Delta Corp to buy adda52.com holding co for Rs 155 crore

He further added that Gauss is a debt free company and is highly cash generating.

Delta Corp has rallied over 200 percent in the last six months and one should keep an eye on it in today's trading session post this development.Below is the verbatim transcript of Hardik Dhebar's interview to Sonia Shenoy, Anuj Singhal and Varinder Bansal on CNBC-TV18.Sonia: I was going through the press release where I see that the turnover of Gauss & Gaussian for the last three financial years has grown quite a bit between FY15 and FY16, it has been 35 percent growth to Rs 47 crore, what do you foresee as the growth over the next two years?A: A few years ago when I came on to your channel and a similar question was asked about Delta, we had said that this industry and this business is in the nascent stage and we have said that we are only scratching the surface.So if the gaming space per se in India is in the nascent stage, I would say the online space is even more nascent in terms of that sense. Poker has been a range with most of the people not only in India but world over and we believe that the potential to grow this business is immense. They have shown 35 percent growth over the last couple of years and we believe that this is not the end of it and this growth not only can be maintained but can be better.Anuj: I just wanted to understand this deal structure a bit more. We had the cash component, can you also tell us the equity component, how is this deal  structured?A: It is a part cash, part equity deal as you have rightly said. However, the entire payment mechanism is towards the backend of the whole thing. So even the cash component is being paid only towards the closure of the amalgamation. So when the court order or the scheme becomes effective is when we will be paying for 26 percent and Delta and those shares of Delta will get cancelled in the amalgamation.12 months thereafter is where there is a redemption on the preference shares that we are going to issuing and optionally convertible preference share (OCPS) as has been given in the disclosure.Varinder: If the cash component is Rs 47 crore, I understand that the deal will not be completed, very soon it will take around 12-18 months but according to you, what could be the total size of the deal including the OCPS and the redeemable preference shares that you mentioned?A: As far as the OCPS is concerned, it is very clearly written that it is going to be 12 months from the effective date and the conversion mechanism will be governed by the Issue of Capital and Disclosure Requirements (ICDR) regulations of the Securities and Exchange Board of India (SEBI) and on that basis, to determine as to what the conversion is going to be, it is very difficult at this stage.As regards the cash component, it will be towards closure of the amalgamation, which is about six-eight months down the line.12 months after that is the Redeemable Preference shares (RPS) payout which will be in the region of about Rs 70 crore. If I was to value this deal in that way, if I said the present value of the entire deal would be somewhere in the region of Rs 170-175 crore if I was to pay all cash. Having said that, there is about Rs 18-20 crore of cash, which is lying in the company. So to look at the net valuation, it will be around Rs 155 crore of cash deal if I was to value it.Varinder: So the net deal cost will be around Rs 150 crore if I take the present value of all the redeemable preference shares at the OCPS and knock off the cash.

A: Yes.Varinder: Coming to this company,  which is the Gauss Network, we know the sales of the company, which is Rs 45 crore, what are the EBITDA margins this company operates on and whether this company is making profits on the bottomline or not?A: It is Rs 47 crore, which the topline is on a consolidated basis as far as the Gauss Network is concerned.General EBITDA margins are in the region of 30-35 percent. This is a completely debt free company and highly cash generating and cash positive company.As I mentioned earlier that the growth is just the beginning if you see it is only from last year to this year that the growth has started. We genuinely believe that both Delta and Gauss together can get on a lot of synergies in terms of expanding the base and penetrating the market better and we believe that we could grow at a much larger number in terms of growth rate and we believe that it would be very beneficial from a Delta balance sheet and profit and loss (P&L) perspective.Anuj: A bigger question then, do you see online becoming the preferred mode going forward because the Daman one has been pending now for a long time, next year we have elections in Goa, we have already heard noises from couple of parties on whether casino should be shifted from the Mandovi river, which is the bread and butter business, your thoughts on that?A: I don’t think -- if you look at the worldwide market both the online as well as the onshore businesses have co-existed and both have grown whether it is Macau, whether it is Vegas, whether it is America, or SouthEast Asia. So yes, the online space will grow, I am not denying that but I don’t think it cannibalizes or it will grow at the cost of the offline. I think the market is big enough for both to co-exist and grow at equal space.Sonia: Talking about the casino business itself, in the month of July, you announced plans to operate a casino in Sikkim as well, take us through the rollout over there and what kind of contribution you expect that to be to your revenue stream over the next one year?A: We have got a provisional license in Sikkim where we would commence operations in the next three-four months time as I have said in July because we need to do up the casino space in the hotel that we have rented out the space in. So that takes a couple of months for us to be  casino ready.With regards to the contributing, it is not something that we can gauge at this point of time but from the data that is available in the market, it could be a few crore a month that would come in on the topline and obviously the dynamics of the business remains the same where you operate at 45-50 percent kind of EBITDA margins.Varinder: On the valuation front, given the numbers that you gave us for this Gauss Network that means the deal value is nearly three times marketcap to sales and nearly 10-12 times price to earnings ratio. This is much lesser than even what Delta operates at, Delta operates at 7-8 times marketcap to sales and much more price earning ratio, so are you getting this company very cheap compared to what the industry standards are?A: I don’t know what the industry standards are because there are no benchmarks on the online space.You are looking at a trailing number, we are trying to value it at the current and the future numbers but in a nutshell if I was to say, yes, you are very close on the multiple on the topline, it will be about 2-2.5 times kind of topline value is what we are looking at on a gross basis.Varinder: If I foresee the conversion of all this RPS and OCPS, the dilution should not be more than 5 percent going ahead?A: It is difficult to predict the share price what it would be 20 months down the line. So that is anybody's guess.