TV ad spends growth could be muted at 10 percent this calendar year (CY) as against 14-19 percent growth over the past 3-4 years, largely dragged down by weak volume growth of the FMCG sector, according to domestic brokerage firm Kotak Institutional Equities.
"FMCG ad spends growth decelerated in the calendar year 2016 due to a weak volume growth followed by impact of demonetisation. We expect recovery from demonetisation over the next 2-3 months or so, but recent increase in raw material prices can put some pressure on margins which in turn could constrain double-digit increase in ad budgets in calendar year 2017," it said.
The brokerage firm noted that funding constraints, lack of improvement in economics and consolidation will weigh on ad growth from the e-commerce sector.
"We note e-commerce ad spends grew many fold during calendar year 2013-15 and boosted TV ad spends growth. This category grew marginally below industry in CY 2016 even as it saw closures, ad budget cuts and consolidation thanks to the step up in advertising from mobile wallets.
"We expect this category to underperform TV industry in CY 2017 as well, unless there is a meaningful rise in ad intensity induced by Alibaba which is likely to enter Indian e-commerce space directly or through its investee companies in PayTM and Snapdeal." FMCG accounts for nearly 49 percent of TV ad spends, while e-commerce contributes around 7 percent of the TV ad expenditure, Kotak Institutional said.
It, however, said there could be potential triggers during the second half of fiscal year 2018 like strong Government stimuli to boost consumption, acceleration in unorganised-to-organised after implementation of GST, and rise in ad intensity led by Patanjali, Reliance Jio, which could have a positive impact on the ad spends.
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