Shares of Reliance Industries rallied 2% to the day’s high of Rs 2,958 on BSE in Thursday’s session as investor optimism increased after the Ambanis announced signing of a binding agreement with Disney to form a joint venture that will combine the businesses of Viacom 18 and Star India.

Global brokerage Jefferies said Disney’s business has been valued much lower than widely reported in the media. This transaction adds Rs 40 per share to Reliance’s SOTP, it said while maintaining a buy rating on RIL with a target price of Rs 3,140.

The potential combination will sport the most lucrative cricketing rights in India and has 40% share of the advertising market which opens avenues for better ad inventory monetization and content cost reduction with lower competition, it said.

The JV will have over 750 million viewers across India and bring together media assets across entertainment (Colors, StarPlus, StarGOLD) and sports (Star Sports and Sports18) including access to entertainment via JioCinema and Hotstar.

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As India’s No.1 broadcast network, it will have 35%+/40-45%+ share in the TV viewership/advertising market, a portfolio with dominant position in Hindi (No. 1 with 45-50% ad share), regional (No. 1 with 40-45% share), sports genre (IPL + ICC cricket + BCCI Cricket; 85-90% + revenue share) and digital (Hotstar + JioCinema).Given that RIL’s effective stake in Viacom18 is 71%, RIL’s effective stake in the JV could be around 49.6%. “Hence, net value from the JV for RIL could be Rs 234 billion or Rs 35 per share (which is 49.6% of Rs 704 billion less Rs 115 billion of investment to be done by RIL),” JM Financial said.Viacom18 is a subsidiary of TV18 Broadcast, which in turn is a subsidiary of Network18 Media & Investments, in which RIL holds a 73.15% stake. Shares of both TV18 and Network18 fell 5% each in today’s session.

On a post-money basis, the deal values the JV at Rs 70,352 crore. During FY23, the valuation was 3.2x EV/Sales, 22.8x EV/EBITDA, and 35x PE. On a pre-money basis, Disney and Viacom are valued at Rs 25,900 crore and Rs 32,900 crore, respectively. The valuation (EV/sales) of Disney and Viacom18 stand at 1.5x and 7.2x on FY23, respectively, calculations done by Motilal Oswal shows.

“The underlying message from this transaction is that consolidation in traditional media is imperative, given structural risk from digital/OTT. In our view, companies that do not participate in consolidation face risk of marginalization. Prima facie, this consolidation is negative for Zee, Sony and Sun. Separately, reduced competition in sports would likely weigh on monetization of IPL media rights in the next auction (2028)—negative for IPL franchisees in the long term,” Kotak Institutional Equities said.

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