A new report says buoyant growth in advertising revenue, driven by strong localized demand from key advertising sectors such as automobiles, retail, education, eCommerce, real estate, and services, together with a loyal subscriber base, will lift the total revenue of regional print media companies by 8-9% this fiscal.
The growth, coupled with softening newsprint prices, will expand the operating profitability of the players by ~200 basis points (bps) to 20-22%. This will be in addition to the ~400 bps expansion in margin already clocked last fiscal as newsprint prices retracted, says the Crisil Ratings analysis of eight regional print media players, which account for ~60% of the regional print media market in terms of circulation.
Advertising revenue, contributing about two-thirds to the topline of regional print media companies, has a high correlation with economic sentiment and spending on advertisement by corporates as well as state and central governments, Crisil said. The report includes Hindi but excludes English print media.
Manish Gupta, senior director and deputy chief ratings Officer, Crisil Ratings, says, “Economic sentiment remains positive, as reflected by growing budgetary spend on advertisement and marketing by corporates. Advertisement demand from key contributing sectors such as automobiles, FMCG, education, eCommerce, real estate, and services is also buoyant from local establishments as they prefer regional print players owing to the latter’s wide reach in the locality. All this will lead to 9-10% growth in overall advertising revenue this fiscal, offsetting a moderation in the government segment. This contrasts with the last fiscal when increased government spending on advertisements in the run-up to the general elections had propelled a similar growth in advertising revenue.”
Meanwhile, subscription revenue, which accounts for ~25% of the sector’s topline, continues to be resilient, indicating the enduring popularity of vernacular print media in India despite strong traction in digital media, the report said. The persistence indicates compulsive reading habits and hyper-localized content continue to benefit vernacular print players, which are expected to see subscription revenue move a decent 2-4% growth this fiscal.
Notably, the regional players have now started to push for subscriptions in places adjacent to their existing coverage area. Earlier, these players were deliberately slow in growing their subscriber base as cover prices were not sufficient to absorb the cost of newsprint paper.
The prices of newsprint paper, which is a key raw material and accounts for 35-40% of the total operating cost of print media companies, continue to soften on the back of modest global demand and easing of supply chain issues. Newsprint prices rose 41% in fiscal 2023 due to logistical disruptions amid the Russia-Ukraine war as Russia accounts for more than half of the total newsprint paper imports. Prices have softened since then and continue to slide.
Ankit Kedia, director, Crisil Ratings, says, “A steep on-year fall of 21% in newsprint prices during fiscal 2024 shored up the operating profitability of regional print media companies by 400 bps to 18-20% during the fiscal. While newsprint prices have remained volatile since October 2023 due to the prevailing shipping issues around the Red Sea, they are still well below their average levels for fiscal 2024 and are expected to remain rangebound because of muted global demand and adequate supply. This, coupled with the projected revenue growth will further expand margin by ~200 bps to a healthy 20-22% this fiscal.
The higher margin will result in the RoCE improving to 15-16% this fiscal (versus 14-15% the previous fiscal) in the absence of any major capex plans. This, along with their already strong balance sheets (marked by low to nil debt and cash-positive position), will strengthen the credit profiles of players.
That said, any major change in economic prospects, a stark change in consumer preference away from newspapers, or a rise in newsprint prices owing to global factors will bear watching.
