Good interview of Hardik Debhar, CFO, on ET Now. He sounds very positive of Delta not even having scratched the surface. Very positive on the online gaming side too:
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The question is how can evaded GST be more than the market cap of the company. 
And a new competitor arrives. So we should not discount some deliberate negative PR:
exactly my thoughts⌠I donât know how a GST of Rs 6100 cr can be levied on sales of Rs 1862 cr (cumulative for 3 years).
If my understanding is right, the GST claim is on total bet while Delta Corp has been paying GST on net revenue (on whatâs the houseâs commission/cut on the bet - which might just be about 2-5%). Thatâs the only thing that can explain the scale of the claim. The bigger concern if this understanding is true is - if Delta Corp collected GST on the overall spend of a customer at the Casino but only paid it on net revenues - what happened to the rest of the money?
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Are we supposed to pay GST over and above the amount of every bet one places ? How does it work in case of horse racing ? Is GST payable by Delta to the winner of every bid. Does customer pay GST every time he places or wins the bet ?
The accounts are audited every quarter. Could they have been non compliant for so long. Would the auditors sign the BS if there is such a major noncompliance ?
âRelevant part of entry 34 of the said CGST notification reads as under: âHeading 9996 (Recreational, cultural and sporting services) â ⌠(iii) Services by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, gocarting, casinos, race-course, ballet, any sporting event such as Indian Premier League and the like. â 14% (iv)⌠(v) Gambling. â 14 %â As is evident from the notification, âentry to casinosâ and âgamblingâ are two different services, and GST is leviable at 28% on both these services (14% CGST and 14% SGST) on the value determined as per section 15 of the CGST Act. Thus, GST @ 28% would apply on entry to casinos as well as on betting/ gambling services being provided by casinos on the transaction value of betting, i.e. the total bet value, in addition to GST levy on any other services being provided by the casinos (such as services by way of supply of food/ drinks etc. at the casinos). Betting, in pre-GST regime, was subjected to betting tax on full bet value.â - Taxguru website
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Delta is swept up as part of a larger inquiry on betting taxation.
https://agbrief.com/headline/india-tax-officials-question-fantasy-sports-gst-best-practice/
Does it imply that the controversy pertains only to the on line gaming business and not casinos ?
Can any one provide info on these imp aspects.
I think an important tax law will be tested here. Since GST could only be applicable on value addition or markup, practically it should be applicable on net hold by the house rather than on the gross bets. However, GST law wording is very clear that it should be on gross bet but it also adds that it is applicable on the services provided by the casino. Logically, casino service value is calculated by the net hold by the house. Obviously there is going to be dispute in the interpretation and it will land up in court if the GST dept remains adamant. I hope they look at the larger issue and global practice to leave it there. It looks bad on the Delta promoter when they take ever to resolve the issue that too when exchanges take up the issue. Also, why should Delta open their cards in the media when the potential of this issue landing up in the court eventually. I hope they have remained consistent over the last 10-12 yrs to avoid any big potential tax burden.
This clarification is clearly not enough but I think the company canât speak on rumours either so the stalemate/speculation might continue.
Disc: Invested
Even if you barter and buy the tax should be on the differential amount and not on the high value item.
The way the law is worded, there isnât much that Deltin or any other casino operator can do. Deltin charges tax on the net value - ie the value of chips bought or OTPCs included in the âentryâ fee paid. In other forms of betting for eg: Lottery system, Tax is paid on the gross value. To illustrate, 1000 people buy a lottery of Rs 500 each, total transaction value is Rs 500,000 (1000x500). Mostly this value is sold all inclusive including tax. Now if the lottery company pays Rs 300,000 to the winner, itâs net profit would be Rs 200,000. However GST is paid on the full Rs 500,000.
This is not the case in casinos like Deltin, it doesnât matter how many times you gamble but only the net winnings are subject to GST.
Since the event of tax (Supply) is only âGamblingâ, it can be hard to interpret the transaction value on a gross basis or net basis (Whether the word gambling is used in singular form or plural form). Delta would have to file a Writ to the High Court, which has another appeal remedy at Supreme Court if rejected.
I am working in the field of taxes, and from my experience this case would not be resolved in the immediate future. Those of us old enough would remember another company selling âSinâ product which was engaged in a similar litigation under excise in late 90s. ITC won that case after several years of litigation but the case is still notoriously famous among tax practitioner circles as the âMother of all tax casesâ
https://m.rediff.com/money/2004/sep/10itc.htm
As investors the larger risk seems to be that Companies selling Sin products are easy targets of government action - Whether tax laws, environment laws, licensing, pricing regulation.
Even if Delta wins this case, the government can easily change the wording of the law to increase tax incidence. Personally I find these actions tough to digest as an investor.
Disc - Not invested.
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I donât think it is as easy as it seems because Delta Corp is paying a huge sum in taxes and license fees. Without mining, the Goa govt relies heavily on Delta Corp.
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As per this news article Kathmandu casino is expected to open in August-2019. https://theannapurnaexpress.com/news/creating-its-own-niche-the-kathmandu-marriott-1622
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Delta Corp FY20 Concall Notes
Q1FY20
Opening Remarks
Casinos
- Dry docking event happened for a vessel in this quarter
- 39 cr revenue for 90 days in June 2018 for a vessel undergone dry docking, this year for the same vessel revenue was around 45 crore for 65-75 days, casino run rate has been better than last year
- 2nd and 3rd quarters have always outperformed for the company , hope to see this year also similarly
- From 27th march to 23rd of may, there were restrictions on serving alcohol post 10 pm due the general elections, which impacted the revenue
- IPL also caused few hindrances to customers coming to casino, post IPL also normal public may walk in to the casino but this time due to the restrictions on alcohol the turnout was low
Online gaming
- Look to grow at a much larger number this year
- They tried and acquired 60-70k new customers for adda52 , undertook marketing strategy for the same and due to which the marketing spend saw an increase of Rs. 4.7 crore
- The interest exp is present only due to new accounting standards, but actually the company is debt free
Summary
- Post elections the same people who are against come with the clarification that they are not against the casino as the economy is highly dependent on casino
- All the top officials of the govt. have made statements that they want the casinos to shift to onshore and not close them
- International expansion is always a strategy that they would like to undertake, but they donât see any political issues in Goa, expansion will continue on an ongoing basis
- During the IPL, revenue of Halaplay have increased almost 3x compared to the pre IPL numbers
- Halaplay is at #2 in the market after Dream 11
- The special designated zones are on land and not on the river, the idea of the govt is to shift the casinos to onshore as it helps them to achieve their political promise of freeing Mandovi and moving the casinos over it to a designated zone which is likely to be near the airport towards the border of Goa and Maharashtra
- Jalesh Cruise has operated for around 30 days in this quarter, as it came in India on the 10th of April, 2019, the cruise will be coming back to India post the monsoon season around September and the company to gain traction then
- Worldwide cruising has been a successful business, Indian cruising population has been on a rise in the past few years
- In Q4FY19, the management had stated to consider replacing one of the smaller vessel with a larger vessel , the company is taking a conscious call on the same, but there are no updates on this as of now, as and when it happens they will inform
- Nepal Casino facing issues due to the delay in 5 star certifications of the hotel, the company is hopeful that it will be received in Q2FY20 and they will be able to start the operations
- The reason that the online gaming business has been kept in a separate entity and not in Delta is because of raising funds and valuations issues, given the current sitiuation, for similar reasons their online fantasy gaming division is under the Halaplay brands and not adda
- Focus to scale the adda platform and then monetize it
- Rs. 10 million USD investment in Jalesh Cruises is at a company level not a per vessel basis, they are a equity holder in the company
- Revenue Mix in future â offline space will be a larger share of revenue, online will take a long time to catch up
- Daman License â 2-3 hearing done, govt had to reply, waiting to see what happens at the next date of hearing
-
Monetizing Assets â the company plans to monetise these assets - Land in Sri Lanka & Goa and Advani Hotels
- Advani Hotels - They are not a promoter in Advani Hotels, so they donât have the decision making power, they have been trying to sell their stake in the market, but the buyers want to buy it with the promoters, the promoters also were looking to exit but nothing has happened so far
- Land in Sri Lanka - Due to the geo political scenario in the past few months in Sri Lanka they are facing issues to sell the land, but they will be selling the land soon
- Goa land - it is not large in number, they are trying to either sell the land completely or will get it developed by a developer and then sell it
- All the above assets put together would be valued at around Rs. 250 crore
- Next dry docking for a vessel will take place post 2-2.5 years
- GST Case â A speculation by a news publication, the company has categorically denied, neither has the company received any notice nor do they have any communication from any particular department form the govt.
- Prepaid exp of Rs. 97 crore in the books pertains to the FY20 license fees, every year the fees is payable on 31st March, which the company pays a few days earlier due to which it shows up as a prepaid exp and then it gets amortized over the year.
- Capital commitment of Rs. 44 crore for an acquisition of a pvt. Ltd. Company is an agreement with Jalesh Cruise and Halaplay
- Footfalls â 15% growth over June 18, from 92000 in June 18 to 105000 in June 19
-
Online gaming revenue growth
- The management thinks that there was not lack of growth it is slower growth than what they had anticipated, they are trying to get growth by implementing few strategies in the same which will show result in a longer period of time
- To compare the online gaming revenue on a like to like basis, they had the poker tournament entity â the poker sports league a subsidiary of Gaussian Network in June 2018 quarter , the same has not taken place this year in this quarter due to which Rs. 5 crore from revenue and Rs. 80 lakh from the bottom line should be adjusted to compare the 2 quarters
- Poker and Rummy market is a very unorganised market, the company doesnât have a number for market share but are the leader in poker
- Rummy has not yet started on their platform, expect to start in this quarter
- The company is waiting for the Goa assembly to come in to the session so that they can have some direction or guidelines for their view on shifting casinos on shore
- The revenue loss for the vessel undergone dry docking was around Rs. 14 crore which translates in to a profit loss of Rs. 8 - 10 crore (60-70% of the revenue), they have 80% fixed costs and 15-20% variable costs
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