Delta Corp Limited Global Gaming Operators DELTA IN BSE BO INR Company Update

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1 29 March 2018 Asia Research Rating: Buy Price Target: INR Price INR wk Range INR INR Shares Outstanding (MM) Market Capitalization (MM) Enterprise Value (MM) INR66,991.2 INR61, D Avg Volume (000s) Short Interest/Float 0.0% Dividend Yield 0.1% YTD % Chg (18.6)% YTD % Chg Relative to Index (16.1)% Total Implied Return to PT 99.9% Pricing Date January 18, DELTA IN Delta Corp Limited / 17 06/ 17 09/ 17 12/ 17 03/ 18 Delta Corp Limited Global Gaming Operators DELTA IN BSE BO INR Company Update Dissecting higher Goa license fees; shares oversold creating buying opportunity Over-reaction to license fee increase creates buying opportunity. The Goa government announced that casino license fees in Goa will increase by a factor of ~2.5x to 5x (depending on size and type) beginning on April 1st, which also marks the beginning of Delta's FY19. Shares were down 16% on the news yesterday or more than baking in the worst-case downside in terms of the potential earnings impact and hence creating a buying opportunity at these levels. In terms of absolute dollars, we estimate the license fees paid in FY19 will now be INR~850mm (US$13mm), or an increase of 113% vs. our model that had originally anticipated a 10% y/y increase to INR440mm. Consequently, we are reducing our EBITDA estimates for FY19 and FY20 by 11% and 8% respectively, but with realistic upside potential that could entirely mitigate the impact of the higher fees as detailed inside. Why the increase? The government generally increases casino license fees annually by a modest amount (e.g. 10% as in our model previously). However, this year it was increased exponentially. We believe this can be read two ways: 1) The government, in its plans to move to land based casinos, is ratcheting up the license fees now as a prelude to the law's implementation to effectively put the existing land-based small-scale electronic casinos out of business and thus clean up the market in advance of true IRs. 2) When the India-wide GST was implemented last July, it supplanted the existing GGR tax and entry tax on customers. The entry tax was distributed to the local government and therefore the local government "lost" revenue as a result. The increase in license fees broadly makes up for this revenue hole. Based on recent government commentary, we believe the first scenario is more likely. Moving to land still in process. While the finalization of the move to land should have happened in conjunction with the license fee increase in a perfect world, the reality is otherwise. Instead, the government granted a 6-month extension to the riverboats before they must begin their migration to land as the chief minister of Goa has fallen ill (currently in the US for treatment) and, while the draft policy has already been discussed, they are waiting for the minister's return to finalize the bill. As such, we remain confident the move will happen and that a summertime approval is now more likely. Reiterate Buy rating. As we detailed in our recent initiation of coverage report, we do not value Delta based on current operations (trading at 17.6x and 12.5 x EV/EBITDA for FY19 and FY20, respectively). Rather, we value the company based on an eventual transition to land-based gaming in Goa, as well as the go-ahead for casino gaming at its existing resort in Daman. Collectively we value these opportunities at INR500 per share, with the land-based move in Goa accounting for the vast majority of this value. The license fee hike does not change our expectations for the land-based opportunity. Analysts Grant Govertsen Tel: grant.govertsen@uniongaming.com Year to Mar Net Revenue Adjusted EBITDA EPS 2018E 6,135 2, E 7,624 3, Prior -- 3, E 9,367 4, Prior -- 4, *Please see analyst certification and required disclosures starting on page 5 of this report Union Gaming. All rights reserved. No part of this report may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying or by any information storage and retrieval system, without permission in writing from Union Gaming.

2 New fee structure Depending on the size of the boat or electronic casino, license fees are going to increase by 2.5x to nearly 5x. For virtually all of the land-based small-scale electronic casinos, we believe the higher fees will be enough to put them out of business. We say this because the collective GGR of these ten small-scale casinos is approximately 3bn (US$46mm), or just $4.6mm in GGR each. Most of these casinos will now face an annual license fee of US$3mm to $4mm, which simply won't let them survive. With this in mind, we think the license fee is intended to eliminate the existing small-scale electronic casinos in order to pave the way for Goa's first IRs. It is important to keep in mind that Delta owns one of the ten land-based small-casino electronic casinos in addition to their three riverboats. Importantly, their land-based property, Deltin Suites, contributes a low single digit percentage of revenue, which we believe virtually all of which will migrate to one of the Delta riverboats (under the assumption that Delta is likely to shutter it). As such, we do not expect Delta to feel a revenue impact from the licensee fees, while at the same time not incurring the higher license fee on that property that would make it cash flow negative. The figure below illustrates how we now expect Delta's license fee payments to look in FY19 as compared to FY18. Figure 1: Delta license fees paid FY18 vs FY19 Asset INR ( ) mm USDmm INR ( ) mm USDmm Increase Deltin Royale x Deltin JAQK x Caravela x Deltin Suites na Total x Source: Union Gaming How Delta can mitigate the entire increase in license fees The ten existing small-scale land-based casinos collectively generate approximately 3bn in GGR (or ~2.7bn ex-deltin Suites). In all likelihood, much of this GGR would seek alternative venues in the event these properties do not survive. Based on an estimated increase in Delta's annual license fees of 480mm as per the above figure, this would be offset by an incremental 1bn in GGR harvested from the various casino closures. This 1bn could be achieved if 50% of the land-based GGR migrates to the five riverboats and Delta captures 70% of this GGR (or in line with their share of supply in terms of gaming positions). This upside risk is not captured in our model today. 2

3 Valuation We value Delta on a SOTP basis. On existing operations, we apply a 12x multiple to the company's online gaming segment, which is in line with how we value the online gaming segments of our other names under coverage. There is no valuation contribution from the company's hospitality segment as this is a break-even segment. We also do not value the company's gaming operations (traditional casino business) under existing operations as these revenues and cash flows will be replaced upon the opening of the company's first land-based casino in the out years. Our per share value estimate of existing operations, plus cash and land value, is 53. As it relates to future operations, we include 423 per share in value for the company's Goa opportunity and another 49 per share for its Daman opportunity. Our valuation analyses for these two properties includes the application of a 10x EBITDA multiple for each, which we view as a reasonable discount to Macau and broadly in line with how we view other regional gaming markets. After adjusting for cash capex, we estimate these two opportunities are worth 447 per share today. Combining the above, our Price Target is therefore 500 (unchanged). Figure 2: Delta Corp Valuation FY19 FY19 Value Existing operations Revenue EBITDA Multiple Estimate Online gaming ( mm) 1, x 6,165 Hospitality (a break-even segment) x 0 Total 2, x 6,165 Less: Debt 0 Plus: Cash 7,769 Plus: Sri Lanka land 280 Implied equity value 14,214 Implied value per share of existing operations, cash, and land 53 Common shares outstanding 268 Present value of future operations Goa casino operations (2021 discount rate) (per share value) 423 less FY20/21 cash adjustment on land-based construction costs (per share value) -26 Daman casino operations (2021 discount rate) (per share value) 49 Implied value per share of future operations 447 Total implied value per share 500 EQUITY VALUATION: SHARE PRICE COMPOSITION FY19E Online gaming 23 Hospitality 0 Sri Lanka land 1 Goa land-based move & cash capex adjustment 397 Daman casino operations 49 Debt 0 Cash 29 TotaI implied value per share 500 Source: Union Gaming 3

4 Figure 3: Delta Corp earnings forecast Earnings forecast Delta Corp ( mm) FY15 FY16 FY17 1Q18 2Q18 3Q18 4Q18E FY18E FY19E FY20E Year ends March 31 Revenue Gaming operations (traditional casino) 2, , , , , , , , , ,522.5 Y/Y growth 4% 23% 23% 20% 17% 73% 50% 38% 25% 22% Online gaming operations , ,981.6 Y/Y growth 0% 0% 0% 0% 0% 18% 0% 0% 78% 35% Hospitality / other operations Y/Y growth -88% 56% 16% 4% 19% 28% 10% 15% 10% 10% Net revenue 3, , , , , , , , , ,366.8 Y/Y growth -48% 24% 20% 21% 14% 63% 43% 33% 24% 23% EBITDA , , , , ,487.8 Y/Y growth -59% 73% 32% 16% 28% 137% 111% 64% 22% 33% EPS Shares outstanding (mm) Source: Union Gaming, company data Risks Delta is subject to many of the same risks faced by its regional peers, including: development risk (Goa land-based project); in-market competitive risk (Goa, Sikkim, Kathmandu); customer risk; regional competitive risk (Nepal, SE Asia); government and regulatory risk (e.g. tax rates, license fees, the land-based approval in Goa, and the gaming approval in Daman). 4

5 Important Disclosure Analyst Certification The analyst, Grant Govertsen, primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst s compensation was, is, or will be directly related to the specific recommendations or views in this research report. Company Specific Disclosures Union Gaming or an affiliate has had a client relationship with this subject company Delta Corp Limited for investment banking services. Union Gaming or an affiliate has received compensation from this subject company Delta Corp Limited for investment banking services in the last 12 months. Union Gaming or an affiliate expects to receive or intends to seek compensation for investment banking services from this subject company Delta Corp Limited within the next three months. Ratings Definitions Current Ratings Definition Union Gaming Securities LLC and Union Gaming Securities Asia Limited use a traditional ratings construct (Buy, Hold, and Sell) that is underscored by percentage upside/downside from current trading levels along with dividend yields for total return. We exclude special dividends and contemplate regular dividends only in our total return forecasts. These are absolute ratings, not relative or forced ratings. We define a Buy rating as a company whose shares exhibit total return (appreciation and dividends) potential of at least 15% within the next 12 months, and conversely a Sell rating as a company whose shares exhibit downside potential of at least 15% within the next 12 months. A Hold rating is reserved for companies whose shares exhibit total return potential between those parameters. Buy the total forecasted return is expected to be greater than 15% within the next 12 months Hold the total forecasted return is expected to be greater than or equal to 0% and less than or equal to 15% Sell whose shares exhibit downside potential of at least 15% within the next 12 months Suspended the company rating, target price and earnings estimates have been temporarily suspended. Valuation and Risks Valuation Valuation Methodology for Price Target: Enterprise Value-to-EBITDA, Sum-of-the-Parts Analysis, Price-to-Earnings Ratio, Discounted Cash Flow Analysis, Price-to-AFFO, Net Asset Value. Risks Investment Risks: Union Gaming Securities equity research team covers the casino, gambling, gaming, lottery and related sectors. The companies operating within these sectors generally have a global presence or significant exposure to China and Las Vegas, among other markets. In addition, the markets that companies in these sectors operate are highly regulated by local and federal governments. Risks across or specific to one or more of these sectors include regulatory or legislative impacts related to licensing, tourism or the competitive landscape. Licenses to operate gaming facilities or supply gaming equipment or lottery services are often governed by regulatory authorities. Additional Risks for investing in these sectors include volatility in consumer discretionary spending and consumer confidence, currency, interest rates, unemployment rates, access to capital, the cost of capital, commodity costs, geopolitical uncertainty, and unfavorable government regulations. Companies operating within our covered sectors rely in part on tourism, and business trends could be impacted by changes or influences to tourism in a given market or markets, including visa policy, transit policies and security, transportation infrastructure, weather and natural disasters. Ratings Distribution (as of 03/29/2018) Coverage Universe Investment Banking Services / Past 12 Months Ratings Count Pct. Rating Count Pct. BUY 18 69% BUY 8 44% HOLD 8 31% HOLD 1 12% SELL 0 0% SELL 0 0% 5

6 I:B:INR / 19/ Delta Corp Limited Rating History as of 03/ 27/ 2018 powered by: BlueMatrix Apr 2015 Jul 2015 Oct 2015 Jan 2016 Apr 2016 Jul 2016 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Jan 2018 Closing Price Target Price General Disclosures Additional information is available upon request. This report was prepared by Union Gaming Securities Asia Limited. Union Gaming Securities Asia Limited is a licensed corporation with the Securities and Futures Commission (SFC) in Hong Kong and wholly owned subsidiary of Union Gaming Group LLC. Union Gaming Group LLC also owns Union Gaming Securities LLC, a FINRA member firm and Union Gaming Analytics LLC. All questions or comments concerning this research report should be addressed to Union Gaming Securities Asia Limited at Union Gaming Securities, LLC ("UGS"), an affiliate of Union Gaming Securities Asia Limited, does not own any securities of any company analyzed in the research reports it distributes. Neither Union Gaming Securities LLC nor its affiliates or analysts serve as an officer, director or advisory board member of any Subject Company. UGS, its affiliates, analysts and employees may have received investment banking, non-investment banking securities and non-securities service, related compensation from the subject company in the past 12 months. It further intends to seek compensation for investment banking, non-investment banking securities and non-securities service, related activities in the next three months. Accordingly, investors should be aware that the firm and its affiliates may have a conflict of interest that could affect the objectivity of the reports it distributes. UGS is not now nor has ever been a market maker. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and Factset. Data is sourced from Union Gaming Securities LLC, Union Gaming Securities Asia Limited, and subject companies. Union Gaming Securities LLC and Union Gaming Securities Asia Limited are not responsible for errors in prices provided by independent sources. Data, analyses, and reports necessarily contain time-sensitive information, and no subscriber or client should rely on dated reports or conclusions. Investor clients and financial advisers should consider any report from Union Gaming as only a single factor in making any investment decision. 6