Advertising revenue of media companies is expected to revive in the fourth quarter of the current financial year after running into the demonetisation bump in the three months ended December 2016, according to a report released by Edelweiss Securities.
In the third quarter of financial year 2016-17, media companies' revenue is expected to either decline or post low growth, the report said.
Typically, advertising spends are the highest in the third quarter, at 35-40 percent of the total allocation for the financial year.
Companies in the consumer goods or FMCG space, among the biggest spenders on advertising, pruned their expenditure after the demonetisation, Edelweiss said.
However, advertising spends by BFSI – banking, financial services, and insurance – companies, e-wallets and the government cushioned the blow for media companies, the report said. BFSI, digital payments firms and the government are expected to continue advertising, helping media companies' revenue in the fourth quarter.
We maintain that demonetisation will largely be a 2‐quarter blip as easing of cash crunch, good monsoon, rate cuts and Seventh Pay Commission will revive consumer demand gradually.Edelweiss Securities Report
The January-March quarter of financial year 2016-17 is also expected to see advertising spends from Reliance Jio Infocomm Ltd. and new launches by auto and FMCG companies, which will add to media companies' revenue, the report said.
We continue to believe that ad spends by FMCG sector will gradually revive post demonetisation as: 1) new launches will come back; 2) rural demand is likely to improve on budget stimuli and good monsoons; and 3) heightened competition from Patanjali.Edelweiss Securities Report
The brokerage also expects the Union Budget – on February 1 – will announce stimulus for rural and middle classes, which will boost demand and make FMCG companies increase advertising spends.
But the Goods and Services Tax may dent advertising expenditure, the report said.
IDFC Securities Ltd., in its third-quarter preview report released on January 7, expects a one percent year-on-year decline in advertising revenue compared to its earlier estimate of 10 percent increase.
The brokerage said that key sectors that cut advertising spends were FMCG, real estate, automobiles, mobile handset manufacturers, consumer durables and jewellery. Since the cuts were broad-based, advertising revenue across all mediums was impacted, it said.
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