Almost all MSMEs are expected to break through the pre-pandemic income level. “The overall MSME sector is expected to rebound to 1.27 times the pre-Covid level in terms of revenue for this fiscal year,” said Pushan Sharma, Director – Research, Crisil Market Intelligence & Analytics
But up to 43% of India’s micro, small and medium enterprise (MSME) universe by value is expected to remain below pre-pandemic (FY2020) level in earnings before interest, tax, depreciation and amortization (EBITDA) margin this fiscal year due to the inability to fully pass on high prices of certain commodities as well as an unfavorable exchange rate, reveals the SME 2022 report from CRISIL MI&A Research
While the industry’s EBITDA margin is expected to touch pre-pandemic levels this fiscal year, 43% of MSMEs by value will buck the trend. About 30% of the 43%, in sectors such as chemicals, milk and dairy products and packaged food, will not reach the pre-pandemic margin level due to high commodity prices such as crude oil and milk.
The remaining 13%, in sectors such as bulk pharmaceutical drugs and gemstones and jewellery, will be below the mark due to the depreciation of the rupee (Rs 82.3/$ in October 2022 against Rs 70, 9/$ before the pandemic) and other factors. ”
The Crisil report covers 69 sectors and 147 clusters which recorded aggregate revenues of Rs 56 lakh crore, which represents 20-25% of India’s gross domestic product or two-thirds of the MSME universe.
Crude prices have risen significantly this fiscal year, averaging $104/barrel between April and October, compared to $61/barrel before the pandemic. Crude and crude derivatives are used as inputs for many SME sectors, including chemicals, dyes and pigments, and construction roads. Rising fodder prices, unavailability of green fodder and loss of milk production as the insemination rate was affected in FY 2021 due to the lockdown resulted in an 11% increase milk prices in fiscal year 2022. prices by 7 percent.
Sectors such as chemicals and road construction are expected to experience an EBITDA margin contraction of 250-300 basis points (one basis point equals 0.01%) and 200-250 basis points respectively this year compared to pre-pandemic levels due to the rise in crude prices. Agriculture-based sectors such as milk and dairy and packaged food are expected to see an EBITDA margin contraction of 50 to 100 basis points due to higher milk prices.