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MOSL: MEDIA-Relief for print media companies as Govt. hikes ad rates; Ad rate hike

MEDIA: Relief for print media companies as Govt. hikes ad rates; Ad rate hike, fall in newsprint prices to offer healthy earnings revision

 

Print media companies have a reason to celebrate after the government hiked advertisement rates by 25% last week. With the general elections just four months away, print companies are expected to witness a spike in ad revenues, especially from the government. Additionally, there has been a substantial fall in newsprint prices. We believe both developments can meaningfully change the earnings potential of companies engaged in the print business in FY20/21. 

• Government advertisements contribute 15-20% to the total ad revenues of print media companies. Last week’s 25% hike in ad rates should provide 4-5% incremental ad revenues and 2-3% upside in total revenues.
• Newsprint prices had climbed sharply by 35-40% since FY18, but have now fallen by over 15-20% in the last one quarter. Discussions with industry participants point towards further correction in newsprint prices. According to our estimates, even a 10% decline in newsprint prices can potentially drive EBITDA growth of ~45-60% for DB/Jagran/HT.
• For FY20, we have built in 8% revenue growth and a 5% drop in newsprint prices resulting in EBITDA/PAT growth for DB at 37%/44%, for Jagran at 30%/42%, and for HT Media at 45%/63%. However, we estimate rise in copies, pagination and marketing spends (restrained in FY18) to partly curtail the upside.
• In 2009-10, an ad rate hike by the government along with a fall in raw material costs led to a massive 80-130% PAT growth for DB/Jagran/HT. PAT growth for the same three companies was around 20-30% in 2014-15 (only ad rate hike).