Delta Corp Stock near 5 Year low – 3 Point Analysis

Why Delta Corp Stock Is Falling?

Introduction

Why Delta Corp Stock Is Falling? Delta Corp Ltd has seen a sharp correction in its stock price mainly due to the impact of the COVID-19 pandemic. Here is the 3 point analysis of Delta Corp including the revenue mix, shareholding pattern and key positives and negatives of the company.

Delta Corp Ltd – 3 Point Analysis

Company Overview

• Business Overview
  • Delta Corp Limited is an Indian corporation which is engaged in Gaming and Hospitality business.
  • The company operates its gaming and hospitality businesses under the Deltin brand. It is India’s only listed company engaged in casino (live, electronic and online) gaming.
  • The company owns a number of casinos in Goa – namely Deltin Royale, Deltin JAQK, Deltin Caravela and Deltin Suites. Also, the company has a temporary license to operate casinos in Gangtok, Sikkim.
• Current Statistics
  • Market Capitalization of the company is around Rs.1,900 Cr.
  • Current Price to Earnings Ratio (PE Ratio) is hovering in the range 9-10. If we check the historical valuation of the company, the average high PE ratio is around 40. The correction seen in the PE ratio is almost 80% from its peak PE ratio.
  • Why Delta Corp Ltd stock has undergone through a sharp correction?
  • The company is almost debt-free, with Debt to Equity Ratio (D/E ratio) of 0.00 and with a healthy Interest Coverage Ratio of 81.84. Then also the stock is going through a free fall.

Why Delta Corp Stock is Falling – Impact of COVID-19 Pandemic on Casino & Hospitality Business

• Amid the total lockdown announced by the Indian government to address Coronavirus spread, Goa and Sikkim government ordered shutdown of all casinos for the lockdown period to prevent the COVID-19 spread.
• When which businesses are prone towards more negativity due to the impact of Coronavirus outbreak?
• When we analyse the severity of the Coronavirus on the economic activities and thereby on the businesses, 2 cases comes into the picture :
  1. Deferment of Demand
  2. Destruction of Demand
• In the first case, your demands are deferred for the time being due to the current lockdown situation.
• However, in the second case, destruction of demands occurs. In the businesses like Casinos or Hospitality, demands are seen to be destructed amidst the fear of Coronavirus spread across the world.
• That is the reason, the company has seen a sharp fall in its stock price over the past one month due to the destruction of demand amid current COVID-19 pandemic.

1. Revenue Mix

• As shown in the above chart, around 80% of the total revenue comes from Casino business. Whereas, the revenue contribution from the Online Gaming and Hospitality business are 14% and 6% respectively.
• All the Casinos are shutdown by the respective state governments in Goa and Sikkim due to the nationwide lockdown amid Coronavirus spread.
• Thus the major revenue contributor of the company has been stopped its operations, taking a big hit on the company’s sales and earnings. The actual impact on this business segment may last for 3-6 months. It would wipe out at least 6-months of revenue of the company from Casino business.

2. Shareholding Pattern – Top Stakeholders

• Promoters hold around 32.77% stake in the company.
• While the institutional holding is 27.33% which includes :
  1. Foreign Institutional Investors (FIIs) holding is 19.94%, Since Casino business is much under penetrated in Indian market and Delta Corp is the only listed player in India, FIIs hold a substantial stake in the company.
  2. Mutual Funds : 5.74% (HDFC Small Cap Fund holds 5.17% stake)
  3. Other DIIs : 1.65%
     • Insurance Companies : 0.99%
     • Alternative Investment Funds (AIF) : 0.36%
     • Financial Institutions / Banks : 0.30%
• The Non Institution or public holding is 39.97%.
• As we can see public holding (39.97%) in much greater than long-term institutional investors (27.33%).
• This is the reason, why the stock has gone through a significant correction due to the negative outlook (though for short-term) amid COVID-19 pandemic.

Delta Corp – HNI’s Holding

• Jhunjhunwala Family (Mr. Rakesh Jhunjhunwala and his wife Mrs. Rekha junjhunwala togetherly) holds stake of almost 7.32%.
• Mr. Radhakishan Damani holds 1.32% stake in the company as on Dec-2019.
  • Mr. Damani has increased exposure to the company and bought 15.5 Lakh shares at Rs.65.25 apiece from Derive Investments on Tuesday, March 31, 2020.
  • Thus, 0.57% stake raised by Mr. Radhakishan Damani, shows the confidence he holds in the growth story of the company over the longer horizon.
• While, Mr. Viral Parikh holds stake of around 1.17% in the company as on Dec-2019.

3. Positives & Negatives of Delta Corp Ltd

Buyback Offer Announced by Delta Corp (March 28, 2020)

• The Board of Directors of Delta Corp Limited has approved a plan to buy-back shares of the company at the company meeting held on March 28, 2020.
• Buyback proposal is to buy-back the shares up to 1.25 Crore shares of the company (representing 4.61% of the total paid-up capital of the company)
• The board mentioned the buyback price would be maximum up to Rs.100 per share. This buyback is going to be done through the open market route.