BIZ-STUDY-PRINT AD

The upcoming general elections

are expected to provide a fillip to advertising revenues,

while the aggregate operating profit of print media companies

is likely to increase 500 basis points in FY20, due to

softening newsprint prices and hike in DAVP rates,

a report said.

The impact of the increased DAVP rates and general

elections-linked advertising will start getting reflected from

the last quarter, according to rating agency Crisil.

"Nearly 10 per cent of the advertising revenues of

print media companies comes from advertisements linked to DAVP

rates. While these rates have been 30-45 per cent below

commercial rates earlier, the upward revision will reduce the

gap to 10-25 per cent and increase ad revenues of print media

companies," Crisil Ratings senior director Sachin Gupta said.

The Ministry of Information and Broadcasting had

recently announced a 25 per cent hike for advertisement in

print media, over and above the existing rate structure by the

Bureau of Outreach and Communication (erstwhile Directorate of

Advertising and Visual Publicity).

The new rate structure will be valid for a period of

three years.

The advertisement revenue linked to Directorate of

Advertising and Visual Publicity (DAVP) rates is estimated to

be around Rs 1,800-2,000 crore.

In FY18, DAVP directly spent Rs 631 crore, while

the balance is estimated to have come from state governments

and public sector undertakings (PSUs), which also place

advertisements largely at DAVP rates.

"Further, the upcoming general elections are likely to

increase advertising revenues during the last quarter of

fiscal 2019 and the early part of fiscal 2020. Advertising

revenues had risen around 7 per cent during the 2014 general

elections," it said.

However the benefit of lower newsprint prices is

expected to percolate only from FY20 because of high-cost

inventory with companies and long-term purchase contracts for

newsprint, it added.

Newsprint prices had increased around 35 per cent from

Rs 37,000 per tonne in FY18 to over Rs 50,000 per tonne

this fiscal. They started softening in November 2018 and are

expected to hover around Rs 40,000-42,000 per tonne next

fiscal on increased supply.

"While the operating profitability of most print media

companies has been impacted this fiscal, the credit profiles

of large players exhibited resilience because of strong

balance sheets and ample liquidity. The recovery next fiscal

will restore profitability to 22-24 per cent levels seen

through last fiscal.

The extent of pick-up in advertising revenues will be

monitorable for medium and smaller players, whose credit

profiles had weakened last fiscal," Crisil Ratings director

Nitesh Jain said.