Surging metal prices and cheaper imports are impacting the profitability of MSEs manufacturing small electrical components and equipment. Additionally, intense competition and limited value-addition restrict their ability to pass on increases in input cost. Aluminium, copper and steel constitute around half of such cost. In the 12 months to September 30, prices of aluminium, copper and steel have surged 10-40 per cent.
An analysis of 250 such MSEs rated by CRISIL shows fluctuations in commodity prices have had an adverse impact on their profitability.
Additionally, demand for domestically manufactured products has been impacted because a 3.4 per cent rise in the rupee this year has made imports cheaper. Data from the ministry of commerce and industry show imports surged more than 40 per cent in the first quarter of this fiscal over the comparable quarter of last year. In fiscal 2017, imports had increased 10 per cent.
Higher input costs and lower demand are expected to crunch the operating margins of these MSEs to below six per cent this fiscal, or the lowest in the past four years. CRISIL believes muted profitability will impact the financial flexibility of the smaller manufacturers, and the expansion plans and near-term growth of the industry itself.
