Buy Delta Corp; target of Rs 382: Motilal Oswal

Motilal Oswal's research report on Delta Corp

Revenue above estimate; EBITDA and PAT in-line: DELTA’s revenue increased 56.6% YoY to INR1,622m (est. INR1,502m) in 3QFY18. EBITDA margin expanded 1,220bp YoY to 42.4% (est. of 45%), but was still slightly off from the sustainable high, as the quarter witnessed one-off advertisement expense of ~INR80m on account of World Poker Tour and World Gaming Festival organized by the company. EBITDA grew 119.5% YoY to INR687m (est. INR676m). Consequently, adjusted PAT rose 327.8% YoY to INR447m (est. INR433m) in 3QFY18. Casino gaming revenue grew 73% YoY to INR1,560m, whereas Hospitality revenue rose 28% YoY to INR233m. Online gaming revenue stood at INR284m. Staying ahead of the curve: The change in Goa casino policy is on the verge of becoming a reality, with the cabinet expected to come up with a new policy in early-2018. Total project cost is expected to be in the range of USD250-300m, of which Delta has committed to invest ~INR7-8b in acquiring land, building casino and a 300-room hotel. Balance investment for the construction of ecosystem (multiplex, convention center, retail and water park) will be evaluated through various structures. The shift to land would not just lead to a multifold rise in visitations, but also in cost reduction of ~15% on account of lower power & fuel cost and reduced marine staff.

Outlook

DELTA is well poised to benefit from multiple factors: increased traction in rummy, change in Goa casino policy and commencement of Sikkim airport, which would collectively result in a multifold increase in visitations. We thus raise our revenue estimate by 4%/7% and PAT estimate by 6%/6% for FY19E/20E. We expect the company to deliver sales/PAT CAGR of 29%/37% over FY18-20E, and value the stock at 34x FY20E EPS to arrive at a TP of INR382. Maintain Buy.