High newsprint costs to trim print media margins by over 400 bps

Mumbai: The rise in newsprint cost could lower the operating margins of print media companies this fiscal by more than 400 basis points, according to a report.

Newspapers may need Rs 1.25 per copy price increase to offset impact, despite ad growth, rating agency Crisil said in a report.

Newsprint accounts for 35-45 per cent of the total cost for the print media companies and in the first quarter, newsprint prices shot up around 30 per cent year-on-year, and are hovering at 20 per cent above the average prices of fiscal 2018.

"They are expected to remain elevated over Rs 45,000 per tonne through this fiscal. Further, players dependent on imported newsprints will also be impacted due to depreciating rupee. However, companies that locked in prices through long-term newsprint supply contracts would avert the pressure on profitability till the expiry of such agreements," it said.

It added that the impact on profitability is despite an expected bump-up in advertising revenues during the second half of fiscal 2019 because of general elections.

Advertising revenues had risen around 7 per cent during the 2014 general elections.

"The rise in newsprint prices could slash the profitability of print media companies by as much as 800 bps this fiscal. But an expected rise in advertising revenues in the second half should reduce the overall impact to around 400 bps," Crisil Ratings senior director Sachin Gupta said.

Consequently, ad revenue growth was muted in fiscals 2017 and 2018. This fiscal, the agency expects ad revenues to grow 5-7 per cent, on the back of a pick-up in fast-moving consumer goods and automobiles sectors following normal monsoon and and increase in advertising rates.

However, revenue from circulation is expected to remain flattish this fiscal despite the cover price hike.

"Companies have initiated cost-control measures such as curtailing circulation of less remunerative copies and optimising pagination to reduce the newsprint consumption. These efforts will partly contain the impact of rising newsprint prices,"

it said.