Nearly half of the small businesses will not be able to claw back their margins to the pre-pandemic levels even though almost all of them will be able to match the fiscal 2020 revenue levels this fiscal year due to the inability to completely pass on high commodity prices and the rupee's fall, PTI reported quoting Crisil Report.
The report is based on 69 sectors and 147 clusters, or two-thirds of the MSME universe, which logged an aggregate revenue of ₹56 lakh crore, representing 20–25 per cent of the GDP.
According to Pushan Sharma, a director at the agency, the overall MSME sector is expected to bounce back to 1.27 times the pre-pandemic level in terms of revenue this fiscal. While their operating margin is expected to touch the pre-pandemic level this fiscal for 43 per cent of MSMEs by value will buck the trend.
Around 30 per cent of this 43 per cent who are from sectors like chemicals, milk and dairy, and packaged foods, will not reach the pre-pandemic margin level due to the high prices of commodities such as crude oil and milk. The remaining 13 per cent from sectors like pharma (bulk drugs) and gems & jewellery will fall short of the mark due to rupee depreciation.
While the Indian rupee fell to 82.3 to the dollar in October, compared to 70.9 per dollar in the pre-pandemic era, crude prices have been averaging at USD 104/barrel between April and October, compared to USD 61/barrel pre-pandemic. Crude and crude derivatives are used as inputs for many SME sectors, including chemicals, dyes, pigments, and road construction.
Sectors, such as chemicals and road construction, are expected to witness operating margin contraction to the tune of 250–300 bps and 200–250 bps, respectively, this fiscal year compared to the pre-pandemic levels due to higher crude prices. Agriculture-based sectors like milk & dairy and packaged foods are expected to see their margins contracting by 50–100 basis points due to rising milk prices.
Sectors like air freight and courier services and travel agents, which were badly hit due to the pandemic, have yet to reach their pre-pandemic levels in terms of revenue, the report said.
Meanwhile, a report from Financial Express showed that SIDBI’s 59-minute loan approval scheme for micro, small, and medium enterprises (MSMEs), PSB Loans in 59 Minutes, has recorded only a 3.2 per cent jump in loan applications sanctioned as of November 1, 2022, from the year-ago period.
Banks sanctioned 2,43,140 loans amounting to ₹82,962 crore as of November 1, 2022, compared with 2,35,511 loans involving ₹78,738 crore sanctioned as of November 1, 2021, the report said, citing official data from the MSME Ministry’s dashboard.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.