CARE Ratings expects nearly 20-30 per cent decline in advertising and sales promotion spending in FY21, which will have a severe impact in the media industry. The coronavirus pandemic led to a complete washout of the first quarter earnings of most players operating in India, with minimal growth in selective sectors during second quarter. Hence, nearly all companies are undertaking cost cutting measures and advertising spends being a discretionary spend, are being sharply reduced.
The aggregate advertising and sales promotion spending across all sectors in India during FY20 stood at Rs 39,000 crore, a level similar to FY19, revealed a CARE Ratings analysis of 833 companies across 38 sectors. Such negligible growth comes after a strong 22 per cent rise in FY19. In the earlier years, these expenses witnessed a modest rise in FY17 and FY18 as the economy was impacted by two prominent events - demonetisation and GST, resulting in reduced spends by companies in second half of FY17 and initial quarters of FY18.
This fall in advertising spending directly impacted revenues of players operating in industries such as television, print, radio, Out of Home (OOH), cinema, the report added.
Fiscal year 2020 was a subdued year as it witnessed slowdown across most sectors, especially those that have discretionary demand such as automobiles, jewellery, hospitality and consumer durables. "With lower growth in an individual's personal income, consumption relatively reduced and hence net sales growth of corporates in India was also muted. Hence, companies tried to control their cost structures by lowering advertising and sales promotion spending," the report added.
Though, advertising and sales promotion spending are significant in absolute terms, they form less than 1 per cent of net sales and less than 2 per cent of total expenditure. However, it accounts for nearly one-third of the total selling and distribution expenses incurred by companies. This ratio has risen in past five years from 30.84 per cent in 2015/16 to 34.1 per cent in 2019/20.
FMCG, automobiles and ancillaries, IT, banks and healthcare are the top five sectors that have witnessed the highest advertising and sales promotion spending in absolute terms. Though, FMCG sector incurs the highest amount on advertising and sales promotion activities, such expenses form just 6 per cent of this sector's net sales. Automobile is still the second largest contributor even after witnessing a major slowdown in consumer demand in the past year. "The highest year-on-year growth in advertising and sales promotion spending was witnessed in construction materials and banking sector, of nearly 16 per cent each," the report added.
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