Delta Corp Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Revenue snaps back to peak run rate: With zero operational stoppages, Q1 FY23 gross revenue matched the December quarter (Q3 FY22) level, confirming that normalized operations restore the business to its highest quarterly performance.
• EBITDA margins recover sharply: Margins rebounded from 32% in Q4 FY22 to 36–37% in Q1 FY23, absorbing a 10% Goa license fee hike and group-wide increments after a multi-year pause.
• Deltatech Gaming IPO filed and funded for growth: The DRHP is with SEBI; proceeds are earmarked as a war chest for player acquisition, new verticals and geographic reach in the online gaming space.
• GST overhang nears resolution: The Group of Ministers report is due by August 10, 2022; management is hopeful the forthcoming GST Council will clarify valuation methodology, removing a long-standing ambiguity.
• What to watch next quarter: Whether the GST Council adopts the GGR-based valuation, the pace of power and fuel cost decline as oil falls, and any progress on the Daman casino court ruling.

Revenue Recovery & Operating Performance

• Peak-quarter run rate restored: Q1 FY23 gross revenue returned to Q3 FY22 levels, demonstrating that the Omicron-driven 30–40 day closure in Q4 FY22 was the sole drag; normal operations bring the business straight back to its highest quarterly mark.
• Highest first quarter ever: Management noted Q1 is seasonally softer than Q2 and Q3 due to holidays, making this the strongest Q1 on record despite the difficult prior period.
• Visitation matches pre-Omicron peak: Q1 visitations were in the ballpark of Q3 last year (~120,000), confirming demand recovery to pre-Omicron levels.
• Customer mix deliberately filtered: Management consciously fills the boat with serious players rather than casual visitors; filtration kicks in automatically on extremely busy days, improving revenue quality per visitor.
• F&B revenue negligible: Almost everything beyond the cover charge is gaming revenue; free food eliminates additional F&B spend, and alcohol sales fall under state VAT.

Dhebar: "if one was to regularize and look at normal operations we would do as much as we were doing in the December quarter prior to the Jan quarter. Having said that we have demonstrated that since we have got normal operations during this particular quarter without any stoppages of whatsoever nature, we have not only scaled back to our December quarter which effectively means that we are clocking the same run rate as we would do in a standard peak quarter of sorts"

Margin Structure & Cost Dynamics

• EBITDA margin recovery: Margins improved from 32% in Q4 FY22 to 36–37% in Q1 FY23, driven by normalized operations absorbing cost increases.
• License fee escalation absorbed: The Goa government increased license fees by 10%, adding ~₹10 Crores per year across all four Goa casinos; management expects revenue growth to outpace this, as it has historically done when fees rose from ~₹5 Crores to ₹30 Crores per boat.
• Employee cost step-up: Group-wide increments were given after approximately two-and-a-half to three years, covering online gaming, all casinos and hotels; this is a catch-up, not a new recurring acceleration.
• Power and fuel spike temporary: Oil at all-time highs during the last six months drove the increase; management expects costs to decline as oil keeps falling.
• Sales promotion spend normalizes: Online marketing and sales promotion expenditure rose ~₹3–3.5 Crores as activity resumed without interruptions across offline and online channels.
• Historical margin resilience as precedent: Over years of license fee escalation from ~₹5 Crores to ₹30 Crores per boat, margins not only remained intact but grew; management expects that pattern to continue.

Dhebar: "the revenue growth has always surpassed and outsmarted the expense growth and we believe that, that is going to continue going forward as well."

GST: Valuation Methodology & Rate Risk

• GGR methodology defense: Delta has not sought a change in methodology; it argues the Gross Gaming Revenue basis has been followed in Goa for 30 years and is the international standard across Singapore, Macau and Las Vegas.
• GoM report catalyst: The Group of Ministers is to submit its report by August 10, 2022; management is hopeful the forthcoming GST Council will clarify the ambiguity on valuation methodology.
• Goa concentration argument: Goa accounts for 95–97% of GST collection from casinos, with Sikkim contributing the remainder; management questions why other states would complicate a matter that affects them negligibly.
• Online gaming rate change impact manageable: If the rate moves from 18% to 28%, the effective impact is ~5–6%; management personally believes volumes would not be materially affected and the cost could be passed on via small rate adjustments, though any decision must be a collective industry one.

Dhebar: "we have not sought for any change in methodology we have nearly said that this is the methodology that has been followed for the last 30 years as far as Goa is concerned please continue doing that because that is not only the right and the only method, but if you look at global practices also whether it is Singapore, Macau, Las Vegas or any other jurisdiction this is the only way how GST is levied across all jurisdictions."

Expansion Projects & New Capacity

• Zuri casino added: The new vessel went operational in Q1 FY23, adding 150–200 gaming positions and expanding total capacity from ~2,000 to ~2,200 positions.
• New vessel (Caravela replacement): Expected towards the end of Q2 or beginning of Q3 of FY24, further expanding floating capacity.
• Deltin City (Mopa airport project): Work has commenced with a four-year gestation period; a 40–60 person team is in place with external consultants, layout and design architects appointed; confirmed as electronic gaming only at this stage, not live gaming.
• Existing vessels post land-based casino: Boats will continue to operate even once Deltin City opens, as long as the land-based facility remains electronic only; if government policy changes to require boats to move to land and surrender licenses, that would need evaluation, but nothing of that sort is on the horizon.
• Goa land parcel liquidation: Expected to release close to ~₹100 Crores of cash in the next 18 to 24 months.

Subsidiaries & Regional Operations

• Deltatech Gaming IPO: DRHP filed ~24–25 days ago and is with SEBI; issue timing is subject to market conditions.
• IPO use of funds: Proceeds will create a dedicated war chest for the online gaming space to augment growth in retention, player acquisition, new verticals, new games and user reach.
• Online gaming growth ambition: Management endeavors to grow at a much faster pace than current; growth could be double-digit or triple-digit, though no specific CAGR was committed.
• Sikkim performance: Revenue has grown from ~₹1–1.2 Cr/month to ₹2.5–3 Cr/month, but connectivity remains a constraint limiting further improvement.
• Nepal performance: Operations commenced only 6–8 months ago; currently doing ₹3–4 Cr/month with potential to reach ₹5–6 Cr/month for sure; historically a big market but segmented due to past bad operations and credit issues in the jurisdiction.
• Advani Hotels stake: Some stake was sold in the market when prices were rising; management remains keen to sell the remaining stake if a buyer is found.

Legal & Regulatory Updates

• Daman casino court case: Delta has concluded its arguments in the Mumbai High Court after three to four hearings; now waiting for the Daman administration to commence and complete their argument; no fixed timeline for a ruling.
• NGT/CRZ matter: The NGT Delhi passed an order against the company; Delta obtained a stay from the Supreme Court and has suo-moto filed for CRZ clearance even though it believes no CRZ is applicable for a boat in the river; management emphasized no other boat or competitor has this permission.

Dhebar: "No boat in the river and I am repeating no boat in the river but there are other boats or any other competitor boat has this permission but we have been the first one suo-moto have gone and filed."

Guidance & Commitments

Key Metrics