so ive heard on a lot of platforms that delta is suffering due to coronavirus and the travel and tourism industry has been affected in a big way.
but putting into perspective… how many people are really coming to deltin from china or even south east asia??
also anecdotally i knew someone who cancelled his trip to thailand because of the scare and is now going to goa… (obviously he may not go to deltin) but i dont think they are hit hard by any of the news that seems to be reflecting in the sentiment.
I think there are several reasons for negative sentiment around Delta-
Regulatory - This is the biggest one and management has not been able to successfully lobby regulators in Goa or Daman. Casinos are still looked upon as a sin business and not a tourism opportunity like Macau / Vegas. The court processes are taking too long and I don’t know how successful land casinos will be if/when they happen (see next point). Any move to land is several years away and investors would probably want to enter after the fact given how badly timelines have been skewed so far.
Tourist arrivals - I’m in Goa currently. It is a very weak season. Charters are not coming in for various reasons like Thomas Cook, CAA protests, coronavirus, Section 144 imposition etc. I have been visiting Goa for over 20 years but have never seen this level of negativity amongst locals. There are many other budget beach destinations in Indonesia, Thailand, Philippines, Sri Lanka, Vietnam etc that have become far superior destinations than Goa. Well heeled and aspirational travellers (Delta’s ideal demographic) are giving Goa the skip and moving on. Who wants to still deal with a taxi mafia and experience Goa’s tired nightlife? Goa continues to do well as a wedding destination but that does not spillover much into the local economy. I actually see an opportunity from Coronavirus because Indian high rollers who prefer Macau may shift to Goa for a while and experience Delta.
Competition - I don’t visit the Goa casinos personally but I have observed that Big Daddy continues to advertise aggressively at the airport, near the casino docks etc. I believe Nepal and Sikkim have entrenched players and Delta needs to make inroads.
Economy - Delta cannot be insulated from the weak Indian economy forever. If sentiments aren’t positive people aren’t going to be rushing to gamble.
Banning of locals from casinos - self explanatory
Management - My view based on listening to con calls, interviews and guidance is that management has generally over promised and under delivered. I don’t see any sense of urgency and in fact their CFO comes across as incredibly arrogant and patronising on every call. They were late to online gambling/fantasy formats and have totally ignored the broader mobile gaming market. Unsure about Promoters commitment to the business since his stake is now in the low 30s and he rarely comments publicly.
Goans have been banned from entering Casinos starting Feb 2020. I read a report somewhere that 60% of their customers were locals. Any idea if this is true and how big would be the impact on numbers??
Imp point from the article:
A gambling survey released late last year, however, found that casinos are not the preferred choice for Goans. Only 1.1% of respondents (all of whom were local residents) surveyed, disclosed that they visited casinos during the past one year, while 67.8% admitted to playing the lottery and 52.3% admitted to playing ‘matka’, a game of numbers drawn out from an earthen pot.
The board of directors has approved a proposal for the Company to buy-back of its fully paid-up equity shares of face value of INR 1(Rupee One) each (“Equity Shares”) from the members of the Company (except promoters andpersons in control of the Company), representing 4.61% of its total paid-up equity share capital as on December 31, 2019, on a standalone basis, for an amount, payable in cash, aggregating up to INR 1,250,000,000 (Rupees One Hundred and Twenty-Five Crores only) (“Maximum Buy-Back Size”), which is less than 10% of the aggregate of the total paid-up equity share capital and free reserves of the Company, based on the latest audited financial statements of the Company as at March 31, 2019, on a standalone basis and consolidated basis, for a price not exceeding INR100 (Rupees One Hundred only) per Equity Share (“Maximum Buy-Back Price”), through the open market route through the Indian stock exchanges, in accordance with the provisions of the Securities and Exchange Board of
India (Buy-Back of Securities) Regulations, 2018, as amended (“SEBI Buy-Back Regulations”) and the
Companies Act, 2013 and the rules made thereunder (“Buy-Back”).
See the price of sands Las Vegas in 2008 recession how it behaved.
Disclosure - Stuck with big holding purchased at very high price. Purchased more this week.
Thanks for sharing. I see that there isn’t a single mention of Coronavirus in the entire article and reading closely - appears it has been written around 26 Feb 2020 and published in March edition of the magazine.
We all know the whole world has changed since then especially for companies which are dependent on travel and tourism.
With so much uncertainty of when this business will return to normalcy - investors thinking about this company should patiently sit on the sidelines in my view no matter how bullish the management of such companies may have been before.
Disc: Invested before the virus struck and sitting patiently
I think differently. This is very obvious case. After two years from now there will not be any corona. Everyone will get vaccinated. Casino business will be throwing free cash flow again. Comoany has enough cash to survive in these two years without any business. It will earn more than 250 crore profits in 22-23 even if online gaming business does not grow even 1%, Nepal, Jailesh,Sikkim do the same as now. Online business is doing well and is having no threat. Everyone will be in hilarious mood to see the profits and growth. At that time how much one will be willing to pay is anybody’s guess as growth and visibility has lot of value. People will count Nepal, online, Sikkim, Goa, Jailesh even Daman to derive future profits. They will forget lockdown.Now discount the cost of capital 40% to arrive at present value. One can easily see the bargain. Great investments are done in uncomfortable times. Bull markets rise on wall of worry. I dont see any risk at this price. If one wants to validate my theory, see the price of world’s biggest casino companies like Sands China, Sands Las Vegas. One can get the idea easily. I dont see any reason for this company to fall this much. https://g.co/kgs/yqGt17 https://g.co/kgs/D4rvsm
My point is simple. If you are shutting shop for two years and after that business is as usual, go for it if price is down more than cost of capital.
Disclosure - Stuck with holdings at high price. Accumulated heavily recently. Big portion of my portfolio again.
Another factor to think is that within the next two years, how the relationship between India and Nepal becomes. Today, it is not looking good and need to watch this geopolitical space.
