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Shares of Delta Corp (Delta) and Nazara Technologies (Nazara) tumbled up to 28 per cent on the BSE in Wednesday’s intraday trade after the Goods and Services Tax (GST) Council on Tuesday approved the imposition of a uniform 28 per cent tax on online gaming, casinos, and horse racing.
The GST tax is likely to be levied on the full face value, which is the total value of bets placed on a platform.
Among individual stocks, Delta slipped 28 per cent to Rs 178.20 on the BSE in intra-day trade on Wednesday. The stock finally settled 23 per cent lower at Rs 189.35. The trading volumes on the counter jumped multiple-fold. A combined total of about 85.5 million shares, representing 31.9 per cent of total equity of Delta changed hands on the National Stock Exchange (NSE) and the BSE.
Shares of Nazara tanked 14 per cent to Rs 605 in intraday trade on the back of heavy volumes. The stock recovered most of its losses and ended 2.6 per cent lower at Rs 688.30 on the BSE.
“This decision is likely to affect the online gaming industry, including foreign-based enterprises. Such companies may have to reconsider their strategy with respect to GST exposure, including for the past period, as this amendment is purported to be clarificatory,” says Santosh Dalvi, partner and deputy head of indirect tax, KPMG India. In a stock exchange filing, Nazara clarified that this tax, once implemented, will apply only to skill-based real-money gaming segment of its business. The contribution of this segment to the company’s overall consolidated revenues for 2022-23 was 5.2 per cent. “To the extent required, the company will proactively take steps to mitigate any potential impact on this segment of our business, and we anticipate minimal impact on our overall revenue,” said Nazara.
From an investor standpoint, A K Prabhakar, head of research at IDBI Capital, suggests that the move is likely to hurt shareholders and companies.
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“Such a high rate of taxation has not gone down well with the markets, and the related stocks have dipped sharply. Both investors and companies stand to lose here with the imposition of 28 per cent GST. A lower rate could still have been taken in stride. Typically, markets do not like companies and stocks where there is too much regulation and high taxation. Investors should steer clear of these stocks, at least for now,” he advises. Meanwhile, India’s online gaming market is sectioned into real-money games (RMG) and non-real money games (non-RMG).
RMG refers to skill-based games that can be played for real money.
Non-RMG are those in which no real money is involved. Currently, rummy, poker, and fantasy are the leading games in the RMG category. Non-RMG is divided into hyper-casual and casual and midcore and hardcore games based on a learning curve and levels of difficulty. Delta leads in the online gaming space. The company’s subsidiary, Deltatech Gaming (formerly Gaussian Networks), is one of the earliest companies in the real-money gaming segment in India. Adda52 is India’s first online poker platform offering multiple poker variants.
Meteoric rise
India has witnessed increased growth in lotteries, casino gaming, and sports betting over the years.
Teen Patti, Andar Bahar, and Rummy have witnessed a rise in players of late.
According to a RedSeer analysis, the value of India’s gaming market was between Rs 149 and Rs 150 billion in 2020–21 and Rs 201 billion and Rs 202 billion in 2021-22 (FY22).
The industry is anticipated to expand at a compound annual growth rate (CAGR) of 32 per cent and reach Rs 600–630 billion by the end of 2025-26, Delta said in its FY22 annual report.
The Ficci-EY report anticipates the online gaming segment in India to grow at a CAGR of 15 per cent to reach Rs 153 billion by 2024.
Transaction-based gaming will grow at a CAGR of 14 per cent to reach Rs 108 billion by 2024, accounting for 71 per cent of total segment revenues.
Midcore and hardcore gamers will increase from approximately 100 million in 2021 to over 175 million by 2024, or approximately 20–25 per cent of online media consumers, the annual report observed.
