Delta Corp Q4FY23 results and conference call summary:
Current Market Cap: 5100 Crs
Q4Fy23
Q3Fy23
QoQ
Fy23
Fy22
YoY
Revenue
227
273
-16.8%
1021
616
65.7%
Ebitda
60
102
-41.1%
350
139
151.7%
Ebitda Margins
26.4%
37.36%
-29.3%
34.2%
22.5%
52%
Net Profit
51
85
-40%
262
68
285%
Net Profit Margins
22.4%
31.13%
-28.04%
25.66%
11.03%
141%
Eps
-
-
-
Rs.9.77
Rs.2.5
290%
Conference calls notes fy23
Hardik Debar- CFO of the company.
Financials:
The ebitda on an annual basis has taken a jump of 50%. Its different from the absolute number because the management is also considering the 4 months the company was shut last year, and therefore to regularize and assume that the company operated for the entire year last year as well and then compare the ebitda to the current year ebitda, it will give be an increase of 50%.
Similarly, the net profit based on the regularization from the last year it would be an increase of 150% rather than the absolute value.
The company has a cash on book 535 cr, doesnât include investments. Pure cash and cash equivalents
Other current assets have increased, the reason behind is the cost of license fees which has increased over time.
Online Business:
The online segment which includes the, multi gaming platform has touched 200 Cr (gross turnover).
In march alone 23 cr from online gaming in march, highest ever revenue. Similar revenues in this segment were seen in the covid times. 28% tax on the online space.
The company thinks that the 23cr revenue from online games is a sustainable and is working on retention and reactivation.
Ebitda margins on the online gaming business is breaking even, reason: completely reinvesting revenues from all the platforms back in the business platforms like rummy, poker, and fantasy leagues, multi gaming platforms (in build stage)
Poker as a vertical has an ebitda of about 30%. online poker + multi gaming platforms combined has a breakeven.
Online gaming IPO is expected to launch soon. Delta has already filed for a drhp (deltatech) and have the approvals till October 2023.
Rules and governing body: The company highlighted towards a new governing ministry which is getting formed which help the company in governing and legal decisions.
Other Outlooks:
New goa airport can be a game changer as more footfalls, more flights.
Industry at large is getting recognition.
Current Vessels:
Deltin Royale was not functioned for thirty days because of drydocking and maintenances. The company has a license for three vessels and all vessels put together generate around 90Crs in revenue per month, which adds up to approximately 270Crs per quarter. In this about 60-70% of the revenues is generated through Royale.
The company lost 50crs in the last quarter approximately because of this vesselâs maintenance.
Company expected a similar quarter with same margins if Deltin royal had not gone for drydocking Within goa 90-95% of the revenues comes from the vessels.
Average gross gaming revenue (ggr) is 14,000 to 16,000 per head.
employees- 3000 people.
75% costs are fixed which includes license fees and employee cost. 20-25% variable cost. This makes the business a high operating leverage business.
Membership business is club deltin and deltin select. There are no fees associated to it, only by invitation.
Future Outlooks:
The new vessel will enable the company to go 2.5x to 3x of their existing capacities
goa attracts 1cr people per year. Total intake of all the vessels put together in a year is >20lakhs a year.
80 lakhs still not completely serviced. no underutilized business vessels.
In fy24, expenditure on marketing, about 50% goes to marketing, about 17-18% goes back to sales promotion. Total 50-60% marketing expenditure.
Selling an old land parcel in goa, one off revenue from this is expected which is close to 250-300crs.
tax rate for fy24 will be 25%.
no constraint for capacity for at least 5-6 years
New vessel is expected by the 4th Quarter of this financial year.
Entertainment City Project:
The land parcel project has got all the clearances except the environmental clearances; those clearances are expected to come by this month. Will start work soon after.
Entertainment city will not have substantial capex right now, will be doing basic stuff like excavation and other introductory steps once the clearances are done. Will probably start work in q3fy24.
Daman casino front â
8th of June is the next hearing. The previous hearing was on 11th April and could not reach a conclusion because the court required more details.
Daman casino, has a 50 million population within a four-hour drive for people. This can turn in greater revenues if the matter in the court is resolved.
Payback period After a new vessel is launched: After a new vessel is launched it takes 6-8 months for the company to breakeven their investments value the company gave an example of deltin royale where the investment was close to 170 crores and it took the company less than 6 months to breakeven.
drydock-A vessel must go once in 3-5years. next vessel drydock for royale would be in 3 years.
Updates on the new vessel:
total capex spent on the new vessel was 250 Crs, spent 140-160 Crs (60%-70% of the value) This percentage of the vessel is already built, remaining 30% capex is still left 120-130Crs still left.
Expected to arrive by Q4Fy23. Will increase the capacity by 2-2.5x
Hospitality front:
Goa hotel part has an occupancy rate of 75% with an average rate of room (arr) is Rs.5700 and daman has a 52% occupancy with an arr of Rs.7000
Started operations in Nepal, generating 4 crores per month. Sikkim is 2-2.5 cr doubled from pre covid.
Overall management sounds confident with enough projects on hand. An interesting thing to track would be companyâs execution in all these projects.
Delta Corp: My 2 cents. Some facts and some fancies, some overthinking and some unproductive thinking. Request to allay my fears.
Let the dust settle, industry has to evolve. there are somany moving parts.
Value will be unlocked once the online IPO comes because there is a lot of spending on advertising 50 crores per qtr - 200cr yr
Daman writ is likely to win, as we know how it is in general, first, it is delayed, deliberated, and lastly favored. Because business has a life and life finds its way. If not HC, then SC. But remember time overruns are always there.
People may not want to play/gamble on the record, so cash likely coming into play, likely underreporting cannot be overlooked.
Also it is an excessively competitive space, Poker is something that is an intelligent game, and Rummy is a mass market game, but their presence is not great in rummy. Junglee rummy, rummy circle, etc. will not let them have an easy walk.
Essentially they are shrugging off the poorer business, as I feel.
Suppose, in the future, this industry is viewed as normal and licensing become easy and accessible, less regulated (which I strongly feel is gonna happen). In that case, what are the entry barriers? - First mover, an established player are some obvious ones. But there will be some âxyzâ new player, or say an international player with an even better model may come up. So how will Delta defend the turf? To begin with- do customers have a loyalty to Delta? I donât think so, they are likely to switch.
Gambling as a profession (or addiction) v/s gambling as a tourism, there is a big difference. Now tell me, once you have gone to Deltin last year, how likely is it that you wanna go again? Repeat customers / sticky clientele/ loyal gamblers are far from expectations.
Goa is a lovely tourist spot, it has flamboyancy, carefree breeze, and people tend to have a yolo attitude (temporary for tourists), it is far more conducive than Daman. Daman is not a favorite tourist place, far from it (Personal experience). So, the management should be looking at a mediocre destination, as I feel. Not las vegas for sure, as portrayed.
35% operating margins sustainable? I doubt. Because itâs not scalable beyond that. They say itâs a very high operating leverage business but I think, even if it is, it is already 35%. Itâs factored in. Trees not gonna grow to the sky.
Surely doubt scalability, the gambling market is a cultural thing. The reason why there are only a few race courses in India, lottery, betting do not go well culturally.
Currently betting suffering after the GST regime came into being as it is heavily taxed by the Indian Govt. Regulatory overhang.
They need to crack rich locations e.g. Mumbai, to really scale meaningfully.
Tax structure today is biased both on the player as well as Delta. Delta pays 28% of GGR (Gross Gaming Revue) as GST, whereas the winner straight 30% without a loss set-off or credit. In such a scenario, you know, cash is prevalent. Also, itâs not a tax structure that is conducive for industry to prosper.
Advani Hotel shares, Sri Lanka land they want to sell off. Land in Goa, no buyer, now building 250 odd apartments and want to sell-off. This is a half-hearted project, we know. Hope they get sold off at cost, let alone at a premium. How long will it take to materialise?
This real estate project is an unwanted incident and adds one more layer to non-core business in addition to hospitality. Misallocation of capital.
MOPA Airport: Integrated resort 2500cr plus plan may be a good game changer. Expect by 2027. Q2 FY22 Conference Call: Deltin Entertainment plans to be ready shortly. Will take 42-48 months from the date of commencement for the project to complete. Project to cost 1500-1700 Cr. Q4 FY 23: Not even spent a rupee, just a minimal digging will start in monsoon. cost 2500-2700Cr. 4 years time frame.
Big cash on the balance sheet is the biggest pro. But just think about it, it can be viewed as otherwise also, it is sitting there for the last 2 years or more.
Some Pessimism around the company and stock price exists, no doubt. Growth plans are in place, but the industry by nature is very sensitive.
Please correct me wherever I am wrong. All rights are reserved to be wrong and stupid, multiple times.
Lets hope for a positive outcome today.
Daman approval can re-rate the company as its not just about the market size (similar or bigger than goa) but also about diversification to other geography and can lead to higher PE. Fingers crossed.
Itâs more of an experiential thing instead of addiction in India. This is not US where we have casino culture and we can play for a timepass while our clothes are being washed in a laundromat.
Although the business has room to grow as we see that a lot of people have started going to bars every weekend for their office parties, it would take a long time for the co. as the tax regimes are being bend against industry whether we see online gambling of offline.
Much of this business is sin industries like cigarette and alcohol business where once people get addicted to it, we know that we are not going out of business tomorrow but the difference is that cigarette and alcohol business have high brand loyalty and most of that market is penetrated.
After going through the thread and doing my own reading, while I agree that the industry perse has a long runway, specifically for Delta i have a few doubts:
Footfalls - Tracking the footfalls (whatever the mgmt gave in their transcripts), seems to be ~12L annual out of a total of 100L, how many more people are going to keep coming to drive the volumes? Applying the pareto principle the overall additional market that Delta can service might not large/lucrative.
Beyond offline business - While they acquired Adda, they havent been able to leverage the brand to acquire more customers, for some time, they had dropped rummy as an active offering and now only with adda.games they are trying to fill these gaps, did the management left a big opportunity slip out of their hands?
Whats beyond Goa - The other casinos that they have opened dont seem to have moved the needle much with respect to revenues, will Daman also end up in a similar spot (as someone mentioned, Daman is perse not a tourist location)
Will Delta Corp become a value-trap with the story and tailwinds all in its favor, but the company is caught in a limited geographical spread or missing out on the on-line gaming situation given the current execution?
Am i missing something ? or are there too many iffs which needs to align for it to become a multi-bagger from here on?
Yes, Daman (if license is granted) can be bigger than Goa.
Its surrounded by High Per Capita income areas â Surat, Ahemadabad, Mumbai and has potential to become dedicated destination for gaming industry. First mover advantage will benefit a lot.
Looks like the second scenario that Hardik had explained in one of the concalls has been implemented. If the govt retrospectively collects gst based on this, Delta and pretty much every other casino in India is finished. Hope Delta Corp issues a statement soon.
Looks like Delta corp is going to sink tomorrow after the GST news⌠Government finally decided to kill the industry in its early stage itselfâŚBad for states like Goa in general as it depends on tourists and casinosâŚWill get more details once management gives statementâŚ
My personal opinion is that delta business will not be impacted but only time will tell.
Rationale- someone who is already spending quite a bit to enter into casino will not mind spending a little more as per personal experience and this also raises entry barriers even higher.
Online business again can be impacted a bit but again my view is this make entry barrier higher and ultimately we may end up with few big players with vast market to cater too.
Reading the news it seems now GST is only on chip value and not on continuous betting. Slight positive/relief for Delta but seems fundamentally weak news. IPO for gaming platform would be off the table now.
