MOSL: DELTA CORP (Buy)-Beat on all fronts; EBIDTA margin steady despite steep license fee hike
Delta Corp: Beat on all fronts; EBIDTA margin steady despite steep license fee hike
(DELTA IN, Mkt Cap USD0.9b, CMP INR236, TP INR301, 27% Upside, Buy)
- Encouraging performance in a traditionally soft quarter: Revenue increased 46% YoY (est. of +31%) to INR1,873m, primarily led by robust growth in Casino gaming revenue (+53% YoY). EBIDTA margin of 35% (flat YoY) exceeded our estimate of 33%. This is encouraging considering the significant increase in the license fee run-rate (annual license fee increased from INR100m in 4QFY18 to INR240m in 1QFY19). EBIDTA of INR654m, too, came in ahead of our estimate of INR558m. Adj. PAT grew 96% YoY to INR414m (est. of INR365m) in 1QFY19.
- Strong growth in Casino biz limits margin contraction: Online gaming revenue grew 16% QoQ; EBIT margin shrank 200bp QoQ to 12% (online gaming segment commenced reporting revenue 2QFY18 onward) due to high promotional expenses. Hospitality revenue grew 30% YoY to INR227m; it recorded an EBIT loss of INR53m. However, robust growth in Casino gaming revenue in a seasonally soft quarter (EBIT margin of 35% exceeded our estimate of 33%) limited overall margin contraction (note: segmental revenues are gross of tax).
- 1QFY19 earnings call highlights: (a) Casino revenue was driven by a robust pick-up in tourism and unserved demand (spillover from casinos that shut down operations), and dynamic pricing on weekends. This helped offset the adverse impact of increased license fee on the margins. (b) DELTA incurred promotional expenses of INR230m in FY18 and INR130m in 1QFY19 (excl. fantasy sports business). These spends will continue in near future. (c) Online gaming margin to be sustainable at 15-17%; could go up to 20-21% over long term.
Delta Corp Limited is a holding company engaged in the operation of casino. Its segments include Real Estate, Gaming, Hospitality and Others. The Company operates its gaming and hospitality businesses under the DELTIN brand. It owns approximately three casinos in Goa, including Deltin Royale, Deltin JAQK and Deltin Caravela. It also owns approximately two hotels, including Deltin Suites and Deltin Palms in Goa. Deltin Suites has over 106 rooms, and offers facilities, including approximately two restaurants, lounge bar, spa, gym and swimming pool. Deltin Palms is a boutique hotel with over 27 rooms. It owns a 176 room five star hotel, The Deltin, located in Daman. The Deltin offers banquet facility in the area with approximately three bars; over four specialty restaurants. Its subsidiaries include Atled Technologies Private Limited and Delta Pan Africa Limited. The Company also owns and operates online poker site www.adda52.com.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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