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Buy Delta Corp, target Rs 320: Motilal Oswal Securities

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Motilal Oswal Securities has a buy call on Delta Corp with a target price of Rs 320.

The current market price of Delta Corp is Rs 256.60.

Time period given by the brokerage is one year when Delta Corp price can reach the defined target.

Investment rationale by the brokerage-

Impressive EBITDA growth attributed to a sharp recovery in online gaming margin: Revenue increased 27 per cent YoY (our estimate: 28 per cent) to Rs 205.8 crore in 3QFY19, primarily driven by the gaming business. EBITDA margin contracted 150bp YoY, but expanded 290bp QoQ to 40.8 per cent (our estimate: 37.2 per cent), driven primarily by a recovery in the online gaming EBIT margin (19 per cent in 3QFY19 v/s 2 per cent in the last quarter). EBITDA of Rs 84 crore, too, was higher than our estimate of Rs 76.9 crore. However, higher-than-expected tax restricted PAT growth to 13 per cent YoY (Rs 50.5 crore v/s our estimate of Rs 49.7 crore).

Sustained growth in casino biz; cost rationalization supporting online gaming: Casino gaming revenue grew 30 per cent YoY (flat QoQ) to Rs 202.1 crore in the quarter, supported by increasing visitations (+18 per cent QoQ to 118K). Casino EBIT margin expanded 300bp YoY to 38 per cent. Online gaming revenue grew 33 per cent YoY (+8 per cent QoQ); EBIT margin contracted 2,100bp YoY, but expanded 1,700bp QoQ to 19 per cent (expected to sustain at 15-20 per cent levels) on account of cost and promotional spend rationalization – DELTA aims to cautiously invest in the right channels to sustainably grow a loyal user base. The company recorded 100k poker user registrations in 3QFY19, taking the total user base to 0.15 crore (100k active users). Hospitality revenue declined 17 per cent YoY to Rs 19.38 crore; the company recorded segmental EBIT loss of Rs 5.93 crore.

Valuation and view: DELTA is expected to deliver sales/PAT CAGR of 25 per cent over FY18-21. We roll forward our target price to December 20E EPS of Rs 11/share. We continue valuing the stock at 30x P/E to arrive at a target price of Rs 320/share.

Source: Economic Times