Diversification boosts MSME revenues: CRISIL study

Micro, small and medium enterprises (MSMEs) can improve their revenues and boost their competitive advantage by diversifying across products, customers and geographies, according to a CRISIL study.

The study found that average sales of MSMEs with a diversified product/service, customer and geography base grew by 18 per cent in 2013-14, far higher than the 10 per cent growth chalked up by players with limited diversification. CRISIL believes that diversification enables an MSME to have a stable revenue stream and, therefore, heightens its competitive advantage vis-à-vis industry peers. The CRISIL analysis involved about 13,000 MSMEs rated on the basis of their 2013-14 (financial year April 1-March 31) financials.

The study also revealed that 60 per cent of MSMEs with a diversified profile had a longer track record (more than 10 years) and were backed by their promoters’ extensive experience, compared with only 45 per cent for MSMEs with a non-diversified profile.

Thus, track record and promoters’ experience are key factors that enable MSMEs to diversify and, thereby, demonstrate their ability to achieve high scalability and maintain a healthy growth trajectory.

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Note: This fortnightly tracker presents to our readers insights on MSMEs, a key element of India’s economy. CRISIL has rated over 75,000 MSMEs in India. The analysis is based on the latest audited financial statements (i.e., 2013-14) of CRISIL-rated MSMEs. Most enterprises finalise their audited financials for the previous financial year by the end of the second quarter of the current one.