More scope to increase EBITDA margin from here on: Delta Corp

A: It is a known fact that it is a very high operating leverage business. We have always maintained that once we start reaching a certain threshold and every incremental number that adds up, we will always translate in to a high profitability margin. If you see, between last quarter and this quarter, there is about Rs 26-27 crore jump in the revenue and about Rs 17-18 crore of that is getting translated into EBITDA margin. So, this basically reflects the fact that it is a high operating leverage and certain level of costs once covered everything gets converted into profits.

Second, over a period of time I have mentioned it last quarter as well that our marketing and operating team in Goa are doing a phenomenal job. They are going out and reaching to people both through direct marketing, offline, online marketing. It is also getting translated into number of visitation increasing. If you look at the number of people that have visited our boats compared to last September to this September, it is a growth of around roughly about 25-27 percent and that entire thing gets translated into higher revenues and higher profitability.

Latha: How much can it get better than?

A: We are a country of 120 crore and my numbers are nowhere near that 120 crore.

Latha: When you say operating leverage, a large part of the increased EBITDA is translating into a profit. Can it get to 50 percent? What is the percentage?

A: A couple of years ago we were in the 30s and from there as and when the revenues have kept on growing it is growing. So, the industry average is a range of 45-55 percent of EBITDA margins. We are a little bit far away from there not too far but slightly far but we will be catching up on those.

Latha: There is scope more?

A: There is scope definitely.

Latha: Coming to the expansions. The expansion in Sikkim, in other locations what are the timetable?

A: Sikkim is something which is around the corner and maybe in about next 30 days we should be operational. I think the next quarter will have something more to cheer about in terms of more organic growth coming in. There are other jurisdictions and destination which have been talking whether it is Pondicherry which has been in the news off late, which has been contemplating doing things. So, we are there, we are talking to them, interacting to them and we will have to wait once the regulations and the rules get formulated. We obviously will be the first mover and earlier mover there as well.

Sonia: The Street got very excited after the acquisition of the poker website adda52. Now there are talks that you are acquiring rummy website called ace2three, any truth to those rumours?

A: You just said that it is a street talk, so we as a corporate have a strategy not to speculate.

Sonia: Are you looking for more acquisitions?

A: Growth is a continuous process and with adda52 we didn’t ever say that we will stop growing. So, whether it is organic-inorganic all modes of growth is always on the horizon and very acceptable. If something right comes our way at the right valuations we will definitely look at it.Latha: Do you have a shortlist. Can we expect more acquisitions this financial year?

A: We are always on the lookout and there are only a few things that one can do online. Poker was one of them that we have done. Rummy is the next thing which can happen online but one doesn’t know when it will come our way and what will happen.

Sonia: How much money have you outlined for acquisitions over the next say one to two years?

A: We as a strategy are going the equity route and all equity deals kind of route like what we did in adda52. So, adda52 was a part equity part cash deal. However, our endeavour is to try and see that we minimise the cash outflow in all these acquisitions.

Latha: Is it only websites that you will acquire or does your acquisitions appetite extend even to brick and mortar so as to quickly ramp up your facilities?

A: Brick and mortar is Greenfield sort of a situation when it comes to India. If you are asking me whether we are looking international; I think in India itself there is enough appetite and enough potential to grow. So, our focus obviously is to try and capture the India market first before we look overseas.

Latha: Law moves slowly here in terms of permissions?

A: Yes but we started in 2008 and here I am in 2016 hoping for great number at the end of the year.

Sonia: On an average how high are the margins in these online businesses, I would assume they are much more because of no overheads, no rentals etc?

A: What happens is there is a huge marketing spend that happens, if I take a cue from the adda52 acquisition, there the EBITDA margins are in the region of 35 percent and there the efficiencies keep building up as and when the revenues keep growing because your marketing cost is going to be always a certain percentage where you cap it and you decide that you don’t want to spend a certain percentage of the revenue, more than that revenue.

Yes, there are efficiencies which will get built in even on those, but otherwise it is a 35-40 percent game there as well.

Latha: As Sikkim comes on board, will there be a dilution of margins first as you start absorbing those costs?

A: There are no major costs. It is a hotel which is owned by someone else; I am only putting up a casino. It is a very small investment from that perspective. No major cost it will only boost to the topline.

Latha: How much can it boost to the topline?

A: It is a small market compared to Goa to begin with but it can do anywhere between Rs 3-5 crore a month.

Sonia: By when can we expect Pondicherry to come on board? I know you are still waiting for the regulations etc, but by the end of 2017?

A: Very difficult to say, we have had some initial traction with the authorities. It is again for them to come up with a plan whether they want to rollout that in the state and ones they do it our machinery is in place to try and act on it very fast.