Head Digital Works' PAT at Rs 72 cr: Gaming firm says expenditure high due to GST

Online skill gaming firm Head Digital Works, which operates platforms like A23 Rummy, registered a 24.1% rise in its profit after tax to Rs 72 crore in FY24 from Rs 58 crore in FY23.
 
Its consolidated gross revenue from operations grew by 31% to Rs 1,378 crore in FY24 from Rs 1,051 crore in FY23. Its gross total expenditure increased by 33% to Rs 1,298 crore in FY24 from Rs 975 crore in FY23. This includes the rewards and bonuses given to players after the higher Goods and Services Tax (GST) rate of 28% effective from October 1, 2023.
 
The company’s overall registered user base has gone up by 16.4% in FY24.
 
“Post implementation of the heightened GST regime for online gaming platforms, EBIDTA margins have narrowed significantly,” said the company in a statement.
 
In an interaction with BT, Deepak Gullapalli, CEO and Founder, Head Digital Works said the company’s expenditure has increased significantly due to the higher GST. “Instead of passing it on to the customer, the company has been absorbing the tax. That is a major expenditure,” he said.
 
Additionally, the company has also invested in people and onboarded new talent to catalyse its growth this year. Its employee costs grew by 40% to Rs 138 crore in FY24 from Rs 98 crore in FY23, including salaries and other employee benefits.
 
Gullapalli noted that the company has been investing in data analytics, focusing on increasing player engagement as part of the strategy to grow further and improve profitability. “We hope that the margins will come back. We are trying to adjust some of our game economics, investing in data science. And also streamlining some operations,” he said.
 
However, a review of the GST rate continues to be a top wishlist and expectation of the company. “Users have not been impacted by the higher GST as online gaming companies have been absorbing the tax. From a competition standpoint, a lot of small operators are unable to take the hit, and it is only the large companies that are able to absorb it,” Gullapali said, noting that the higher tax has in a way blocked the entry of startups and new gaming companies as it is a huge cost.
 
“New and small companies cannot take this expenditure. We are hoping the government will review the stance once they see the financials and see that this is excessive GST and will rationalise the rates in subsequent GST Council meetings,” he noted.