Delta Corp’s worst fall ever: 28% GST on casinos wipes out Rs 1,500 crore of value

Another casualty will be the IPO plans of Delta Corp’s subsidiary, Deltatech Gaming Limited, formerly known as Gaussian Networks, and a leader in India’s online gaming industry since 2011

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Delta Corp’s 28 percent fall in a single day, following the GST Council’s decision to impose a 28 percent Goods and Services Tax (GST) on casinos, has sparked memes on Twitter. One user tweeted, ‘Gamblers will still gamble’, and another retorted, ‘Do gamblers even win enough to pay the high taxes’.

Delta Corp is India’s only listed casino operator. On July 12, the stock closed at Rs 190 on the NSE, down a whopping 22 percent from the previous close, after hitting a low of Rs 172 intra-day. The company’s market capitalisation fell by ~Rs 1,500 crore, wiping out all of the gains made by the stock during the year. In fact, this is the biggest single-day drop for the stock on record.

Delta Corp is a favourite with traders. That’s borne out by the fact that the stock is often seen on the NSE’s F&O ban list. A stock makes it to the list when derivative contracts in the scrip cross 95 percent of the market-wide position limit.

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The stock was also part of the late Rakesh Jhunjhunwala’s portfolio for a long time. However, the ace investor exited it completely in June 2022.

How has Delta Corp been impacted?

Over the past five years, the company’s sales have compounded at a rate of 11 percent and its net profit at 13 percent. But the new GST rules now threaten to derail this growth story.

According to the new rules, one has to pay 28 percent GST on the full face value of chips bought for playing. That means the player gets only Rs 72 to bet for every Rs 100 worth of chips purchased.

In comparison, earlier, offline casinos paid 28 percent GST on the gross gaming revenue.

“Previously, net house winnings were considered for GST calculation, which the company would recover from commissions. Now a customer has to pay 28 percent GST upfront, the moment he/she walks in and buys chips,” said a fund manager who did not want to be quoted.

The bottom line is that the odds are now not in favour of the customers. In order to win something, the player will have to first recover the GST deducted from the total amount paid and then play accordingly.

“Now, the motive behind visiting casinos will be for entertainment. And entertainment does not earn them (casinos) money,” the fund manager said.

During the Q4 FY23 earnings concall, the Chief Financial Officer of Delta Corp, Hardik Dhebar, spoke about this ambiguity in the calculation. “From an offline casino gaming perspective, I don’t think there is any change as far as we are concerned because the rate was always 28 percent. Probably, the only ambiguity was around the methodology. The group of ministers (GoM) has visited all the casinos in Goa, has understood the business,” he had said.

Also Read: Online gaming stocks crash; only sellers in Delta Corp as 28% GST bites

But all the representations made by the industry have fallen flat and the decision is not in their favour.

Deltatech Gaming

Apart from the 28 percent GST on casinos, another blow for Delta Corp has come in the form of the 28 percent tax on online gaming. Deltatech Gaming Limited, formerly known as Gaussian Networks, has been a leader in India’s online gaming industry since 2011. It is a subsidiary of Delta Corp and the Street has been keenly waiting for its initial public offering (IPO).

In almost every earnings call, the management is quizzed on the progress of the IPO. In the Q4 concall, Dhebar said, “The IPO is on hold because of (lack of clarity) and ambiguity around a lot of things, which are now getting clarified. The mood is buoyant. We have our approvals, which are valid until October 2023. We are very, very hopeful that we’ll be making announcements very soon.”

Also Read: BSE Buyback: Gun for a quick buck or look at the bigger picture?

However, following the sucker punch in the form of the 28 percent GST, the way forward for the IPO remains to be seen. The management has not issued any clarification on the matter yet.

Daman – the option value

Investors were also betting big on the company receiving approval for a casino licence in Daman. Currently, most of the company’s revenue comes from Goa. In Daman, Delta Corp only operates a hotel as of now.

“It’s an internationally accepted fact that a casino with a 10 million population within a four-hour driving distance is a goldmine. Daman has 50 million. For our investors who believe in us, that is an option value,” the management had said.

The Mumbai High Court is yet to pass its judgment on the matter of the Daman casino license.

All things considered, the wait for Delta Corp’s glorious days seems to be getting longer, and investors seem to be losing patience.