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Wednesday, December 15, 2010

Stock To Buy - Delta Corp Ltd. - Is It Really?

Mr. Soundar Rajan, avid Indian Stocks News reader, was the first person to respond the latest series Stocks To Buy In 2011 with his stock ideas for 2011. Delta corp is one of his suggestions. Let's evaluate it and see if it is a stock to buy.

As on 1st February 2011, Goa govt. has ordered to close 2 casinos of the company as per this news in Economic Times. I will post updates upon some clarity and impacts of news.

Company & Business: Delta Corp Ltd. (Formerly Arrow Webtex Limited) is engaged in the business of textiles and real estate development / consultancy. Having started as a pure textile player, Delta Corp Limited 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 Textiles Limited.

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 along with its subsidiaries currently operates in the following lines of businesses:

Entertainment and Gaming: 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.

Real Estate:
Through its subsidiaries and JVs, company 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.

Checkout the sept. quarter result, you can see the multifold jump in revenues (275.55 against 33.69 crores same quarter previous year). This, I think is due to the acquisitions and sell off company executed in this quarter. Look at the number of acquisitions company done in point no. 4 in this result pdf.

Now, a bit about Delts corp's balance sheet. In latest chairman's report, he has mentioned that the money they got from selling property in Prabhadevi, Mumbai, has een used to pay off the debt they had. Now they have total debt of only 67.75 crores. So debt part is not a thing to worry much about. Debt to equity ratio stands at 0.25

Company's operating profit margin (61%) and net profit margin (50.12%) is tremendously profitable for company and so investors!

If we have to believe the news that a bunch of investors including stock broker Rakesh Jhunjhunwala and Radhakrishna Damani have picked up an 11% stake in Delta Corporation Ltd. for Rs200 crore and Rakesh Jhunjhunwala will join the Delta Corp. board.

Looking at company's recent acquisitions, partnerships with RIL and Peninsula for business and big investors parking their money, I sense the possibilities of big growth coming for company. Although the stock at present valuations with book value only Rs. 15.31 and stock price at Rs. 95 seems costly from value investing perspectives, this could be the premium put on stock due to anticipated growth in future. Buying stocks at this level is bit expensive but at lower levels, it is certainly attractive for future growth. Promoters hold bit more than 48%.

Reading chairman's message is advisable.

If one does wants to be part of this anticipated growth with good promoter and big investors for long run, he/she may buy stocks of Delta for long term. But remember, it is only for long term, maybe 3 - 5 years or more.

2 comments:

  1. Hi Vinay,
    Once again an excellent post on Delta Corp.
    As you say, Higher valuations of it are justified considering its future growth. But my worry is its just FV-1 stock.
    Regarding my Best Buy List for 2011, I will recommend the following
    1- Bilcare
    2- Noida Toll (already covered by you)
    3- Bajaj Holdings
    4- SREI Infra
    5- Tata Motors (DVR)[ Tata Motors is recommended by both Rakesh Jhunjhunwala & Shankar Sharma!]
    6- Tourism Finance
    7- Graphite India
    8- Hind Zinc
    9- And of course, LIC Housing Finance

    The others which can be multi-baggers but risky are ( Absolutely undervalued)
    1- PSL
    2- Navin Fluorine
    3- Parekh Aluminex
    4- Allied Digital
    5- Micro Tech
    6- Financial Techno

    Please enlighten on the above stocks which you feel worthy.
    Disclaimer - I hold most of the above stocks except PSL,Micro Tech,Financial Techno,Allied Digital,Tata Motors(DVR)& SREI Infra.

    Thanks in advance.
    Looking forward to your analysis.
    Vikas

    ReplyDelete
  2. Hi Vinay,

    Could you please post your views for 2011 on avon corp, cals refineries and ikf technologies?

    ReplyDelete

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