Reliance gains 2% on forming $8.5 bn JV with Disney merging India media ops

Shares of Reliance Industries (RIL) jumped nearly 2 per cent to Rs 2,958 on the BSE in Thursday's intraday trade after it said the conglomerate, Viacom18 Media and The Walt Disney Corporation will form a joint venture (JV) that would merge the television and digital streaming businesses of Viacom18 and Star India. 

The value of the JV at Rs 70,352 crore ($8.5 billion) was on a post-money basis, excluding synergies, the company said in an exchange filing.

At 09:32 am, RIL was trading 1.6 per cent higher at Rs 2,955, as compared to 0.17 per cent rise in the S&P BSE Sensex. The stock had hit a record high of Rs 2,999.85 on Tuesday, February 27.

In the past four months, RIL has outperformed the market by surging 31 per cent.

As part of the transaction, the media undertaking of Viacom18, a RIL group company, will be merged into Star India Private, a Disney-owned firm, through a court approved scheme of arrangement.

This deal will give RIL a larger pie in the media and entertainment business. The JV will have exclusive rights to distribute Disney films and productions in India, according to Motilal Oswal Financial Services.

The transaction will add Rs 40 per share to RIL’s sum-of-the-parts valuation (SOTP), as per a Jefferies report, cited by Moneycontrol.

"Disney's business valuation, often overestimated in media reports, is substantially lower than perceived, adding an estimated Rs 40 per share to RIL's SOTP," Jefferies reportedly said.

As per the brokerage, this partnership opens avenues for enhanced ad inventory monetisation and promises potential reductions in content costs due to decreased competition.

The joint venture will sport the most lucrative cricketing rights in India, consolidating its position with a substantial 40 per cent share of the advertising market, it said. 

RIL would invest Rs 11,500 crore ($1.4 billion) into the JV to fund its growth strategy post-closing. Nita Ambani will be the chairperson of the venture with media veteran Uday Shankar as the vice-chairperson.

The JV will be one of the leading TV and digital streaming platforms for entertainment and sports content in India, bringing together iconic media assets across entertainment (e.g. Colors, StarPlus, StarGOLD) and sports (e.g. Star Sports and Sports18) including access to highly anticipated events across television and digital platforms through JioCinema and Hotstar, RIL said.

Analysts at JM Financial Institutional Securities believe concerns on debt are behind as they expect RIL’s net debt to peak in FY24 and then decline gradually as capex will not only moderate (Rs 1.2 trillion-1.4 trillion per annum vs. Rs 2.3 trillion in FY23) but, importantly,will be fully funded by a gradual increase in internal cash generation.

Further, RIL could still drive a robust 14-15 per cent EPS CAGR over the next 3-5 years with Jio’s ARPU expected to rise at 10 per cent CAGR over FY23-28 with average revenue per user (ARPU) being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market — A Giant Digital Leap.

"Moreover, strong growth momentum continues in the company’s retail business as RIL is driving omni-channel capabilities across segments. Hence, we reiterate BUY (unchanged TP of Rs 3,050/share)," the brokerage firm said in a stock update.
 

Meanwhile, shares of RIL Group’s other media & entertainment companies like Network18 Media & Entertainment (Rs 106.70) and TV18 Broadcast (Rs 60.04) were locked in the 5 per cent lower circuit.