Reliance-Disney deal may add Rs 35 to RIL share price target, hit ZEE hard

With Reliance Industries (RIL), Viacom 18 and Disney announcing a binding agreement to form a joint venture (JV) to merge the media undertakings of Viacom18 (which includes JioCinema) and Star India (Colors, StarPlus, StarGOLD, Star Sports and Sports18), analysts said the deal will add Rs 35 to RIL share price targets.

With the deal, RIL would become a dominant player in the Indian media space, given the combination of distribution muscle and an enviable portfolio of TV channels, sports rights and digital assets. RIL will be investing Rs 1,150 crore in the JV for its growth strategy and the transaction values the JV at Rs 70,400 crore.

RIL will be having a 16.34 per cent stake, Viacom18 46.82 per cent and Disney 36.84 per cent.  Viacom18 is a subsidiary of TV18 Broadcast Ltd, which in turn is a subsidiary of Network18 Media & Investments Limited, in which RIL holds a 73.15 per cent stake.

“Given that RIL’s effective stake in Viacom18 is 71 per cent, RIL’s effective stake in the JV could be 49.6 per cent. Hence, net value from the JV for RIL could be Rs 23,400 crore or Rs 35/share. We reiterate BUY on RIL (unchanged target of Rs 3,050) as we believe net debt concerns are behind us, and also because RIL has industry leading capabilities across businesses to drive robust 14-15 per cent EPS CAGR over the next 3-5 years,” JM Financial said.

The JV would be one of the single-largest player in the broadcasting and digital space. With this, Reliance Industries can exploit its large user base in the telecom segment, with bundling of packs expected to be a key focus area.

Kotak said the read-through from this consolidation of two deep-pocketed players is—structural risk from digital/OTT demands consolidation in traditional media and companies that do not participate in consolidation face risk of marginalisation.

Emkay Global aid value accretion for RIL is not significant in the short term, but it is advantageous strategically, given that Disney's valuation is significantly lower than previously reported. Overall, the infusion is not significant for RIL, it said while maintain ‘ADD’ rating on RIL.

Motilal Oswal said the deal would 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, it noted. The brokerage suggested a target price of Rs 3,210 on he stock.

ZEE share price target

Emkay Global said ZEE has already been struggling since its merger breakdown with Sony. The deal should be negatively impacted by the creation of a larger entity, it said.

“Both content producers and advertisers are likely to gravitate towards the RIL-Disney entity, which will also cater to the largest set of audience, further weakening its overall competitive position. Jio’s marketing muscle would also make it more difficult for Zee to grow. This deal reinforces our negative view on Zee and leaves it with a lesser number of suitors, thus further lowering its bargaining power. We retain SELL on Zee with an unchanged target of Rs 165,” it said.