20120319
One of my friends recently suggested I should read-up on Delta-corp. Rise of poker as a weekend activity among professionals promted him to further investigate finanicials. His quick observations were rapid rise of gambling interests among our country’s youth, legal rise of gaming as an industry, Rakesh Jhunjhunwala and his wife own more than 8%, steep rise in FY11 profits and purchase of another boat for gaming off Goa coast.
My observations are summarised as follows. The company and business are good and financials are strong, but the stock isn’t cheap. The company is formed of two businesses 1) Kenya real-estate business as a 40:60 JV with Reliance Industries Ltd. 2) Gaming and hospitality business, in that order.
Cons:
- PE (CMP/TTM EPS) = 24 while PE (CMP/FY11 EPS) = 8. How? The answer is 2QFY11 (sep q) had a sky high bottom line and top line. This was a result of sale of single building delta centre by it’s Kenian real estate business at USD 23mm to world bank. Although 3 other buildings are under development, there is lack of clarity on when revenue and profit will be recognised. Too bad for retail invstors
- TTM EPS when compared to corresponding previous period, shows a decline to 3 from 6 owing to this single large real-estate sale in the previous year.
- It’s a zero sum game. I don’t like gambling as a gaming industry as every rupee of profit has to be earned from a customer being forced to go home poorer. Nobody goes to a gaming position with an objective of purchasing entertainment and excitement in return for their money.
- I can’t find why gaming positions fell from 725 in FY10 annual report to 670 in FY11 annual report. This can be a case of management over-promising and under-delivering
Pros:
- It meet’s three out of dozen or so Lynch’s principals. The company is primary in its industry (nearly market leader), Dalalstreet analysts don’t follow it and business is a terrific niche
- Financials are solid and auditors haven’t said anything worrying
- Reliance industries ltd is a 60% JV partner in the Kenya real-estate business emphasizing that the quality of business and earnings is reasonably reliable
Trivia:
- Retail investors may want to wait for the price to fall by more than half or clarity on real-estate revenues is made available
- My friend pointed out that the chairman and another boardmember are associated with crossroads mall, not something one can talk much proudly about.
TC
investingkitten 
Gambling as an investment is a personal choice, but as a story, its a proven case, not once but twice! The industry in Vegas started booming with the rise of worker class looking to spend their hard earned wages in a fashion that appealed to two very basic instinct of human nature, living larger than life and gambling. Macau, in a short span of time has already overtaken Vegas in terms of gambling revenue over the last two years, the reason; hugely chinese middle class looking to dump the newly found wealth. The same story in its prime can prove to be a boon to this industry in India. The problem right now however, is the legal status of gambling only in Daman, Goa and Sikkim. While that may slowly change, Delta corp is already maximizing all possible avenues to tap the market available. Gambling revenue is measured in terms of revenue per table as well as the number of gambling tables running at the casino. With more and more young professionals being lured towards casinos with newly found purchasing power, and a new casino boat being commissioned at year end, its just a matter of simple math to figure out the incredible story cooking up behind the curtains.
True, the stock is not trading cheap right now. The last three quarters have seen a drastic drop in revenues, but then again, that could be a reason of a much unfavourable macro environment in 2011, after all such businesses are directly correlated to such factors. It has been cleverly said that its not only important to buy into the right business, but also to be in it at the right time. As such, prudent investors can ward off until a clear recovery is visible at the shores. Nonetheless, a niche business with a strong proven story and a large stake held by a prominent investor appeals to keep this ticker on the watchlist.