Negative on print, broadcast media for 2012 says Fitch
Moneylife Digital Team 03 February 2012

The rating agency forecasts that advertising growth would slow down over the course of the year due to moderation in economic growth and cost cutting by corporates

Against the backdrop of a troubled economy, the media sector is in for a slowdown. According to an outlook report by Fitch, TV broadcasters generate 70%-90% of revenues from advertising compared with about 70% for newspaper publishers, and are therefore likely to be the worse hit.

“Moderation in economic growth and cost reduction initiatives by corporates lead to slower growth in advertising spending. Fitch reduced India’s GDP growth forecast for year ending March 2012 (FY12) and FY13 by 0.5% each to 7.0% and 7.5%, respectively. Fitch expects lower adspend growth to hamper revenue growth and profitability of the two key media segments – print and television broadcasting. These two segments represent over half of the Indian media and entertainment industry, accessing over 80% of the adspend,” says the report.

Industries which contribute to at least 75% of the adspend– FMCG, pharmaceuticals, realty, services and banking –are expecting muted revenue growth, and are likely to stick to cost reduction moves. “Fitch believes adspend growth will remain subdued in 2012. However, Fitch believes that it is unlikely that growth rates will be as low as the ones observed in the 2009-10 period,” the report says.

During 2009-10, print media industry saw single digit growth rates for six consecutive quarters starting Q3FY09. Broadcasting was also affected during this period, but the impact was less than on print. Fitch expects the Indian media industry to grow at the rate of 8% to 12% in 2012.

Another factor which will have a significant impact on print media is the rise in newsprint prices. The report says that urban-centric newspapers that use a higher proportion of imported newsprint will be more affected thanks to the depreciation of the rupee. “With high newsprint costs and lower revenue growth, the agency expects the margins of the print media industry to fall to the range of 18% to 22%. Broadcasting industry margins are expected to fall to the range of 24% to 28%,” says the report.

This does not bode well for the already ailing sector. According to their respective balance sheets for March 2011, Den Networks has a debt of Rs154.71 crores, and Hathway Cable & Datacom Ltd. of Rs 275.81 crores. DQ Entertainment International has a debt of Rs 75.61 crores. In the last quarter, ending 31st December, Cinevistaas, DQ Entertainment and Den Networks saw their stock prices drop by 20%, 36% and 28% respectively. The only exception is Hathway Cable, which saw an increase of 30% in its stock prices.

However, there is hope, says Fitch, in form of Phase III Radio auctions and mandatory digitisation. However, radio auctions, though profitable in the long run, may have a negative effect on the credit profiles of the entrants. The digitisation move will prove beneficial for multi-system operators in the medium-to-long term.

“However, the proposed mandatory digitisation will require significant capex to develop the digital infrastructure. The agency believes that the expected improvement in the business profile of MSOs would outweigh any financial risks stemming from large debt-funded capex in the short-term,” says the report. MSOs like Hathway Cable & Datacom, who have voluntarily started the digitisation process, are expected to better manage the overall execution and financial risks better, anticipates Fitch.

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