Print ad revenue likely to rebound: Motilal Oswal 

The muted-to-negative growth in ad revenue that the print media witnessed in the past two years may have bottomed out and print advertisement revenue is likely to rebound after the "worst show in a decade", according to a report by Motilal Oswal Securities Ltd (MOSL).

It says that the Indian print media, which accounted for 45 per cent of the total ad spend in the country, offered an “excellent play on economic rebound”.

In a report dated December 19, MOSL said the print ad growth “was near zero, one of the lowest in the last decade” in the first half of the current fiscal. But it felt that a recovery was around the corner -- might start from the second half of this year with the ad growth (revenue) improving to 4-5 per cent year-on-year and to 11 per cent over FY13-15.

Explaining the reasons for its optimism, MOSL cited stable GDP growth, an anticipated easing in interest rates that is beneficial to heavy print advertising sectors such as automobiles and real estate and the low base effect. The FY13 margin contraction might be restricted up to 100 bps on “abating newsprint inflation and commendable cost control” by the companies.

MOSL said during 2013-15 it expected operating costs to “grow largely in line with revenue growth” (10-11 per cent CAGR) that would lead to stability in margins driving EBITDA CAGR of 13 per cent. It also pointed out that newsprint price inflation “has come off significantly”, down from up to 15 per cent in FY12 to a “more manageable level” of up to 6 per cent in 1HFY13 with “no major spikes expected going forward”.

On how the print media tackled the ad slowdown, the report said companies were “controlling their circulation growth and hiking average cover prices”. This was expected to result in up to 12 per cent circulation revenue growth in FY13, as against up to 3 per cent advertising revenue growth for its coverage universe.

The report said the readership of the top 25 Hindi dailies grew by just 2 per cent in calendar year 2011 and 1 per cent in the first half of calendar year 2012 as against 9 per cent growth registered in calendar year 2010. MOSL said it expected the regional print companies in its universe — DB Corp, Jagran Prakashan and Hindustan Media Ventures Ltd (HMVL) — to maintain a 19-21 per cent RoE in FY13 despite the cyclical downturn which emphasised “strong pricing power, ability to manage tough environment and limited capital intensity of the business”.

MOSL said in the report it expected its print media universe to record earnings CAGR of 17 per cent over FY13-15 as against 3 per cent growth in FY13E and an 11 per cent decline in the previous year.

The report said the English print media was largely concentrated in six metros — Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad. Of this, Delhi and Mumbai were the largest English print markets accounting for about 30 per cent+ each of the ad market. It also faced a higher risk of competition from the digital media, particularly because of an imminent increase in broadband penetration and the higher socio-economic strata of English print readership.

Listing the top picks among the listed print media players, the report gave a “buy” rating to DB Corp and Jagran Prakashan based on their strong balance sheets, healthy payout ratios (40-70 per cent) and as they offered good dividend yield of 2-3.5 per cent. While it was neutral on HT Media "given the low growth visibility in English print and inferior RoE/payout", it gave a buy rating to its group company Hindustan Media Ventures (HMVL). While HT Media publishes the Hindustan Times (English newspaper), the Hindi newspaper Hindustan is published through a subsidiary Hindustan Media Ventures Ltd.

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