Published on 11/01/2019 11:02:29 AM | Source: Motilal Oswal Securities Ltd

Buy Delta Corp Ltd For Target Rs. 320 - Motilal Oswal

Posted in Broking Firm Views - Long Term Report| #Broking Firm Views Report #Motilal Oswal #Delta Corp. Ltd. #Miscellaneous

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Growth dice rolling well in Casino

Revenue/PAT in-line

Impressive EBITDA growth attributed to sharp recovery in online gaming margin

Revenue increased 27% YoY (our estimate: 28%) to INR2,058m in 3QFY19, primarily driven by the gaming business. EBITDA margin contracted 150bp YoY, but expanded 290bp QoQ to 40.8% (our estimate: 37.2%), driven primarily by a recovery in the online gaming EBIT margin (19% in 3QFY19 v/s 2% in the last quarter). EBIDTA of INR840m, too, was higher than our estimate of INR769m. However, higher-than-expected tax restricted PAT growth to 13% YoY (INR505m v/s our estimate of INR497m).


* Sustained growth in casino biz; cost rationalization supporting online gaming

Casino gaming revenue grew 30% YoY (flat QoQ) to INR2,021m in the quarter, supported by increasing visitations (+18% QoQ to 118K). Casino EBIT margin expanded 300bp YoY to 38%. Online gaming revenue grew 33% YoY (+8% QoQ); EBIT margin contracted 2,100bp YoY, but expanded 1,700bp QoQ to 19% (expected to sustain at 15-20% levels) on account of cost and promotional spend rationalization – DELTA aims to cautiously invest in the right channels to sustainably grow a loyal user base. The company recorded 100k poker user registrations in 3QFY19, taking the total user base to 1.5m (100k active users). Hospitality revenue declined 17% YoY to INR193.8m; the company recorded segmental EBIT loss of INR59.3m.


* Valuation and view

DELTA is expected to deliver sales/PAT CAGR of 25% over FY18-21. We roll forward our target price to Dec’20E EPS of INR11/share. We continue valuing the stock at 30x P/E to arrive at a target price of INR320/share. Maintain Buy.


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