Pharma bails Dharma: Why Karan Johar offloaded 50% stake in his company

Pharma billionaire Adar Poonawalla has forayed into India’s Rs 19,800-crore film entertainment business with his newly-formed company, Serene Productions. The firm will now own half of Karan Johar’s Dharma Productions—a company set up by Johar's filmmaker father Yash Johar in 1976. While many are calling this a “bail-out” of Dharma, which saw its operating revenues halve and profits dip to a five-year low in FY24, industry insiders and trade analysts are bullish that this partnership will mark a new era in film financing in India and also pave the way for the entry of more blue-chip investors into the sector.

Interestingly, Poonawalla, who runs Serum Institute of India (SII), which manufactured India’s Covid-19 vaccine Covishield, registered Serene Productions LLP with the Ministry of Corporate Affairs (MCA) on October 14, merely a week before the Rs 1,000-crore deal with Dharma was announced. Until last week, Karan Johar was said to be in talks with the likes of Reliance Industries, Adani Group, and RPSG-backed Saregama for a potential stake sale.

People close to the production house reckon that Poonawalla’s wife Natasha’s proximity to Bollywood A-listers, including Johar himself, and the pharma magnate’s willingness to pay a premium (valuing Dharma at 4X its revenues and 360X its EBITDA) are what eventually tilted the scales in his favour. A Reliance or an RPSG may not have shelled out that big a cheque given Dharma’s FY24 revenues fell nearly 51% to Rs 512 crore and net profits slumped by a whopping 94% to ~Rs 60 lakhs due to significant headwinds in the film production and distribution business. (Incidentally, Natasha Poonawalla serves as the Executive Director of SII.)

While a few brokerages have called the transaction “overvalued”, the film industry is of the view that Dharma could have fetched more if Bollywood was going through better climes right now. “The entire valuation is based on the library they already have. Most of their key IPs are from the 1990s and 2000s, and those continue to do well on OTT and satellite. So, you would’ve expected Dharma to be valued at Rs 3,000-4,000 crore perhaps,” Shailesh Kapoor, CEO of Ormax Media, a media and entertainment-focused consultancy, tells The CapTable.

“Now, why did they need to do this (sell 50%)? They wanted funds to make bigger movies and potentially partner with foreign studios and scale up in new areas. That’s where you’d need the big money,” he says.