COVID-19 Impact: Small businesses suffer a sharp contraction in net sales growth

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Due to the COVID pandemic and the following lockdown affected the small businesses in India witnessed a sharp contraction in net sales growth during Q1 FY21 from the year-ago period. As per the Q1 performance analysis of 747 small businesses by Care Ratings, their net sales saw negative growth of minus 66.7 per cent from Q1 FY20. The study said that it can be seen that at the aggregate level companies having net sales less than Rs 25 crores recorded a sharp contraction in net sales growth during the quarter.

The assessment of small businesses shows that it was part of a performance sample of 1,666 companies sourced from Ace Equity, which had published results till September 1, and registered minus 25.3 per cent growth in net sales during the quarter of the year,5.7 per cent growth for the same period FY20. The contraction for entities with net sales of Rs 25-50 crore stood at minus 56.3 per cent and for businesses with Rs 50-100 crore in net sales, it was minus 57.8 per cent. Likewise, for companies with net sales of Rs 100-250 crore, Rs 250-500 crore and over Rs 500 crore, the negative growth noted was 43.3 per cent, 40.2 per cent and 22.4 per cent during Q1 FY21 in comparison to Q1 FY20.

Following the pandemic, most of the small businesses had narrowed their operations to negligible or no growth at all while others had to temporarily shut operations even as demand plunged on one hand otherwise workers had returned to their hometowns amid lack of work. As per the Crisil survey reported in June, MSMEs are staring at a sharp decrease at 17-21 per cent in revenues. Crisil added that the earnings before interest, taxes, depreciation and amortization for MSMEs will shrink to be 200-300 basis points to 4-5 per cent as weak demand gnaws away gains from lower commodity prices.

RBI’s August bulletin showed that, due to COVID impact, the growth in gross bank credit by banks to micro and small enterprises (MSEs) in June was up 6.5 per cent to Rs 11.32 lakh crore, which was the top in Q1 FY21, from Rs 10.62 lakh crore a year-ago period. Under the Rs 3 lakh, crore Emergency Credit Line Guarantee Scheme for MSMEs, banks and NBFCs had disbursed Rs 1.11 lakh crore to 24 lakh COVID-hit MSME accounts. The government had said that it would benefit 45 lakh MSME units to resume their business effectively.

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