The factors considered below present an overview of the gaming industry in India. The analyses below are based on the circumstances of Delta Corp Limited which runs the largest casino operations in India.
WHAT’S DRIVING THE STOCK
Rising internal consumption and favorable demography
Over the last few years, domestic consumption in India has kept the economy insulated from the global economic turmoil. Owing to its strong internal demand, the Indian economy managed to grow at a steady 5.00 % in FY 2013 and is estimated to end FY 2014 with a GDP growth rate of 4.7-4.9% over the previous year.
The Indian growth story is a very favourable one with more than 50 % of its population below the age of 25 and more than 65 % below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years. Such a ‘young’ economy with growing disposable incomes and greater exposure to western lifestyles is encouraging for the growth of entertainment and casino industry.
Further, Asia is the fastest growing market for casinos. Gaming in the Asia-Pacific region has grown phenomenally over the last few years. Until recently, Indians have been forced to travel to destinations like Macau, Singapore and Kathmandu to experience the thrill of betting. However, with casinos now opening in Goa, Sikkim, and Daman which are at par with the best in the world, the gaming industry in India is set for exponential growth.
Even though the Indian gaming industry was recently legalized, revenue generated from casinos in Goa is growing at an annual rate of over 50 %. In comparison, Macau, Philippines, and Singapore have witnessed a revenue growth of approximately 30 to 40 %. We believe that over the next few years, India will become a popular destination for casino goers; not just in Asia, but the whole world.
First mover advantage in the lucrative gaming industry in India
Despite the existing prohibitive legislation, there is extensive illegal gambling throughout the country. The illegal betting market created during cricket matches further demonstrates the passion which India shares for the thrill of betting. Its high growth potential in India is further evidenced by the success of lotteries (an industry valued at US$12.5 billion) and horse-racing (with annual turnover more than US $ 350 million).
Gaming industry in India bears high entry barriers due to a strict cap on the number of licenses issued. Delta Corp has the first mover advantage in this space and holds 3 of the 6 casino licenses issued in Goa, and both the licenses issued in Daman. With the casino industry in Goa growing at an annual rate of 50 %, we believe that regulations for existing and new players in this space will be relaxed further. A relatively lengthy process for obtaining licenses for casino business in India; and the considerable time and costs involved in setting up the requisite infrastructure, which Delta already has in place, puts it at a strong competitive advantage.
Currently, Delta Corp has 700 live gaming positions (660 table positions and 40 machines).
It is expected to expand its positions in Goa through the launch of another casino vessel M.V. Horseshoe, which is expected to be operational shortly. This new casino is expected to have 1,500 positions (155 tables and 250 slot machines). During the financial year 2013-14, the Company is also expected to launch a land-based casino in Daman through its hospitality project named ‘The Deltin’, adding approximately 1,000 additional positions. Further, the total gaming positions of the Company is set to grow five-fold with the commencement of a new casino vessel in Goa and a 5-star hotel-casino resort in Daman.
Deltin is the largest integrated resort in Daman; spread over 10 acres with approximately 300,000 sq. ft. of developed area. This hotel will offer the largest banquet facility in the area with 3 bars, 4 speciality restaurants, 29,000 sq. ft. of indoor event (MICE space) and 8,000 sq. ft. high-end retail space. The Deltin, Daman is only a 2.5 hour drive from Mumbai, and a similar driving distance from major cities of Gujarat.
Delta Corp has recently acquired an all-suite hotel namely “Deltin Suites” located at Nerul in North Goa. Deltin Suites is well equipped with all amenities and recreational facilities. The property is a 5 to 10 minute drive from the beaches of Candolim and Calangute, and is in close proximity to the embarkation points of Company’s respective casinos.
In a move to boost its tourism industry, the government of Sri Lanka legalised casino gambling in November of 2010. Sri Lanka is well positioned to become one of the major gaming hubs of South Asia due to its potential to attract additional visitors from nearby countries such as China, Australia and Malaysia. The Company is exploring the possibility of starting casino operations in Sri Lanka and has taken initial steps in acquiring an 11 acre land parcel near the Bandaranaike international airport at Ketunayke to develop a high-end hotel.
WHAT’S DRAGGING THE STOCK
Strict government regulations
For the most part, Indian legislatures and courts have considered gambling to be an immoral act which is detrimental to the interest of the common man as the thrill of the sport continues until a player experiences heavy losses. For this reason, gaming industry in India is subject to several rules and regulations. It is largely dependent on licensing which is purely subject to Government approvals.
In Goa and Daman, where most gaming countries have their operations, the laws (i.e. The Goa, Daman and Diu Public Gambling Act 1976), allow casinos to be set up only at five star hotels or offshore vessels with the prior permission of the government. In general, casino licenses are awarded for a term of 5 years from their respective date of issuance, at the expiry of which period they have to be renewed at the payment of a prescribed fee. Moreover, there is always a possibility of stringent or adverse changes in government policies in the gaming industry in a conservative country like India.
Due to a slowdown in economy, both internationally and at the domestic front, there has been substantial reduction in spending on entertainment and leisure. High inflation and fuel prices have resulted in air travel getting more expensive due to which domestic travelers in particular have cut back on their travel plans. Gaming operation in India are located in tourist hubs like Goa and Daman and relay on out of state tourists for their revenues. A further slowdown in the Indian economy could adversely affect the gaming industry in India.