Mumbai: Reliance MediaWorks Ltd (R-MediaWorks), the film exhibition and media services arm of the Anil Ambani-led Reliance Group, is in talks with a few strategic investors who have evinced “serious interest” in taking a stake in the media services business of the company, chief executive officer Anil Arjun said.
It is contemplating turning this part of the business into a separate subsidiary, which can then offload a stake, although nothing has been finalized yet.
Apart from operating the BIG Cinemas chain of multiplexes, the company also offers studio facilities for films, television shows and commercials, post-production, equipment rental, and visual effects services.
“We’d like to raise around Rs 500-600 crore, though the final valuation would be subject to the board’s approval,” Arjun said. “More importantly, the strategic investor would bring in business synergies that would help propel our business, now that we have built the scale.”
Arjun described these companies as large global firms based in the US and Europe providing media services—similar to what R-MediaWorks offers—to the film and television industry, including Hollywood.
While initial approaches by investors were made around eight months back, discussions have been on for the last three months and a deal may be signed by the middle of the next fiscal, Arjun said. “The strategic investor would help us expand our global footprint by bringing in existing large relationships to the company, along with technical expertise.”
R-MediaWorks closed at Rs 151.25 on the Bombay Stock Exchange on Wednesday, up 0.46%. The Sensex gained 0.89% to close at 19,290.18 points.
Analysts say the media services market, especially conversion of content from standard-definition to high-definition (HD) and two-dimension to three-dimension (3D), is witnessing robust growth.
“It makes sense for international companies to come in as strategic partners as they get access to a greater talent pool,” said Jehil Thakkar, executive director at audit and consulting firm KPMG. “The labour arbitrage makes a difference especially since companies operating out of India are servicing clients worldwide.”
Explaining the attraction towards Indian companies in the space, Thakkar said a few of them had been able to build up scale and incorporate technical expertise that was more cutting-edge than some of their global peers.
R-MediaWorks had revenue of Rs 750 crore in the first nine months of the current fiscal and expects to close the year with revenue of Rs 1,000 crore. Around 35% of this is being contributed by the media services business, and by fiscal 2012, Ajun expects it to account for almost half the company’s revenue.
Since the recurring capital expenditure in the business is relatively moderate after the necessary infrastructure is put in place, the media services business enjoys a high operating profit margin. R-MediaWorks’ Ebitda (earnings before interest, tax, depreciation and amortization) margin from the business is around 30-40%.
Highlighting its focus on the media services business, R-MediaWorks has restructured it into four verticals—film and television production, post-production, image restoration, and visual effects.
It has invested around Rs 400 crore to build the media services business, which includes a film studio in Mumbai’s Film City in Goregaon, and post-production and visual effects facilities across India, the US and the UK.
The funds from the strategic investor will help R-MediaWorks recover its entire investment and will also be utilized to expand capacity, Arjun said.
Reliance Group has been increasing its focus on fostering international tie-ups to boost the media business.
Earlier this month, Reliance Broadcast Network Ltd, a Reliance Group unit that operates radio and television channels, announced a tie-up with Luxembourg-based RTL Group SA to launch general entertainment channels in India.
Reliance Broadcast launched two channels in association with US-based CBS Studios International this fiscal.
Media services business is set to play a larger role as international electronics manufacturers are banking on new technologies such as 3D and HD to drive sales. Japan’s Sony Corp., for instance, is expecting a sizeable portion of its incremental revenue to come from products and services offered on the 3D platform.
Masaru Tamagawa, managing director of Sony India, said earlier this month that he expects 3D-related products to contribute 30% to the company’s revenue in India.