New Delhi, December 20: CRISIL conducted a research on 9,200 SMEs in India based on their legal constituion in the financial year 2011-12. The study shows that MSMEs operating as proprietorship concerns and partnership firms earn a higher return on capital employed (RoCE) than their corporate counterparts, largely private limited companies. The analysis also shows that firms had lower operating profit (OPBDIT) margin of 6.30 per cent during 2011-12 as against 7.91 per cent for corporates.
In the essay, 'SMEs: An opportunity to earn higher returns' on the CRISIL website, India's micro, small and medium enterprises - the SME segment - contribute enormously to the country's economic growth. The SME segment accounts for 45 per cent of the country's manufacturing output, 40 per cent of its exports, and more than 12 per cent of its GDP.
The SME segment offers a veritable financing opportunity for banks, non-banking financial companies, private equity players and venture capitalists. Over the past four years, the SME portfolio of banks has grown at a compounded annual rate of 23 per cent - faster than the credit growth of the banking sector.
Promoters of non-corporates largely deploy their funds in their business as unsecured debt, and therefore CRISIL has considered RoCE rather than return on equity (RoE) for this analysis.
Firms have significantly lower average capital employed of '426 lakh as on March 31, 2012 as against '1,567 lakh for corporates, and therefore the firms generated higher rate of return on their capital.