MUMBAI: Robust advertising revenue, driven by strong demand from key local advertising sectors, coupled with rising subscriber base, will lift the top-line of regional print media (all regional language press excluding English papers) companies by 8-9 percent this fiscal and lead to a 200 bps on-year expansion in operating margin, says a report.
The 200 bps expansion in operating profit to 20-22 percent will be in addition to the 400 bps expansion in margin last fiscal as newsprint prices retracted, Crisil Ratings said in a report on Thursday. The report is based on the analysis of eight regional print media companies which account for 60 percent of the regional print media market in terms of circulation.
Advertising revenue, which contributes about two-thirds to the topline of these companies, has high correlation with economic sentiment and ad spending by corporates as well as state governments and the Centre.
According to Manish Gupta, a senior director with the agency, economic sentiment remains positive, as reflected by growing budgetary spend on advertisement and marketing by corporates. Advertisement demand from key contributing sectors like automobiles, FMCG, education, e-commerce, real estate and services is also buoyant from local establishments as they prefer regional print players due to their wider reach. All this will lead to 9-10 percent growth in overall ad revenue this fiscal, offsetting a moderation in the government segment.
Last fiscal saw increased government advertising in the run-up to the general elections propelling a similar growth in advertising revenue.
Subscription revenue, which accounts for a quarter of the sectoral topline, continues to be resilient, indicating the continuing popularity of the local print media despite strong digital traction, suggesting that hyper-localised content continues to benefit vernacular players. This will have subscription revenue clocking a decent 2-4 percent growth this fiscal.
The prices of newsprint, which is a key raw material and accounts for 35-40 percent of the total operating cost, continue to soften on the back of modest global demand and easing of supply chain issues. Newsprint prices rose a whopping 41 percent in fiscal 2023 due to logistic disruptions following the Russia-Ukraine war as the domestic players import more than half of their newsprint needs from Russia. Prices have softened since then and continue to slide.
According to Ankit Kedia, a director with the agency, a steep 21 percent on-year fall in newsprint prices in fiscal 2024 shored up operating profitability of vernacular print media companies by 400 bps to 18-20 percent.
While newsprint prices remained volatile since October 2023 due to shipping issues around the Red Sea, they are still well below their average levels of fiscal 2024 and are expected to remain range-bound due to muted global demand amidst adequate supply. This, coupled with the projected revenue growth, will further expand margin by 200 bps to a healthy 20-22 percent this fiscal.
Higher margin will result in the return on capital employed improving to 15-16 percent this fiscal from 14-15 percent in FY24 in the absence of any major capex plans. This, along with their already strong balance sheets—with low to nil debt and cash positive position--will strengthen credit profiles also, says the report.