Events & Activation grows 15% annually fm 2011-12: EY-EEMA report

08 Apr,2015

 

The organized events industry has grown at 15% annually from INR2,800 crore in 2011-12 to INR4, 258 crore in 2014-15.

 

Managed events remain the largest service offering, but, IPs (Intellectual Property) and digital events are growing at a faster rate than managed events. IPs continue to provide a disproportionately high share of revenues to their owners and activations are increasing in importance; however, managed events are beginning to get commoditized.

 

Survey respondents have increased their staff strength from an average of 55 employees in 2011-12 to 84 employees in 2014-15, which has resulted in payroll costs increasing from 13% to 18% of total costs. EBIDTA margins are in the 10%-15% range.

 

The key strengths of the industry remain the ability to get things done, ideation and efficiency, while there is a need for the industry to work on acquiring the right talent, managing costs, demonstrating ROI to marketers and increasing transparency in operations.

 

Future trends

The industry is expected to grow at 16%-17% to reach INR5, 779 crore in 2016-17, on the back of marketers increasing their below the line (including digital) spends to 21% of their total marketing spends. The growth will be led by personal events, MICE (meetings, incentives, conferences and exhibitions), activations and sports. Most survey respondents are expected to develop one to three IPs over the next few years.

 

Non-metro markets are expected to increase in importance as marketers look to tier II and tier III cities for incremental growth. Digital events and activation is also expected to grow significantly on the back of smart phone penetration, internet availability and the cost efficiency of such campaigns for marketers.

 

Margins are expected to decline from an average of 16% to 13% over the next two years, mainly due to a growth in overall costs by 12%, and more particularly in payroll costs by 15%, as companies expect to increase their average headcount from 84 to 104 employees.

 

Mergers and acquisitions

While the industry has reported very few M&A transactions over the last few years, there exists scope for consolidation. More than 50% of deal activity over the last few years has been inbound (foreign companies buying into India). However, deal values are usually sub-US$10 million. Valuations are driven by IPs owned, advertising agencies’ interest in activations and digital events and sports leagues.

 

Tax implications

Taxes continue to be a large cost for event companies in India. There are several challenges such as double taxation, taxation across multiple states and varying and inconsistent application of different taxes. The introduction of Goods and Services tax could have a significant impact on the industry in terms of rates and implementation across multi-state activities.

 

Governance, risk and control

The introduction of the new Companies Act, 2013 will result in a more comprehensive approach to governance, risk and control for events and activation companies. Key changes will be in internal financial controls, compliance with more than 60 acts and regulations, and implementing a vigil mechanism to identify undesirable activities.

 

EEMA wishlist

There is a need to grant industry status to the events and activation industry, enable single window clearances, manage withholding and other tax issues and enable skill development for the industry.

 

Vision 20:20

In order to succeed in the future, the industry needs to work towards the following initiatives:

> Internal aspects: Improve the quality of talent through skill definition for various jobs, skill development, job security, compensation benchmarking and implementation of health and safety standards. The industry must build robust olicies, processes and information systems to manage business efficiently and safely, and implement technology and automation.

 

> External aspects: The industry needs to work on its positioning to marketers, build an account focus and demonstrate returns more effectively. There is a need to improve the supply chain by developing quality vendors, implementing a system of vendor accreditation and improving overall risk management. The regulatory ecosystem needs to be made more conducive by simplifying taxation, permissions and copyright issues.

 

> Strategic aspects: The industry must build more IPs focused on defined communities of interest to marketers, and embrace the opportunity provided by marketers’ increasing spends on digital media.

 

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