Rakesh Jhunjhunwala’s stock pick Delta Corp Crashes

Rakesh Jhunjhunwala rarely goes public with his stock picks. There is good reason for this. The general public is immature and unable to handle the volatility in the stock prices. However, on this occasion, he was so convinced about the prospects of Delta Corp that he publicly announced that he was “very excited” about Delta Corp. He holds a big chunk (about 3%) of Delta Corp‘s stock.

We analyzed Delta Corp carefully and found certain unique features in it which gave it the first mover advantage in the (prospective) multi-billion dollar gaming and hospitality industry (see Why Is Rakesh Jhunjhunwala “Very Excited” About Delta Corp?)

For investors expecting Delta Corp to start rolling in the mega bucks, Q2 FY 2012 was a bit of a dampener. Delta Corp‘s consolidated net sales dipped 46%, while its EBITDA slipped 19%. The net profit plunged 58%.

For a careful investor, the figures would not have come as a shock. Delta Corp‘s earlier Quarter’s figures were bolstered by its real estate division. It was known that the real estate property was sold/ being sold and that the profits there from would dip in the coming Quarters.

Rakesh Jhunjhunwala would have been quite pleased with Delta Corp‘s performance on the gaming & hospitality front which logged in a healthy 35% growth in sales and a 56% rise in EBIT.

Delta Corp does enjoy quite a stranglehold in the gaming & hospitality space. It has a 35% holding in Advani Hotels, a 51% holding in Daman Hospitality (Thunderbird Resort) and a 76% holding in Marvel Resorts. Marvel Resorts is expected to commence operations from Jan 2014 but the profits will really begin to flow only in FY 2014-15. Delta Corp also has a floating hotel at Goa called “Dolphin Floatel” which will come on stream in Q3FY12.

Short-sighted investors dumped Delta Corp‘s stock causing it to plummet nearly 20% in a week (32% in a month). This must have caused Rakesh Jhunjhunwala some grief that investors are unwilling to wait to cash in on Delta Corp’s multi-billion dollar opportunity when Goa turns into Las Vegas!