Report, Marketing and Advertising News, AND BrandEquity
The Fitch Group report adds that as imports have become expensive, the share of household newsprint in total consumption is likely to increase. This would improve the overall capacity utilization of domestic newsprint producers. The import duty, however, could have a negative impact on the EBITDA margins of domestic print media companies, particularly English-language dailies that rely heavily on imported newsprint.
India imported newsprint at an average price of Rs 43,000 / t in April 2019, down 14% from the FY19 average of Rs 50,000 / t; national players reduced their prices by 10 to 15% over the same period.
The impact of India’s free trade agreements with ASEAN, Korea and Japan will likely be limited, as these countries account for only about 15% of India’s newsprint imports. The majority of newsprint is imported from Russia and Canada, with the two countries accounting for about 50% of imports (FY19: 48%, FY18: 54%, FY17: 46%), according to the report.
Also Read: Digital Media To Reach $ 5.1 Billion, Overtake Print By 2021: Report
National producers will benefit
The report states that an increase in import prices would create a favorable environment for domestic players to increase their prices by 4% to 6% while remaining competitive. In addition, the imposition of the duty could encourage print media companies to reduce their imports, which could help to improve the capacity utilization of domestic actors, thereby increasing their profitability.
Therefore, the share of domestic manufacturers in total consumption may increase. The pace of the transition to home newsprint, however, would depend on the availability of quality newsprint compatible with print media machines.
The fall in international newsprint prices since Q4FY19 had forced domestic players to reduce their prices, and they were expected to witness a decline in their EBITDA margins during FY20. However, with the above-mentioned likelihood of higher prices and greater capacity utilization, the EBITDA margins of domestic newsprint players could improve. In addition, in the absence of any significant investment plan, the cash flow generated from higher realizations will support the credit metrics of national newsprint companies.
The share of the newsprint segment in the domestic paper production is generally only 7% to 8% due to high imports and marginal growth. As a result, most newsprint companies have branched out into more lucrative paper segments over the years. Ind-Ra released a report in July 2019, highlighting trends in the domestic and global paper industry as a whole.
Also read: Are we ready to say goodbye to social media for data privacy?
Negative for print media companies
The import duty on newsprint is likely to have a negative impact on the profitability of print media companies, especially English dailies, as they import 70 to 80 percent of newsprint requirements, the report adds. In fact, most of these companies’ machines are suitable for imported newsprint. In addition, the ability of these companies to pass on any increases in newsprint prices is limited; this is evident from the fact that the margins of these companies declined in FY19 as newsprint prices increased.
In addition, regional newspapers use a higher proportion of household newsprint in their mix. However, despite the imposition of import duties, prices for imported and domestic newsprint are expected to decline year-on-year in fiscal 2020 due to weakening global demand and increasing demand. offer. This should bring some relief to print media companies.
Rising prices led to a decrease in newsprint imports in FY19:
National demand for newsprint grew only 1% year-on-year in fiscal years 2016-19 due to the impact of increasing digitization. In addition, the industry has been heavily dependent on imports due to the cost competitiveness of imported newsprint; imports accounted for 52% to 62% of demand in FY13-FY18. India imported 1.37 million tonnes (mnt) of newsprint in fiscal year 2019 against a total demand of around 2.6 million tonnes.
Also Read: How Newsprint Taxes Will Hurt Our Democracy
However, since the start of Q4FY19, international newsprint prices have declined due to weakening demand and increasing supply, forcing domestic producers to lower their prices.