR1,050m once the revised fee structure becomes effective. We believe the increased license fee would have a significant impact on Deltin Caravela and Deltin Suites, as they operate on a relatively small scale(accounting for 6% of DELTA's overall revenue for FY19E). This would likely make it unfeasible for DELTA to operate these two casinos.

DELTA's revenue increased 56.6% YoY to INR1,622m (est. INR1,502m) in 3QFY18. EBITDA margin expanded 1,220bp YoY to 42.4% (est. of 45%), but was still slightly off from the sustainable high, as the quarter witnessed one-off advertisement expense of ~INR80m on account of World Poker Tour and World Gaming Festival organized by the company. EBITDA grew 119.5% YoY to INR687m (est. INR676m). Consequently, adjusted PAT rose 327.8% YoY to INR447m (est. INR433m) in 3QFY18. Casino gaming revenue grew 73% YoY to INR1,560m, whereas Hospitality revenue rose 28% YoY to INR233m. Online gaming revenue stood at INR284m.

Results in-line (GST-adjusted): Revenue grew 8.2% YoY to INR1,453m (est. of INR1,800m) in 2QFY18. EBITDA margin expanded 290bp YoY to 45.1% (est. of 38%), while EBITDA grew 15.6% YoY to INR655m (est. of INR684m). Consequently, adjusted PAT rose 34% YoY to INR433m (est. of INR413m) in 2QFY18. Casino gaming revenue grew by 17% YoY to INR1,450m and hospitality revenue by 19% to INR188m. Online gaming revenues stood at INR241m. GST of INR351m was netted off from gross revenue in the reported result. Consequently, revenue growth appears subdued and...