India’s print media sector could see revenue growth of around 20% in the next fiscal year, driven by a recovery in advertising and subscriptions – its two main sources of revenue – albeit on a lower basis. weak. However, operating profitability is likely to be affected by rising newsprint prices, according to a report by CRISIL Ratings.
According to an analysis of print media companies rated by CRISIL Ratings, rising newsprint prices will snatch up to 300 to 350 basis points (bps) from operating margin, which represents approximately 40% of industry revenue .
Advertising revenue is expected to rebound amid improving economic activity, given its strong correlation, while an increase in subscription revenue is expected to be driven by the reopening of offices and the return of people to the venue. of work.
Revenue could spike to around ₹27,000 crore in the next fiscal year from around ₹18,600 crore in fiscal 2021. However, this is nowhere near the pre-pandemic high of over 32,000 crore ₹, according to the report.
Nitesh Jain, Director of CRISIL Ratings, said: “Advertising revenue, which accounts for approximately 70% of industry revenue, has recovered strongly following the second wave of the pandemic, supported by the festive season and elections. national.
“The impact of the third wave was softer and limited to January. Over the next fiscal year, we expect advertising revenue for print media companies to increase by approximately 25% from a weak base, in line with economic activity. Ad volumes are expected to fully rebound to pre-pandemic levels next fiscal year, but ad yield will only recover gradually,” Jain said.
Subscription revenues, which represent approximately 30% of turnover, have largely recovered for Hindi and regional language newspapers, but remain impacted for English dailies.
The rise in the price of newsprint
“This, too, is expected to grow by around 10% in the next fiscal year, driven by the resumption of offices and the migration of the working population to metros,” said CRISIL Ratings.
“However, the growing shift in reading preference towards digital media would continue to keep physical newspaper subscription below pre-pandemic levels,” he said.
He further pointed out that the decline in the volume of subscriptions to physical newspapers has helped print media companies through the pandemic, as it has limited the volume of newsprint consumed (a key raw material, accounting for 30-35% of the cost total operating costs).
Newsprint prices have risen significantly by around 60% over the past year, due to “a shortage of new and recycled newsprint, rising freight rates, depreciation of the rupee and a drop in supplies following the closure of manufacturing capacities”. .”
The operating margin for print media companies is expected to be 6-6.5% in the next fiscal year, compared to 9-9.5% in the current fiscal year.
This is due to high newsprint prices, says Rakshit Kachhal, Associate Director, CRISIL Ratings.
“This is despite the rationalization of newsprint consumption and the expected increase in cover prices. India imports more than half of its total newsprint demand. Russia is a major exporter, so its war with Ukraine could affect the supply and demand situation and impact newsprint prices,” Kachhal said.
Small vs big players
“While the credit risk profiles of large print media companies will be cushioned by healthy cash and strong balance sheets – most of them are net debt free – cash management will be crucial for smaller ones due to the increase in newsprint prices, as their interest coverage is estimated at 2 to 2.5 times that of March 31, 2022,” CRISIL added.
The baseline assumption is that newsprint prices will peak over the next few months and decline by the second quarter of next year.
“Any continued price increases, or prolonged geopolitical issues, or new waves of the pandemic impacting India’s economic growth, will be worth watching,” he said.
March 31, 2022