Delta Corp (DELTA) is India’s only listed gaming company

Initiating Coverage | Sector:

Entertainment

Delta Corp

Buy

BSE Sensex

29,485

S&P CNX

9,122

CMP: INR169

TP: INR229 (+36%)

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

M.Cap. (INR b)

M.Cap. (USD b)

1, 6, 12 Rel. Per (%)

Avg Val, (INRm)

Free float (%)

DELTA IN

230.7

195/62

39.0

0.6

39/-3/151

556

59.2

Delta Corp (DELTA) is India’s only listed gaming company, with a dominant presence in

Goa’s offshore casino market. It owns three of the six offshore (five operational) gaming

licenses in the state of Goa. It has ~1,700 gaming positions in the state across its three

offshore casinos, one onshore casino and recently commenced casino in Sikkim. DELTA

has an integrated casino resort in Daman, with 1,200 gaming positions which is awaiting

regulatory approval. It has also forayed into online gaming, with the acquisition of

Adda52.com.

Favorable odds

Dominating in ‘brick world’, entering ‘click world’



Financial Snapshot (INR b)

Y/E Mar

2017E 2018E 2019E

Sales

4.6

6.7

8.4

EBITDA

1.7

2.7

3.5

0.8

1.6

2.0

EPS (INR)

3.3

6.9

7.6

EPS Gr. (%)

110.7 110.3

11.4

BV/Sh. (INR)

37.5

50.0

46.4

RoE (%)

9.0

15.7

17.0

RoCE (%)

9.4

14.9

16.5

P/E (x)

51.9

24.7

22.1

P/BV (x)

4.5

3.4

3.6

Shareholding pattern (%)

As On

Promoter

DII

FII

Dec-16 Sep-16 Dec-15

40.8

0.3

9.7

40.8

0.7

11.3

40.9

0.4

11.6



Delta Corp (DELTA) is the leading player in India's underpenetrated gaming market.

Gaming is an emerging industry in India; given its paltry size of ~USD150m (Global

size of USD183b), the growth potential is huge.

Approval of its casino in Daman is a key growth trigger for DELTA, as it would nearly

double its gaming capacity (from ~1,700 currently to ~3,000) and further cement its

first-mover advantage.

M&A opportunities in the fast-growing online gaming business in India would allow

DELTA to leverage its current strength and open up new avenues for growth. It

recently announced the acquisition of Adda52.com, an online poker gaming

website.

We expect 35% revenue CAGR, 45% EBITDA CAGR and 62% PAT CAGR over FY17-

19E. EBITDA would be driven by strong operating leverage. We initiate coverage

with a Buy rating. Our target price is INR229 (30x FY19E EPS), indicating an upside

of ~39%.

Emergence of favorable odds

Our Wealth Creation Study 2008-2013 had elaborated the emergence and

endurance of uncommon profit in equity investments. We can relate this study to

DELTA, which is expected to cross the 15% RoE threshold for the first time in FY18

(post business model change to pure-play gaming and hospitality). For details,

please see page 18.

Delta Corp

Favorable odds

Dominating India’s underpenetrated gaming industry

DELTA is India’s first listed pure-play gaming company. It enjoys a dominant share

of India’s offshore casino market, with three of the six offshore casino licenses

(five operational) in Goa. Given that the Goa government is unlikely to issue new

licenses and that land-based casinos are allowed only in five-star hotels, DELTA’s

competitive advantage should sustain. Price Waterhouse Coopers (PWC)

estimates the total global gaming casino market in 2015 at USD183b and that it

has grown at a CAGR of 7% over the last 10 years. The Asia Pacific region has led

growth, with a CAGR of 21.5%. In India, gaming is just emerging as an industry;

given its paltry size of ~USD150m, the growth potential is huge.

chintan.modi@motilaloswal.com

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Chintan Modi

91 22 3982 5422

21 March 2017

Delta Corp

Delta Corp: Relative to Index

Delta Corp

Sensex - Rebased

200

150

100

Approval of Daman casino could be an icing on the cake

DELTA is awaiting regulatory approval for a casino housed in Daman’s only five-star

hotel. Given its locational advantage, Daman (caters to a catchment area of 35m

people over Mumbai and Gujarat) is likely to attract higher footfalls than Goa. We

expect DELTA to replicate its success in Goa’s offshore casino market in the land-

based casino market in Daman. Approval of the Daman casino has the potential to

nearly double its gaming capacity to 3,000. DELTA would be in a better position to

exploit the potential that the nascent industry offers.

Online gaming – next big opportunity

Globally, online gaming is still a nascent industry and is legal in very few countries. It

is increasingly becoming popular, with legal online gaming accounting for 3% of

global gaming revenue. In India too, it is at a nascent stage; some of the popular

names in India are Adda52.com, ace2three.com, pokerbaazi.com, and Spartan

Poker. The size of the global online gaming industry is estimated at USD110m-120m.

To capitalize on the opportunity, DELTA recently acquired Gauss Network, which

holds Adda52.com (online poker), for INR2.1b (part cash and part equity deal

expected to be completed by April 2017). Ace2three.com, the largest rummy site,

generated about INR1,665m in revenue, with PAT of INR617m in FY16. DELTA is

open to further acquisitions in the online gaming space. We believe there would be

significant cross-selling opportunities between DELTA’s casino and online gaming

businesses.

Expect 62% PAT CAGR over FY17-19

We expect DELTA’s revenue to grow at a CAGR of 35% over FY17-19, led by 38%

CAGR in its gaming business and 18% CAGR in its hospitality business. Adda52.com

would further boost revenue in FY18 and a positive trigger from Daman could be an

icing on the cake (we have not factored revenue from Daman casino). DELTA’s focus

on increasing the share of mass crowds would drive revenue growth and margins; as

such crowds give the house a higher chance to win as compared to VIP (large and

experienced) customers. EBITDA would post 45% CAGR, with margin expanding

from 36.3% to 41.5%, largely driven by operating leverage and high-margin online

business. PAT would grow at a CAGR of 62% over FY17-19.

At an inflexion point; Buy

We believe DELTA is at an inflection point. The investment phase is behind and

approval of the Daman casino and M&A opportunities in online gaming could trigger

significant growth and cash generation as well as RoCE / RoE improvement. We

expect RoE to improve from 9% to 17% over FY17-19. The stock trades at

24.7x/22.1x FY18E/19E EPS, 8.4x/6.2x FY18E/19E EV/EBITDA and 3.4/3.6x FY18E/19E

P/BV. DELTA’s premium valuations vis-à-vis its peers in global space is manifestation

of its strong earnings outlook, a near monopoly in casino space in India and

potential approval of Daman Casino. Thus we assign a PE multiple of 30x (~40%

premium) to global peers. We initiate with Buy, with a target price of ~INR229 (30x

FY19E EPS). Under bull case scenario which assumes approval of Daman casino and

FY19 being first full year of operations, leads to an EPS of INR10.9 (vs INR7.6 in base

case) in FY19 and a target price of INR334 (incl. potential cash per share of INR7.5

through sale of non-core assets) .

21 March 2017

Delta Corp

Company overview

Delta Corp (DELTA) is the largest and only listed gaming company in India. It is a

leading gaming company in India, capturing a lion share of the Indian gaming market

through its five casinos in Goa and Sikkim. It owns three of the six offshore and one

onshore gaming license in the state of Goa. The company currently offers~1,700

gaming positions in Goa and Sikkim. It started a first of its kind integrated casino

resort in Daman in March 2014(casino approval awaited yet).

DELTA’s core business is gaming and gaming-related hospitality. In FY14, gaming

contributed 45% of revenue, hospitality contributed 1%, and real estate contributed

52%. From FY14, DELTA has decided to strategically focus on its gaming business and

not pursue the real estate business. In FY16, the contribution of gaming and gaming-

related hospitality increased to 87%. Hospitality contributed 12% of revenue. In

FY18 and FY19, we expect gaming to contribute over 90% of revenues, with the

balance coming from hospitality.

It also partnered with Hotel WelcomHeritage Denzong Regency in April 2016 for the

Sikkim venture. Under the partnership, the hotel will lease gaming space to the

company, which, in turn, will be responsible for the day-to-day operations and

management of the new casino. In July 2016, DELTA secured its provisional license

and commenced operations from Jan 2017 post receiving the license; the full

benefits would be available from FY18.

Exhibit 1: Revenue composition in FY16 (INR m)

Real Estate

Hospitality, 12

Gaming, 87

21 March 2017

Delta Corp

Dominating India’s gaming industry

Enjoys lion’s share of India’s offshore casino market



DELTA is India’s first listed pure-play gaming company. It owns three of the six licenses

(five operational) for offshore casinos in Goa. It is also venturing into on-land casinos

and has forayed into online gaming.

It has partnered with Hotel WelcomHeritage Denzong Regency for a casino in Sikkim.

This venture has recently commenced operations and full benefits will be seen in

FY18.

Given that the Goa government is unlikely to issue new licenses and that land-based

casinos are allowed only in five-star hotels, DELTA’s competitive advantage should

sustain.

Price Waterhouse Coopers (PWC) estimates the total global gaming casino market in

2015 at USD183b and has grown at a CAGR of 7% over the last 10 years. The Asia

Pacific region has led growth, with a CAGR of 21.5%. In India, gaming is just emerging

as an industry; given its paltry size of ~USD150m, the growth potential is huge

Has established leadership in Goa’s offshore casino market

Goa is widely touted as the

gaming capital of India

Only two states and one union territory (UT) in India allow gaming – Goa, Sikkim and

Daman. Goa is widely touted as the gaming capital of India. It is a popular tourist

destination, famous for its beaches and long stretch of coastline (131km). It attracts

around 3m tourists annually and around 12% of all foreign tourist arrivals in India,

who spend around USD350m annually. The gaming and entertainment tax in Goa at

15% of gross gaming revenues is favorable compared to Macau and the US. Further,

Goa is located close to major Indian cities – an hour’s flight from Mumbai,

Bangalore, and Chennai, 1.5 hours from Hyderabad, and 2.5 hours from Delhi. It has

the potential to attract visitors from South East Asia and the Middle East, as well.

21 March 2017

Delta Corp

Exhibit 2: Goa is located within 3-hour flight from all regions in India

2-hr Flight

1-hr Flight

Source: Company, MOSL

DELTA enjoys a lion’s

share of Goa’s offshore

casino market

DELTA has already established itself as the leader in Goa’s offshore casino market. It

owns three of the six offshore casino licenses in Goa and enjoys a dominant share of

India’s offshore casino market. Its three operational casinos on the River Mandovi,

Deltin Royale

and

Deltin JAQK, DeltinCaravela

have a combined capacity of ~1,700

gaming positions.

Exhibit 3: DELTA owns three of the six offshore casino licenses in Goa

Name of Casino

Deltin Royale

Deltin JAQK

DeltinCaravela

Casino Pride

Casino Pride 2

Casino Rio

Owner

Operational

Delta Corp

Yes

Delta Corp (Highstreet Cruises – Subsidiary of Delta Corp)

Yes

Delta Corp (Delta Pleasure Cruise – Subsidiary of Delta Corp)

Yes

Goa Coastal Resorts owned by Khetarpal

Yes

Goa Coastal Resorts owned by Khetarpal

Yes

MDLR Group (License has been renewed, can go live)

Source: Company, MOSL

21 March 2017

Delta Corp

Sikkim casino operations recently commenced to aid growth

To expand its gaming footprint to other regions in India, in April 2016, DELTA

partnered with Hotel WelcomHeritage Denzong Regency for a casino in Sikkim. The

hotel is leasing the gaming space to DELTA, which would be responsible for the day-

to-day operations and management of the new casino. It obtained a provisional

license from the Government of Sikkim to operate the casino in July 2016 and

commenced operations in January 2017 after being issued a license. The casino

offers around 150 gaming positions and cater to the eastern region of India.

Lease rental for DELTA would be INR30m per annum and the license fee is INR10m

per annum. Currently, Sikkim has only two casinos: Casino Mahjong Sikkim (in

Mayfair Spa Resort and Casino) and Royal Casino (in Royal Plaza Hotel). As is the

case with onshore casinos in Goa, EBITDA margins for casinos in Sikkim are higher at

~55% (with no fuel cost for running vessels, no marine staff salaries, etc).

Strong entry barriers to ensure sustenance of competitive advantage

The Goa government is

unlikely to issue new

licenses for offshore

casinos…

Casino gaming in India has several entry barriers, with licensing being the biggest

hurdle. DELTA owns three of the six licenses (five operational) for offshore gaming in

Goa, and the state government is unlikely to issue new licenses in the near future. It

has a strong first mover advantage in Goa’s offshore gaming market. It has gained

significant expertise in its last six years of operation. In the absence of new licenses,

we believe DELTA’s competitive advantage and dominant market share in Goa’s

offshore gaming market will sustain.

Similarly, with respect to Daman, land-based casinos are allowed only in five-star

hotels. DELTA’s

The Deltin

is Daman’s only five-star hotel. The casino would be the

key profitability driver for DELTA’s hospitality business in Daman. A competitor with

standalone hospitality focus may not find it remunerative to have five-star hotel

operations in Daman. Currently, there is no major casino operator in India with

plans to invest in a five-star hotel and casino in Daman.

…

and land-based casinos

are allowed only in five-star

hotels, posing strong entry

barriers

India’s gaming market holds high growth potential

Though gaming has its roots

in Indian mythology, the

industry is today virtually

absent in India

Gaming is one of the oldest forms of entertainment and business. Its long history

has its roots in India’s mythology (the Mahabharata tells how Yudhishthira lost all in

a game of dice). Today, gaming forms a unique source of entertainment the world

over, with centers like Las Vegas, Macau, and Singapore having emerged as

specialized gaming destinations. These gaming destinations have evolved as

entertainment hubs, by adding key elements of tourism and hospitality. For the

consumer, gaming and hospitality combine to create and deliver a holistic

entertainment experience. This holistic experience has contributed to the success of

these gaming destinations.

21 March 2017

Delta Corp

Asia Pacific region dominates USD183b global gaming market

Price Waterhouse Coopers (PWC) estimates the total global gaming casino market in

2015 at USD183b. The market has grown at a CAGR of 7% over the last 10 years. The

Asia Pacific region has led growth, with a CAGR of 21.5%. With a share of 43%, the

Asia Pacific region is now a larger market than the US, which has 40% share. Centers

in the US and Europe traditionally dominated the gaming industry. This changed

with the emergence of Macau and Singapore as popular gaming centers. In 2006,

Macau surpassed Las Vegas as the global gaming leader. In 2010, spending in

casinos in the Asia Pacific region rose by a staggering 49.7% and put Macau and

Singapore permanently and prominently on the global gaming map. Other gaming

destinations in countries like Philippines, Malaysia, Hong Kong, South Korea, Sri

Lanka, and Australia have added to this shifting momentum. In India, gaming is just

emerging as an industry; given its paltry size of ~USD150m, the growth potential is

huge.

Exhibit 4: Global casino gaming market by region (USD b)

Region

United States

EMEA

Asia Pacific

Latin America

Canada

Total

2006

100

2007

108

2008

110

2009

107

2010

118

2011

132

2012

147

2013

160

2014

171

2015

183

Source: Industry, MOSL

Exhibit 5: Asia Pacific region now dominates global gaming

market

Canada, 3%

Latin

America,

United

States, 40%

Exhibit 6: Asia Pacific has been the growth driver for the

industry

21.5%

9.0%

1.7%

-1.4%

2.7%

Asia Pacific,

43%

EMEA, 10%

Source: Company, MOSL

EMEA

Canada

United

States

Latin

America

Asia Pacific

Source: Company, MOSL

Exhibit 7: Share of Asia Pacific in world gaming market on a continuous uptrend

36%

29%

16%

19%

21%

40%

42%

43%

14%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Company, MOSL

21 March 2017

Delta Corp

Restrictive laws have

curbed the growth of the

gaming industry in India

Though there is strong appetite for gaming in India, restrictive laws have curbed the

growth of the industry. Betting and gaming in India fall under the purview of state

legislation, with high entry barriers, strict regulations, and cap on the number of

licenses. Casinos are legally allowed only in Goa, Daman and Sikkim. The Goa,

Daman and Diu Public Gambling Act, 1976 allows casinos to be set up only at five-

star hotels or offshore vessels, with prior permission from the government. In

general, casino licenses are awarded for a term of five years, with fees payable

annually.

A large part of betting in India is in the unregulated and illegal spaces, estimated to

be in the range of USD500m by a FICCI representation. This is dominated by betting

in sports, especially cricket. The only two legally allowed betting businesses in India

are horseracing and lotteries, with an estimated turnover of USD350m and

USD12.5b, respectively. India’s casino business is miniscule in comparison at

~USD100m, 0.05% of the global gaming industry size of USD200b.

A large part of betting in

India is in the unregulated

and illegal spaces

Exhibit 8: Strong appetite for gaming in India

Source: Company, MOSL

India’s casino industry

should witness robust

growth, going forward

India’s nascent gaming market holds high growth potential. Over the last 10 years,

the Indian casino market has been growing at ~40% per year. In August of 2015,

Mr.Jaydev Mody, DELTA’s Chairman had stated that the Indian casino market likely

generated approximately INR5b (approximately USD75.7m). We believe that India’s

urban population will grow to 531m by 2025 from 419m in 2014 (CAGR of 2.4%) and

rural will grow to 939m from 876m (CAGR of 0.8%). Based on the assumptions in the

exhibit below, we see an enormous growth potential in the Indian casino industry.

21 March 2017

Delta Corp

Approval of Daman casino to be key trigger

To drive high growth and profitability



DELTA is by far the largest casino operator in India, with ~1,700 gaming positions. The

approval of its casino in Daman (subject to approvals) will take its capacity to ~3,000

gaming positions.

It is awaiting regulatory approval for its casino housed in Daman’s only five-star hotel.

Daman is likely to be a much larger footfall market (catchment of over 35m people

from Mumbai and Gujarat) than Goa. We expect DELTA to replicate its success in Goa’s

offshore casino market in the land-based casino market in Daman.

With near-doubling of its gaming capacity, DELTA will be in a better position to exploit

the potential that the nascent industry offers.

Daman’s first casino license expected soon

We expect DELTA to

replicate its success in Goa

in the casino market

in Daman

In FY15, DELTA launched a casino housed in Daman’s only five-star hotel,

The Deltin;

this will be India’s first land-based casino (subject to approval) outside Goa. The

Daman property will have ~1,200 gaming positions. Daman is likely to be a much

larger footfall market, given that it is a drive-in destination for a large catchment of

over 35m people from Mumbai and Gujarat. Daman is ~2.5 hours’ drive from

Mumbai and 1.5-4 hours’ drive from Gujarat. Because of the ban on alcohol in

Gujarat, Daman attracts many visitors from there. Also, while Daman is located

along Gujarat and Maharashtra, it is governed by the same Gambling Act as Goa. We

expect DELTA to replicate its success in Goa in the land-based casino market in

Daman.

Exhibit 9: Daman is strategically located between Mumbai and Gujarat

Source: Company, MOSL

21 March 2017

Delta Corp

Exhibit 10: Daman has a huge catchment area of over 35m people

City

Mumbai

Surat

Vadodara

Ahmedabad

Population (mm)

18.5

4.5

1.8

6.5

Distance to Daman (km)

~180km

~120km

~250km

~350km

Source: Company, MOSL

Exhibit 11: Daman is favorably positioned to become a leading gaming and leisure

destination



Optimal Location to Become New Gaming and Entertainment Market

Located along the coast in the state of Gujarat, but governed by the same gambling act as that of Goa

which has adopted by Daman

Alcohol consumption is not permitted in Gujarat

Proximity to Mumbai, Gujarat provides great opportunity for Daman to become India’s leading gaming,

entertainment, leisure & MICE venue



Favorable Industry and Regulatory Dynamics For Delta

Delta has the first mover advantage in Daman

Only company to get a in-principle gaming licenses in Daman

Only foreseeable Casino in Daman in near future

New land based licenses are likely to only be granted if 5-star hotel is built (same regulation as Goa)



Additional Supply to Provide Incremental Value

While tourism in Daman is poised to expand significantly, FDI restrictions and lack of resources / capital

limits significant foreseeable casino competitor in the near term

As the market matures, new supply will only drive incremental traffic to the region

Source: Company, MOSL

Exhibit 12: DELTA’s gaming business is expected to post a robust 38% CAGR over FY17-19E

Exisiting gaming (INR m)

Daman revenue (INR m)

2,000

2,646

FY15

3,240

FY16

4,016

FY17E

5,979

7,600

FY18E

FY19E

Source: Company, MOSL

DELTA’s one onshore and three operational off shore properties in Goa have ~1,700

gaming positions. The launch of its Daman casino will take its capacity to ~3,000

gaming positions. With higher capacity, DELTA will be in a better position to exploit

the high growth opportunity that the Indian gaming industry offers.

Exhibit 13: DELTA’s gaming properties and capacity set to nearly double

Casino

Deltin Royale

Deltin JAQK

DeltinCaravela

Deltin Suites

The Deltin (Daman)—Not operational yet

Deltin (Denzong Regency, Sikkim) operational Jan’17

Gaming Tables

123

~150

Gaming

Positions

1000

500

150

~1,200

~150

Slots

~200

Source: Company, MOSL

21 March 2017

Delta Corp

Online gaming – big opportunity in making

Opportunities for M&A; recently acquired adda52.com



DELTA has also forayed into online gaming by acquiring Adda52.com and is targeting

more such acquisitions to leverage synergies with the casino business.

Online gaming is at a nascent stage in India with some of the popular names like

Adda52.com, ace2three.com, pokerbaazi.com, Spartan poker and few others.

Online gaming market size in India is ~USD125m and is expected to grow at a very

healthy pace with increasing user acceptance.

Online gaming a huge potential growth market in India

The online skill game industry, which includes poker, rummy and some other games,

has been growing at a healthy pace since 2008. There are several big companies,

including companies run by Bollywood stars, that have started their online gaming

ventures. Contrary to the popular perception, not all card games are illegal,

card

games involving a substantial amount of skill and intellect can be played legally,

even with money and profits involved. There have been Supreme Court and high

court judgments to this effect, and laws in some states very clearly elucidate this

principle.

The online gaming space has not seen investor interest yet because of the lack of

understanding in terms of regulatory issues, but with increasing state-level

acceptance and mostly profitable models in the space it’s a sector where investors

can expect healthy returns. Only costs to be incurred for online gaming companies

are marketing costs(advertisements, giving away free poker chips) for signing in

newer players and retaining existing players leading to healthy 35%+ EBITDA margin

levels and 25%+ PAT margin levels. Online gaming market size in India is ~$125m

and is expected to grow at a very healthy pace with increasing user acceptance

(compared to earlier social stigmas on online gambling), growing user base and

lesser legal hurdles for companies.

Exhibit 14: Online gaming-A game of skill rather than chance

Source: Company, MOSL

21 March 2017

Delta Corp

Exhibit 15: Strong potential for online gaming market in India

Source: Company, MOSL

Forays into online gaming with Adda52.com acquisition

DELTA acquired Gauss Network Private Limited, which owns Adda52.com (95%

revenue coming from Poker while rest from Rummy), in a part-cash, part-equity deal

by offering redeemable preference shares and optionally convertible preference

shares. The online space is unlikely to cannibalize the existing business – the market

is big enough to accommodate both. Globally, both coexist. Gauss Network’s

consolidated revenue stood at INR182m in FY14, INR352m in FY15 and INR470m in

FY16; management expects this to reach ~INR650m in FY17. EBITDA margin is

around 40%. Majority of the portal costs are incurred on sales promotion. PAT was

INR80m in FY16. Commission margins for online gaming are in the range of 1-3%.

Gauss Network transaction would be executed by INR475m cash (for 26% stake of

which ~21% is owned by a foreign fund) to be paid by April-May 2017 and rest in

RPS/OCPS form. Redeemable preference shares (RPS) would be issued to Gauss Ltd

which can be re-deemed 12 months post the High court approval of the transaction

(expected in April 2017). The amount in RPS would be to the tune of ~INR815m. So

Adda 52.com will become a 100% subsidiary of Delta Corp post the court order.

Also, Delta Corp is paying OCPS( number of shares calculation to be done on SEBI

formula and will depend on CMP at that point of time) as kind to Gauss Ltd which

would be convertible 12 months post High court order. If Delta Corp buys that stake,

then holding would be same else it might get diluted.

Adda52.com had received its first seed funding in 2011 and thereafter focused on a

strong software, search engine optimization to grow aggressively over the years

besides having the first mover advantage in Indian market. DELTA may look for more

such acquisitions (likely to be equity funded rather than cash) in future given the

enormous growth potential, and huge opportunity in online gaming space ($120m

industry in India).

21 March 2017

Delta Corp

In India, some of the other popular names in online gaming space include

ace2three.com (largest rummy site), pokerbaazi.com, Spartan poker and few others.

This provides opportunity for M&A in the space. Ace2Three.com is largest online

rummy site which is the most widely played card game in India. The financials of the

same reproduced below:

Exhibit 16: Ace2Three financials

Particulars

Revenue (INR m)

EBITDA (INR m)

EBITDA %

PAT (INR m)

PAT %

FY15

1246

653

52.5

435

34.9

FY16

1665

935

56.2

617

37.1

Source: RoC, MOSL

21 March 2017

Delta Corp

Brand leverage to drive long-term sustainable growth

Key drivers: Brand Spends, Increase in GGR, Newer geographies



Delta aggressively markets its casinos via radio, hoardings, and approaching

corporates directly, having a presence on online portals like Make my Trip, Book my

show etc.



Advertisement cost was INR 126m/INR 153m for FY15/FY16 constituting ~4% of

consolidated revenue.

Delta prefers more footfalls and mass crowd rather than VIP as the risk appetite and

ability is not much compared to premium or VIP people which leads to higher

probability of losing.



Delta is eyeing Tamil Nadu, Punjab, Karnataka, Maharashtra and Pondicherry markets

if state government passes legislation to establish casinos in those regions.

Promotional schemes to drive more footfalls

Delta aggressively markets its casinos via radio, hoardings, and approaching

corporates directly, having a presence on online portals like Make my Trip, Book my

show etc. The company normally targets Delhi, Punjab, Haryana, Maharashtra for

marketing activities and believes Gujrat, Delhi, Kerala etc are key states from where

people visit the casino. Advertisement cost was INR 126m/INR 153m for FY15/FY16

constituting ~4% of consolidated revenue. Also, it holds various promotional

schemes like a bumper Mercedes for customers (mainly based on chip numbers) at

certain intervals to attract new customers. It also hosted the India Poker

Championship (in line with World Poker Championship), an 8 day tournament series

in December 2015. This event crushed the original guarantees with the massive

number of turnouts over the 8 days garnering well over INR 32.5m (earlier

guarantee of INR2.5m) in Prizepools at Deltin Royale Poker Lounge Goa, India. We

believe such events and strategy by the company will aid in long-term brand

building.

Exhibit 17: DELTA’s ad spends to drive long-term brand sustainability

Ad Spends (INR m)

3.9

2.9

0.8

FY10

FY11

FY12

1.2

FY13

FY14

FY15

FY16

1.7

126

153

As % of Sales

4.2

4.0

105

Source: Company, MOSL

More Footfalls to drive more GGR for Delta

Delta prefers to maintain a balance between mass crowd and VIP as the risk. Incase

of mass crowds, appetite and ability is not much compared to premium or VIP

people which leads to higher probability of losing and house winning. So, there is

more scope for earning money for the company via them compared to VIP segment.

The entry fee normally depends on rush or season factor.

21 March 2017

Delta Corp

The company can sometimes give free entry or charge as low as Rs2,000 if the rush

is low (no one time playing chips given in this case) to drive footfalls while it can

charge as high as Rs10,000 as entry fee( One Time Playing Chips of similar amount

given in this case). OTPC (One Time playing Chips) cannot be redeemed for cash in

casinos, so a customer is lured to spend more time in casino and play more. For

games like poker, Teen Patti or any game wherein Deltin dealer does not have a role

to play, revenues are earned based on a commission basis (generally 1%-5% of every

pot). For games like Blackjack (where players play against the company dealer),

revenue are earned on profit or loss in that game by the dealer.

New States may pass legislation to establish casino, positive for DELTA

There are new states like Andhra Pradesh, Telangana, Karnataka and Pondicherry

where if state government passes legislation to establish casinos, DELTA could

benefit from first mover advantage. We believe that casinos contribute a large

revenue pie in state’s revenue, so if state regulation allows, Delta would be looking

for offshore casinos like Goa. Generally, the cost of putting a ship in place for

operations is ~INR 1.5b (includes buying or manufacturing of ship vessel, renovation,

establishing slot machines, furniture’s etc).

21 March 2017

Delta Corp

DELTA likely to cross 15% RoE for the first time (post business model

change) in FY18, breaching the uncommon profit threshold

Our Wealth Creation Study 2008-2013 had elaborated the emergence and

endurance of uncommon profit in equity investments. We can relate this study to

DELTA, which is expected to cross the 15% RoE threshold for the first time in FY18

(post business model change to pure-play gaming and hospitality).

We reproduce herewith some key insights from the Wealth creation study

Opportunity cost of equity is usually taken as the long-period return on equity

benchmark indices. In the Indian context, long-period return of BSE Sensex is 15-

17%. Using the other approach for cost of equity (CoE), risk free rate in India is

about 7% (post tax). Adding an equivalent equity risk premium, one again arrives at

CoE around 15%. Thus, any profit earned in excess of 15% RoE is uncommon profit.

Accordingly, all companies which sustain RoEs over 15% are value creators.

We define Emergence as "the first entry of a company into the potential uncommon

profit zone". We earlier determined that RoE of 15% is the threshold for uncommon

profit. Given this, a company may be said to have emerged when it attains 15% RoE

for the first time ever since inception. Post that, the next challenge for a company is

to achieve Endurance (i.e. sustaining its profitability above the cost of equity

threshold for a long period of time).”

Going by the above definitions, Enduring Value Creators are companies that

successfully manage the journey from emergence to endurance. This is achieved by

a favorable combination of one or more and industry-level or company-specific

factors. Early identification of such companies enables investors to fully participate

in the company's uncommon profit generation through its lifecycle.

One can refer to detailed Wealth Creation Study by clicking here

Exhibit 18: DELTA to cross 15% RoE threshold for first time in FY18

RoE(%)

15.7

3.4

5.6

-1.9

FY13

FY14

FY15

FY16

FY17E

FY18E

4.6

9.0

17.0

FY19E

Source: Company, MOSL

21 March 2017

Delta Corp

Expect 62% PAT CAGR over FY17-19E

Key drivers: Online foray, operating leverage



DELTA exited its real estate business in FY14. Going forward, its core business would

be gaming and gaming-related hospitality.

We expect 35% CAGR in DELTA’s revenue over FY17-19E, led by 38% CAGR in its

gaming business and 18% CAGR in its hospitality business. EBITDA would grow at a

CAGR of 45%, with margin expanding from 36.3% to 41.5%. PAT would grow at a CAGR

of 62%.

Cash flows and return ratios should improve substantially. We expect DELTA to be

debt free and be a net cash company by FY19.

Gaming and gaming-related hospitality to be core business

DELTA’s core business would be gaming and gaming-related hospitality. They are

mutually inclusive and reciprocating businesses, each driving the other. A

combination of gaming and hospitality helps to provide a holistic experience that

attracts not only serious gamers, but also tourists and families. Hospitality has been

an integral part of DELTA’s growth strategy. It currently operates three hotels in

Goa, and one hotel in Daman (launched in March 2014). DELTA also has substantial

stake in the holding company of Ramada Caravela Beach Resort, with no operational

interest or management control.

In FY16, gaming contributed

87% of revenues, and

hospitality contributed 12%;

we expect the ratio to be in

similar range, going forward

DELTA held 39.2% stake in a joint venture with Reliance Industries to develop real

estate in Kenya under the name of Delta Corp East Africa limited (DCEAL). Over

2009-2014, DCEAL developed commercial and residential properties, from which

DELTA has made a profitable exit. In FY14, gaming contributed 45% of DELTA’s

revenues, hospitality contributed 1%, and real estate contributed 52%. In FY16,

gaming contributed 87% of revenues and hospitality 12%.This break-up should

sustain, going forward.

Exhibit 20: FY16 revenue break-up

Real Estate,

Hospitality,

Gaming, 45

Exhibit 19: FY14 revenue break-up

Others , 1

Real Estate,

Hospitality,

Gaming, 87

Source: Company, MOSL

21 March 2017

Delta Corp

Expect revenue CAGR of 35%, PAT CAGR of 62% over FY17-19E

We expect DELTA’s revenue to grow at a CAGR of 35% over FY17-19E, led by 38%

CAGR in its gaming business, which would contribute 91% of FY19 revenue. EBITDA

would post 45% CAGR, with margin expanding to 41.5%, driven by Adda52.com and

operating leverage. We expect PAT to clock a CAGR of 61% to INR2b in FY19.

Exhibit 21: Revenue to post 35% CAGR over FY17-19E

Revenue (INR m)

16.6

31.3

26.0

Growth(%)

21.1

45.8

25.4

-46.3

4,254

FY13

5,586

FY14

3,000

FY15

3,779

FY16

4,578

FY17E

6,672

FY18E

8,367

FY19E

Source: Company, MOSL

Exhibit 22: Sales assumptions in gaming and hospitality segment

Revenue(INR m)

Deltin JAQK - Casino

Deltin Royale - Casino

DeltinCaravela - Casino

The Deltin Suites - Casino

Sikkim - Casino

The Deltin - Casino (Daman)

Online gaming – Gaussain (adda52.com)

Total Gaming Revenue

Deltin Suites - Hotel* (Goa)

Deltin Palms - Hotel* (Only Operate, Goa)

The Deltin - Hotel (Daman)

Total Hospitality Revenue

Real Estate Revenue

Others

Total Revenues(INR m)

3,240

125

289

440

3,739

4,016

135

328

500

4,578

FY16

1,007

2,233

935

5,979

149

439

628

6,672

FY17E

1,140

2,556

169

151

FY18E

1,379

3,115

291

191

FY19E

1,699

3,804

382

241

211

1,263

7,600

173

483

699

8,367

Source: Company, MOSL

21 March 2017

Delta Corp

Exhibit 23: EBITDA to clock 45% CAGR over FY17-19E

EBITDA (INR m)

32.5

22.2

2,676

848

FY13

1,501

FY14

665

FY15

1,229

FY16

1,659

FY17E

FY18E

FY19E

3,472

Margins (%)

36.3

40.1

41.5

26.9

19.9

Source: Company, MOSL

Exhibit 24: PAT to grow at a CAGR of 61% over FY17-19E

Adjusted PAT (INR m)

64.7

-47.6

-134.2

262

432

-148

FY13

FY14

FY15

357

-341.6

FY16

FY17E

FY18E

FY19E

Source: MOSL

1,581

752

2,035

Growth(%)

110.7

110.3

28.7

DELTA to be debt free by FY19 and return ratios to improve significantly

We expect operating and free cash flows to improve significantly over FY17-19E.

Given the robust cash generation, we expect DELTA to be debt free by FY19. We

have not factored in any cash flows from sale of non-core assets. The play of

operating leverage would reflect in significant increase in return ratios. We expect

RoCE to improve from 9.4% to 16.5%, and RoE to improve from 9% to 17% over

FY17-19E.

Exhibit 25: RoCE to improve by 710bps

RoCE(%)

Exhibit 26: RoE to improve by 800bps

RoE(%)

15.7

14.9

4.6

FY13

7.7

FY14

5.8

FY15

5.5

FY16

9.4

16.5

3.4

5.6

-1.9

FY17E

FY18E

FY19E

FY13

FY14

FY15

FY16

FY17E

FY18E

4.6

9.0

17.0

FY19E

Source: Company, MOSL

21 March 2017

Delta Corp

Exhibit 27: Operating cash flow

Operating Cash Flow (INR m)

Exhibit 28: DELTA to be debt free by FY19

0.6

Gross Debt(INR m)

0.5

0.4

0.3

0.2

3,524

3,372

2,580

1,880

0.1

1,080 0.0

Debt-Equity (x)

2,810

2,327

862

1,313

1,382

2,060

2,280

4,850

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

Source: Company, MOSL

Sale of non-core assets could yield ~INR2b

DELTA could derive ~INR0.35b post tax from sale of land in Sri Lanka, INR0.65b from

sale of real estate in Goa (Kolvale and Panjim) and stake sale in Advani hotels of

INR1.3b. The management intends to use this cash to retire debt.

21 March 2017

Delta Corp

Initiating coverage with Buy

High growth potential justifies premium valuations



Delta Corp (DELTA) is the leading player in India's underpenetrated gaming market.

Gaming is an emerging industry in India; given its paltry size of ~USD150m, the growth

potential is huge.

DELTA has several levers to drive 35% CAGR in revenues over FY17-19E, as DELTA

forays into online gaming space, ramp up of Sikkim operations and focus improves on

mass crowd driving visitations. Its recent acquisition of Adda52.com shall aid growth

from FY18.

Operating leverage would drive EBITDA margin improvement of ~520bp to ~41.5% by

FY19, driving ~62% PAT CAGR over FY17-19E while EPS CAGR to be 53% due to dilution

on account of acquisition of Adda52.com (an online poker site). As a result, we

estimate RoEs to improve by 800bp to 17% and RoCEs by 710bps to 16.5% by FY19.

Key triggers like approval of Daman casino which has the potential to almost double

its gaming positions and a scope for M&A in online space shall drive its revenue and

profitability higher (which is currently not factored into numbers).

The stock trades at 25x/22x FY18E/19E EPS, 8.4x/6.2x FY18E/19E EV/EBITDA and

3.4/3.6x FY18E/19E P/BV.

We have assumed dilution in EPS in FY19 assuming preference share issued for

adda52.com acquisition gets converted at INR228 per equity share. This will lead to

increase in share capital from INR231m to INR266m.

DELTA’s premium valuations vis-à-vis its peers in global space is manifestation of high

growth opportunities in an underpenetrated gaming market in India, a near monopoly

in casino in India and potential trigger from Daman casino approval. Thus we assign a

PE multiple of 30x (~40% premium) to global peers.

We have not considered potential cash per share value of INR7.5 through sales of non

core assets which can fetch INR2b.

We initiate with Buy, with a target price of ~INR229 (30x FY19E EPS).

Exhibit 30: Price to book (x)

10 Yrs Avg(x)

5.0

4.0

P/B (x)

5 Yrs Avg(x)

10 Yrs Avg(x)

3.2

2.3

Exhibit 29: Price to earnings (x)

138

37.1

36.4

23.5

P/E (x)

5 Yrs Avg(x)

3.0

2.0

1.0

0.0

Negative

Earnings

Cycle

Source: Company, MOSL

Exhibit 31: Peer comparison

Company Name

Las Vegas Sands Corp

Sands China Ltd

Delta Corp*

CY17E

CY18E

EV/EBITDA

CY17E CY18E

RoE %

CY17E CY18E

EV/Sales

CY17E CY18E

Sales CAGR

CY16-18E

PAT CAGR

CY16-18E

*MOSL estimates and refers to FY18&19

Source: Bloomberg

21 March 2017

Delta Corp

SWOT analysis



Leading gaming

company in India

with three out of six

live gaming licenses

in Goa

First mover

advantage with

presence in most

attractive locations in

India

High entry barriers to

business



Larger overheads in

hospitality sector

compared to its

gaming industry

Reliance on single

market- India, the

sole place where it

has presence in

gaming, so vulnerable

to economic cycle



Rising Indian GDP

growth, favorable

demographics

Gaming space has

limited supply(only

Goa, Sikkim and

Daman) and abundance

of demand

License for Daman

casino would be a huge

trigger

Potential new

geographies if state

legislation permits



Regulatory changes

being a politically

sensitive issue is a

threat

Increase in issue of

licenses might lead to

enhanced competition

Further delay in Daman

casino license due to

regulatory hurdles

Entry of international

casino brands in India



21 March 2017

Delta Corp

Bull & Bear case

Bull case



Our bull case assumes higher visitations and approval of casino in Daman with

FY19 being the first full year of operation.

Instead of assuming a 520bp EBITDA margin improvement over FY17-19E in the

base case, we are assuming 690bp margin improvement, mainly led by higher

growth in sales and operating leverage benefits. In the base case, we are

expecting EBITDA margin of 41.5% in FY19 v/s 43.2% in the bull case.

In the bull case, we are assuming that Daman casino will commence operations

in 2HFY18, and FY19 will be a full year of operations. We expect it to clock

revenue of INR2130m with incremental PAT of ~INR780m.

We also assume that DELTA will be able to monetize its non-core assets and

fetch an approx. value of INR2b, leading to INR7 cash per share.

There is an increase of 19% and 44% in FY18E and FY19E EPS over the base case

EPS to INR8.2 and INR10.6, respectively.

Assuming the same 30x target multiple that we have taken for the base case, we

get a bull-case target price of INR334 (upside of 98% to CMP, including cash per

share value of INR7.5) based on FY19E EPS, instead of the base case target price

of INR229 (upside of 36%).

Exhibit 32: Bull case scenario

Sales (INR m)

Sales growth (%)

EBITDA (INR m)

EBITDA Margin (%)

EBITDA growth (%)

PAT (INR m)

PAT Margin (%)

PAT growth (%)

EPS (INR)

Target multiple (x)

Equity share value (INR)

Add: Cash per share

Total value per share

FY17E

4,578

21.1

1,659

36.3

35.0

752

16.4

110.7

3.3

FY18E

7,413

61.9

3,084

41.6

85.8

1,887

25.5

151.0

8.2

FY19E

11,112

49.9

4,800

43.2

55.7

2,902

26.1

53.8

10.9

327

334

Source: Company, MOSL

Bear case



Our bear case assumptions include slowdown in visitation and GGR. Also, we

assume that the Daman casino does not get approval, similar to our base case

assumption. Additionally, the ramp-up of adda52.com is slow.

We are assuming sales CAGR of 19% (v/s 35% in base case), mainly driven by

incremental sales from adda52.com. We are assuming EBITDA margin expansion

of 340bp over FY17-19E in the bear case. We assume the benefits of operating

leverage are very low as sales growth will slow down.

This will lead to a decrease of 19% in FY18E EPS and of 30% in FY19E EPS over

the base case to INR5.6 and INR5.2, respectively.

Assuming lower 20x P/E target multiple, we get a bear-case target price of

INR107 (downside of 33% to CMP) based on FY19 EPS, instead of the base case

target price of INR229 (upside of 36%).

21 March 2017

Delta Corp

Exhibit 33: Bear case scenario

Sales (INR m)

Sales growth (%)

EBITDA (INR m)

EBITDA Margin (%)

EBITDA growth (%)

PAT (INR m)

PAT Margin (%)

PAT growth (%)

EPS (INR)

Target multiple (x)

Target price (INR)

Upside/downside (%)

FY17E

4,578

21.1

1,659

36.3

35.0

752

16.4

110.7

3.3

FY18E

5,961

30.2

2,283

38.3

37.6

1,287

21.6

71.2

5.6

FY19E

6,476

8.6

2,571

39.7

12.6

1,431

22.1

11.2

5.4

107

-33%

Source: Company, MOSL

21 March 2017

Delta Corp

Risks and concerns

Regulatory risk

Gaming in India is a highly regulated business. There is a possibility of adverse

changes in government policy, especially given the conservative nature of India. This

could have a detrimental effect on DELTA’s business. However, most states are

aware of the benefits of gaming and hospitality businesses and are likely to ensure a

favorable climate for the industry.

Change in taxation policy

Substantial increase in gaming tax (15% currently) could negatively impact DELTA’s

business prospects.

Issue of new licenses

Currently, offshore casino licenses in Goa are capped at six (five operational). Of

these, DELTA owns three. Issue of licenses to new players could dilute the edge

DELTA has in Goa. The industry has significant entry barriers and requires major

capital investment. It also requires a mix of skill and experience. As the dominant

player in this space, DELTA has all the requisites to overcome competition.

Demand highly discretionary in nature

The gaming and hospitality businesses are highly dependent on discretionary

spends. As such, during economic slowdowns, there is a marked tendency to curtail

expenditure on entertainment, travel, and leisure. During such times, DELTA’s

business could suffer.

21 March 2017

Delta Corp

Management team

Mr Jaydev M Mody (Non-Executive Chairman)

Mr Jaydev Mody, Promoter of DELTA, is a first generation entrepreneur and a

leading Indian real estate visionary based in Mumbai, India. He played a leading role

in building and developing India’s first truly global mall,

Crossroads

in South

Mumbai. A Humanities graduate from the Mumbai University, Mr Mody has been

instrumental in the development of several large residential and commercial

complexes, and retail destinations in and around Mumbai. Among them are

Peninsula Corporate Park, Ashok Towers, Ashok Gardens, and Peninsula IT Park. He

has interests in various businesses including gaming and hospitality, textiles and

magnet manufacturing

Mr Ashish Kapadia (Managing Director)

Mr Ashish Kapadia is an Entrepreneur, having established and managed several

businesses across sectors such as paints, textiles, financial services, and civil

aviation. Mr Kapadia was appointed Non-Executive Director on DELTA’s Board in

October 2008. In April 2009, he was appointed Managing Director. He holds a

Bachelor’s Degree in Commerce.

Mr Anil Malani (President – Operations)

Mr Anil Malani is a Bachelor of Commerce from Mumbai University and has over 25

years of experience. He has been involved in versatile businesses ranging from

hospitality, entertainment, information technology, electronics, and office

automation. He has been associated with the Esquire group of companies, Aims

International, and Amazon Food Beverages (Garcia’s Famous Pizza). His last

assignment before he joined DELTA was with Clover Solar. He has traveled around

the globe extensively and has the distinction of being the fifth resident Indian to

stay in Prague for 18 months (1991-1992) just after the velvet revolution.

Mr Hardik Dhebar (Group Chief Financial Officer)

Mr Hardik Dhebar holds a Post Graduate Diploma in Finance from the Welingkar

Institute of Management. He has over 13 years’ experience in finance and treasury

operations. He has worked with the Piramal Group, where he held positions of

responsibility in Nicholas Piramal, Morarjee Textiles, and Peninsula Land.

21 March 2017

Delta Corp

About Delta

Delta Corp (DELTA) is the largest and only listed gaming company in India. It is a

leading gaming company in India, captured a lion share of the Indian gaming market

through its 5 casinos in Goa and Sikkim. It owns three of the six offshore and one

onshore gaming license in the state of Goa. The company currently offers~1,700

gaming positions in Goa and Sikkim. It started a first of its kind integrated casino

resort in Daman in March 2014(casino approval awaited yet).

Exhibit 34: Corporate history

Source: Company, MOSL

DELTA’s core business centers on gaming

DELTA’s core business is gaming and gaming-related hospitality. In FY14, gaming

contributed 45% of revenue, hospitality contributed 1%, and real estate contributed

52%. From FY14, DELTA has decided to strategically focus on its gaming business and

not pursue the real estate business. In FY16, the contribution of gaming and gaming-

related hospitality increased to 87%. Hospitality contributed 12%. In FY18 and FY19,

we expect gaming to contribute over 90% of revenues, with the balance coming

from hospitality.

21 March 2017

Delta Corp

Exhibit 35: Revenue split – FY14

Others , 1

Exhibit 36: Revenue split – FY16

Hospitality,

Real Estate

Others , 2

Real Estate,

Gaming, 45

Hospitality,

Source: Company, MOSL

Gaming, 87

Source: Company, MOSL

Gaming & Entertainment

Gaming & Entertainment is DELTA’s core business. It owns three of the six offshore

gaming licenses in the state of Goa, one license in Sikkim and has set up a first-of-its-

kind integrated casino resort in Daman (awaiting approval for casino). It has around

1,700 gaming positions with three offshore casinos and one land-based casino in

Goa and one casino in Sikkim.

Deltin Royale, Goa:

Deltin Royale,

with five operational decks, is currently India’s

largest offshore gaming vessel, offering ~1000 gaming positions, comprising 123live

gaming tables and 65 slot machines. The casino also has India’s largest dedicated

poker room – Royale Poker Room. It has world class dining and entertainment in

Vegas

restaurant and

Whiskys

– the exclusive lounge with an enviable collection of

single malt whiskeys. Private gaming suites are also available.

Exhibit 37: Deltin Royale has ~1000 gaming positions, comprising 123 live gaming tables and 65 slot machines

Source: Company, MOSL

Deltin JAQK, Goa:

Operational since 2008,

Deltin JAQK,

with four operational decks

covering an area of approximately 31,900sf, offers approximately 500 gaming

positions, comprising 47 live gaming tables and 30 slot machines. It provides

entertainment for the entire family catering to Children who can play to their

heart’s content at the dedicated playroom while toddlers can have fun at the

crèche. The casino also has an Aquabar as well as two VIP suites.

21 March 2017

Delta Corp

Exhibit 38: Delta JAQK has 500+ gaming positions, comprising 47 live gaming tables and 30 slot machines

Source: Company, MOSL

Deltin Caravela, Goa:

Deltin Caravela,

India’s first offshore gaming casino, was re-

launched in 2016. With around 130 gaming positions, the boutique luxury floatel

combines gaming thrill with entertainment. The floatel boasts of several luxuries like

the

Skylite

restaurant and a state-of-the-art Spa.

Deltin Caravela

also has private

rooms. It aims to grow Goa’s share of the top-end luxury segment of tourists and to

cater to the discerning elite who seek solitude and luxury. Initially, the company

thought of invitation-based entry only but now has changed its model to

accommodate customers with an entry fee of INR20,000-25,000.

Exhibit 39: DeltinCaravela has ~150 gaming positions, comprising 17 live gaming tables and 10 slot machines

Source: Company, MOSL

Deltin Suites, Goa:

DELTA launched an all-suite hotel,

Deltin Suites

in Nerul, North

Goa in 2014. It secured its first license to operate an onshore casino in 2015. Delta

currently operates a total gaming area aggregating to around 3,000sf at

Deltin

Suites,

Goa. The casino has an around 85 gaming positions. The company normally

gives one-time playing chips to its guests to the tune of ~80% of their room charge

to lure the customer into playing more.

21 March 2017

Delta Corp

Exhibit 40: Deltin Suites has 85 gaming positions

Source: Company, MOSL

The Deltin, Daman:

DELTA has launched a land-based casino in Daman through its

hospitality project named

The Deltin.

The company has applied for a gaming license

and an approval is expected soon. The casino, when operational, will be spread over

60,000sf and have about 1,000 gaming positions.

Exhibit 41: The Deltin has 1,000-1,200 gaming positions, spread across 60,000sf of gaming space

Source: Company, MOSL

Sikkim:

To expand its gaming footprint to other regions in India, in April 2016, DELTA

partnered with Hotel WelcomHeritage Denzong Regency for a casino in Sikkim. The

hotel is leasing the gaming space to DELTA, which would be responsible for the day-

to-day operations and management of the new casino. It obtained a license from

the Government of Sikkim to operate the casino in Jan 2017. The casino would offer

around 150 gaming positions and cater to the eastern region of India.

21 March 2017

Delta Corp

Exhibit 42: To have 150 gaming positions in Denzong Regency Hotel; casino to be

operational in October 2016

Hospitality

Internationally, gaming and hospitality are at the center of success of gaming

destinations like Las Vegas, Macau and Singapore. The synergy of gaming and

hospitality creates a unique and unmatched entertainment experience for the entire

family – gaming, tourism and hospitality all packaged in an ideal holiday vacation. In

line with global industry practices, DELTA’s hospitality business is synergistic to its

gaming business. It has ventured into the hospitality business to provide an

enhanced overall gaming experience. It has three hotels in Goa and one in Daman.

The company also owns substantial stake in the holding company of Ramada

Caravela Beach Resort with no operational interest or management control.

The Deltin, Daman:

DELTA owns a majority stake in Daman Hospitality Private

Limited, which in turn owns a 176-room five-star deluxe property,

The Deltin

Daman.

The Deltin

is the largest integrated resort in Daman, spread over 10 acres,

with 300,000sf of developed area. This hotel offers the largest banquet facility in the

area, with three bars, four specialty restaurants, 27,000sf of indoor event (MICE

space) and 8,000sf high-end retail space.

The Deltin

in Daman is only a 2.5 hours’

drive from Mumbai, Maharashtra, and a similar driving distance from major cities in

Gujarat, making it an attractive destination for tourists in both states.

Exhibit 43: The Deltin is the first five-star hotel launched in Daman

Source: Company, MOSL

21 March 2017

Delta Corp

Deltin Suites, Goa:

DELTA launched an all-suite hotel,Deltin

Suites

in Nerul, North

Goa in 2014. Delta currently operates a total gaming area aggregating to around

3,000sf at

Deltin Suites,

Goa. The casino has an around 85 gaming positions.

Deltin

Suitesoffers

a complete family entertainment package to its guests.The property is

5-10 minutes’ drive from the popular Candolim and Calangute beaches, and is close

to boarding points for DELTA’s casinos.

Exhibit 44: Deltin Suites is located at Nerul, Goa close to Candolim / Calangute beaches, and boarding points for DELTA’s

casinos

Source: Company, MOSL

Deltin Palms, Goa:

DELTA operates a boutique hotel,Deltin

Palms,

which is used

primarily for DELTA’s casino guests. It is a boutique hotel with 27 rooms.It is located

on the banks of the Mandovi River, and is a 5-minute feeder boat ride to the

company’s offshore casinos.

Exhibit 45: Deltin Palms is located at the banks of Mandovi River, and is a 5-minute feeder boat ride to DELTA’s casinos

Source: Company, MOSL

21 March 2017

Delta Corp

Popular games at Delta’s casinos

DELTA offers the following games in its casinos.

Roulette

American Roulette is a very popular game. The layout consists of 37 numbers

including "0" in the same wheel but in a random order. The players can choose to

bet on a number or combination of numbers. The dealer then spins the ball, and

whichever number the ball drops on, is the winning number. All the chips on that

number and the chips covering that number win and are paid accordingly.

Blackjack

Blackjack is a game played with 6/8 decks of cards. Cards of rank 2-10 are scored

according to face value. All face cards are 10 points. The highest hand in Blackjack is

an Ace and any 10-point card during the initial deal is called a Blackjack. It pays one

and half times the original bet. Aside from a Blackjack, a winning hand pays even

money. The player wins if his hand has more points than the dealer without going

over 21, loses if they are less, and ties if they are same as the dealer's points.

A round of blackjack begins with each player placing a bet directly in front of him.

The dealer deals two cards for each bet and one card for the house. Then the dealer

acts upon each of the hands. If the player wishes to take more cards, he has to

indicate to the dealer by tapping behind the box, if not then just wave across. Then

the dealer draws cards on the dealer's hand until the points reach a total of 17 or

more. If the dealer’s total goes over 21, all the bets are paid. If not, each hand is

compared with the dealer's hand and paid or taken accordingly.

A player can also split his first two cards if they are of equal point value into two

hands. A player may split upto three times, if splitting opportunity arises. A player

may also double on two cards by placing an extra wager equal to his original bet and

will be given only one card. A player can also bet on insurance bet when the dealer

is showing an Ace. It basically means that the player is betting that the dealer is

getting a Blackjack and it is paid two times.

Craps or Dice

Craps is a very fast game. Players wager money against the outcome of one roll, or

of a series of rolls of two dice. They take turns to roll the dice. To begin, the shooter

(player who is rolling the dice) must bet the table minimum on either the "Pass" line

or the "Don't Pass" line, which are also referred as "Line Bets". Other players at the

table make bets on the shooter's dice rolls. In this roll, a dice result of 7 or 11 is

called a "natural," resulting in a win for players who made pass line bets.

If the shooter's come-out roll is a 2, 3 or 12, it is called "Craps" and the players lose

their pass line bet. If the remaining numbers of 4, 5, 6, 8, 9, or 10 are rolled on the

come-out roll, this number becomes the "point." The shooter will then try and re-

roll the dice until the point is rolled again. If the shooter is successful in rolling the

point again, the result is a win for those who bet the pass line. But if the shooter

rolls a 7 instead of the point (called a "seven-out"), the round ends immediately,

with the dice being passed to the next player, who becomes the new shooter. The

"Don't Pass Line” is opposite to the "PassLine". Craps is available atCasino

Royale.

21 March 2017

Delta Corp

Baccarat

Baccarat is an easy card game played with 8 decks of cards. Players can choose to

bet either on “Player” or “Banker” hand. The object of the game is to get as close to

9 (nine) points as possible. Two cards are drawn to each of Banker hand and Player

hand and a third card is drawn to either/both hands according to the drawing rules.

The hand with the sum of cards closest to 9 wins (10, J, Q, K count as 0-zero). The

dealer draws the cards according the below tableau.

Pontoon

Pontoon is similar to Blackjack, with few variations. The object of the game is the

same as Blackjack, where the player is trying to achieve a total of 21 or close to 21

and beat the dealer’s total. However, there is no push or standoff. The dealer wins

on all ties. The dealer initially deals two face-up cards to each player and one card

for the dealer. According to their card total, players have an option to either draw

more cards or stand. When additional cards are drawn, if the hand total goes over

21 points, they lose the bet and the cards are removed. After all players have played

out their hands, the dealer continues to draw cards until a total of 17 points or

more, except the dealer shall hit a soft 17. The dealer will also stop with any five-

card hand regardless of total points. The dealer shall compare their hand to each

player’s hand and winning players shall be paid according to the following ranking:

5-Card Poker

5-Card Poker is a game played with one deck of cards. A player makes an ante wager

plus an additional bet called the bonus bet. Each player and the dealer get five

cards. All cards are dealt face down; only one dealer card is exposed. The player may

examine his own cards but sharing of information is not allowed. A player must fold,

or if he wants to bet, he has to put exactly double his ante money. If the player

folds, he forfeits his cards, ante bet, and side bet (if made).

Once the decisions are made on the table, the dealer turns over his other four cards.

The dealer must have an ace and a king or higher to qualify. If the dealer does not

qualify, the player will win even money on the ante wager only. If the dealer

qualifies and beats the player, he will lose both the ante and raise. If the dealer

qualifies and loses to the player, the ante will pay even money and the bet is paid

according to the odds for different hands. The different hands can be a pair, two

pairs, three of one kind, flush, full house, straight, four of a kind, straight flush, and

royal flush.

A bonus bet is a side bet and is paid anytime there is a bonus qualifying hand. The

bonus is paid for flush, full house, four of a kind, straight flush, and royal flush. A

player is also allowed to buy one or two cards at the cost of the ante bet, but he

loses the bonus bet.

21 March 2017

Delta Corp

3-Card Poker

3-Card Poker is a game played with one deck of cards. A player makes an ante

and/or pair plus bet. The dealer gives each player three cards and himself three

cards. The player may examine his own cards. The dealer's cards are dealt face

down. If the player makes the ante bet, he has must either fold or bet. If the player

folds, he loses his ante wager. If the player bets, he must make an additional bet,

equal exactly to his ante bet.

Once all the decisions are made on the table, the dealer turns over his cards. The

dealer needs a queen high or better to qualify. If the dealer does not qualify then

the player will win even money on the ante bet and the bet will push. If the dealer

qualifies, the player's hand will be compared to the dealer's hand – the higher hand

wins. If the player has the higher hand, the ante and bet will both pay even money.

If the dealer has the higher hand, the ante and bet will both be lost. If the player and

dealer tie, the ante and bet will push. If the player made the ante bet and has a

straight or higher, the player will receive an ante bonus, regardless of the value of

the dealer's hand.

The pair plus bet will pay entirely based on the value of the player's hand. If the

hand does not qualify for the pair plus bonus, that bet is lost. The different hands

qualifying for the pair plus are: a pair, which pays even money, a flush, which pays

4x, a straight, which pays 5x, three of a kind, which pays 30x, and a straight flush,

which pays 40x.

21 March 2017

Delta Corp

Financials and valuations

Consolidated - Income Statement

Y/E March

Total Income from Operations

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Less: Mionrity Interest

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY14

5,586

31.3

4,085

73.1

1,501

26.9

166

1,335

334

312

1,313

-143

1,170

478

44.4

297

353

432

64.7

7.7

FY15

3,000

-46.3

2,334

77.8

665

22.2

347

318

513

-120

-49

-169

155

-47

-64.1

-50

-228

-148

-134.2

-4.9

FY16

3,779

26.0

2,549

67.5

1,229

32.5

382

847

414

491

104

595

195

33.7

-32

426

357

-341.6

9.4

FY17E

4,578

21.1

2,918

63.8

1,659

36.3

365

1,294

326

1,009

-38

1,047

268

25.6

-1

780

752

110.7

16.4

(INR Million)

FY18E

6,672

45.8

3,997

59.9

2,676

40.1

416

2,260

200

2,107

527

25.0

-1

1,581

110.3

23.7

FY19E

8,367

25.4

4,895

58.5

3,472

41.5

467

3,005

3,035

1,002

33.0

-1

2,035

28.7

24.3

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Preference Capital

Total Reserves

Net Worth

Minority Interest

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Goodwill on Consolidation

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Deferred Tax assets

Misc Expenditure

Appl. of Funds

FY14

228

7,529

7,757

525

3,524

11,863

7,611

488

7,123

477

992

1,048

3,291

717

674

551

1,350

1,142

730

413

2,149

11,863

FY15

231

7,420

7,651

244

160

3,372

11,426

8,739

800

7,938

604

1,077

2,459

695

228

210

1,326

911

735

176

1,548

221

11,426

FY16

231

7,803

8,034

235

552

2,580

11,400

8,755

1,075

7,680

553

1,037

2,457

708

146

228

1,375

961

710

251

1,496

608

11,400

FY17E

231

8,430

8,661

235

552

1,880

11,328

8,855

1,440

7,415

553

1,037

2,164

226

438

1,444

449

388

1,715

608

11,328

(INR Million)

FY18E

231

1,630

9,678

11,539

235

552

1,080

13,406

11,185

1,856

9,329

553

1,037

2,580

329

513

1,660

701

615

1,879

608

13,406

FY19E

266

12,107

12,373

235

552

13,160

11,335

2,323

9,011

553

1,037

2,812

413

394

1,909

861

106

756

1,951

608

13,160

21 March 2017

Delta Corp

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Working Cap. Turnover (Days)

Leverage Ratio (x)

Debt/Equity

FY14

1.9

2.6

34.1

0.2

18.8

FY15

-0.6

0.9

33.2

0.1

-12.5

-264.0

195.7

5.1

8.3

37.6

0.1

3.2

5.6

7.7

8.9

0.5

104

0.5

-1.9

5.8

5.4

0.3

163

0.4

FY16

1.5

3.2

34.8

0.2

13.0

109.3

52.8

4.9

6.4

19.7

0.1

4.6

5.5

5.6

0.3

122

0.3

FY17E

3.3

4.8

37.5

0.6

19.6

51.9

34.9

4.5

5.1

14.0

0.3

5.8

9.0

9.4

9.6

0.4

102

0.2

FY18E

6.9

8.7

50.0

1.2

21.1

24.7

19.5

3.4

8.4

0.7

-1.2

15.7

14.9

15.6

0.5

0.1

FY19E

7.6

9.4

46.4

1.3

20.5

22.1

18.0

3.6

2.6

6.2

0.8

8.0

17.0

16.5

17.1

0.6

0.0

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(inc)/dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

FY14

1,175

166

199

-332

1,119

2,327

-49

2,278

-740

1,538

132

1,257

650

-1,158

-310

-57

-1,340

-2,843

466

551

FY15

-166

347

495

-354

539

862

-23

838

-107

731

-145

-250

145

-152

-551

-62

-309

-929

-341

551

210

FY16

596

382

397

-156

1,313

-156

1,157

-89

1,068

-63

-120

-524

-427

-28

-40

-1,018

210

228

FY17E

1,009

365

285

-268

-10

1,382

1,420

-73

1,347

-32

-700

-326

-153

-1,177

210

228

438

(INR Million)

FY18E

2,107

416

153

-527

-89

2,060

-2,330

-270

-2,283

1,630

-800

-200

-333

298

438

513

FY19E

3,035

467

-30

-1,002

-191

2,280

-150

2,130

-80

-783

-1,080

-40

-417

-2,319

-119

513

394

21 March 2017

Delta Corp

NOTES

21 March 2017

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therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a

subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the

Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.

In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Varun Kumar

Varun.kumar@motilaloswal.com

Contact : (+65) 68189232

Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

21 March 2017

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com

Motilal Oswal Securities Ltd