MOSL: DELTA CORP (Buy)-The ship’s steady-Casino biz growth restricted by maintenance work
Delta Corp: The ship’s steady; Casino biz growth restricted by maintenance work
(DELTA IN, Mkt Cap USD0.7b, CMP INR166, TP INR304, 83% Upside, Buy)
- Delivers flat revenue and PAT: DELTA's revenue came in flat YoY at INR1,865m (our estimate: INR1,925m) in 1QFY20. Casino revenue increased 3% YoY - 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 ~INR190m. Online revenue declined by 9% to INR356m. EBITDA margin expanded 70bp YoY to 36.3% YoY (our estimate: 34.9%). PAT came in flat YoY at INR425m (in-line).
- Casino on strong footing, Online yet to gain ground: As mentioned earlier, Casino biz incurred a loss due to maintenance work, and thus, the muted growth therein is not very concerning. 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 2QFY20, and we estimate 18% growth in the Casino biz in 9MFY20. On the other hand, competition in Online biz 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 in advertisement and marketing to remain competitive.
- Key takeaways: (a) DELTA will evaluate monetization of its online gaming businesses at the right time. (b) In 1QFY20, the company's visitation grew by 15% YoY to 105K.
- Valuation and view: The stock price has corrected sharply following media reports of (a) DELTA being issued huge GST demand notice and (b) 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 the stock at 30x P/E to arrive at a target price of INR304/share. Maintain Buy.
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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