Stimulus package to help print media

Budget provisions

The  budget proposes to continue with the stimulus package extended in February, 2009 upto December 31, 2009 to the Print Media comprising of waiver of 15% agency commission on DAVP advertisements and a 10% increase in the DAVP rates to be paid as a 'special relief' subject to documentary proof of loss of revenue in non-governmental advertisements.

Industry expectations

The industry proposes continuation of the stimulus package extended in February 2009 comprising of waiver of 15% agency commission on DAVP advertisements and a 10% increase in the DAVP rates to be paid as a 'special relief' subject to documentary proof of loss of revenue in non-governmental advertisements.

Budget impact

The extension of the stimulus package regarding DAVP advertisements would mean relief for the Print Media sector, which is reeling due to slowing advertising revenues. With the Election season over, the DAVP advertising would begin which would fill some of the revenue shortfall created by slowing economy.

The share of DAVP of the total advertising revenues is 10-20% and this extension of stimulus package will be beneficial.  But the sector will be impacted due to sluggishness in the Indian economy, and its adverse impact on print media spending by the private sector, which contributes over 80% of the ad revenues of the print media.

The hike in Minimum Alternate Tax (MAT) from 10% to 15% is an irritant for the corporate sector.  On the positive side, this hike has come with a benefit of extending the period allowed to carry forward the tax credit under MAT from seven years to ten years.

Also, the hike in MAT will not be earnings dilative but will only be cash flow dilative.  The increase in liability towards MAT will be matched by an incremental deferred tax credit.  Hence, the net profit or EPS of a company will not change due to hike in MAT from 10% to 15%.

But it will mean increase in cash outflow, and if the company is not returning to profits as per Income tax act within ten years, then it may have to forego them. So, from a current year(s) point of view, increase in MAT from 10% to 15% is not earnings dilative but cash flow dilative. On the other hand, the removal of Fringe Benefit Tax (FBT) is a major positive for Corporate India.

Stocks to watch

HT Media, Jagran Prakashan and Deccan Chronicle

Outlook

On an overall basis, the budget was positive for the Print Media sector. The DAVP advertising would fill some of the revenue shortfall created by slowing economy. However, the benefit  would not be major as the share of DAVP of the total advertising revenues is 10-20%. The Print Media sector has been hit by the slowdown with the advertising revenue growth expectation of less than 10%.