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.
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