Here’s Why Disney Is Restructuring Its Business In India

After a recent change in management in the country, Disney  (NYSE:DIS) is restructuring its India business to focus on its core strengths in the region — Hollywood films and its consumer products business. The company is looking to build a leaner structure in the country by shutting down loss making units and aligning the business to its international organizational set up. Disney’s consumer products segment has a huge potential in India. The country’s character licensing market is pegged at around $600 million and growing at a pace of 15% to 18% annually. With a fast pace of economic growth and growing disposable income in the country, this market is likely to grow significantly in future. We believe that, with a focus on Hollywood films and the consumer products segment, Disney can perform better in the region.  The former are immensely popular in the region and both can take advantage of the huge growth potential of the country.

Hollywood Movies, Consumer Products Key Growth Drivers In India

Disney’s global movie hits have seen significant traction in India and its “Jungle Book” became India’s highest grossing Hollywood film last year. Recently the company entered into a multi-year output deal with Star India to showcase some of its biggest global hits across Star India’s TV network in the region, in multiple languages. Apart from box office ticket sales of these movies when they are released in India, the success of these movies is also ensuring that Disney can generate additional revenues via these TV deals.  However, the company did not have any success in its attempt to produce films in India’s local language (Hindi) and suffered losses from this production division, leading to its closure. We believe focus on Hollywood films which are immensely popular in the region can ensure that Disney can grow profitably in India.

According to our estimates, Disney’s Studio division accounts for nearly 16% of its valuation and we expect the company’s revenues from this division to increase steadily and reach nearly $5 billion by the end of our forecast period.

Disney’s consumer products business, which has been operational in India for the last eleven years, has seen significant growth over the last couple of years. More than 60 million Disney products and 1 million Disney books are sold in the region annually and the company is likely to see significant growth in future. The company is exploring innovative product lines in the country, which is likely to give a boost to this segment. According to our estimates, the Consumer Products and Interactive Media segment accounts for nearly 15% of Disney’s valuation.  We expect revenues of this segment to reach nearly $6.5 billion by the end of our forecast period.

India is a promising market for Disney and its animated movies and merchandize have seen success in the region in the recent past. We believe a focus on these strong and high growth segments can ensure that the company establishes itself firmly in the region. A lean structure which eliminates loss making units and focusses on core growth areas can drive revenues in the long term.

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