The 2nd edition of MSME Sampark finds a vibrant growth in business and borrowing among MSMEs:
UGRO Capital, in collaboration with Dun & Bradstreet release of the 2nd edition of the MSME Sampark, a bi-annual analysis of the MSME lending ecosystem. The comprehensive report analyzed 39,000 MSMEs and 12,000 small businesses across 7 key sectors. It found that borrowings by MSMEs are increasing, largely through collateralized loans.
UGRO Capital Founder & Managing Director Shachindra Nath said: “NBFCs have significantly bolstered MSME growth, with a 15% CAGR in AUM over the past 5 years. UGRO Capital has already disbursed loans to over 140,000 MSMEs. The MSME Sampark Report offers a clear view of how resilient and vital MSMEs are to India’s economy, reflecting the core belief – that ‘MSME Accha Hai’. With enhanced formalization, credit access, and support from financial institutions, MSMEs are leading the way toward a stronger, more prosperous India.”
NOTABLE FINDINGS
- The registration of women-led MSMEs on the UDYAM portal is doubling annually. They contribute to 20% of the jobs created by MSMEs, even though they account for only 10% of investment and turnover.
- MSMEs continue to recover postpandemic, with over 50% of the studied sample recording more than 10% yoy growth in sales from May 2021 to March 2024.
- The proportion of working capital loans to total secured debt (working capital and long-term secured loans) increased from 66% in Q1 2023 to 71% in Q4 2023.
- The debt-to-turnover ratio of MSMEs has improved in the 7 sectors for the quarter ending March 2024 compared to the quarter ending September 2023. This improvement is evident in firms with a turnover of less than Rs 50 mn in the light engineering, food processing, hospitality, and healthcare sectors. This varies across the other 3 sectors, i.e. electrical equipment (Rs 100-200 mn turnover), chemicals (Rs 50-100 mn turnover), and auto components (Rs 100-200 mn turnover).
- Average new debt has also improved across different sizes of firms, with those having more than Rs 200 mn turnover witnessing the most increase across all 7 sectors.
- The increase in the share of regular term loans from 57% in 2020 to 88% in 2023, along with the rise in the proportion of larger ticket loans (>Rs 1 mn) from 19% in 2020 to 40% in 2023 for micro enterprises, reflects lenders’ confidence in the resilience and potential of these firms.
SECTOR HIGHLIGHTS
Light Engineering: MSME revenues increased by 16% in FY23, compared to 29% in FY22 (from a low base), driven by domestic demand from industries, such as automobile, infrastructure, consumer durables, defence, and railways. The net working capital cycle reached the prepandemic levels of 73 days, signalling the normalization of the trend. Investment in this sector is driven by automation, robotics, and high-precision and high-efficiency tools. Semi-finished and finished metal works are the dominant sub-industries with the highest market size. Maharashtra is the dominant state for this sector, while Gujarat is strong for plastic, glass and ceramic products.
Food Processing: MSMEs in this sector have shown double-digit revenue growth over the past 2 years. Processed food exports as a share of agricultural exports increased from 13.7% in FY14 to 25.6% in FY23, even as their share in total household consumption expenditure nearly doubled from FY05 to FY23. Oil seeds/oil, fruits and vegetables, bakery, and cereals are the dominant subsectors. Compared to other sectors, the cash proportion is the highest in the food processing industry. The dominant markets are Maharashtra, Gujarat, and Rajasthan.
Electrical Machinery: Revenue grew by over 20% for MSMEs in this sector for 2 consecutive years till FY23, likely driven by higher external demand increase in domestic demand from sectors like railways, defence, power, etc. The dominant sectors are electronic equipment, electrical appliances, electronic machines, and electrical circuit components. Maharashtra is the dominant market and subsector hubs are Gujarat and New Delhi.
Chemicals: Investment in this sector is driven by increasing domestic demand from the automotive, textiles, construction, water treatment, and plastics industries. The sector includes insecticides, fungicides, washing agents, fertilizers, etc. Prominent subsectors are plastic and rubber products, minerals and constructional goods, and coloring matters. Maharashtra is the dominant market, with Gujarat and Karnataka being subsector hubs.
Hospitality: FY23 showed robust revenue growth, up 83% yoy, driven by increased domestic leisure travel and foreign tourist arrivals. Personnel services, transport and logistics, travel rental, and hotel/ tourism/ dining constitute a large part of the sector with the highest debtto-turnover ratio in the hotel/ tourism and F&B industry. Maharashtra is the dominant market. Gujarat, Karnataka, and Tamil Nadu are the subsector hubs.
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