India’s print media sector could log about 20 per cent topline growth next fiscal, driven by a recovery in advertisement and subscription — its two major revenue streams — albeit on a low base. However, operating profitability is likely to be impacted by higher newsprint prices, as per a report by CRISIL Ratings.
According to an analysis of print media companies rated by CRISIL Ratings, higher newsprint prices will tear as much as 300-350 basis points (bps) off the operating margin, accounting for about 40 per cent of the sector’s revenues.
Ad revenue is expected to rebound amid an improvement in economic activity, given their high correlation, while an increase in subscription revenue is likely to be driven by the reopening of offices and people returning to workplaces.
Revenue could climb to about ₹27,000 crore next fiscal from about ₹18,600 crore in fiscal 2021. However, that is not anywhere near the pre-pandemic high of over ₹32,000 crore, as per the report.
Nitesh Jain, Director, CRISIL Ratings, said, “Ad revenue, which accounts for about 70 per cent of the sector’s topline, 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 of print media companies to grow about 25 per cent on a low base, in alignment with economic activity. Ad volumes are expected to rebound fully to the pre-pandemic level next fiscal, but ad yield will recover only gradually,” Jain said.
Subscription revenue — accounting for about 30 per cent of the topline — has recovered to a large extent for Hindi and regional language newspapers, but remains impacted for English dailies.
Soaring newsprint price
“This, too, is expected to grow about 10 per cent next fiscal, led by resumption of offices and migration of working population back to metros,” CRISIL Ratings said.
“However, the increasing shift in reading preference to digital media would continue to keep subscription of physical newspapers below pre-pandemic levels,” it said.
It further highlighted that the lower subscription volume of physical newspapers has helped print media companies sail through the pandemic as it limited the volume of newsprint consumed (key raw material, accounting for 30-35 per cent of total operating cost).
Newsprint prices have seen a significant rise of about 60 per cent in the past year, owing to “a shortage of new and recycled newsprint, a rise in freight rates, depreciation of the rupee, and a fall in supplies following the closure of manufacturing capacities.”
The operating margin of print media companies is projected to be 6-6.5 per cent next fiscal, down from 9-9.5 per cent this fiscal.
This is because of elevated newsprint prices, says Rakshit Kachhal, Associate Director, CRISIL Ratings.
“This is despite rationalisation of newsprint consumption and 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 demand-supply 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 liquidity and strong balance sheets — 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 on March 31, 2022,” CRISIL further said.
The base-case assumption is that newsprint prices will peak over the next few months and soften by the second quarter of the next fiscal.
“Any continued rise in prices, or prolonged geopolitical issues, or further waves of the pandemic impacting India’s economic growth, will bear watching,” it said.