Over one-fourth MSMEs lost 3% market share last fiscal: Crisil report

Over a fourth of micro small medium enterprises (MSMEs) lost more than 3 per cent market share due to the Covid-19 pandemic last fiscal, said a Crisil report.

Further, half of the MSMEs also witnessed their earnings before interest, tax, depreciation and amortisation (Ebitda) margins shrink due to a sharp spike in commodity prices last fiscal compared with pre-pandemic (fiscal 2020) levels, according to a CRISIL Research’s SME Report 2022 said.

Pushan Sharma, director at Crisil Research said that SMEs in several sectors saw market share loss of over 3 per cent and EBITDA margin erosion compared with fiscal 2020 last fiscal.

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He cited the example of pesticides SMEs that were hit badly by supply chain disruptions during the pandemic. Large companies in this sector, who had managed to procure raw materials due to their global presence, further ate into the SME’s share.

Edible oil SMEs too lost market share because COVID made people conscious of hygiene and they shied away from buying oil sold loose. Companies that also operated with low margins also suffered. “Pesticides and edible oil SMEs suffered margin contraction of 100 bps and 200 bps, respectively, due to partial pass-through — at less than 60 per cent — of increase in raw material costs,” Sharma added.

According to the Crisil report, transport operators, edible oil, gems and jewellery are the most vulnerable to Ebitda losses because of “slims margin of <3 per cent and limited input cost pass-through of under 60 per cent”.

The ones who did not lose market share

However, 40 per cent of the SME’s who did not lose market share at all were the ones who were dealing in “essentials” such as pharmaceutical and agricultural millers. Or, sectors such as the brass industry which anyway holds a large and significant share of the market.

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The geopolitical crisis had an impact for certain sectors such as textiles and pharmaceuticals, said the report. Cotton yarn exports have benefited from the US ban on Xinjiang, China-made items, apart from the China+1 policy. The readymade garment industry, which has a 70 per cent MSME share, made gains because of supply constraints in China, and from emerging global opportunities.

Pharma exports soared on pandemic-related demand, even as the domestic industry was struggling with lower volume demand. “Going forward, Tirupur-based MSME garment manufacturers could benefit from export orders diverted from an economically floundering Sri Lanka,” said Elizabeth Master, associate director, CRISIL Research, according to a report in a business daily.

As a majority of tobacco selling points remained closed due to health concerns, tobacco processing SMEs, which largely sell loose tobacco and bidi, gained market share.

In this kind of a situation, MSMEs should see 9-11 per cent revenue increase this fiscal to 1.25 times of levels seen in 2020, even as Ebitda margin is likely to hover at 5-5.5 per cent. This fiscal, the industry Ebitda margin is expected to touch pre-pandemic level but MSMEs in more than half the sectors will underperform. This is also because corporate India is expected to log a 10-14 per cent increase in revenue and Ebitda margin of 19-20 per cent, said the report.