Will Adar Poonawalla-Karan Johar form a hit Jodi? - M&E industry has high expectations

The industry has welcomed the latest acquisition in the film industry – that of Adar Poonawalla led Serene Productions acquiring a 50% stake in Karan Johar’s Dharma Productions and Dharmatic Entertainment. Johar will retain the remaining 50% ownership. As per the deal, Serene Productions will invest Rs 1,000 crore into Dharma, valuing the production house at Rs 2,000 crore.

Karan Johar as the Executive Chairman will spearhead the company’s creative vision, while Apoorva Mehta, in his role as Chief Executive Officer, will work with Johar in steering the strategic direction and overseeing the operational excellence of the organization.

Earlier, Dharma Production was engaged in discussions with multiple parties, including Saregama Music and Reliance Industries. The production house was founded in 1976 by Yash Johar, Karan Johar’s father. Prior to this deal, Johar and his family owned 100% stake in Dharma Productions.

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Adar Poonawalla’s Serene Productions Acquires 50% Stake in Dharma Productions

Calling the entry of another large conglomerate in the Hindi film industry a positive development, Karan Taurani, Senior Vice-President, Elara Securities, said, “Dharma will get the scale and backing of a large conglomerate in terms of funding. The industry is moving through a phase, wherein it’s a winner-takes-all market, as large scale budget films account for 85-90% of Hindi Box Office in the post-Covid era. We believe this deal is a longer term equity led partnership, wherein Dharma will continue to invest in large budget films given the capital raise; Dharma has had partnerships with studios like Disney and Zee in the past for making Hindi films.”

Taurani also felt that this acquisition might trigger entry of another large conglomerate with deep pockets in the film industry, as India has seen exit/ scale down by multiple global studios in the past within the film content business. Studios like Yashraj, Zee Studios, Jio Studios, T-series and Sony Pictures are the ones dominating Hindi film industry currently.

On the other hand, he believed that the entry of Poonawalas might not add any strategic value/ synergies for a production house like Dharma, which may continue to run its business operations independently under the expertise of its founder.

Trade analyst Taran Adarsh remarked, “I think it is a fantastic development when a corporate entity enters in the field. It brings a lot of confidence and funds. The production house can dream of doing better projects which they believe in and not just to run it like a factory. It is kind of a rebirth of Dharma as an outside firm is pumping money in the production is always good. It will bring transparency not just in business, but in planning and execution of projects as well.”

In a similar vein, film distributor Rajesh Thadani noted, “Such collaborations are good for the industry. It definitely brings positive news for the entire industry when two major companies like Dharma and Poonawalla have decided to collaborate. It is going to benefit the business of entertainment. I am sure they will have bigger plans of expansions like getting into more regional content, distribution and so on. I feel that they will try and do everything related to the entertainment business, which is good news.”

According to Girish Johar, a producer and film business expert, “It is definitely a great move at the macro level business. They can now have fresh content with infusion of funds. Karan can focus more on the creative part of it, like creating more IPs and getting into the global market. He does not have to think about financial strain. On the other hand, Adar Poonawalla has already tasted success at a global level and proved his might. He has experience of global market and has shown that India can cater to the world. He was appreciated for his work. I think it is a perfect match.”

Meanwhile, speaking on the poor Box Office performance of some of Johar’s recent films, Taran Adarsh said, “Karan hadn’t had too many kind Fridays in the past, including his last film ‘Jigra’. I know it is part and parcel of this industry, where everyone sees ups and downs, right from Amitabh Bachchan, Rajesh Khanna to Shah Rukh Khan, Salman Khan and Aamir Khan – everyone has faced this situation. But it is just like a speed breaker. I think things will get streamlined now for Karan. The market is really opening up now, so you never know what his next move will be.”

In FY23, Dharma Productions had reported a loss of Rs 0.11 billion, as against a loss of Rs 0.27 billion in FY22. In FY24, Dharma Productions’ revenue halved to Rs 5 billion, as per VCC Edge.

On the other hand, while most industry experts saw this acquisition as a positive development, Mrinal Jha, Founder, MAJ (Mrinal Abhigyan Jha) Productions, had a different view. She said that while it is good to see corporate money coming into media companies, at the same time, the valuation is a matter of concern. “If one of India’s most well known companies is valued only at Rs 2,000 crore, it means the value of IP creation is lagging behind other market dynamics of our growing economy. Somewhere, it is a reflection of the quality of IP being created. It basically says we have not been able to create IP that is truly mass market.”

Nevertheless, Taurani believed that this backing from a strong conglomerate and infused capital of Rs 1,000 crore will enhance capabilities of the production house to make large-budget films; an average budget of one large scale led Hindi film is in the range of Rs 2-3 billion. Valuations for Dharma Productions basis this deal appear fair, as the deal is basis 4x EV/sales (trailing - FY24).”

On the road ahead for Karan Johar and Dharma Productions, Girish Johar said, “Karan has been distributing South films, now with this new development, he can create more content for OTT under his Dharmatic banner as he has got good backing. He can aggressively get into making more Hindi and regional cinema, OTT content, and so on.”

Agreeing with the same, Trade Analyst Atul Mohan noted, “In the case of Adar, he has acquired stakes. Karan will handle the creative part, the execution part and managing the money. Adar will finance it. In future, with this investment, Karan can make more OTT content, ads under Dharmatic, and get South films for distribution. One more thing I feel is that Karan, who is known to make big budget multi-starrer films, has not been doing it for a long time now. He has been making solo hero and small budget films. His last mega budget film was ‘Rocky Aur Rani Kii Prem Kahaani’. He will have enough resources at his disposal to do such movies and he will feel confident of doing it with big investment. Apart from these movies, he will continue to do small films and have a mix and match of both.”

Adding further, Mohan said, “This investment in the entertainment industry is eagerly looked up to as it will multiply in future. Dharma has done successful collaborations with studios in the past. I remember when Fox Studios came into India, they did their first big project with Dharma – ‘My Name Is Khan’ – worth Rs 200 crore. It was nearly 15 years back. After that I guess they invested approximately Rs 500 crore for their next slate of movies with Dharma. But those were just collaborations, they had no stakes in Dharma. They just invested money to create those IPs.”

Taurani concluded by saying, “We believe this deal should augur well for the film industry in terms of size, scale and number of Hindi films made going ahead, which could eventually also be a mild positive for cinema occupancy levels over the medium term.”

Additional inputs by Sonali Joshi and Siddhesh Shirsat