Revenue outlook bright for electronics SMEs: Crisil SME Tracker

Buoyant consumption of electronics is expected to boost the top lines of small and medium enterprises (SMEs) in the sector in India in the current fiscal year (FY23), though rising input costs could limit the growth in their margins.

Consumption of electronics in the domestic market is estimated to grow 15-20 per cent to Rs 11-12 trillion, compared with 18-22 per cent growth last fiscal (FY22).

A raft of factors support demand for mobile, consumer and industrial electronics, which account for 50-55 per cent of total consumption — rising disposable incomes, faster replacement cycles, easier payment terms, increasing internet penetration, rising temperature, and developments in auto, electric vehicles, and power segments, to name some. 

Domestic production of electronics is also expected to clock 18-22 per cent growth this fiscal, riding on the Production Linked Incentive scheme for mobile phones, white goods, and information technology hardware.
 

The outlook, therefore, is bright for SMEs in the sector, which benefit from component outsourcing and account for 25-35 per cent of the industry’s consumption. For the record, SMEs play an important assembling role in consumer and industrial electronics.

This fiscal, SMEs are expected to log a revenue growth of 13-16 per cent year-on-year (YoY), driven by mobile phones, consumer and industrial electronics, computer hardware, and strategic electronics. Mobiles are likely to be at the vanguard.

As for margins, after a YoY contraction last fiscal, SMEs are likely to see a subdued expansion of up to 20 basis points this fiscal as higher raw material prices, lack of bargaining power, limited ability to pass-through incremental costs, and shortage of semiconductors offset the benefits of high revenue trajectory.