Delta Corp Limited: Increased Tourism Should Bring Business Back on Track

Summary

---

• Strong and diversified portfolio of online games platforms and mass and class client base are some strengths of Delta Corp Limited.
• Growth trend in online skill-based games and under-penetrated Indian market should act as opportunities and Delta Corp Limited should capitalize on them.
• With opening up of casinos, results for 3Q21 are likely to see some benefits.

---

Overview of Delta Corp Limited

Delta Corp Limited is only listed company engaged in casino (live, electronic and online) gaming industry in the country. This group currently owns and operates casinos in India, in states of Goa and Sikkim. It offers ~1,800 gaming positions. It is also into fast-growing online gaming space as it has acquired Gauss Networks Private Limited, which operates online poker site 'Adda52.com'. Early-mover advantage helped it secure a position of market leader, with Delta Corp Limited holding three of six offshore gaming licenses issued in Goa, 1 land-based casino in Goa and one in Sikkim, and 3 online gaming sites.

Growth Enablers of Delta Corp Limited

• Economic Rebound Should Help Revive Growth: Revenues in casino gaming segment saw a decline of 5.49% to INR737.01 crores in FY20 in comparison to INR779.81 crores in FY19. Decline was led by subdued economic activity in aftermath of Covid-19-induced lockdown in March 2020. Decline was also due to maintenance dry dock of 2 vessels during FY20. Revenues saw brunt of general elections, taxi strike and new capacity additions by some industry players. Online skill gaming segment saw a growth trend and revenues were INR162.14 crores in FY20 in comparison to INR148.16 crores in FY19, achieving 9.44% growth. Operating margins moved from 18% during FY19 to 26% during FY20.
• Growth Should Come from Improved Tourism: COVID-19 resulted in reduced tourism in India, impacting hospitality and gaming industry. With things getting back on track and growth revival, Delta Corp Limited should see its revenues and profits move northwards. Rise of foreign tourist arrivals and rise in domestic tourists due to pent-up demand should be visible. Several niche offerings including medical tourism, cruise tourism and eco-tourism should also support in achieving targeted growth. As nation opens up, travel activities should resume and some improvement in trend has already been seen. Delta Corp Limited’s strategic presence in all game formats and its leading position in key geographies should supplement growth.
• COVID-19 Impact and Road Ahead: Due to pandemic and lock down announced by Indian government, operations were suspended since third week of March 2020. Indian government has since been removing restrictions. State Government of Goa allowed resumption of tourist activities from 2nd July, 2020 onwards. Casino operations were permitted to operate at 50% capacity from 1st November, 2020. Casino operations at Goa and Sikkim have been operating since first week of November 2020. Since Indian economy has seen pick-up in business activities, the company’s business should also see its numbers getting improved. Evaluation of possible impact of pandemic on business and financial position has been done and its initial assessment suggests that latest financial results may not have any adverse impact on net worth of Delta Corp Limited as at 30th September 2020. On top of it, the company is debt-free and will have adequate liquidity available needed to honour its liabilities and obligations when they fall due.
• Industry Dynamics: Global casino gaming market has been seeing growth at a rapid pace and should compound at 9.2% over FY16-FY24 to reach USD264.1 billion by 2024. Growth is principally due to rising per capita income, increasing interest and internet penetration. Growth should seek support from rising popularity and number of live casinos. One major trend is popularity of cryptocurrency/virtual currencies. India has been categorised as among top 5 online mobile gaming countries globally. As per FICCI-EY report, online gaming segment saw a growth of 40% in 2019 in India and reached INR65 billion. Gaming industry has been undergoing a massive evolution because of growth in mobile penetration.  
• Casino Gaming Should Continue to Contribute: In FY20, Delta Corp Limited saw gross revenues of INR968.44 crores and casino gaming division made a contribution of INR737.01 crores, making ~76.1%. This division should continue to form major portion of its gross revenues and rapid technology adoption and commercial initiatives should lend some support. On geographical basis, Asia-Pacific region accounts for largest market share of 41% revenue in global casino gaming market. This region is also fastest growing casino gaming market and is principally driven by new casinos in Macau and Singapore. China and India are potentially viable for expansion of casino industry in Asia region. North America made ~38% of market share due to presence of one of biggest and popular casino gaming destinations in Las Vegas.
• Promising Results Expected for 3Q21: Ever since lockdown began in India, tourism and entertainment industry has seen its brunt. Virtual halt of economic activities acted as a drag on Indian economy as well. Now, situation seems to be getting improved as government has started opening up of Indian economy. Business activities should be ramped up and a lot of sectors are expected to see pent-up demand. Recently, Goa government has allowed casinos to re-open their operations and shares of Delta Corp Limited have reacted in a favourable manner. Operations of casinos were shut due to lockdown imposed in state so that spread of COVID-19 can be prevented. Decision taken by government of Goa focuses on promoting tourism activity. With opening up of casinos, tourists are likely to be attracted. Improved arrivals should benefit Delta Corp Limited and results for 3Q21 should exhibit improved business activities.

Going Long Supported by Lower Valuations

Delta Corp Limited has compounded its total revenue at ~12.82% over FY18-FY20, while it has compounded its basic EPS at ~7.57%. Delta Corp Limited has a total market cap of ~INR4,07,702.39 lakhs and free float market cap of ~INR2,39,993.43 lakhs. At current price of INR152.8, stock of Delta Corp Limited trades at ~22.3x of FY20 EPS which is at a discount to sectoral average of ~28.2x, giving opportunities for going long. Growth is likely to be seen due to opening up of economy and improved travelling.  

---

Exclusivity:

This article is exclusive to investoguru.

Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.