Delta Corp hits lower circuit on receiving tax notice three-times its market cap

Delta Corp hits lower circuit on receiving tax notice three-times its market cap

Delta Corp, a casino operator, experienced a significant decline in its share price on September 25, driven by negative investor sentiment following the receipt of a substantial tax notice. The tax department issued a notice amounting to Rs 16,822 crore to the company, which is a substantial sum.

This claim represents 3.5 times Delta Corp’s last closing market capitalization, indicating the magnitude of the tax dispute relative to the company’s current market value. Furthermore, the tax notice is more than double the company’s revenue for the entire last decade, underlining its substantial financial impact.

As a result of this development, Delta Corp’s share price plummeted, hitting the lower circuit on the stock exchange. Lower circuits occur when there is an influx of selling orders, causing the stock price to reach a predetermined lower limit, after which trading is temporarily halted.

By 9:45 am, the stock was trading at Rs 149.10 on the NSE, reflecting a 15 percent decline from the previous day’s closing price. The adverse impact of the tax notice was immediately evident as it led to a significant reduction in Delta Corp’s market capitalization, wiping off Rs 700 crore within just 30 minutes of trading. This event underscores the sensitivity of the stock market to significant news and events, especially those with potential financial implications for listed companies.

In response to the substantial tax notice it received, Delta Corp has promptly conveyed its determination to challenge the claim through legal means. In an official exchange filing, the company made its stance clear, asserting that it views the tax demand as arbitrary and contrary to existing laws. Delta Corp has expressed its intention to exhaust all available legal avenues to contest this tax demand and any related proceedings.

The crux of the issue lies in the tax calculation method, where the Directorate General (DG) has based the claim on the gross bet value of all games played at Delta Corp’s casinos between 2017 and 2022, deviating from the industry norm of assessing taxes based on gross gaming revenue.

Furthermore, Delta Corp pointed out that this matter of demanding Goods and Services Tax (GST) on the gross bet value, rather than gross gaming revenue, has been an industry-wide concern. As such, the company appears resolute in its commitment to addressing what it believes to be an unjust tax demand through legal channels.

Delta Corp has been facing a series of challenges in recent months, creating a turbulent environment for the company. Firstly, a month ago, the company experienced the resignation of its Chief Financial Officer, Hardik Dhebar, which can be considered a significant leadership change within the organization.

Two months prior to that, Delta Corp announced the postponement of its initial public offering (IPO) for its online gaming business, potentially impacting its growth and expansion plans in the digital gaming sector. Now, with the massive tax notice looming over the company, this development represents the third major setback for Delta Corp in a relatively short period.

Despite these challenges, Delta Corp did manage to report a relatively positive financial performance for the quarter ending in June. The company posted a notable 18.86 percent year-on-year increase in net profit, reaching Rs 67.91 crore. Furthermore, its revenue from operations saw a 10.74 percent rise, amounting to Rs 277.65 crore compared to Rs 250.72 crore in the same period the previous fiscal year.

However, it’s important to note that total expenses also increased, totaling Rs 195.01 crore in the recent quarter, up from Rs 179 crore in the year-ago quarter. This financial data highlights both the company’s capacity for profitability and the importance of managing expenses amid the challenges it faces. The ongoing tax dispute adds further complexity to Delta Corp’s financial landscape, and its ability to navigate these challenges will be closely monitored by investors and stakeholders.