Delta Corp – A huge but risky opportunity

Delta Corp Q4FY23 results and conference call summary:

Current Market Cap: 5100 Crs

Conference calls notes fy23

Hardik Debar- CFO of the company.

Financials:

• The ebitda on an annual basis has taken a jump of 50%. Its different from the absolute number because the management is also considering the 4 months the company was shut last year, and therefore to regularize and assume that the company operated for the entire year last year as well and then compare the ebitda to the current year ebitda, it will give be an increase of 50%.
• Similarly, the net profit based on the regularization from the last year it would be an increase of 150% rather than the absolute value.
• The company has a cash on book 535 cr, doesn’t include investments. Pure cash and cash equivalents
• Other current assets have increased, the reason behind is the cost of license fees which has increased over time.

Online Business:

• The online segment which includes the, multi gaming platform has touched 200 Cr (gross turnover).
• In march alone 23 cr from online gaming in march, highest ever revenue. Similar revenues in this segment were seen in the covid times. 28% tax on the online space.
• The company thinks that the 23cr revenue from online games is a sustainable and is working on retention and reactivation.
• Ebitda margins on the online gaming business is breaking even, reason: completely reinvesting revenues from all the platforms back in the business platforms like rummy, poker, and fantasy leagues, multi gaming platforms (in build stage)
• Poker as a vertical has an ebitda of about 30%. online poker + multi gaming platforms combined has a breakeven.
• Online gaming IPO is expected to launch soon. Delta has already filed for a drhp (deltatech) and have the approvals till October 2023.

Rules and governing body: The company highlighted towards a new governing ministry which is getting formed which help the company in governing and legal decisions.

Other Outlooks:

• New goa airport can be a game changer as more footfalls, more flights.
• Industry at large is getting recognition.

Current Vessels:

• Deltin Royale was not functioned for thirty days because of drydocking and maintenances. The company has a license for three vessels and all vessels put together generate around 90Crs in revenue per month, which adds up to approximately 270Crs per quarter. In this about 60-70% of the revenues is generated through Royale.
• The company lost 50crs in the last quarter approximately because of this vessel’s maintenance.
• Company expected a similar quarter with same margins if Deltin royal had not gone for drydocking Within goa 90-95% of the revenues comes from the vessels.
• Average gross gaming revenue (ggr) is 14,000 to 16,000 per head.
• employees- 3000 people.
• 75% costs are fixed which includes license fees and employee cost. 20-25% variable cost. This makes the business a high operating leverage business.
• Membership business is club deltin and deltin select. There are no fees associated to it, only by invitation.

Future Outlooks:

• The new vessel will enable the company to go 2.5x to 3x of their existing capacities
• goa attracts 1cr people per year. Total intake of all the vessels put together in a year is >20lakhs a year.
• 80 lakhs still not completely serviced. no underutilized business vessels.
• In fy24, expenditure on marketing, about 50% goes to marketing, about 17-18% goes back to sales promotion. Total 50-60% marketing expenditure.
• Selling an old land parcel in goa, one off revenue from this is expected which is close to 250-300crs.
• tax rate for fy24 will be 25%.
• no constraint for capacity for at least 5-6 years
• New vessel is expected by the 4th Quarter of this financial year.

Entertainment City Project:

• The land parcel project has got all the clearances except the environmental clearances; those clearances are expected to come by this month. Will start work soon after.
• Entertainment city will not have substantial capex right now, will be doing basic stuff like excavation and other introductory steps once the clearances are done. Will probably start work in q3fy24.

Daman casino front –

• 8th of June is the next hearing. The previous hearing was on 11th April and could not reach a conclusion because the court required more details.
• Daman casino, has a 50 million population within a four-hour drive for people. This can turn in greater revenues if the matter in the court is resolved.

Payback period After a new vessel is launched: After a new vessel is launched it takes 6-8 months for the company to breakeven their investments value the company gave an example of deltin royale where the investment was close to 170 crores and it took the company less than 6 months to breakeven.

drydock-A vessel must go once in 3-5years. next vessel drydock for royale would be in 3 years.

Updates on the new vessel:

total capex spent on the new vessel was 250 Crs, spent 140-160 Crs (60%-70% of the value) This percentage of the vessel is already built, remaining 30% capex is still left 120-130Crs still left.

Expected to arrive by Q4Fy23. Will increase the capacity by 2-2.5x

Hospitality front:

• Goa hotel part has an occupancy rate of 75% with an average rate of room (arr) is Rs.5700 and daman has a 52% occupancy with an arr of Rs.7000
• Started operations in Nepal, generating 4 crores per month. Sikkim is 2-2.5 cr doubled from pre covid.

Overall management sounds confident with enough projects on hand. An interesting thing to track would be company’s execution in all these projects.