Delta Corp Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Record quarter, domestic engine firing: Revenue, EBITDA and profit all hit all-time highs, driven entirely by buoyant domestic tourism and consumption while international travel remains constrained.
• Quality over quantity in casinos: Flat visitation of ~120,000 masked a deliberate shift to high-end packages on busy weekends, improving the revenue mix and spend per head.
• Online gaming breaks out: The segment jumped from ~₹42-43 crore to ₹50 crore YoY after a sustained 6-8 month push on customer acquisition and retention, with management confident the run rate is sustainable.
• Deltatech IPO and Mopa project now have regulatory line of sight: SEBI approval received and roadshows beginning; the greenfield integrated resort secured single-window clearance, with ground-breaking targeted by January.
• What to watch next quarter: The Daman casino hearing outcome, the GST Council's decision on computation methodology, and whether the online gaming ₹50 crore run rate holds or grows.

Casino Operations: The Mix Shift

• Visitation flat, revenue up: The quarter saw ~120,000 visitors, unchanged QoQ, but revenue grew because management deliberately filters the crowd on busy weekends by withholding entry-level packages and offering only high-end ones, attracting serious gamers rather than entertainment-seekers.
• No standard capacity metric: Management rejected the idea of a capacity utilization figure, arguing that 500 high-value players can generate more revenue than 2,000 entry-level visitors, so headcount alone is meaningless.
• Weekday-weekend convergence: Over recent years, footfall has evened out across the week, with only Tuesday and Wednesday seeing an occasional dip, making revenue flows more predictable.
• Entry pricing covers fixed costs: The entry fee is set to cover all fixed costs including F&B and transportation, ensuring the company does not lose money at any stage of the customer funnel.
• Competitive moat intact: Big Daddy has operated for four years and, barring one month of Bollywood-star programming, the market has settled; Delta has grown past all 2019 levels to historic revenue and profit highs.

Dhebar: "I would be more happier to filter the crowd in a way where I get more focused than serious people who want to sit on the table and game rather than people who come for food drinks and entertainment."

Online Gaming: Breaking the Shackles

• Revenue inflection reached: The segment had been stuck in a ₹38-44 crore band and has now touched ₹50 crore, which management attributes to renewed focus on sales promotion, customer acquisition, retention and onboarding over the last 6-8 months, not to sector tailwinds.
• Run rate confidence: Management stated the ₹50 crore quarterly number can be replicated without much of a problem, and with IPO money the company hopes to surpass and grow it.
• Frugal spend philosophy: Marketing investment will be measured, focused and concentrated, aiming to maintain profitability or minimize losses while achieving objectives; management explicitly ruled out one quarter of humongous loss. For the multi-gaming platform there will be a spending spree to add players, but not a blind spend.
• Multi-gaming funnel strategy: The platform is designed to attract users and then nudge them over time toward high-ARPU games, with poker and rummy currently the highest ARPU, though any high-ARPU game is the target. Conversion tracking is too early to assess.
• User base scale: Monthly active users on the multi-gaming platform stand at 30,000-40,000; management declined to provide month-on-month growth rates when asked.

Dhebar: "We are very stingy spender and frugal spenders, so to say. We believe in trying to maintain profitability or at least minimize the losses while trying to achieve our objectives and goals."

Regulatory & Legal Overhang

• GST computation, not rate: The rate on casinos has been 28% since GST inception and management is agnostic on that front, seeing no change coming. The dispute is about computation methodology: the company seeks clarification that GST should be calculated as India did from the 1990s through 2017 and beyond, until a new circular introduced ambiguity.
• Council process advancing: The Group of Ministers has recognized that online gaming, casinos and horseracing are separate businesses that cannot use the same yardstick for tax computation. Management is "very, very positive and hopeful" the GST Council will settle the matter once and for all.
• Daman casino hearing: The matter is listed for final hearing on the weekly board; once the hearing commences, management is hopeful of a direction very quickly thereafter. The casino itself is ready and plug-and-play, requiring only 45-60 days for activation once the legal path clears.
• Legal expense drag temporary: Other expenses remained elevated in Q2, similar to Q1, because of legal fees related to the Daman matter (coming up daily), GST-related consultations, professional charges including marine staff, and a revenue-share arrangement with an operator. Management expects these recurring legal expenses to stop sooner rather than later as issues conclude.
• COVID-era license fees: No communication has been received from the government on this; the provision is already reflected in the P&L, so there would be no P&L impact even if called in.

Dhebar: "From a rate perspective, we are agnostic there is no change that is going to have, but there's no change that's going to happen as far as we are concerned on the rate front."

Expansion Projects: New Vessel & Mopa

• New vessel timeline: Expected to be ready and operational post-monsoon next calendar year, during the beginning of Q3 FY24 (next financial year). It will replace the smallest existing ship and will be bigger than the current biggest ships.
• New vessel margin profile: In a steady-state, stable environment, margins could range between 37% to 45%. Initial months will see costs incurred without commensurate revenue, but once breakeven is achieved, 55-60% of every additional rupee drops to the bottom line due to high operating leverage.
• Mopa integrated resort: Final notification approving the project and designating the area as an investment promotion zone was received about a month ago, granting single-window clearance through the IPB authority and eliminating department-by-department approvals. Ground-breaking is expected by December end or January, with first revenues at least three years out.
• Mopa casino scope: Will include an electronic casino of approximately 100,000 to 150,000 square feet to begin, under the existing rule permitting an electronic casino on a 5-star hotel property.
• Project funding self-sufficient: The company plans to self-fund the expansion with ~₹600 crore cash on hand, ₹250 crore from the Deltatech IPO secondary component, and ~₹400 crore annual cash generation over four years, totaling ₹2,400-2,500 crore. No further land acquisition is required for the near foreseeable future, with about 15-20 acres still available from the existing land.
• Cost increase absorbed: While the project cost increase is substantial, management believes the way the casino business has been performing and gaming numbers are stacking up means it will not make a significant impact on profitability if the casino strategy is achieved.

Dhebar: "While the cost increase is substantial, but on the other hand, if you see the way the casino business has been doing and the gaming numbers are stacking up, I don't think it is going to make a significant impact in terms of the profitability, if we are able to achieve the casino strategy, right?"

Deltatech IPO & Corporate Structure

• SEBI approval in hand: Final observations and approval have been received from SEBI; the company is commencing road shows and market assessment to decide on launch timing.
• No royalty leakage: No royalty has ever been paid by Deltatech to Delta Corp and none is contemplated; certain revenue-share arrangements for live poker room management at Deltin Royale may continue.
• Post-IPO consolidation: Deltatech Gaming will continue to be a subsidiary consolidated with Delta Corp, so there is no impact from a balance sheet and P&L perspective.
• IPO proceeds for online growth: With IPO money, the company hopes the ₹50 crore online gaming quarterly run rate is not only maintained but surpassed and grown.

Guidance & Commitments

Key Metrics