Reliance Industries (RIL), Viacom 18, and Disney announced a binding agreement to form a joint venture (JV) to merge Viacom18's media undertakings (which includes JioCinema) and Star India's (Colors, StarPlus, StarGOLD, Star Sports, and Sports18), analysts said the deal will add Rs 35 to RIL's share price target.
With the agreement, RIL will become a dominating player in the Indian media industry, thanks to its distribution strength and enviable portfolio of TV networks, sports rights, and digital assets. RIL would invest Rs 1,150 crore in the JV to support its expansion strategy, with the transaction valued at Rs 70,400 crore.
RIL owns 16.34 percent, Viacom18 46.82 percent, and Disney 36.84 percent. Viacom18 is a subsidiary of TV18 Broadcast Ltd, which is itself a subsidiary of Network18 Media & Investments Limited, of which RIL owns 73.15 percent.
"Given that RIL's effective stake in Viacom18 is 71%, RIL's effective stake in the joint venture might be 49.6%. As a result, the net worth of the joint venture for RIL may be Rs 23,400 crore, or Rs 35 per share. We reiterate BUY on RIL (unchanged objective of Rs 3,050) as we believe net debt issues are behind us, and also because RIL has industry leading capabilities across industries to produce robust 14-15 percent EPS CAGR over the next 3-5 years.
The joint venture would be one of the largest players in both broadcasting and digital media. This allows Reliance Industries to capitalize on its vast user base in the telecom market, with pack bundling expected to be a primary focus.
According to Kotak, the takeaway from this combination of two deep-pocketed entities is that structural risk from digital/OTT demands consolidation in traditional media, and companies who do not engage risk being marginalized.
Emkay Global assistance value accretion for RIL is not large in the short term, but it is strategically beneficial, considering that Disney's valuation is significantly lower than previously estimated. Overall, the injection is not noteworthy for RIL, according to the report, which maintains RIL's 'ADD' grade.
According to Motilal Oswal, the transaction will increase RIL's share of the media and entertainment industry. According to the report, the joint venture will have exclusive distribution rights for Disney films and productions in India. The firm indicated a target price of Rs 3,210 for the shares.
ZEE's share Price Goal
According to Emkay Global, ZEE has already been struggling since its failed merger with Sony. According to the report, the formation of a larger corporation will have a negative influence on the transaction.
"Both content creators and marketers are likely to gravitate toward the RIL-Disney entity, which will also cater to the greatest audience, thus eroding its overall competitiveness. Jio's marketing muscle would make it more difficult for Zee to expand. This deal confirms our bad opinion of Zee and leaves it with fewer suitors, further reducing its bargaining leverage. We maintain SELL on Zee with an unchanged target of Rs 165,” it said.
