COMPANY OVERVIEW:
Delta Corp is promoted by Mr. Jaydev Mody, an eminent and successful Indian entrepreneur and erstwhile Managing Director of Peninsula Land Limited ('PLL') (promoted by the Ashok Piramal Group).
Delta Corp Ltd has been engaged in the business of textiles and real estate development/ consultancy. Delta Corp has transformed into a diversified company, with interests in real estate (in India as well as East Africa), gaming and entertainment, and hospitality. Delta Corp has de-merged its textile business into a new entity which is now called Arrow Textile Ltd.

Subsidiary:
Entertainment and gaming business.
Real Estate Business
Hospitality Business( first casino in India at GOA).

Entertainment and Gaming Business:
Delta Corp is the largest gaming company in India (offering over one thousand gaming positions) and the only listed company in this space. The Company is an early entrant in this space and has attained leadership position in a short span of time.

The Company owns and operates 3 offshore live gaming casinos in Goa on River Mandovi – Casino Royale, Caravela and King's Casino. Delta Corp owns 3 out of the 6 offshore live gaming casino licenses issued by the Government of Goa. Offering a variety of international games like Baccarat, Poker, Roulette, Black Jack, etc., these casinos have become extremely popular amongst the gaming population in India.

The Company through its subsidiary is also operating an onshore casino, Casino Royale Riviera in the hotel "Riviera De Goa Resort" under a casino management agreement. Riviera De Goa is a 5-star property located at Arpora in North Goa offering 98 rooms, 6 suites and apartments for guests. Casino Royale Riviera offers 80 gaming positions with 8 gaming tables and 7 slot machines. Further, Delta Corp has an in-principle license to set up an onshore casino in Daman as well.

Real Estate:
Delta Corp Limited, through its subsidiaries and JVs, intends to ride the growth wave of development in the East African countries. Delta Corp has formed a joint venture company with Reliance Industries Limited ("RIL Group"), namely, Delta Corp East Africa Limited ("DCEAL"), through its wholly owned subsidiary Delta Pan Africa Limited ("DPAL").

DCEAL has already acquired close to 803,720 sq-ft of land with a development potential of closed to 2 million sq-ft. It has planned a combination of commercial office space development, retail and hotel projects.

Hospitality Business:
Delta Corp has formed a JV with Peninsula Land limited i.e. PLL Delta Hotel Limited ('PLLDHL'). Going forward, PLLDHL intends to develop 3/4 star 100 bed hotels in various urban locations in India primarily in Southern and Western India.

Geographical Expansion:
The Company is an early entrant in this space and has attained leadership position in a short span of time in Goa and also on the anvil is casinos in Sri Lanka, Kenya, Sikkim and Daman.
Inorganic Growth Strategy:

Marvel Resort:
Delta Corp Ltd announced it has acquired around 67-100% stake in Marvel Resorts Pvt Ltd. The stake purchase was undertaken through Delta Corp Ltd's subsidiary Delta Hospitality and Leisure Pvt Ltd. The transaction was for a consideration of Rs 54 crore.

Marvel owns around two acres of land in Panjim, Goa and has planned to build a five star hotel on it. The investment will see Delta develop a land-based casino in the five star hotels thus escalating its position in the offshore and onshore casino space in Goa. As part of the transaction, Delta will also assume the debt lying in Marvel.

Advani Hotel:
Delta Corp holds an investment of approximately 34.9 per cent of the equity share capital of M/s. Advani Hotels & Resorts (India) Limited.

Delta Corp has recently acquired 51% stake in Advani Pleasure Cruise Company. The stake is acquired from Advani Hotel and Resort.

Looking to Acquire Colombo Hilton:
Company Delta Corp is reportedly in talks to buy the Hilton Hotel in Colombo. Sources say the company is likely to build a casino in the hotel after the deal. Delta Corp has already applied for a license in Sri Lanka for a casino.

The 500 room, 5-star Colombo Hilton has reportedly been valued at $110 million

POSITIVE FOR THE COMPANY:
Low penetration of gambling in India.
Rising Income level and Favorable demography.
Company has first mover advantage. It has raised requisite capital to expand its footprint in Goa, Daman and Sri Lanka.
Low gaming tax rates and limited offshore licenses makes Goa a profitable gaming destination. The entry barrier is quiet high and hence good margin.

INDUSTRY OUTLOOK:
There is very low penetration rate in gaming business in India. India is waking up to the gaming business. As the Income level is rising and with favorable government regulation Goa and Daman has the potential to become the favored gaming destination in world. Since it is the just the start the growth rate would be exponential in the next few years.

If we look just at our Asian peer Macau, it has become world's revered gaming destination. Gaming revenue of Macau was $6 billion in 2005 and now in 2010 it stands at $23.5 billion. Or if we see Singapore whose revenue just from zero has moved up to $5 billion in one year.

INVESTMENT RATIONAL:
Company is serious player in the gaming business. It will get the first mover advantage.
It is in the super expansionary phase where it is growing organically and inorganically. A substantial upside in top line and bottom line could be seen in the next couple of years.
The entry barrier into the gaming business is very high. High entry barrier will protect the margins.
We expect top line to grow at CAGR of 25% in FY12-FY13.

Risk:
High interest outgo is cause of concern.
Integration of the acquisition with itself.
Government regulation.
Any slowdown in global economic growth.

SHAREHOLDING PATTERN:

FINANCIAL:

Key Highlights:
Total Income grew at CAGR of 10.9% to Rs 54.6 crore in the last four years.
PBDITA grew at CAGR of 21.4% to Rs 54.6 crore in the last four years.
PAT has shown de-growth of 8.11% compounded annually over the last four years. The main reason of the negative growth in PAT is the higher interest outgo. Company is in the phase of expansion where it has taken debt on its book for organic and inorganic growth. The income starts flowing in from its investment company PAT will show good growth. Debt repayment will also give push to the EPS.

RATIOS:

Key Highlights:
EPS remained subdued due to higher interest outgo and equity dilution. Company took debt and diluted equity to go for expansion and acquisition. We expect EPS to show good jump in FY11.
PBDITA margin improved from 61% in FY07 to 81% in FY10. The operational efficiency and economies of scale was the reason for the jump in EPS.
NPM declined from 50% in FY07 t0 28% in FY10. Higher interest outgo is the reason for the decline in NPM.
Interest cover over the period of four years has come down from 5.7 to 1.8 in FY10.

VALUATION &OUTLOOK:
We expect company to close FY11 with and EPS of Rs 8.At current market price of Rs 84, stock is trading at 10.1X to FY11E EPS of Rs 8. The industry peer average PE is 18. If we value the stock at 15X at discount to its peer the fair value come at Rs 120.

We are valuing the stock at discount due to higher debt which remains a concern. The growth in the industry and the company having first mover advantage is prompting us to bet on to it.  

CONCLUSION:
The stock is high risk high return thing. In medium term fair value of the stock comes at Rs 120. In a long term it could become a multi bagger. But it would require continuous monitoring regarding the government regulation on casino, the company's debt burden and expansion plan.