Delta Corp: Inside India’s Leading Casino Business Model

The gaming industry has taken an unforeseen turn! An unexpected statement regarding the 28% GST rate on gaming, stole the show at the 50th GST conference. In this article, we will dive into the consequences of this move and will also discover how this unexpected turn of events will impact the industry players, including one unfortunate company whose shares dropped significantly right after the news.

Yes, it was Delta Corp who witnessed a misfortune and tasted the bitterness of a 23% share crash!📉 The news of the GST increase has seemed to hit them like a punch in their belly.

Investing is all about making informed decisions and backing businesses that inspire confidence. In the gambling business, the only certainty is uncertainty itself 🤫. We can presume that those who invested must have properly considered their options before parting with their hard-earned cash. However, the recent collapse of the share price gave investors the taste of gambling. Imagine the thrill and suspense as they watch their fortunes disappear faster than a player's in-game credits. 

Here the, 

Has turned into,

But wait,

Let's Know the "WHY" Behind this Tax Hike. 

The government justified the hike by saying that it is necessary to discourage young people from gambling. However, I believe there are problems with this reasoning. 

Firstly, the great majority of online gamblers are adults, and gambling is already prohibited for those underage. Then, there is a chance that the increase will have an impact that is opposite to what the administration is anticipating. By raising the cost of online gaming, the government is only pushing players to foreign platforms, which are exempted from the Indian tax rules. This will just make gambling more accessible to kids and take away money from the government that is needed. Probably, this can be an example of how well-intentioned policies can have unintended consequences 🤷. 

Most likely, the government's efforts to stop young people from betting will just promote their gambling. It appears that, as with tobacco, the government has taken a page from the "How to Discourage Consumption" manual. Oh, that was such a brilliant strategy! (Notice the subtle sarcasm in this😉.) Did it really result in a considerable reduction in consumption? Let's just say that we aren't entirely certain that the past will repeat itself. 

Moving on, it was expected that the government would implement regulatory adjustments after hearing the news. It's important to remember that the initial fee was only for the platform. However, the most recent development includes taking it into account as a whole; allow me to explain this using an example. 

Initial scenario: A person is taking a bet of ₹100 and the platform fee is at ₹20 So the GST calculated was 18% of ₹20 = ₹3.6

Current scenario: A person is taking a bet of ₹100 and the platform fee is at ₹20 Now the GST calculated will be 28% of the bet amount, that is ₹100 = ₹28

You see the significant rise in the cost that the user will now have to bear and that is why this downfall in the stock prices.

Let’s know in detail if this act of government is simply a bump on the road to fortune or a concern for the investors.

Games Market: Trends and Opportunities of Delta Corp Ltd.

The number of gamers worldwide is growing steadily. It is predicted that by 2025, there will be around 500 million users engaged in online gaming, making it the third-largest segment of the Indian media and entertainment industry. This growth is fueled by the adoption of 5G technology and the shift from basic phones to smartphones. 

The global games market experienced a little decline in revenue in 2022, with a 5.1% decrease from the previous year. The industry generated US$182.9 billion in revenue, which is close to ₹15 lakh crore. However, there is hope for the future because it is predicted that the global gaming market will recover and reach a new high of US$ 206.4 billion which is ₹16,92,480 crore by 2025.

It is evident that the gaming industry has strong growth potential. Let's examine the sector in India.

Individual states in India are responsible for regulating gambling activity, both offline and online. Only states have the power to enact regulations governing gambling on their own soil. Goa and Sikkim are the only two exceptions to this norm. These states have legalised offline gaming, but only under the conditions set forth by each state's government.

Through a licensing mechanism, the Goa Gambling Act permits five-star hotels to provide "games of electronic amusement or slot machines" in Goa. Under particular licensing restrictions, they may also provide table games and other types of gaming on offshore vessels.

States like Andhra Pradesh, Telangana, Assam, and Odisha, however, forbid the playing of any game for money. Games of skill are also not considered an exception in these states.

Delta Corp Ltd.: Dealing Fun and Fortunes!

Operating in Sikkim and Goa, Delta Corp Limited is a well-known player in the casino gambling sector. The organisation offers a wide variety of gaming forms, such as live, electronic, and internet games. It possesses licenses for both onshore and off-shore operations, allowing it to add hospitality assets to its casino activities. In February 2020, the firm opened a casino at the Hotel Marriott in Kathmandu, Nepal, in an effort to broaden its global presence. Additionally, Delta Corp entered the online gambling industry in 2017 by purchasing Adda52.com, a well-known Indian online gaming portal. This action was taken to improve its standing in the Indian gambling sector. 

The company generates revenue through online skill-based games like poker, rummy, and fantasy sports, which are played for real money in many Indian states.

Here is a list of the mentioned casinos:

1. Deltin Royale, Goa
2. Deltin JAQK, Goa
3. Kings Casino (Deltin Caravela), Goa
4. Deltin Suites Casino, Goa
5. Deltin Zuri, Goa
6. Deltin Denzong, Sikkim
7. Deltin Casino, Kathmandu, Nepal

The online gaming platforms operated by Deltatech Gaming Limited are:

1. Adda52.com
2. Adda52Rummy.com
3. Adda.games

Under their hospitality segment, they have two hotels:

1. The Deltin, Daman
2. Deltin Suites, Goa

SWOTting It Out

Let’s analyze the Strengths, Weaknesses, Opportunities, and Threats of Delta Corp Ltd.

Strength

• India's top gaming business.
• First-mover advantage in a relatively unpopulated sector.
• Wide client base and diverse gaming platform portfolio.
• Team with extensive gaming experience and talent.
• Presence throughout a range of gaming formats.

Weakness

• Business specialisation in particular regions.
• Managing non-core hospitality businesses presents difficulties.
• Gaming licenses are subject to limitations and restrictions in many places.

Opportunities

• The rapid expansion of skill-based games among millennials.
• Indian society is becoming more accepting of gaming.
• Untapped potential for expanding geographically and obtaining new licenses.

Threats

• Negative regulatory changes that have an impact on the gaming sector.
• Intense competition within the gaming sector.
• Decreased demand as a result of the recession and reduction in discretionary spending.
• Potential regulatory barriers that could cause delays in getting casino licenses, such as in Daman.

A Financial Overview of Delta Corp Ltd.

The lifting of lockdown restrictions and the gradual reopening of the economy played a significant role in driving increased guest visits and revenue growth in the casinos. The desire for such experiences grew when people recovered the opportunity to access entertainment establishments, especially casinos. More people went to the casinos as a result, increasing revenue for the casino gaming industry.

• In FY 2022-23, the revenue breakdown by segment is as follows:

1. Casino Gaming segment: Revenues increased by 86.54% to ₹1,010.65 crore.
2. Online Skill Gaming category: Revenues increased by 18.16%.
3. Hospitality segment: Revenues increased by 25.08%.

The amount earned from the segments stated above is displayed in the table below:

(in ₹ crore)	2022	2023
Casino Gaming	439.91	809.96
Online skill gaming	137.22	162.17
Hospitality	39	48.64
Total Revenue from contract with customer	616.13	1020.77

• The net profit climbed in FY 2022–23, rising from ₹66.99 crore to ₹261.37 crore. Higher revenues and optimised expenses, which show increased operational efficiency and profitability, can be used to explain this significant growth.
• The ratio of net profit to total sales, known as the net profit ratio, rose from 10.87% in 2022 to 25.61% in 2023. This suggests that revenue is being used more effectively to produce profits.
• Additionally, in FY 2023, the Return on Capital Employed (ROCE) increased from 4.71% to almost 17%.

The increase in overall revenue, which was sufficient to offset the increased operational costs and tax charges, is responsible for this improvement. Increased profitability and efficient use of the company's capital are suggested by the greater ROCE.

The company's financial performance demonstrates its debt-free status, solid cash position, higher return on equity, and improved turnover ratios, all of which point to good growth and financial stability.

The graph below illustrates the rise in Return on Equity (ROE), which is due to the very straightforward fact that the number of operational days in the current year has increased relative to the previous year, increasing total revenue, which is then offset by rising operational costs and tax expenses. As a result, return on equity has increased.

Risks Involved in the Business and the Ways of Mitigation

In this section, we will explore the risks involved in detail and examine how the company plans to mitigate them.

1. Regulatory Risk: In this area, there is a lot of government interference, which suggests that if the company doesn't follow the laws, its commercial operations may suffer. Licenses might be suspended, fines could pile up, and even criminal penalties could come knocking.

👉 The business claims that it has developed strong contacts with local government agencies and that it takes great care to ensure that all regulatory requirements are met.

2. Peer Risk: There are numerous new players who develop better technology or a more effective marketing plan, which poses a danger to the company. 

👉 They have an advantage because they are a dominant player. They assert that both their goods and the content are of a high standard. They increase user engagement and experience to keep a competitive edge.

3. Acquisition related Risk: Any firm faces a challenging task when making an acquisition, and if these risks are not managed, it could negatively affect the company's cash flow, operating performance, and financial situation.

👉 The business carefully selects its targets in order to reduce this risk, and it also uses an evaluation standard to make the purchase more impartial and lower the possibility of a mismatch.

4. Geographic Concentration Risk: The company is overly dependent on a single industry and geographic area because it is so narrowly concentrated.

👉 The company's main business is gaming, but they have also expanded into the hospitality industry and now operate in Sikkim, Nepal, and Daman in addition to Goa.

5. Inflation Risk: It is obvious that rising inflation has an effect on the purchasing power of the firm's clients, and in this industry, where human capital is the major expense, it may lead to unexpected wage inflation.

👉 Due to the adoption of best practices and provision of lucrative compensation, they have a high rate of staff retention.

6. Unanticipated Event Impact Risk: In all businesses, there is no anticipated danger. Events such as a global epidemic and Black Swan events can have a significant effect on the company's hospitality industry.

👉 The management must keep a careful eye on the economy's future and its level of uncertainty if this problem is to be solved.

As we conclude this article, it's evident that the rate hike will have a significant consequence, leading to the unfortunate downfall of Delta. It's important to take into account the total effect, even though it might only last a short while. Even though the company's financial performance might increase, it's crucial to recognise that the industry has inherent risks, notably regulatory concerns. Temporary swings are normal in the dynamic market. 

It's crucial for long-term investors to evaluate the entire company rather than making snap decisions based only on stock price swings. 

The Bottom Line

While some investors could be forced to reconsider their choices, others might see it as a chance to make a return. After all, strategies may be changed in both gaming and finance, and patience can result in redemption. Despite the difficulties, there is a portion of the population that will continue to gamble regardless of the situation, guaranteeing that the industry expands. Although there will likely be short-term negative effects, it's important to recognise that the corporation can immediately pass the tax burden on to customers, which has a direct impact on demand.

Long-term investors can navigate the market's ups and downs by adopting a global perspective and understanding that a company's short-term decline may not accurately reflect its true potential.

But hey, while you wait, why not engage in a different kind of gambling?🧐
Just kidding, don't gamble. It's a bad habit. 

*Disclaimer: The stock discussed above isn't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.