MSMEs to bear bigger hit than large firms from West Asia conflict: Crisil
New Delhi, June 2
While COVID-19 impacted both large and small players, the burden of the prolonged West Asia crisis is double for Indian small and medium enterprises. The geopolitical turmoil will chop 100 bps off MSME revenue this fiscal, says Crisil.
Indian MSMEs are facing dual challenges amid the West Asia crisis - "production cuts and revenue losses due to reduced availability of raw material such as gas and, second, margin compression stemming from trade disruptions and limited pricing power to pass on increasing commodity and energy costs," the report said.
"Amid the Covid-19 pandemic, large players had seen revenue decline by 0-1% in fiscals 2020 and 2021, while MSMEs experienced a 3-5% drop. The Ebitda margin of MSMEs had also declined 80 bps to 4.7% in fiscal 2021," Crisil said.
Crisil further noted, "units heavily reliant on energy inputs, particularly those in clusters with limited access to gas or lower ability to switch to alternative fuels, will be hit hardest."
As per Crisil Intelligence's latest MSME Report, "revenue growth will moderate to 7.5-8.5%, down 100 basis points (bps) compared with fiscal 2026, while earnings before interest, tax, depreciation and amortisation (Ebitda) margin will decline 50-100 bps to 5-5.5%."
As per the report, "forecasts would have been more subdued but for the domestic gems and jewellery market, which is experiencing a value-led expansion, driven by a surge in gold prices."
Crisil further noted, "Morbi cluster, which accounts for over 80% of India's ceramic tile production, is a case in point. With 80-85% of its production gas-based, MSMEs which generate over 85% of the cluster's ceramic sector revenue will see revenue growth plummet from 9-11% in fiscal 2026 to 1-3% in fiscal 2027. This is largely due to export-oriented production (80-90% of output), with 20-25% of exports directed to the Middle East. Accordingly, their Ebitda margin is expected to decline 300-400 bps to 4-6% in fiscal 2027."
The increasing diesel prices will likely "impact MSMEs in sectors such as road construction, where fuel costs account for 8-10% of the total cost. We expect their margin to decline 50-100 bps to 8-10% in fiscal 2027," the report said.
Additionally, "increasing packaging costs will pressure margins in packaged foods, where packaging accounts for 10-15% of overall cost. As a result, the margin of MSMEs in this sector are expected to decline 50-100 bps to 6-6.5% in fiscal 2027," said Crisil.
— ANI
Reader Comments
The comparison with COVID-19 is interesting. Large players only saw 0-1% revenue decline back then, while MSMEs lost 3-5%. Now it's happening again...production cuts, margin compression, raw material shortages. Corporate giants have resources to weather these storms, but small business owners are left struggling. Hope RBI and government announce some support soon. 🙏
Crisil's report is spot on about the diesel cost impact on road construction MSMEs. Small contractors are already struggling with GST and cash flow issues. Now fuel costs are eating into their already thin margins. The government should look at reducing excise duty on diesel for MSMEs in the construction sector. Common sense policy, no? 🤔
I'm a small business owner in the packaged food sector, and the packaging cost pressure is real. Margins are already razor-thin at 6-6.5%, and every rupee increase in raw material or packaging hits us directly. The irony is that while gold prices are boosting gems and jewellery MSMEs, the rest of us are struggling. Diversification is key for policymakers.
The Morbi cluster example is devastating. 80-85% gas-based production, 80-90% output exported, and 20-25% of that goes to the Middle East. It's like a perfect storm for those ceramic tile makers. Revenue growth expected to drop from 9-11% to just 1-3%! 😢 The government needs to facilitate alternative fuel options and help them diversify export markets away from West Asia.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.