Delta Corp Rating | Buy — Flat showing in Q1 but the ship is stable

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Published: July 13, 2019 12:46:46 AM

Consequently, revenue growth is likely to bounce back from Q2FY20, and we estimate 18% growth in the Casino biz in 9MFY20.

Casino business incurred a loss due to maintenance work, and thus, the muted growth therein is not very significant. Casino business incurred a loss due to maintenance work, and thus, the muted growth therein is not very significant.

DELTA’s revenue came in flat y-o-y at Rs 1,865 m (our estimate: Rs 1,925 m) in Q1FY20. Casino revenue increased 3% y-o-y – we note that growth would have been higher if not for the maintenance work at its vessel Deltin JAQK in dry dock for 19 days, due to which the segment incurred a revenue loss of Rs 190 m. Online revenue declined by 9% to Rs 356 m. Ebitda margin expanded 70bp y-o-y to 36.3% y-o-y (our estimate: 34.9%). PAT came in flat y-o-y at Rs 425 m (in line).

Casino on strong footing, online yet to gain ground
As mentioned, Casino business incurred a loss due to maintenance work, and thus, the muted growth therein is not very significant. Moreover, we do not see much threat from the entry of a new competitor given DELTA’s strong leadership position in the space. Consequently, revenue growth is likely to bounce back from Q2FY20, and we estimate 18% growth in the Casino biz in 9MFY20. On the other hand, competition in Online business from a top player is likely to remain intense, and thus, developments on this front will be closely watched. Also, margins in online gaming are likely to remain under pressure as the company invests aggressively to stay competitive.

Key takeaways
(i) DELTA will evaluate monetisation of its online gaming businesses at the right time. (ii) In Q1FY20, the company’s visitation grew by 15% y-o-y to 105K.

Valuation and view
The stock price has corrected sharply following media reports of (i) DELTA being issued huge GST demand notice and (ii) closure of Goa-based casinos. However, management clarified that it has not received any GST notice, while comments on closure of casinos have been countered and invalidated by authorities via media.

Thus, we maintain our estimates of sales/PAT CAGR of 14/19% over FY19-21. We continue valuing stock at 30x P/E to arrive at a TP of Rs 304. Maintain Buy.

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