Ad revenue, which correlates strongly with economic growth, will take a hit as India's gross domestic product growth hurtles towards a multi-decade low this fiscal. Photo: iStock

New Delhi: The economic slowdown, exacerbated by the covid-19 pandemic, is set to cull the Indian media and entertainment industry’s revenue by 16% to 1.3 trillion this fiscal, according to domestic rating agency CRISIL.

Advertisement revenue, which accounts for 45% of the pie, will see a sharper cut of 18%, while subscription revenue, accounting for 55%, will be relatively resilient with a likely decline of 14%.

The sharp drop in revenues will impair the debt metrics of the industry, while balance sheet strength and time to recovery will determine the overall impact on credit profiles. Ad revenue, which correlates strongly with economic growth, will take a hit as India’s gross domestic product (GDP) growth hurtles towards a multi-decade low this fiscal, owing to the extended lockdown driven by the pandemic. Weak economic conditions had kept advertisement revenue muted even last fiscal year.

The analysis is based on 78 media and entertainment companies rated by CRISIL. The base case assumes a lockdown of about two months followed by a gradual uptick in consumption. Any rebound in ad revenue hinges on economic growth. Given the low base likely this fiscal year, FY22 would see revenue grow 18-20%. The dynamics could change across segments as things are evolving continuously. Recovery in ad revenue will begin only after the lockdown ends.

“Overall ad revenue will plummet 18% this fiscal year, with the impact varying across segments,” Sachin Gupta, senior director, CRISIL Ratings, said in a statement, adding that in digital, it will continue to grow but at a slower pace.

“All the traditional segments –television, print, radio, out-of-home media, and films, in the order of impact from low to high, will see a significant decline. Excluding digital, the overall decline would be worse at 25%,” Gupta added.

TV, print and digital are the top three segments in terms of ad revenue, CRISIL said. The resilience of the digital segment is driven by increasing use of devices and applications, which should enable total revenues to grow to Rs. 15,200 crore from Rs. 14,000 over FY21. For TV, impact on ad revenue will also be because of lack of new content on popular channels and postponement of major sporting events such as the IPL (Indian Premier League), explaining the drop from Rs. 80,700 crore to Rs. 73,300 crore. For newspapers, longer recovery time for key advertiser-industries such as automobiles, real estate and e-commerce, would keep ad spend muted.

On the other hand, the top three segments for subscription revenue are TV, print and cinema, of which TV continues to be healthy even during the lockdown. Newspapers have faced distribution challenges in certain areas leading to a temporary blip in the circulation revenue. But a sharp fall in box office collections will curtail subscription revenue.

The movie business alone is estimated to drop from Rs. 23,600 crore Rs. 12,700 crore over FY21. The overall revenue loss of 25,000 crore for the industry will translate to significantly lower profits for companies despite cost-cutting measures.

“Given the sharp reduction in revenues, debt protection metrics will certainly weaken this fiscal for media and entertainment companies,” Nitesh Jain, director, CRISIL Ratings, said in a statement. “The large ones will surmount the stress given their ample liquidity and strong financials. But smaller players could see a sharp impact on their credit profiles as revenues decline and liquidity gets squeezed. Multiplexes that have had strong credit profiles will see credit pressure aggravating because of the longer road to recovery.”

source: livemint


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