Sakal Media’s broadcasting biz expected to turn profitable in FY20: ICRA

MUMBAI: Having registered a 67% growth in FY19, Sakal Media Pvt Ltd‘s (SMPL) broadcasting business is expected to turn profitable in FY20, according to credit rating agency ICRA.

SMPL is a Maharashtra-based publishing house that publishes newspapers in Marathi and English. Its flagship publication, Sakal, is a daily Marathi newspaper with a strong presence across the state.

The company also operates a broadcasting media business under Saam TV, a Marathi news channel. Apart from the media business, SMPL also organises events and exhibitions at different cities in Maharashtra, with Sakal Utsav organised in Pune being a popular shopping event.

In FY19, the company reported a consolidated net loss of Rs. 3.8 crore on an operating income of Rs. 536.6 crore, as compared to a net profit of Rs. 29.5 crore on an operating income of Rs. 541.9 crore in the previous year. The 2019 net profit was also impacted due to high amortisation expenses recorded for the goodwill arising out of the demerger transaction.

SMPL’s advertisement revenue declined by 3.9% in FY19 primarily due to a decline in revenue from the auto, real estate, and education sectors. The auto industry and Pune’s real estate market have always remained the major drivers of SMPL’s advertisement revenues and the slowdown in these sectors has constrained the advertisement budgets of corporate firms.

ICRA expects advertisement revenue to remain largely stable in the near term, because of limited advertisement budgets of corporates.

In H1 FY2020, as per provisional financials, the company reported OPBITDA of Rs. 41.6 crore on an operating income of Rs. 261.9 crore.

ICRA has reaffirmed credit ratings for SMPL’s bank loan facilities worth Rs 170 crore. The rating agency has taken a consolidated view of SMPL and Sakal Papers Private Limited (SPPL), which is an asset holding entity while arriving at the rating.

SMPL was formed by demerging the print media business of SPPL, effective from March 31, 2017. After the demerger, the land and building were held by SPPL. SMPL utilises SPPL’s fixed assets on lease basis for its print media business. Further, the two companies enjoy a common management and derive significant business and financial synergies from each other.

The rating reaffirmation reflects strong brand recognition of SMPL’s flagship publication, Sakal, a leading Marathi newspaper and its leadership position in the Pune market.

SMPL has experienced management and editorial teams, which ensure quality content. The same is reflected in its steady circulation volumes amid intense competition in the print media industry. The rating also takes into consideration the comfortable financial risk profile of SMPL, characterised by low gearing and healthy debt coverage indicators.

The rating also factors in the expected improvement in revenue and profitability in the broadcasting segment, post-conversion of the SAAM TV channel from a general entertainment channel to a Marathi news channel in 2018. In FY2019, the revenue from the broadcasting segment grew by 67%. ICRA expects the broadcasting segment to turn profitable from FY2020.

The rating remains constrained by SMPL’s concentration on a single publication with Daily Sakal driving about 90% of the circulation revenues and its high dependence on the Pune market, which derives 41% of circulation revenues. SMPL’s geographical concentration makes it vulnerable to the risks related to the micro-market.

Moreover, the company’s operating margin remains vulnerable to global newsprint prices and foreign exchange fluctuations, given that imported newsprint account for more than 65% of SMPL’s total newsprint costs. A sharp increase in newsprint costs during FY2019 resulted in a reduction in SMPL’s operating profit margin to 10.1% over 13.8% in FY2018.

Going forward, as newsprint prices have started moderating in the current year, coupled with SMPL’s cost-cutting measures will help to improve its profitability over the near term. The rating factors in SMPL’s high dependence on advertisement revenues that remain susceptible to various exogenous factors such as socio-political events and economic cycles.

The rating is also constrained by substantial investments made by the Group in the real estate; the quantum and recoverability of such investments in future will remain a key monitorable. ICRA also notes that the print media industry is characterised by a declining readership base owing to increasing competition from digital media. Hence, the long-term growth prospects of the industry remain muted.

Through SPPL, the group has invested to the tune of Rs. 194 crore in real estate (56% of FY2019 net worth). The investment is done through optional convertible debentures, partnership stake and inter-corporate deposits with three different real estate players. The quantum and recoverability of such investments in the future will remain key rating monitorables.

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