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Research
Delta Corp Limited - "Earnings poised to grow exponentially" - Nirmal Bang
Posted On : 2012-05-15 21:48:47( TIMEZONE : IST )
Snapshot
By virtue of possessing three out of the six issued offshore gaming licenses in the state of Goa, Delta Corp Limited (Delta Corp) is the largest casino operator and only listed company in the gaming and hospitality segment in India. The company is rapidly expanding its gaming positions in Goa, and is currently setting up a casino in Daman with full benefits to accrue from FY'14E.
Investment Rationale
- Gaming positions set to grow five-fold: The total gaming positions of the company is set to grow five-fold over the next 12-15 months with the addition of a third casino, and the commencement of an upcoming gaming and entertainment facility in Daman.
- Fixed-cost business model, leading to significant improvement in earnings: The company's business model is fixed in nature with salaries and administrative expenses amounting to roughly 50 per cent of the total cost. Taking the fixed-cost business model into consideration, earnings are set to improve at a much higher pace compared to revenues.
- Geographical expansion: In addition to Goa, the company is commencing its gaming and hospitality business in Daman, and is also exploring possible avenues for expansion in new markets within the region.
- Real estate business in Kenya: Through a joint venture with a wholly-owned subsidiary of RIL, the company is on track to develop 1.2mn square feet on 10 prime plots in Nairobi.
Valuation & Recommendation
The complete benefits of the expanded facilities would be visible in FY'14E. We expect revenues of the company for FY'14E to the extent of Rs.709 crore and EBITDA of Rs.364 crore. The net profit for the year should be around Rs.189 crore, translating into an EPS of Rs.8.3. Owing to its niche business model with strong entry barriers, robust expansion plans and a focused management team, we expect Delta Corp's stock to quote at 12x FY'14E earnings to arrive at a price target of Rs.100. This highlights an upside of 85 percent over the next 12 to 15 months.
