Credit rating agency Crisil in its latest report has said that as much as 43% of India’s micro, small and medium enterprises (MSME) universe by value is expected to remain below the pre-pandemic (fiscal 2020) level in terms of earnings before interest, tax, depreciation and amortisation (EBITDA) margin this fiscal (FY23) because of inability to completely pass on the high prices in some commodities as well as an unfavourable exchange rate.
The report stated that almost all the MSMEs, however, are expected to cross the pre-pandemic level of revenue. It said assessing the pandemic’s impact on MSMEs has been a challenge because of information asymmetry and lack of high-frequency data points in this space. The report plugs this hole by covering 69 sectors and 147 clusters that logged aggregate revenue of Rs 56 lakh crore, representing 20-25% of India’s gross domestic product (implying coverage of two-thirds of the MSME universe).
According to the report, sectors such as chemicals and construction roads are expected to witness EBITDA margin contraction to the tune of 250-300 basis points (bps) and 200-250 bps respectively this fiscal compared with the pre-pandemic levels on account of rise 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. Notably, a few sectors are yet to reach the pre-pandemic level in terms of revenue. These include air freight & courier services and travel agents, which have lagged because of inherent structural issues. For instance, the shift towards online travel aggregators has changed the dynamics of the travel industry, impacting SMEs. Similarly, digitalisation has impacted courier SMEs.
