Karan Johar's Dharma Productions is introducing a new conglomerate to the business of entertainment after inking a big-ticket deal with Adar Poonawalla, Chief Executive Officer (CEO) of the Serum Institute of India (SII).
Poonawalla's Serene Productions will invest Rs 1,000 crore into Dharma Productions and Dharmatic Entertainment for a 50 percent stake in the company, the two firms said in a release on Monday. Dharma Productions is valued at Rs 2,000 crore.
"For the entertainment industry, it’s a huge inflow of outside money into the film business. In fact, Rs 1,000 crore is no mean sum. The infusion of this kind of money into the world of entertainment, and that too by a rank outsider, gives one the hope that the industry has a bright future, whatever the naysayers might have to say," said Komal Nahta, a trade analyst.
"Consolidation is the de rigueur across the global entertainment industry. From David Ellison's Skydance acquiring animation unit of Madrid-based Ilion Studios to Sony Pictures trying to merge with Zee Entertainment in India [the merger fell through in the end], Bollywood studios weren't abuzz with merger and acquisition (M&A) till this deal was struck," said Vivek Menon, Managing Partner, NV Capital.
Nahta is enthused about the deal. "This spells great news for an industry, which has always been viewed longingly but with suspicion by the world at large. It [the deal] also signifies the heights to which film company valuations have reached. So far, we used to hear of stakes in companies in other fields being sold at such humongous values, but it’s the first time ever that a film production company’s stake has been sold for Rs 1,000 crore," said the trade analyst.
Lavish film productions on the anvil?
Nahta is optimistic about more innovative film projects from Dharma Productions, thanks to the deal. "Now, the production house is so cash-rich that it won't need to sign deals every time it wants to finance a new film. With Rs 1,000 crore in its kitty, Dharma can make the kind of films it has only dreamt of but could not make because of lack of funds and absence of matching visions of Karan [Johar] and his potential funding partners," he added.
Experts exuded optimism that Dharma's partnership with Poonawalla would fuel mega film projects.
"Poonawalla's backing and infusion of capital to the tune of of Rs 1,000 crore will enhance the capabilities of the production house to make big-budget films. An average budget of a Bollywood film, which is big on both ambition and grandeur, is between Rs 200 and Rs 300 crore," said Karan Taurani, senior vice-president, Elara Capital. He is betting big on Dharma to continue to invest in big- budget films after such a large capital infusion.
Dharma's most lavish production after the Covid-19 pandemic was the release of Ayan Mukherjee's directorial venture Brahmastra in 2022, which was made on a budget of around Rs 400 crore. The film barely recovered its cost and the worldwide collections were to the tune of Rs 418 crore.
Dharma's latest release Jigra, starring Alia Bhatt, which hit the screens on October 11, has collected around Rs 25 crore so far. The film's budget was around Rs 90 crore. It's last film Bad Newz released on July 19 did a business of around Rs 115 crore worldwide. The film's budget was Rs 80 crore.
Taurani predicted that the deal would augur well for the film industry as far as size, scale and number of Hindi films to be produced are concerned. Going ahead, the new venture will have a positive impact on cinema occupancy levels, he added.
At present, occupancy levels and footfalls in cinemas, including both single screens and multiplexes, remain 20 per cent lower, as compared to those before the pandemic struck the nation in March, 2020.
Uncertain box-office collections
Big-budget films account for up to 90 percent of Bollywood box- office collections since the pandemic fears subsided, according to Taurani.
The erratic box-office collections have been a cause for concern for many exhibitors who have pointed out that films are either emerging as blockbusters or duds. Besides, it is mostly big screen spectacles and franchise films that are clicking with the audience in the post-pandemic period. Small-to-medium budget films are not seeing similar success at the box-office anymore.
Analysts have also pointed out that this year the dominance of Hindi language films has considerably weakened and the industry is in dire need of a rebound.
The impact of a 13 percent drop in releases to 208 in the June quarter of financial year (FY)25 from 238 releases in first quarter (Q1) FY24 was visible in India's largest multiplex chain PVR Inox's financials, with the firm reporting a loss of Rs 178.7 crore in the April-June period. The company has also reported a sharp drop in films making more than Rs 100 crore in gross box-office collection (GBOC) in Q1 FY25.
The multiplex chain recently cited that the challenge remains in the quantity of new films. The quantity of new films is still not back in shape, the company's management had said during its September earnings call. "It's still not back at the level at which it used to be in 2019. So that's an area where we are hoping to see improvement over the next 12-15 months," the management had said.
Impact of Covid-19 pandemic
Menon noted that to a certain extent Dharma's stake sale is triggered by the Covid-19 impact that has affected movie consumption on the big screen.
"To a certain extent, this deal is a post-Covid-19 impact as well as the fact that consolidation is happening across the industry. There is a concerted bid to monetise assets," he said.
FY24 has not been a great year for Dharma Production, said Abhishek Jain, Head of Research, Arihant Capital Markets Ltd.
The company reported a steep fall in its revenue from operations, which was down by over 50 percent to Rs 512 crore in FY24 from Rs 1,040 crore in FY23. Net profit fell to Rs 59 lakh, down from Rs 10.6 crore in FY23.
"Last year after a strong start in the first half, things have not been pleasant for Indian [film] productions companies with a sharp fall in footfall [in cinemas] due to multiple factors and some fatigue among moviegoers," Jain said.
Foray into film business
According to Jain, the deal with Dharma will give Poonawalla access to the large media library of Dharma Productions.
"It will give Poonawalla a very strong footing in terms of entering into the media industry," said Taurani.
Menon said Poonawalla is already an investor in the digital entertainment and technology company, JetSynthesys. The company had raised $39.5 million in a series B funding round, which was participated by Rising Sun Holdings, Kris Gopalakrishnan, Poonawalla and Sachin Tendulkar in April, 2020.
"Gaming is one of the segments of the media and entertainment business. Now, he's gone into the content business. He's [Poonawalla] wanting to try something in the media and film industry. And this is a nice buy [stake acquisition in Dharma]. Also, Adar himself has got a sufficient pool of capital to help fund film projects," Menon added.
Currently, the Hindi film business is dominated by top studios such as Yashraj Films (YRF), Zee Studios, Jio Studios, T-series and Sony Pictures.
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