Corona: Pressure on the margins of MSMEs

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Mumbai, Ta. 21 July 2020, Tuesday

The five per cent slowdown in the country's economic growth in the current financial year is expected to have a serious impact on micro, small and medium enterprises (MSMEs), especially micro units.

In addition to the long-term liquidity crunch, MSMEs are now facing a decline in demand and a shortage of workers. Financial institutions are avoiding funding MSMEs. All these factors are exacerbating the financial situation of the MSME sector, a report said.

In the current financial year, MSME revenue is likely to decline by 15 to 21 per cent, according to a Crisil report.

Due to the impact of coronavirus on demand, MSME's EBDita (interest, tax, depreciation and profit before amortization) margin is expected to fall to 7-8 per cent from an average of 7 per cent in the last four financial years. The fall in commodity prices is having an impact on margins.

Transport operators' revenue will remain weak despite lower fuel prices. Weak freight demand and low capacity utility are putting pressure on transporters' income. The need for working capital will also increase for MSMEs which account for higher BTB sales and exports.

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