This week has been the worst week in Delta Corp’s history as the government’s decision to impose a 28% tax on gaming revenues has resulted in the stock falling a record 26% in 5 trading sessions!!!

 

For the unversed, Delta Corp is the flagship company of the Deltin Group. The company was incorporated as a textiles and real estate company in 1990. Today, the company is the biggest name in online and casino gaming in India as it manages several casinos and hotels across the country along with the famous online gaming platform called “Adda52”.

2022 was ending on a good note for gaming companies as in-app spending and engagement in online games were seeing robust growth. India’s gamer base was witnessing significant growth as gaming studios were planning major investments. Moreover, the overall equity market was moving well and the stock of Delta was moving into 2023 with high hopes.

When 2023 began, the stock saw some correction which was in line with the Indian market’s performance. However, the stock tanked when it announced its Q3 earnings in January 2023. It fell over 6% as its financial results were below estimates.

Although buyers put up a fight, adverse market conditions triggered by the Adani-Hindenburg crisis ended up triggering a downtrend in the stock as the stock broke through the Rs 200 mark by the end of January. It remained in a downtrend until late March as other events like the collapse of Silicon Valley Bank, Silvergate and Credit Suisse kept global markets in bearish trends.

Nifty 50 lost almost 7% during the time while Delta Corp lost 19% of its value!! It was trading around Rs 175 when a bullish reversal arrived. The NASDAQ saw a surge in banking and IT stocks as global markets recovered from the slump and Asian indices turned green once again! Moreover, India did not witness the recessionary trend like other countries did. As such, multiple research firms and credit rating agencies published reports about India’s bright future.

FIIs turned buyers as Nifty jumped 1.6% in a single day! Delta Corp also benefitted as buyers reversed the downtrend and the share price began surging once again. It grew 45% in 3 months as it regained the Rs 250 mark after falling from it over a year ago.

However, the company was seeing declines as the meeting date of the GST Council drew near. The stock ultimately tanked on 12th July 2023 as it fell over 20% in a single day and touched an intraday low of Rs 175.65 per share.

 

The main reason for Delta’s staggering decline is the GST Council’s announcement to apply a 28% GST on the ‘Entry Fee’ of gaming!

For example, if you pay Rs 100 to enter a fantasy gaming league, you will be paying Rs 28 tax on that!!


This means that instead of the winnings and platform fee, which are the only items taxed worldwide, the Indian government will be taxing your participation at a rate of 28% while subsequently charging a 30% TDS on your winnings!!!!!!

The stock of Delta Corp saw 12 bulk deals on 12th July as the stock witnessed a staggering volume of over 80 million!! Nazara Technologies also tanked over 10% but recovered most of it that day since gaming accounted for only 5% of its revenues!!

What is the outlook??

Fundamentally, the company has reported good profits. Its revenues for the year ended in March 2023 grew 66% to Rs 1,021 crores! Its Services sales surged 65% YoY while its Product sales almost doubled! The surge in expenses was not proportionate to its revenues as profits grew almost 4x times to Rs 262.31 crores!!

 

Technically, the stock of Delta Corp is trading well below its 5,20,50,100 and 200-day averages. Moreover, at an RSI of 25.68, the stock is well oversold, which is normally an indicator that a stock is currently available for a cheap price.

The stock fell through 3 key support levels in a day and kept falling all throughout the second day. On Friday, the stock found some buyers as the stock stopped declining and saw some relief. 

However, the overall scenario may not be as optimistic. The gaming sector had a 30% TDS applicable earlier, but the addition of a 28% GST on the Entry Fees could drastically reduce participation in the sector.

The declining participation of gamers could be a heavy blow to the entire industry as many brokerages are telling their clients to avoid opening new positions in Delta Corp for the time being. The decline in participation will result in declining revenues as the entire industry will face a setback.

However, although the stock has seen a substantial decline, there is still hope for the stock. The fundamentals of the company are robust and the company has a monopoly-like hold in the Indian casino segment. Moreover, India’s gaming industry is growing rapidly!

The market is forecasted to reach $5 billion by 2025 with a CAGR of over 25%!! Moreover, the number of gamers in India is growing rapidly as India has over 500 million gamers today, having the second-highest gamer count in the whole world. Therefore, the stock could see recovery very soon.