Nearly all the MSMEs revenues in the country this fiscal would be surpassing the revenues they achieved in the pre-covid level, but their operating profits may be well below the 2019 levels as they are not able to pass on the commodity price increases, said rating firm Crisil.
Almost all the MSMEs are expected to cross the pre-pandemic level of revenue. “The overall MSME sector is expected to bounce back to 1.27 times the pre-Covid level in terms of revenue this fiscal,” said Pushan Sharma, director – of research, at Crisil Market Intelligence & Analytics
MSMEs revenues hike Percentage
But as much as 43 percent of India’s micro, small and medium enterprises (MSME) universe by value is expected to remain below the pre-pandemic (FY’20) level in terms of earnings before interest, tax, depreciation, and amortization (EBITDA) margin this fiscal because of inability to completely pass on the high prices in some commodities as well as an unfavorable exchange rate, CRISIL MI&A Research’s SME Report 2022 reveals
While the industry EBITDA margin is expected to touch the pre-pandemic level this fiscal, 43 percent of MSMEs by value will buck the trend. Around 30% out of the 43%, in sectors such as chemicals, milk & dairy, and packaged foods, will not reach the pre-pandemic margin level due to high prices of commodities such as crude oil and milk.
The remaining 13%, in sectors such as pharma-bulk drugs and gems & jewelry, will fall short of the mark due to rupee depreciation (Rs 82.3/$ in October 2022 compared with Rs 70.9/$ pre-pandemic) and other factors.”
The Crisil report covers 69 sectors and 147 clusters that logged aggregate revenue of Rs 56 lakh crore, representing 20-25% of India’s gross domestic product or two-thirds of the MSME universe.
Crude prices have risen significantly this fiscal, averaging $104/ barrel between April and October compared with $61/barrel pre-pandemic. Crude and crude derivatives are used as input for many SME sectors, including chemicals, dyes and pigments, and construction roads. An increase in fodder prices, unavailability of green fodder, and loss of milk production as the insemination rate was affected in fiscal 2021 due to the lockdown led to an 11 percent increase in milk prices in fiscal 2022. Disease outbreak this fiscal is expected to further increase milk prices by 7 percent.
Sectors such as chemicals and construction roads are expected to witness EBITDA margin contraction to the tune of 250-300 basis points (one bps is 0.01%)) and 200-250 bps respectively this fiscal compared with the pre-pandemic levels on account of arise in crude prices. Agriculture-based sectors such as milk & dairy and packaged foods are expected to witness EBITDA margin contraction of 50-100 bps on account of rising milk prices.