Given the high cost of operations, the earnings before interest, tax, depreciation and amortisation (Ebitda) margin of about 43 per cent of the micro, small and medium enterprises (MSMEs) will remain below the pre-pandemic (FY’20) levels this fiscal.
The companies were not be able to completely pass on the high prices in some commodities and unfavourable exchange rate, reveals SME Report 2022 of Crisil Market Intelligence & Analytics released on Wednesday.
However, on the back of buoyant demand almost all MSMEs are expected to cross the pre-pandemic level of revenue front.
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, said the report.
The Crisil report covers 69 sectors and 147 clusters that logged aggregate revenue of ₹56-lakh crore, representing 20-25 per cent of gross domestic product (implying coverage of two-thirds of the MSME universe).
Pushan Sharma, Director (Research), Crisil MI&A, said the overall MSME sector is expected to bounce back to 1.27 times of the pre-Covid level in terms of revenue this fiscal.
High prices of commodities
While the industry Ebitda margin is expected to touch the pre-pandemic level this fiscal, about 30 per cent of the 43 per cent, in sectors such as chemicals, milk and dairy and packaged foods, will not reach the pre-pandemic margin level due to high prices of commodities such as crude oil and milk, he added.
The remaining 13 per cent, in sectors such as pharma-bulk drugs and gems and jewellery, will fall short of the mark due to rupee depreciation (₹ 82.3/$ in October compared with ₹70.9/$ pre-pandemic) and other factors, he said.
Crude prices have risen significantly this fiscal, averaging $104 a barrel between April and October compared to $61 a barrel pre-pandemic. Crude and crude derivatives are used as input for many SME sectors, including chemicals, dyes and pigments and construction roads.
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A few sectors are yet to reach the pre-pandemic level in terms of revenue. These include air freight and 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.