As corporates continue to rationalise spends and discretionary costs post pandemic, advertising and promotions are likely to see cuts in the financial year 2021. According to Care Ratings estimates, advertising and sales promotion spends which raked in ₹39000 crore in FY20 may see a decline of 20-30% in FY21 as corporates earnings have eroded.
“The covid-19 pandemic led to a complete washout of the first quarter earnings (FY21) of most players operating in India, with minimal growth in selective sectors during July-September. Hence, nearly all companies are undertaking cost cutting measures and advertising spends being a discretionary spend, are being sharply reduced. …Television was the only medium for advertisers to resort to, but with weak economic activity and revival expected to be quite distant, advertising spending may stay muted until Q3-FY22. The impact of this black swan event of covid-19, on the advertising – driven media and entertainment sector shall be far reaching,” the rating agency said in a note on 2 September.
The aggregate advertising and sales promotion spending across all sectors in India during FY20 saw a nil growth despite big sports events like Indian Premier League (IPL), ICC Cricket World Cup, Football World Cups which typically attract large number of advertisers. Such negligible growth comes against the backdrop of a strong 22% rise in FY19. The data under review by Care ratings is based on a sample size of 833 companies across 38 sectors, sourced from Ace Equity.
Earlier, in FY17 and FY18 there was a modest rise in advertising and sales promotion spending as the economy was impacted by two prominent events – demonetisation and goods and services tax (GST) resulting in reduced spends by companies in second half of FY17 and initial quarters of FY18. This deterioration in advertising spending directly impacted revenues of players operating in industries such as television, print, radio, Out of Home (OOH), cinema among others.
According to the analysis, FMCG, automobiles and ancillaries, IT, banks and healthcare are the top five sectors that saw highest advertising and sales promotion spending in FY20. Though FMCG sector incurs the highest amount on advertising and sales promotion activities, such expenses form just 6% of this sector’s net sales. However, FMCG sector continued to be the highest spender ( ₹9,652 crore) on advertising and sales promotion activities in FY20. Automobile is still the second largest contributor for such spending, even after witnessing a major slowdown in consumer demand in the past year.
“There is no clear linkage between growth in sales and advertising and sales promotion spending by corporates. For some sectors like consumer durables where such spending grew by 8%, sales witnessed trivial growth of 0% in FY20, while for some sectors like retailing where advertising and sales promotion spending fell by 16% but net sales grew 24% in FY20,” Care Ratings said.
In FY20, the highest annual growth in advertising and sales promotion spending was in construction materials and banking sector of with 16% each.
Four sectors- automobiles and ancillaries, IT, healthcare and retailing- reduced their advertising and sales promotion spending in FY20. Except for automobiles and ancillaries, net sales of all these four sectors rose during the year, it said.
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