Delta Corp Share Price Fall 30% After First GST Notice

Delta Corp, a prominent casino chain in India, is grappling with a severe financial crisis. On October 16, the company's shares plummeted by 10% on the Bombay Stock Exchange (BSE), reaching a new 52-week low of ₹126 per share. This sharp decline was triggered by a recent notice from the Goods and Services Tax (GST) authorities, demanding an additional payment of ₹6,385 crore as a tax shortfall from its subsidiary, Deltatech Gaming.

Tax Troubles Multiply

Delta Corp's subsidiary, Deltatech Gaming, received an intimation from the Directorate General of GST Intelligence in Kolkata, dated October 13, 2023, regarding a substantial tax shortfall under the CGST Act, 2017, and West Bengal GST Act, 2017. The alleged tax shortfall amounts to over ₹6,236 crore for the period from January 2018 to November 2022, and more than ₹147 crore for the period from July 2017 to October 2022.

The notice also warned that if Deltatech Gaming fails to pay the alleged tax shortfall, along with interest and penalties, a show cause notice will be issued under Section 74(1) of the CGST Act, 2017. Furthermore, the CEO and Executive Director of Delta Tech Gaming may face penalties under Section 122(3)(a) of the CGST Act, 2017.

Delta Corp's shares have been on a downward spiral, with a 41% erosion of investors' wealth over the past year, and a 30% decrease in the last month. The company reported a consolidated net profit of ₹69.4 crore in the September-ended quarter, a slight increase from the previous year.

GST's Impact on Delta Corp 

The trouble for Delta Corp began when the Indian government increased the GST rates for online gaming, casinos, and related businesses. These changes imposed a uniform 28% tax rate on these operations, impacting Delta Corp's revenue streams significantly.

For casinos, the tax is applied to the face value of chips purchased, affecting the profitability of its casino operations. Online gaming is also subject to taxation on the full value of bets, making it less attractive to potential users.

Accumulating Tax Notices

The situation worsened in September when Delta Corp received a staggering GST notice of ₹11,139 crore. Three of its subsidiaries, Casino Deltin Denzong, Highstreet Cruises, and Delta Pleasure Cruises, also received notices, amounting to ₹5,682 crore. These demands were based on the gross bet value of games played.

The company emphasized that this method of taxing the gross bet value, rather than the gross rake amount, is an industry-wide concern. Various representations have been made to the government to address this issue.

Market Capitalization vs. Tax Liability

With the most recent tax notice, Delta Corp's total tax shortfall liability has surged to ₹23,206 crore, whereas the company's market capitalization stands at ₹3,749 crore. This financial burden has significantly exceeded the company's market value.

Delta Corp has voiced its commitment to exploring all available legal remedies to challenge these tax demands and associated proceedings, deeming them arbitrary and contrary to the law.

Prospects for the Future

Delta Corp's shares have shown a dramatic downturn, plunging from ₹260 in June 2023 to ₹126 in just 100 days. The company's financial performance for the September quarter remained stagnant.

As Delta Corp navigates this challenging period, investors and analysts are closely watching to see if the company can recover its lost ground or if its downward spiral will persist. The uncertainties surrounding the taxation of the gaming industry and the financial stability of Delta Corp continue to be a cause for concern.

Delta Corp's decision to delay the initial public offering (IPO) plan for Deltatech Gaming further highlights the industry's struggle to adapt to the new GST regulations. These changes have substantially affected the company's operations and profitability, posing significant challenges for its future.