RIL-Viacom18-Disney JV to add Rs 40 per share to Reliance’s value, says Jefferies

Reliance Industries shares gained up to 1.7% to Rs 2,958 in intraday trades before settling at Rs 2,930 (up 0.72%) on Thursday. On Wednesday, the company informed the exchanges that it had signed an $8.5 billion deal to form a joint venture with Disney to combine their media businesses. The benchmark Sensex and Nifty were up to 0.27% and 0.14%, respectively, on Thursday. While RIL’s shares reacted positively to the developments, other media companies from the group witnessed a decline in share prices.

The share price of Network18 Media and Investments and TV18 Broadcast fell 5% each. The shares of other media and entertainment companies also recorded declines, including Balaji Telefilms (down 5.4%), Eros International Media (down 4.3%), Saregama India (down 2%), NDTV (down 1.1%), TV Today Network (down 0.8%), DB Corp (down 0.5%), and Zee Entertainment (down 0.4%).

However, some media companies bucked the trend by posting positive returns, including Bodhi Tree Multimedia (up 7.9%), Tips Industries (up 2.2%), Sun TV Network (up 2.1%), Prime Focus (up 1.6%), Entertainment Network (up 1.5%), PVR Inox (up 1.1%), and Dish TV (up 0.5%).

Here are the commentaries on the deal by analysts from various brokerages:JP Morgan: Investor understanding of RIL’s media ventures seems limited, partly as these are currently not large enough to impact Reliance’s ~$270 billion EV. The media business is currently a minor portion of RIL’s valuation, but could be a high-growth component for the overall enterprise.

Emkay Global: “The overall value reflects a significant reduction in Disney’s valuation,” which was estimated to be as much as $17 billion when Disney purchased 21st Century Fox in 2019, Pulkit Chawla, a sector analyst with Emkay Global Financial Services Ltd., wrote in a report Thursday. “The deal, however, would hurt other industry players like Zee, as they would have to compete with a much larger entity.”

Morgan Stanley: Reliance is consolidating the Indian media industry, very similar to what was seen in telecom between 2016 and 2019, Morgan Stanley said in a report. While the earnings contribution of the new JV will be small for Reliance, it provides a pathway for the company to leverage its digital platform, improve returns, and monetization, it said.

Jefferies: The RIL-Viacom18-Disney transaction will add Rs 40 per share to RIL’s sum-of-the-parts valuation (SOTP), said Jefferies. This partnership not only presents opportunities for enhanced ad inventory monetisation but also promises potential reductions in content costs due to decreased competition, the brokerage said. “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 added.

Elara Securities: The merger may result in improved profitability for the combined entity as there may be a reduction in employee costs, production costs, and marketing costs on the TV and content side. The merger of JioCinema and Hotstar poses a challenge for global OTT platforms, as India’s market values bundling and is price-sensitive. On the sports front, the merged entity is set to become monopolistic, with Disney and Jio collectively controlling approximately ~75-80% of the Indian sports market across both linear TV and digital platforms, the brokerage said.