Delta Corp Equity Research

Date of Research – 14 January 2016

Price – Rs. 75.00

About the Company

Delta Corp Limited (“Delta Corp” or the “Company”) is primarily engaged in the business of gaming & entertainment with interests in hospitality and real estate. It is the only listed Indian company in the business of casino operations in India.

Gaming – It owns license to operate 5 casinos (3 in Goa and 2 in Daman) out of which 2 offshore casinos in Goa are operational (i.e. located on cruise vessels). The Company is expected to commence operations at 1 more casino each in Goa and Daman before the onset of the tourist season towards the end of third quarter of FY 2012 and in the calendar year 2013 respectively. As of date, DCL has 700 live gaming positions (660 table positions and 40 machines). With the opening of its 2 new casinos (one each in Goa and Daman), DCL is expected to have 3200 gaming positions (2,660 table positions and 540 slot machines) in its inventory.

Hospitality – To create synergy with its gaming business Delta Corp has been developing hotels and resorts to cater to its gaming customers. It operates a 190 room five star deluxe property named, ‘Thunderbird Resorts’ in Daman which has approximately 300,000 sq. ft. of developed area. The Company is soon commence operations of India’s first five star floating hotel, ‘Royale Floatel’ on Madovi river in close proximity to its offshore casinos and its recently acquired all-suite hotel property namely ‘Castle Royale’. It also operates a boutique hotel named ‘Villa de Penha’ located on the banks of the Mandovi river in Goa which is a 5 minute feeder boat ride to the Company’s off-shore casinos. The Company holds 35 % stake in Advani Hotels & Resorts (India) Limited which owns the Ramada Caravela Beach Resort in Goa and operates a land based Casino called the ‘Goa Nugget’.

Real Estate – It has a 40:60 JV with Reliance Industries Limited which owns 10 prime plots of land in Nairobi for commercial and residential development.

Caveat: Gaming and hospitality businesses of DCL are still in their formative years and a major portion of DCL’s revenue, ~ 67% for both FY 11 and FY 12 came from the real estate division. While DCL has the first mover advantage in the highly lucrative casino business in India, the company is yet to get off the ground in the gaming and casino segment in a meaningful way. Many veteran investors including Rakesh Jhunjhunwala have bought sizeable stakes in DCL. Seasoned investors clearly have confidence in this firm. But with such large stake-holdings, DCL could also be more vulnerable to stock price volatility, should they sell these off.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016  FY 2017
Total Income from Operations 425.41 558.58 299.97 377.86  454.65 
Expenses 340.58 408.51 233.44 255.02  290.69  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 84.83 150.08 66.53 122.84  163.96  
Depreciation 8.12 16.56 34.69 38.21  36.12  
Finance Costs 15.46 33.43 51.3 41.44  34.97  
Other income 18.52 31.21 7.42 5.80  4.95  
Exceptional items (5.16) 13.84 4.52 –  (4.20) 
PBT 84.94 117.46 (16.56) 48.99  102.02  
Tax 33.97 52.02 10.83  20.03  28.04
Extraordinary items 0.42 0.36 (10.48)  – 
PAT (before Minority Interest and share of Associates) 50.96 65.02 (27.74) 39.44  73.98  
Profit/ (loss) attributable to Minority Interest 19.84 29.10 (4.98)   (3.15)  (2.87) 
Share of profit / (loss) of Associates 1.73 0.61 0.01 –  3.11
Consolidated Profit / (Loss) for the year 29.39 35.31 (22.77) 42.58  73.75  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016  FY 2017
Operating Profit Margin Ratio 19.94 26.87 22.18 32.51   36.06 
Net Profit Margin Ratio 11.98 11.64 (9.25) 10.44   16.27 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies. 

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 34.63 22.69 22.76 23.07 23.07
Money received against warrants
Reserves & Surplus 717.16 750.52 747.34 741.98 780.29
Net worth (shareholders funds) 751.79 773.20 770.10 765.05 803.35
Minority Interest 107.35 161.57 52.48 24.41 23.54
Long term borrowings 323.00 301.50 240.70 223.92 192.79
Current liabilities    229.74 295.56 223.97 195.40 150.18
Other long term liabilities and provisions 11.01   2.14 2.24 8.94 11.11
Total Liabilities 1,428.88 1,533.97 1,289.49 1,217.72 1,180.98


Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 511.04 783.54 815.46 801.51 774.59
Noncurrent Investments 116.23 114.11 104.85 12.65 11.24
Current Asset 708.20 489.01 273.49 284.77 289.05
Long term advances and other noncurrent assets 52.22 60.56 55.97 56.15 49.08
Goodwill on consolidation (net) 35.19 86.75 38.25 56.48 51.39
Total Asset 1,428.88 1,533.97 1,289.49 1,217.72 1,180.98

Efficiency Analysis

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 8.52 6.86 14.11 6.57 12.05
ROE 5.75 3.80 4.59 (2.98) 4.91

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry. 

Valuation Analysis


Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 425.41 558.58 299.97 377.86  454.65 
Growth (%) 16.57% 31.30% (46.30%)  25.97 %  20.32 % 
PAT (Rs. Cr.) 50.96 65.02 (27.74) 39.44   73.98  
Growth (%) (23.36%)  27.59% (142.67%) 242.16 %  87.58 % 
Earning Per Share – Basic (Rs. ) 1.27 1.55 (0.99) 1.85  3.19 
Earning Per Share – Diluted (Rs. ) 1.26 1.55 (0.99) 1.85  3.19 
Price to Earnings 32.46 57.71 35.73  52.51 

Dividend History

The Company has maintained an average dividend yield of 0.37 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook.

Delta Corp’s average current ratio over the last 5 financial years has been 2.20 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Delta Corp’s average long term debt to equity ratio over the last 5 financial years has been 0.29 times which indicates that the Company operates with relatively low level of debt and accordingly is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Delta Corp’s average interest coverage ratio over the last 5 financial years has been 1.53 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Delta Corp reported a promoter holding of 35.29 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 12.51 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.