The print media is expected to deliver earnings at compound annual growth rate (CAGR) of 17 per cent during FY13-15. This is in comparison to a three per cent growth in FY13E and a 11 per cent decline in FY12, according to a report from financial services firm Motilal Ostwal.
The report points says print companies’ earnings are relatively volatile due to dependence on ad revenue, higher dependence on cyclical categories, and volatility in newsprint prices.
In its 86-page report on the print media, ‘Making Headlines Again’, the firm has predicted a favourable time ahead for the sector in India, after two years of muted performance. The firm believes the tide is turning and the print ad cycle has bottomed out, after the worst show in a decade in the country.
The reasons behind the bullish forecast is that margin pressure is expected to ease on ad growth rebound. The report says receding newsprint cost inflation and commendable cost control will help the industry grow at a brisk pace.
According to the report, sector downturn is driving rationality in competition. There is an increase in cover prices, restriction in pushing circulation, and expansion plans are on the back burner.
In the first half of the financial year, print ad growth was near zero, one of the lowest in the last decade. “We believe ad growth has bottomed out – expect recovery from 2HFY13 with ad growth improving to four-five per cent year-on-year, and to 11 per cent over FY13-15,” the report says.
It also notes the key drivers for improved ad revenue performance, including stable GDP growth and expected easing in the interest rates, which is a positive for print-heavy categories like automobiles and real estate.
The report also notes though newsprint prices are stable for now, volatility can impact earnings. Incidentally, newsprint prices constitute 40 per cent of operating costs and 33 per cent of revenues. Though international prices in dollar terms have been largely stable over the past two years, newsprint cost for Indian print companies was hardening due to an increase in domestic newsprint price and rupee depreciation.
The firm believes the impact of the platform is much higher and, thus, it accounts for approximately 45 per cent of the total ad spends. “Print companies have high dominance in their respective markets, driving pricing power for the incumbents as they become ‘default choice’ for advertisers. The average readership concentration (top two players) in Hindi markets is 75 per cent (range of 60-95 per cent). In media, it is the impact that matters, which the print platform undoubtedly delivers,” the report pints out.
Of the total print media industry revenues, estimated at $4 billion (Rs 22,000 crore), only 30 per cent comes from circulation and the balance 70 per cent is from advertising. Historically, print companies have expanded by increasing penetration and keeping the cover prices affordable, thus resulting in relatively lower circulation revenue growth. However, over the past few quarters, the industry has been in a consolidation mode, and circulation revenue growth for most print companies has been higher than the ad growth, the report said.
While English is the largest segment in terms of ad revenues, and accounts for almost 40 per cent of print ad revenues with 18 million daily readers, Hindi is the most popular language with close to 65 million daily readers, but only about 30 per cent of print ad spends. Vernacular markets account for the balance 30 per cent of ad revenues.