MC Interview: Delta Corp planning Rs 1,100 crore investment in offline business over two years

Delta Corp Chief Financial Officer Anil Malani

Gaming and hospitality company Delta Corp is rejigging its expansion plans post the increased GST rate of 28 percent on online gaming and casinos. The company is planning to invest Rs 1,100 crore in its offline business over the next two years to get back to a profit margin of at least 38 percent, Chief Financial Officer Anil Malani told Moneycontrol. The company’s margins had been hit by the COVID-19 pandemic and higher tax.

“We are looking at Rs 1,100 crore investment over the next 18-30 months. The company’s net margins will go back to 36-38 percent by the middle of financial year 2025-26. In fact, the margins will be better than what we were doing earlier,” Malani said during the interview.

Delta Corp has put its online gaming expansion plans on hold after the GST rate was hiked to 28 percent. It is also battling a Rs 24,000 crore GST evasion notice in the courts. The company has also rejigged its casino business expansion plan because of the new GST structure, and has decided to go slow on building an integrated resort.

The Rs 1,100 crore investment plan for the next couple of years includes a new offshore casino ship, a new hotel with a casino and a theme park in Goa.

“The new offshore ship will be at an investment of Rs 300 crore; a new 450-room hotel for our players will be at an investment of Rs 450 crore, and a water theme park will be at another Rs 350 crore. This is committed and will happen,” he said.

From an annual turnover of Rs 1,100-1,200 crore earlier, the company aims to reach Rs 1,600-1,700 crore turnover by 2025-26 in the wake of these new investments.

Delta Corp currently has three offshore vessels in Goa for its casino business.

“Our business is typically a fixed-cost business. Once our threshold of all costs is crossed, then all the additional revenue that gets generated exponentially adds to our margin and our bottomline. The new offshore vessel will start commercial operations by December 2024 or early 2025 in Goa and revenue should start trickling in rapidly,” he said.

The gaming company owns a 106-room hotel in Goa to host its players. Delta Corp is currently in talks with some brands for its new 450-room hotel, which is likely to be launched in the last quarter of FY 25-26 with a capital outlay of Rs 450 crore, the CFO said.

Delta Corp will also be building a theme park on a 100-acre plot in Goa in the first phase, for which it already has all the licenses in place to commence construction. After FY26, the company plans to construct a hotel, a multiplex, a retail complex and a convention centre on the same plot, in two phases.

“Because of the new GST tariff structure that came out, with effect from October 1, 2023, we put the integrated resort project slightly on hold to see how the business would play out in the new tax environment,” said Malani. “We have now witnessed and pivoted the casino business under the new tariff GST regime and therefore we broke up the land project, which was supposed to go onstream in one go, into three phases. So, from a 3-year plan, it probably might become a 4-5 year horizon for the rest of the project to get completed,” he said.

Revenue Outlook

In the January-March quarter, the company will take a revenue hit with one of its offshore vessels getting decommissioned for maintenance.

“Ten to twelve percent of our topline would be impacted in the current quarter as one of the vessels will be going to dry dock for routine repairs and maintenance . Once this happens obviously margins will be slightly under pressure,” he said.

In the April-June quarter,  revenue may again be slightly subdued as this is generally a lean period.

“In the July-September quarter, I'm reasonably confident that we'll be able to increase revenue and reduce the impact on our margins. Our Profit After Tax (PAT) is about Rs 60-65 crore a quarter, which came down to Rs 35 crore in Q3 FY24, which will improve in Q4 FY24. Our topline is roughly about Rs 260-270 crore a quarter, though we will not be able to get to that level in the current quarter,” he said.

Margin hit

Delta Corp is taking a hit of up to 6-8 percent on its margin due to GST being charged on sale of chips instead of gross gaming revenue from October 1, 2023.

“We are taking a bit of a hit on revenue. The bottomline is getting impacted between 6-8 percent. The margin hit is temporary, and over a period of time revenue and profitability will return. In the online space, too, we are confident that we will be able to deliver healthy topline growth and profitability with our focus being only on Poker, which has always been the mainstay of our online business. We have introduced some promotional chips to give some value back to our customers to retain them as they now pay an increased rate of GST on their deposits,” he said.

GST notice

The company has received a Rs 24,000 crore GST demand notice, which is 4-5 times its market cap, he said.

“It's too early for anyone to assess how the matter is going to unfold as it’s currently sub judice. We believe that the show cause notice is arbitrary and vague in law and that we have a defendable case. So, we are very hopeful and confident that something positive will come out of this. The question of paying this kind of demand doesn’t arise. I don't think it will come to that stage,” he said.

IPO plans

Delta Corp, which has put IPO plans for its online business on hold, will take a call on it in the coming months to raise approximately Rs 350 crore.

“If we can see the horizon clearly, we will be back in the market with the IPO. We’ll take a call after three to six months on this. We are not abandoning it completely, but have put it on hold after the October 1 decision. We were looking at raising Rs 350 crore to introduce a multi-gaming platform, and expand our Rummy business, which contributes to our topline. We were looking at aggressively going out and acquiring market share but all that will now only burn money,” he said.

As online gaming competition is extremely severe, every operator and every company provides bonuses to players to retain them.

“There is bound to be a shakeup because of this hit to the bottomline, and funding has dried up because of the uncertainty on the retrospective GST demands. Companies may  consolidate and we are actually waiting to see how this landscape unfolds in the next three to six months,” he said.