Rupee depreciation a boon to export-oriented MSMEs

CRISIL has studied the performance of 530 export-intensive micro, small, and medium enterprises (MSMEs) rated by it during 2013-14 (financial year April 1 to March 31). The study was conducted to estimate the impact of the depreciating rupee on the profitability of export-oriented units (EOUs). The overall sample showed an increase of 14 per cent in the operating profit before depreciation, interest, and tax (OPBDIT), due to a Rs 1 fall in the value of the rupee against the US dollar.

MSMEs engaged in the fields of agro-processing, information technology (IT), leather, and the pharmaceuticals and textile industries traditionally account for the highest number of EOUs amongst CRISIL-rated enterprises. The study further indicated that these sectors will demonstrate an average growth of about 19 per cent in their OPBDIT margins owing to a Rs 1 fall in the value of the rupee against the US dollar. The additional funds generated can be channelled into gaining market share through the offer of discounts on product and services.

CRISIL believes that a focus on brand-building can further boost profitability, as these MSMEs command significant employment and export potential but face challenges in promoting their products and services overseas. Increased emphasis on quality and standardisation, as well as training and skill development, can improve the production capability of these EOUs still further.

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Note: CRISIL has rated over 50,000 MSMEs in India. This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy.