Why Delta Corp Share Price is Falling

It's no secret that there has been an incredibly negative impact on gaming stocks from the government mandated GST levy.

In July 2023, shares of companies involved in online gaming and casinos crashed after the GST Council levied the highest slab rate on online gaming, horse racing, and casinos.

The 28% levy is the highest standard rate and typically covers most luxury items.

The question has been and continues to be, just how bad will the impact be and how long will it last?

We got some answers today as Delta Corp shares crashed over 18%.

Let's find out more...

Why Delta Corp Share is Falling

The share price of casino operator Delta Corp crashed more than 15% after the company received tax notices totaling Rs 168.2 billion (bn) from the Directorate General of GST Intelligence on Friday last week.

This is for the period between July 2017 and March 2022.

According to the exchange filing, one notice of Rs 111.4 bn was issued against Delta Corp while the other notice of Rs 56.8 bn has been raised against three of its subsidiaries.

If the dues remain unpaid, it will be served with a show-cause notice.

More troubles?

Ever since the government's news on 28% GST, shares of Delta Corp have remained under pressure.

Gaming companies have started feeling the impact of the new rate as Mobile Premier League (MPL) has already laid off 350 employees to survive the tax.

Apart from the GST, there's a lot brewing at Delta Corp it seems.

Last month, the company's Chief Financial Officer announced his resignation to take on new professional challenges.

He was part of the company for the past 15 years.

Meanwhile, the company also paused its plans of taking the online gaming unit for an initial public offering (IPO) due to the uncertainties pertaining to the GST rate increase on the sector.

In the June 2023 quarter, the online gaming unit contributed 15% to Delta Corp's net revenue, excluding the GST component.

Note that Delta Corp reported its highest-ever quarterly revenue during the first quarter of FY24 as higher demand for casino gaming more than offset climbing costs.

The recent claim from the tax department is more than 3-times Delta Corp's marketcap (as of Friday's close) and more than double the company's last decade's revenue.

What next?

In an exchange filing released on Friday, Delta Corp said that the GST demand is based on gross bet value and not gross gaming value.

It plans to pursue legal remedies to challenge this order.

The company has also pointed out that such tax demands are not a company-specific problem, but an industry-wide phenomenon.

But here's where it gets interesting...while global investors have urged Prime Minister Narendra Modi to review the 28% gaming tax, the country's revenue secretary has clearly said there was no need to rethink the tax.

We'll get more clues about how these developments pan out when there's more clarity from the government.

For now, the company is taking steps to reduce employee expenses in the online gaming segment and expects to turn it profitable in the third quarter.

A major breakthrough for the company will be when it gets a license for the Daman casino.

The gaming company has been waiting for a casino license in Daman for a very long time. It currently operates two offshore casinos, one at a 5-star hotel (land-based casino) in Goa and one (land-based casino) each in Sikkim and Nepal.

As far as the financials are concerned, the company remains debt free and has grown its revenue and profit at a CAGR of 5% in the past five years.

Financial Snapshot

Rs m, consolidated	FY14	FY15	FY16	FY17	FY18	FY19	FY20	FY21	FY22	FY23
Revenue	5,585.8	2,999.7	3,751.8	4,546.5	6,076.6	7,994.6	7,734.1	4,188.7	6,161.3	10,207.7
Growth (%)	31.3%	-46.3%	25.1%	21.2%	33.7%	31.6%	-3.3%	-45.8%	47.1%	65.7%
Operating Profit	1,812.9	739.6	1,276.0	1,689.1	2,756.4	3,550.7	3,201.4	573.2	1,774.7	4,115.1
OPM (%)	32.5%	24.7%	34.0%	37.2%	45.4%	44.4%	41.4%	13.7%	28.8%	40.3%
Net Profit	357.3	(224.2)	382.2	737.5	1,555.5	1,967.6	1,856.3	(241.0)	669.9	2,613.7
NPM (%)	10.0%	9.5%	16.8%	13.2%	9.6%	6.6%	6.1%	9.5%	8.3%	9.2%
Dividend (Rs)	0.3	0.1	0.2	0.4	1.0	1.3	1.5	1.0	1.3	1.3
Debt to Equity (x)	0.5	0.4	0.3	0.2	0.0	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

We don't know how this situation will play out as humans are really bad at predicting the future.

If you're a day trader in Delta Corp, best of luck to you. And if you're a long-term investor, there appears to be a lot of exuberance in the markets, but not a lot of sanity.

How Delta Corp Shares Performed Recently

Delta Corp shares crashed around 18% to hit a low of Rs 140 on 25 September 2023.

In the past one month, shares have declined over 20% while in 2023, Delta Corp shares are down 33%.

Delta Corp has a 52-week high of Rs 250 touched on 28 June 2023 and a 52-week low of Rs 140 touched today.

At the current price, the company trades at a PE multiple of 14.3x compared to its 5-year average of 27x. Its price to book value multiple comes to 2.2x compared to 5-year median P/BV of 2.6x.

About Delta Corp

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 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 began reducing his stake in Delta Corp in 2017.

Meanwhile, Mukul Agarwal also holds around 1% stake in the company since September 2022.

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

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...