316% profit growth in a year! This Rakesh Jhunjhunwala-favoured casino play soars; should you buy?

One of Rakesh Jhunjhunwala's favourite stocks has just reported a staggering 316 per cent year-on-year growth for the March quarter of financial year 2017-18, reacting to which the stock of this casino play rallied nearly 6 per cent on the BSE. The stock is none other than Delta Corp, which has been a multibagger stock, multiplying investor wealth by three times  in last five years. 

Delta Corp share price gained as much as 5.68 per cent to Rs 301.35 on the BSE. The stock is down 25 per cent from its January 2018 peak of Rs 401.30 as earlier this year the Goa government hiked license fees on casino players. As expected by most analysts,  license fees hike didn't impact Delta Corp whose Profit After Tax (PAT) for Q4FY18 jumped 316 per cent yoy to Rs 45.6 crore as against Rs 10.9 crore. The company's revenue for Q4FY18 grew by nearly 94 per cent yoy to Rs 218.9 crore as against Rs 113 crore in Q4FY17. EBITDA margin for the said quarter improved 37 bps yoy to 30.8 per cent against 30.5 per cent in Q4FY17.

"We continue to like Delta as a gaming play in India. At 30.2 times FY20E Price to Earnings Ratio (PER) currently, valuations are undemanding for a growth stock with expected 2-year earnings CAGR of 28 per cent. We use PER methodology as there is very strong earnings visibility from DELTA’s casinos," said brokerage Emkay Global Financial Services.

Delta Corp Q4FY18 cosolidated results (Rs in crore)

Among positive catalysts for the stock, the expected announcement of new gaming policy by Goa government by the second quarter will benefit Delta Corp. "Indian Gaming industry would expand multifold. The current PER of 30x FY20E does not factor in the benefits from new policy and/or Daman license. We maintain our BUY call with target price of Rs 294 based on 30x PER," said Emkay.

Delta Corp operates three floating casinos (Deltin Royale, Deltin Jaqk and Deltin Caravela) and one onshore casino (Deltin Casino – part of Deltin Suites) in Goa. Deltin Royale and Deltin Jaqk are Delta’s major casinos with vessel passenger capacity of 200-400. Deltin Caravela and Deltin Casino are relatively small with passenger capacity of 200 or less.

As of March 31, 2018, Rakesh Jhunjhunwala along with his wife Rekha Jhunjhunwala, owned 7.5 per cent stake in the company. Promoters have 33.2 per cent stake in the company, while foreign institutional investors and domestic instititional investors held 22.7 per cent and 6.8 per cent stake in Delta Corp, respectively.