Margins of most MSMEs to remain below pre-Covid levels this fiscal

Due to the higher cost of operations, the EBITDA margin of approximately 43 percent of MSMEs will remain below pre-pandemic (FY20) levels this fiscal.

Crisil Market Intelligence & Analytics’ SME 2022 report released on Wednesday revealed that companies weren’t quite able to pass on higher prices for some commodities and an unfavorable exchange rate.

However, against the backdrop of booming demand, all micro, small and medium enterprises are expected to exceed the pre-pandemic level of revenue.

The impact of the pandemic

The report said that assessing the impact of the pandemic on MSMEs has been challenging due to information asymmetry and a lack of high-frequency data points in this space.

The Crisil report covers 69 sectors and 147 groups which recorded a total revenue of Rs. 56 crore, accounting for 20-25 per cent of GDP (which means covering two-thirds of the MSME world).

Bhushan Sharma, Director (Research), Crisil MI&A said the overall SME sector is expected to rebound to 1.27 times its pre-Covid level in terms of revenue in this financial year.

Commodity price hike

While Ebitda’s industrial margin is expected to touch the pre-pandemic level this fiscal year, about 30 percent of 43 percent, in sectors such as chemicals, dairy, dairy and canned food, will not reach the pre-pandemic margin level due to the fact that it indicated High commodity prices such as crude oil and milk.

The remaining 13 percent, in sectors such as bulk pharma, gems and jewellery, will be below the mark due to the depreciation of the rupee ($82.3/dollar in October compared to $70.9/dollar before the pandemic) and other factors, he said.

Crude oil prices have skyrocketed this fiscal year, averaging $104 a barrel between April and October compared to $61 a barrel before the pandemic hit. Crude and raw derivatives are used as inputs for many sectors of small and medium enterprises, including chemicals, dyes, pigments, and construction methods.

There are a few sectors that have not yet reached the pre-pandemic level in terms of revenue. These include air freight, courier and travel agent services, which have been delayed by inherent structural problems. For example, the shift towards online travel aggregators has changed the dynamics of the travel industry, affecting small and medium businesses. Similarly, digitization has affected small and medium-sized businesses.