Delta Corp : Entertainingly Profitable!
The company along with its subsidiaries currently owns and operates casinos in India in the states of Goa and Sikkim. It has also started an international casino in Nepal, offering approximately 2,000 gaming positions. Given the astounding rate of growth in the gaming industry, Delta Corp is poised to make the best of the moment
Delta Corp Limited, a flagship company of the Delta Group, is the only listed company engaged in the casino (live, electronic and online) gaming industry in India. Incorporated in 1990 as a textile and real estate consultancy company, it has evolved into diversified segments like casino gaming, online gaming, hospitality and real estate. The company’s early-mover advantage has helped secure a leadership position in the Indian organised gaming and entertainment industry. At Delta Corp there is an endeavour to create sustainable value for 2,000+ employees, 2,50,000+ shareholders, society and customers.
The company along with its subsidiaries currently owns and operates casinos in India in the states of Goa and Sikkim. It has also started an international casino in Nepal, offering approximately 2,000 gaming positions. In addition, it has also ventured into the fast-growing online gaming space through its acquisition of Gauss Networks Private Limited, which operates the online poker site Adda52.com. The company holds three of the six offshore gaming licenses issued in Goa, one land-based casino in Goa and one in Sikkim along with two online gaming sites.
Delta Corp currently operates Deltin Royale and Deltin JAQK, amongst the country’s two largest offshore casinos, and King’s Casino, the only floating hotel with a casino in India. The company also owns and operates the Deltin Suites, a 106-room, all-suite hotel with a casino located in Goa. It also operates the Casino Deltin Denzong located at the Denzong Regency Hotel in Gangtok, Sikkim. It owns and operates the Deltin, a 176-room, five-star hotel in Daman, which is an integrated resort with a proposed casino along with the online poker site Adda52.com and the online rummy site Adda52rummy.com. The company has started operations internationally with Deltin Casino International, located at Kathmandu Marriott Hotel in Nepal.
Sector Overview
Post delivering a remarkable performance in 2020, the Indian online gaming industry has extended this run into 2021 which was quite a roller-coaster ranging from increasing popularity to substantial investments and far higher visibility to being partially banned in a few states of the country. Online gaming has become a popular route for entertainment as a result of younger demographics, higher internet penetration and affordable smart phones, prompting investors to make significant investments in the market.
As per a report by Maple Capital Advisors, exceeding the total value of investments received by the sector in the last five years, Indian gaming start-ups attracted deals worth over USD 1.6 billion in the first nine months of 2021. Currently, India is one of the world’s fastest-growing online gaming markets. As per BCG-Sequoia India report, the Indian gaming industry, which is worth USD 1.8 billion, accounts for 1 per cent of the worldwide market which is close to USD 200 billion. The mobile-first preference is expected to accelerate the industry to a USD 5 billion market by 2025.
As this trend continues to grow strong, about 420 million players are estimated to be playing online games, actively shaping the market’s evolution. The Indian online gaming industry, and the world at large, is experiencing swift expansion and extensive evolution. Especially, in the light of social platforms and multi-player games, the socialising factor amongst players is gaining more prominence. With the industry gaining swift momentum and not willing to settle for less, industry stakeholders ought to be mindful of all the industry trends to make available the best for players and for their growth.
Financial Overview
The financial performance of the company shows that on a consolidated quarterly basis the net sales and other operating income increased to ₹ 247.22 crore in Q3FY22 as compared to ₹ 120.82 crore in Q3FY21, clocking gains of 104.62 per cent. The operating profit recorded at ₹ 1,121.17 crore in Q3FY22 as compared to an operating profit ₹ 19.85 crore in Q3FY21, zooming up significantly. Q3FY22 recorded a net profit of ₹ 71.29 crore as compared to net profit of ₹ 1.04 crore in the same quarter in the previous year, registering a massive gain. On the annual front, its net sales and operating income
de-grew by 45.84 per cent from ₹ 773.41 crore in FY20 to ₹ 418.87 crore in FY21. The operating profit contracted by 84.32 per cent in FY21 as compared to FY20. The net profit of ₹ 184.78 crore recorded in FY20 turned into a net loss of ₹ 26.09 crore in FY20. On a YoY basis, the gaming operations’ segment recorded revenues of ₹ 249.65 crore in Q3FY22 as against ₹ 97.51 crore recorded in Q3FY21, growing strongly. On the other hand, the online skill gaming segment recorded a decline of 15.63 per cent on a YoY basis.
Hospitality and other operational segment revenues zoomed more than 100 per cent from ₹ 10.82 crore in Q3FY21 to ₹ 22.29 crore in Q3FY22. Seeing the quarterly ratios, the operating profit to sales ratio which depicts a company’s efficiency has grown from 9.72 per cent to 43.36 per cent on a YoY basis, indicating improved efficiency.
A higher EPS of ₹ 2.64 in Q3FY22 as compared to ₹ 0.05 in Q3FY21 depicts increasing profitability. Over the last 2-3 years, the company has maintained an average lower –0.26 times and 0.09 times debt to equity and debt to EBITDA ratio, respectively. The EBIT to interest ratio stood at an average 39.23 times over the last 2-3 years, indicating a healthy trend.
As regards the balance-sheet and cash flow statement, comparing FY21 and FY20, other long-term liabilities have decreased 19.58 per cent whereas fixed assets contracted 3.42 per cent. The investments have gone up attractively by 73.36 per cent and the current assets have improved 5.32 per cent. The cash flows from operating activities which play an important role for the company stood at ₹ 318.83 crore in FY20 as compared to ₹ 56.56 crore in FY21, going down 82.26 per cent.
Performance in Equity Market
If we compare the company’s performance with the BSE 500 index, the stock of the company has outperformed the benchmark index on three months and one year basis whereas underperformed on a three years’ basis. The stock delivered returns of 22.21 per cent within three months as compared to 0.32 per cent delivered by the BSE 500 index. In a period of one year, the stock posted returns of 101.32 per cent as against 22.29 per cent posted by the BSE 500 index. On the flip side, the stock zoomed only 33.51 per cent in the past three years whereas the BSE 500 index gained 56.6 per cent, outperforming the stock.
Institutional investors possess the resources and specialised knowledge for in-depth research of a variety of investment opportunities not available to retail investors. As institutions are playing the biggest positions and stand to be the largest force behind supply and demand in the securities markets, they execute a high percentage of transactions on major exchanges and majorly influence the prices of securities.
.For Delta Corp, institutional investors have increased their stake by 3.29 per cent as compared to the previous quarter and cumulatively hold 16.69 per cent. On a similar note, mutual funds have also expanded their holdings in Q3FY22 and now hold 10.83 per cent of the company. The number of MF holdings has also gone up from five to 15 in the latest quarter.
Outlook
The Union Budget that was presented to Indians early in February brought a twinkle to the eyes of the gaming industry as stakeholders cheered the move by Finance Minister Nirmala Sitharaman who announced plans to set up visual effects, animation, gaming and comics’ promotion task force. With the news coming in, stakeholders have glued their eyes on the government’s contribution in advancing the AVGC sector in the country. The gaming industry is in a higher gear and some of the factors which are likely to boost the Indian gaming industry include the fact that games are not only an entertainment factor but have also become a source of earning money.
With an increasing number of players getting attracted towards online gaming, especially real money gaming, the gaming sector has posed opportunities for gaming freaks to monetize their passion and skills with easily available mobile gaming options. With easy data connectivity, people find themselves more relaxed and stress-free when engaged in gaming. Rajiv Kumar, the country head of Happy Luke, a fully licensed online casino and sports book with secure and safe betting services, said in an interview, “With the Union Budget stepping in for gamers along with the evolution of 5G network, high-speed internet connection, better graphics and excellent interface, the gaming sector will move on to the next big level. We have entered the industry lately but have quickly understood how furious and passionate people are towards online gaming.
Delta Corp has outperformed its peers in terms of one month’s returns. The company delivered returns of 24.01 per cent whereas Indian Hotels Company, EIH, Chalet Hotels and Lemon Tree Hotels registered returns of 15 per cent, 13.21 per cent, 18.94 per cent and 18.87 per cent, respectively. In the third quarter of FY22, the company’s board has also approved the appointment of advisors, bankers and other intermediaries by its subsidiary Gaussian Networks Ltd. (GNPL) with stakes in the online gaming business to explore a potential public issue and listing of equity shares. The IPO may be by way of an offer for sale of equity shares of GNPL to enable it to raise resources for expansion of its business and unlock value for the shareholders of the company. Hence, sensing an optimistic path laid down for the gaming industry and considering the sturdy growth plans that key players like Delta Corp are working with, we recommend BUY.