Aided by low base and the rising advertising and subscription revenue, the print media is likely to clock a 20 per cent topline growth to Rs 27,000 crore next fiscal, but soaring newsprint prices may tear off 300-350 bps of operating profitability for the sector, says a report.
In a report on Thursday, rating agency Crisil said ad revenue will rebound as economic activity improves, given their high correlation, while reopening of offices and people moving back to offices will help shore up subscription revenue.
The print industry is likely to report a 20 per cent revenue growth next fiscal at Rs 27,000 crore from Rs 18,600 crore seen in fiscal 2021. But that won’t be enough to reclaim the pre-pandemic highs of over Rs 32,000 crore. Also, the soaring newsprint prices will shave off 300-350 bps of operating revenue, the report said based on the companies those control 40 per cent of the industry revenue.
It can be noted that newsprints account for 30-35 per cent of operational cost of print media entities.
Ad revenue, which accounts for 70 percent of the sectoral topline, has recovered sharply after the second wave of the pandemic, supported by the festive season and state elections. The impact of the third wave was milder and limited to January.
Next fiscal, we expect ad revenue growing by 25 per cent on a low base. Ad volumes are expected to rebound fully to the pre-pandemic level next fiscal, but ad yield will recover only gradually, the report said.
On the other hand, subscription revenue, accounting for the balance 30 per cent of the topline, has recovered to a large extent for Hindi and regional language newspapers, but remains impacted for English dailies. This, too, is expected to grow 10 per cent next fiscal, led by resumption of offices and migration of working population back to metros, notes the report.
However, the increasing shift in reading preference to digital media will continue to keep newspaper subscriptions below pre-pandemic levels, the report warned.
Interestingly, lower subscription volume of printed newspapers has helped the media companies sail through the pandemic as it kept a leash on the volume of newsprint consumed.
Newsprint prices have risen a whopping 60 per cent in the past one year because of shortage of new and recycled newsprint, rise in freight rates, rupee depreciation, and fall in supplies following closure of manufacturing capacities.
Operating margins of print media companies is seen contracting to 6-6.5 per cent next fiscal from 9-9.5 per cent this fiscal because of elevated newsprint prices. This is despite rationalisation of newsprint intake and expected increase in cover prices.
The print media industry imports over 50 per cent of its total newsprint demand. Russia is a major exporter, so its war with Ukraine can affect the demand-supply situation and impact newsprint prices, the report warned.
While the credit risk profiles of large print media companies will be cushioned by healthy liquidity and strong balance sheets, as most of them are net debt free, liquidity management will be crucial for the smaller ones because of the rise in newsprint prices, as their interest cover is estimated to be 2-2.5 times as this month-end.
The agency assumes that newsprint prices will peak over the next few months and will soften by the second quarter but any continued price rise or prolonged geopolitical issues, or further waves of the pandemic hitting the economy, are downside risks.
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