Delta Didn’t Bother to Make Provisions for Huge GST Demand

17 Jan 2024

Casino Operator’s Profits Drop 59% in One Year

India’s only listed casino operator, Delta Corp Ltd., has reported consolidated net profits of ₹34.48 crore ($4.14 million) for the quarter ending in December 2023 (Q3 FY2024), marking a 59.34% drop YoY (Year-on-Year) compared to the Q3 FY2023 result of ₹84.82 crore, and a quarterly drop of 50.35% relative to the Q2 FY2024 net profits of ₹69.44 crore.

The sharp decline in consolidated net profits is accompanied by a 15.23% decrease in revenues from operations at ₹231.74 crore ($27.8 million) compared to ₹273.37 crore in the same quarter one year ago and a 14.36% drop from the ₹270.59 registered in the previous quarter.

Delta Corp’s EBITDA (earnings before interest, taxes, depreciation, and amortization) for Q3 FY2024 of ₹68.52 crore ($8.22 million) was down 39.88% compared to ₹113.97 crore in Q3 FY2023, and down 31.68% compared to ₹100.3 crore in Q2 FY2024.

On this background, Delta Group’s Hospitality Division revenues for Q3 FY2024 marked a YoY growth of 8.4% to ₹13.74 crore, while income from Gaming fell 18% to ₹181 crore and income from Online Skill Gaming dropped 9% to ₹39.13 crore.

The Diwali Quarter Used to Mean Good Business for the Casino Operator

The three months of October, November, and December historically make up the strongest quarters for India’s public casino operator as they include the Diwali and New Year’s celebrations. Still, regulatory changes introduced this year have brought a new situation.

Q3 FY2024 was the first quarter after the latest amendments in GST Acts, which “clarified” that online games, casinos, and horse races should be levied with 28% GST on the full ticket value instead of the ongoing then practice by companies to charge 18% over their trade margin or Gross Gaming Revenue (GGR) only.

“The October-November-December quarter generally is a very strong quarter for us. But as you remember, this is the first quarter where the new GST tax regime kicks in,” the new CFO (Chief Financial Officer) of Delta Corp Ltd., Anil Malani, explained in a recent interview.

“As expected, before even playing the first bet, you are down 28%. This was something which a lot of customers didn’t see much value in,” Delta’s CFO told the interviewers.

Delta Didn’t Hurry Its Adaptation to the New Regime

Unlike online money gaming unicorns Dream11 and Games24x7, who started offering discount points to customers effectively absorbing the impact of the hiked GST burden immediately after the 1st of October, 2023, when the changes came into force, Delta Corp opted to “just wait it out and see what the customer response is going to be,” Malani revealed.

Apparently, after some considerations and “several discussions” with customers, Delta management finally decided to follow the lead of the bigger fish and start offering promotional incentives to players, relieving some of the new GST burden for them.

“We believe the steps taken by us to retain our customers and give them full value has played out well,” Delta’s new Chief Financial Officer said and pointed out that after the company “pivoted (its) business model a bit” to offer discounts, footfalls rose, and 55% of Q3 revenues came in December only.

Malani, Delta’s President of Operations for 14 years, was appointed as the company’s CFO after Hardik Dhebar resigned from the position in August 2023 to pursue “a new professional challenge that aligns with (his) career goals and aspirations,” having served Delta Corp for 15 years.

Former Delta Corp CFO Hardik Dhebar, Image credit: LinkedIn.

Not Even Partial Provisions for Arbitrary and Illegal GST Demands

The pending proceedings against Delta Corp Ltd and subsidiaries collectively alleging tax evasion to the tune of ₹23,000+ crore ($2.76+ billion) for tax periods before the 1st of October 2023 were given only a footnote in the company’s report for Q3 FY2024, where they were described as “arbitrary” and illegal.

“Holding company/ subsidiary companies have filed writ petitions and have obtained stay orders from respective High Courts. Without prejudice, the holding company and its three subsidiaries, based on legal assessment, are of the view that all the above notices and the tax demands are arbitrary in nature and contrary to the provisions of law,” Delta Corp stated in its report filing.

Therefore, “no provision for impairment is currently required towards Goodwill and other assets related to the three subsidiaries, as reflected in the consolidated financial results,” the company’s report added.

The GST Enforcement demands served so far to the Group include show cause notices from the Hyderabad branch of the Directorate General of GST Intelligence (DGGI) to Delta Corp and subsidiaries alleging evaded GST collection of ₹16,822.9 crore for the period 1st of July, 2017 to 31st of March, 2022, and a show cause notice from DGGI, Kolkata to Deltatech Gaming, another subsidiary, claiming tax evasion of ₹6,384.32 crore between 1st of July, 2017 and 30th of November, 2022.

“I think the total claim in terms of show cause notices issued to us is in the vicinity of about ₹23,000-24,000 crore. To give you a perspective, that is about nearly 5-6 times our market cap,” Delta Corp’s current CFO, Anil Malani, commented in his interview.

“At this point in time, it is not needed. We are being guided and advised by our lawyers who are fighting this, and they do believe that all cases now are going to be combined and be heard probably next month. And they do believe that this is a strong case for us. So, for the time being no provisions we make,” he pointed out.

Delta Corp President and current CFO Anil Malani, Image credit:

₹15 Crore Prize Pool Announced for Adda52 Online Poker Series

Regardless of any troubles with tax authorities and drops in income, Deltatech Gaming has announced a ₹15 crore ($1.8 million) prize pool for the next Adda52 Online Poker Series (AOPS), which will be held between the 27th of January and the 18th of February 2024 on board the Deltin Royale floating casino.

The Adda52 Online Poker Series is open for professional and amateur players and will feature 23 trophy events, with main and satellite tournaments with buy-ins set at ₹550 and ₹110 respectively, and leaderboard winnings of ₹35 lakh.

“AOPS, our flagship poker series, is not just another poker series, but a celebration of our love for the game,” Deltatech Gaming CMO (Chief Marketing Officer) Joydeep Mukherjee stated.

“It’s a commitment to our passion for building a vibrant poker community in India, where anybody can exercise their poker skills to compete with the best in the country; where the online and offline world converges, bringing together champions from all over the country to the iconic Deltin Royale in Goa to play the final table. We are confident that this edition of AOPS will be an amazing experience for all our players,” Mukherjee added.

The Deltin Royale vessel is one of the landmarks of Goa’s casino landscape with an area of 50,000 sq. ft. (4,646 sq. m) and a variety of luxurious amenities like an outdoor pool, spa area, as well as restaurants and bars.

The Deltin Royale’s license allows the ship to offer live dealer and table casino games, including rouletteblackjackbaccarat, and Andar Bahar, besides electronic slot machines.

Delta Corp Management is Optimistic for the Future

Delta Corp President and CFO Anil Malani expects similarly low financial results for the next two quarters, considering that one of the Group’s casino vessels will go to dry dock very soon and the April-May-June quarter has been traditionally slow for the business.

The plans to attract capital into Delta’s online wing – Deltatech Gaming, through an Initial Public Offering (IPO) of shares, which were announced as far back as October 2022- have also been put on hold until the situation gets clearer, Malani admitted.

At the same time, the CFO expressed optimism for the time after the current troubles are over, “But July-August-September, I think that is also a good quarter. And by then everything would have played out, matters would have settled, and we believe that we will be back, and business should be as usual.”

“Our businesses are fixed cost businesses. If our revenues are impacted that impacts our bottom line straight away, which is what happened last quarter,” CFO Malani explained and pointed out that a planned hike in casino capacity is expected to subdue the effects of the increased costs connected with the GST amendments.

“Currently, we are running full capacity, we have got three ships on the water and new capacities coming in and once new capacity comes in, which will double the existing capacity, we are hoping that our revenues will grow leaps and bounds,” Anil Malani pointed out.

“Once our revenue goes up then we can afford to take the impact on the bottom line as far as our promotional expenses for the casino business goes. So, growth will come, topline will grow and our profits will also increase substantially,” he added.

Nevertheless, Delta might diversify its profit streams with more real estate projects, which is something that has happened before in the company’s history. As the operator has a “decent amount of cash” on the balance sheet, Delta Group is “pretty much well-funded for projects,” the CFO stressed.