Why Delta Corporation Share Price is Falling

Shares of casino operator Delta Corp lost over a fifth of their value on Wednesday, 12 July 2023.

This downward trend was not limited to Delta Corp alone, as shares of several online gaming stocks also reacted bearishly. Nazara Technologies, a digital gaming and e-sports firm, saw its shares tumble by over 14%.

If you are wondering why Delta Corporation shares took a nosedive yesterday, here's why.

Increase in GST rate

In a major setback to the country's online gaming industry, the GST Council on Tuesday decided to levy a 28% tax on the full value paid by users.

This decision specifically targets the skill-based real money gaming segment of the company, which accounted for 5.2% of the company's total revenue in FY23.

What's concerning about this tax is that it will be applied to the Contest Entry Amount (CEA) rather than just the commissions earned by platforms.

In simpler terms, the entire sum of money that customers deposit to play will be subject to 28% GST. This marks a significant increase from the previous tax rate of Rs 1.8 per Rs 100 spent on a game.

It's important to note that the outcome of skill-based gaming is not solely determined by luck, and India's gambling laws are somewhat unclear. While some states have banned online gaming, many others have allowed it to operate freely, resulting in a thriving industry.

The skill-based real money gaming segment alone generated over Rs 100 billion (bn) in revenue in 2022, and its future growth potential is substantial.

With the GST Council aiming to secure a larger share of this lucrative market, a 28% tax on the entire pot of money is worrisome.

This tax hike will likely lead to several consequences for game developers and consumers. Firstly, game developers may face higher production costs as they would have to pay more taxes on their equipment, software, and other resources.

This could discourage new game development ventures and hinder growth and innovation in the industry.

Delta leads in the online gaming space.

The consequence of this decision is already being felt on the company's subsidiary, Deltatech Gaming (formerly Gaussian Networks), one of the earliest companies in the real-money gaming segment in India.

What Next?

Going ahead, the company plans to counter any potential impact by actively taking steps to mitigate the effects on this particular segment of its business. As a result, the company anticipates minimal disruption to its overall revenue.

Additionally, it aims to expand its capacity and introduce new products to the market. While such endeavours often bring about initial disruptions, the company has historically experienced subsequent growth.

Furthermore, its strong brand reputation and loyal customer base provide a solid foundation for its future success. Additionally, its diversified business portfolio, encompassing casinos, hotels, and other ventures, strengthens its resilience and enhances its growth potential.

Although the implementation of the new GST may present immediate challenges, the company's proactive approach, combined with its established strengths and diversified operations, positions it well for its growth trajectory in the long term.

How the stock of Delta Corp has performed recently

So far in 2023, the share of the company has given a negative return of 16.2%. Over the month, they plummeted by over 27%.

Delta Corporation touched its 52-week high price of Rs 259.9 on 28 June 2023. Its 52-week low was Rs 172.3 touched on 12 July 2023.

The company is currently trading at a PE (price to earnings) multiple of 23.4x.

About Delta Corporation

Delta Corporation is the only listed company engaged in the casino gaming industry in India.

Incorporated in 1990 as a textiles and real estate consultancy company and 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.

Delta Corp along with its subsidiaries owns and operates around five casinos in India in the states of Goa and Sikkim.

The company has expanded its footprint internationally as it joined hands with Nepal-based Everest Hospitality and Hotel Pvt. Ltd. to operate a casino in Nepal.

Delta Corp has also ventured into the fast-growing online gaming space through the acquisition of Gaussian Networks, which operates the online poker site 'Adda52.com'.

The stock was once a part of Rakesh Jhunjhunwala's portfolio. He has been reducing his stake in Delta Corp since 2017. For more, check out Rakesh Jhunjhunwala & Associates Portfolio: Top 5 stocks.

To know more about the company, check out Delta Corp's financial fact sheet.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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