Head Digital Works reports ₹72 cr PAT; attributes high expenditure to GST impact

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Online skill gaming firm Head Digital Works, the operator of platforms like A23 Rummy, reported 24.1% growth in profit after tax, reaching ₹72 crore in FY24 compared to ₹58 crore in FY23. The company also witnessed 31% increase in consolidated gross revenue, which climbed to ₹1,378 crore in FY24 from ₹1,051 crore in the previous fiscal year.

As reported by A23 Rummy, the company’s total expenditure surged by 33% to ₹1,298 crore in FY24 from ₹975 crore in FY23. The rise in costs includes increased rewards and bonuses extended to players, particularly after the implementation of the 28% Goods and Services Tax (GST) rate for online gaming platforms, which came into effect on October 1, 2023.

Despite challenges posed by the heightened GST regime, Head Digital Works’ registered user base grew by 16.4% in FY24, reflecting the company’s continued traction in the competitive online gaming industry. However, the company noted a narrowing of EBIDTA margins due to the higher tax burden.

CEO Deepak Gullapalli Discusses GST Impact on Operations

In a statement, Deepak Gullapalli, CEO and Founder of Head Digital Works, highlighted the impact of the revised GST rates. “Our 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.

Gullapalli noted that the company is focusing on optimizing game economics, leveraging data science, and streamlining operations to regain 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 added.

Future Prospects and Regulatory Challenges for Online Gaming

While larger companies like Head Digital Works are absorbing the increased GST costs, Gullapalli emphasized that the online gaming platforms has created  barriers for smaller operators and startups. “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,” he said.

The company expressed hope that the government might reconsider the GST rate in upcoming council meetings. “We are hoping the government will review the stance once they see the financials and realize that this is excessive GST and will rationalize the rates,” Gullapalli added.

As Head Digital Works explores the evolving regulatory landscape, the company’s investments in technology, analytics, and user engagement are expected to play an important role in sustaining growth. 

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