Scores for Covid: Revenue of MSMEs to Touch Scores for Covid: Report

Almost all the MSME companies in the country this fiscal would surpass the revenue they achieved in the pre-covid period, but their operating profit could be well below the 2019 levels as they cannot pass on product price hikes, rating agency Kreppa said.

Almost all the MSMEs are expected to cross the pre-pandemic revenue levels. “The overall MSME sector is expected to return to 1.27 times its pre-Covid levels in terms of revenue this fiscal,” said Pushan Sharma, Director – Research, Crisil Market Intelligence & Analytics

But as many as 43 percent of India’s micro, small and medium enterprises (MSMEs) by value are expected to remain below pre-pandemic (FY’20) levels in terms of earnings before interest, taxes, depreciation and amortization (EBITDA) margins this fiscal due to inability to completely pass on high prices of some products coupled with unfavorable exchange rates, CRISIL MI&A Research’s SME report 2022 says.

While industry EBITDA margins are expected to touch pre-pandemic levels this fiscal, 43 percent of MSMEs by value will detract from the trend. About 30% of the 43%, in sectors such as chemicals, milk and dairy products, and packaged foods, will not reach pre-pandemic margins due to high prices of commodities such as crude oil and milk.

The remaining 13%, in sectors such as bulk pharmaceuticals and gems and jewellery, will fall short due to rupee depreciation (Rs 82.3/$ in October 2022 vs Rs 70.9/$ pre-pandemic) and other factors. ”

The Crisil report covers 69 sectors and 147 clusters that generated a total revenue of Rs 56 lakh crore, representing 20-25% of India’s GDP or two-thirds of the MSME universe.

Crude oil prices have risen significantly fiscally, averaging $104/barrel between April and October compared to $61/barrel before the pandemic. Crude and impure derivatives are used as inputs for many SME sectors, including chemicals, dyes and pigments, and road construction. Increase in feed prices, unavailability of green fodder and loss of milk production as the insemination rate was affected in the 2021 budget year due to shutdown led to an 11 percent increase in milk prices in 2022. Disease outbreak in this fiscal is expected to further increase the milk supply. price by 7 percent.

Industries such as chemicals and road construction are expected to witness EBITDA margin contraction of 250-300 points (one point is 0.01%) and 200-250 points respectively in this fiscal compared to pre-pandemic levels due to increase in crude oil prices. EBITDA margins are expected to contract by 50-100 basis points due to rising milk prices in agricultural sectors such as milk and dairy products and packaged foods.

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