Delta Corp Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Steady quarter, step-up pattern intact: Revenue held at the ~₹270 Cr level reached in Q2, consistent with Delta's historical pattern of stepping up, stabilizing for a few quarters, then growing further with events or disruptions.
• Margins defended at 34–35%: EBITDA margins are not compressed; the December '21 base is not comparable because costs were not at normal operating levels then. Management expects only improvement from here via operating leverage.
• New vessel is the next growth catalyst: A ₹225–250 Cr vessel launches in FY24 Q3, replacing King's Casino/Caravela and expanding own capacity 2.5–3x. Goa's ~1 Cr annual visitors vs ~10–12 lakh serviced today leaves a large untapped market to fill it.
• Online gaming invests for scale: Revenue grew from ₹35 Cr to ₹51 Cr YoY, but marketing spend jumped to ₹28 Cr this quarter, pushing the segment into the red. Management accepts short-term losses because every acquired customer is unit-economics positive.
• What to watch next quarter: The Daman court case moving to a daily board and any traction there, the online gaming IPO launch once budget and regulatory clarity arrive, and the revenue impact of the planned 2–3 week dry dock starting late February.

Goa Casino Operations

• Revenue pattern: Delta follows a step-up growth format: reach a number, stay there for a couple of quarters, then grow further. Q2 is the path-breaking quarter; Q3 is a mirror image of Q2, so sequential QoQ growth is not expected every quarter and historically has not happened.
• Visitation and spend: Q3 visitation rose to ~150,000 guests from 115,000, while GGR per person dropped from ~₹18,000 to ~₹16,000 because the higher headcount diluted per-person spend.
• Capacity utilization: Vessels run near-full during peak hours (8–9 PM to 3–4 AM) and on weekends now starting Thursday, but off-peak hours are underutilized. The market is maturing but is not comparable to Macau or Singapore where visitation is consistent throughout the day.
• No supply addition: The last new vessel that added industry capacity was Big Daddy in May 2019; capacities have remained more or less identical since then, so Delta's growth has come from market share or spend-per-visitor rather than industry expansion.
• Dry dock impact: One vessel will be out of operations for 2–3 weeks starting toward the end of February 2023, originally planned for October 2022 but pushed back after discussions with authorities because October is high season. This is a planned event, not a disruption, but will have some revenue impact.
• Q4 momentum: January and February trends are quite strong and robust; Q3 momentum carries into Q4 for at least the first month or month-and-a-half.

Hardik Dhebar: "It is not like a cement or a steel plant where you have an installed capacity and you run at 100% or 110% capacity kind of a thing."

New Vessel & Capacity Expansion

• Timing and cost: The new vessel is expected to launch in FY24 toward the third quarter, replacing King's Casino/Caravela. Total cost is ₹225–250 Cr, with ~₹120–150 Cr already spent and ~₹100 Cr remaining, which management does not consider a big number given expected cash generation.
• Capacity increase: Own capacity is expected to go up about 2.5 to 3 times from existing levels, allowing Delta to accommodate larger numbers of guests who are currently turned away during long weekends and holiday seasons.
• Untapped market: About 1 Cr people visit Goa annually; the casino industry currently attracts no more than 10–12 lakh people a year given current capacity. Even without Goa tourism market growth, the new vessel can fill from existing visitation. A new airport, more flights, and the Bombay-Goa expressway will further boost inflow.
• Revenue potential: Revenue from Goa could be 2x to 2.5x with walk-in customers; it could be much more if the mix includes more focused and serious Club Deltin members.
• Margin trajectory: An initial margin crunch is expected as employee and operating costs rise with 1,200–1,500 additional people. Once capacity fills, margins will improve because every additional rupee beyond optimum cost adds 55–60% to EBITDA, a pattern seen in 2013–14 with the Deltin Royale launch.
• Cannibalization risk: Some cannibalization is possible in the initial 1–2 months, but eventually the market will grow and penetrate much bigger and better, as happened with Deltin Royale.

Hardik Dhebar: "There are about 1 crore people who visit Goa on an annual basis. The Casino industry currently given its current capacity does not attract more than 10 lakh, 12 lakh people a year. So, even from the current visitations that are already happening into Goa that is a huge untapped potential available..."

Online Gaming

• Revenue growth: Revenue grew from ₹35 Cr in December '21 to ₹51 Cr in Q3 FY23; the current run rate is better and expected to surpass ₹51 Cr going forward.
• Profitability sacrificed for scale: The business was EBITDA-positive and bottom-line-positive until a couple of quarters ago but turned negative because the company chose to spend aggressively on marketing, sales promotion and advertising to grow faster and bigger. Marketing and sales promotion spend rose from ~₹22 Cr in Q2 FY23 to ₹28 Cr in Q3 FY23.
• Unit economics defend the strategy: Management stated every acquired customer is unit-economics positive, breaking even and contributing within a reasonable timeframe, so short-term losses are acceptable as the business scales. Spend will remain elevated for the next few quarters until the business reaches an optimum size, balanced to avoid bleeding very heavily while not compromising on growth.
• Multi-gaming platform launched: www.adda.games has been launched with 14 games, showing increasing signs in acquisition cost, user traction, monthly active users and daily active users. Margins have been depressed partly because of this investment in platform, team building and launch.
• Regulatory tailwind: Management is confident the final outcome of discussions between industry, government and stakeholders will be a win-win, giving the industry an interface with a ministry and a self-regulatory body as a watchdog. This will provide recognition at a much larger level and put to rest questions about whether online gaming is gambling, betting, skill or non-skill, which will also help with GST clarity.
• IPO ready, waiting on clarity: All activities and formalities required to launch the online gaming subsidiary IPO have been completed. The company is waiting for the Union Budget to pass and for clarity on rules, regulations and GST issues before launching.

Hardik Dhebar: "...when I acquire a customer by spending money on customer acquisitions within a certain timeframe which is reasonable that customer should not only breakeven, but start contributing individually. So, far as every customer that I acquire is unit economics positive. I should not be worried about in the short term of the interim losses..."

Margins & Cost Structure

• Current margin level: EBITDA margins are at 34–35% and are not compressed or subdued. The December '21 base is not comparable because not all expenses were at pre-COVID or normal operating levels: salaries, license fees and other operational expenses were lower, regular increments that had not happened for 2–3 years have now kicked in, and employee headcount is now higher than pre-COVID due to two new operations added. If the same cost structure were applied to December '21, margins would have been much lower.
• Path to improvement: Management expects only improvement from here due to operational leverage and better online top-line and contribution. The gaming business average margin is 38–39%; blended margin can move toward high 37–38%.
• Online gaming drag: Marketing and sales promotion spend of ₹28 Cr in Q3 FY23, up from ~₹22 Cr in Q2, is the primary reason online gaming turned loss-making and is a near-term margin headwind.
• New vessel margin pattern: Initially, a margin crunch is expected as employee and operating costs rise; once capacity fills, every additional rupee beyond optimum cost adds 55–60% to EBITDA, a pattern seen with Deltin Royale in 2013–14.

Hardik Dhebar: "December '21 was a base which is not comparable as regards to the current period."

Other Businesses & Projects

• Hospitality: Hospitality is a complementing business to gaming. Daman hotel operations see ₹50 lakh–₹1 Cr up-and-down swings due to timing of corporate events, MICE and weddings; Goa hotel operations are more or less unaffected. The marginal revenue shift vs prior year is not considered a dip.
• Nepal and Sikkim: Nepal contributed ~₹35 Cr in 9 months (~₹4 Cr/month); Sikkim contributed ~₹21 Cr in 9 months (~₹1.75–2 Cr/month). Sikkim license fees were revised from October onwards to ₹75 lakh per quarter.
• Daman opportunity: Management genuinely believes Daman is a very big opportunity, potentially as big or bigger than Goa. The court case has moved from a weekly board to a daily board; management expects to start seeing traction and movement from the next week onward. The merger of Daman Hospitality into Delta was effected in Q3 FY23, with legal formalities to transfer the REIT complete.
• Real estate project: The project on land originally bought for a hotel is well under way, with completion expected in the next 12–18 months and cash flows starting in the next couple of quarters. Total cash flow expected around ₹250 Cr plus profits.
• Deltin Entertainment City / Deltin Town: In final stages of getting last approvals; once in place, ground will be broken and spending will occur over the next four years.

Hardik Dhebar: "We genuinely believe that Daman is a very big opportunity it can be as big or bigger than Goa. Why double guess and put a number at this point of time."

Guidance & Commitments

Key Metrics