CRISIL SME tracker: For manufacturing MSEs, it makes sense to create brands

Micro and small enterprises (MSEs) with retail consumers enjoy a competitive edge and better financial metrics compared with peers if they have branded products, reveals a CRISIL SME Rating analysis of more than 350 rated MSEs in the textile — readymade garments (RMG), electrical products, fast-moving consumer goods (FMCG), and food products sectors.

This is because creation of brands helps MSEs build differentiation for their products and earn customer loyalty, thereby ensuring they command better prices and greater market penetration.

For MSEs, with brands in the analysis, the return on capital employed (RoCE) was also higher by 300 basis points, driven by superior margins.

Higher margins additionally resulted in accretion to reserves, helping the MSEs manage a proper mix of debt and equity to fund capital expenditure or increased working capital requirements. This, in turn, resulted in reduced interest obligations. MSEs with brands also had a lower gearing, compared with peers.

CRISIL, therefore, believes MSEs should plan and invest in brand creation. This will help enhance their visibility, recall and reach, and strengthen their competitiveness against peers.