Ease of Doing Business for MSMEs: The reasons for sale spanned across issues related to credit, supply chain, apart from relocation, new business launch, competition, lack of customers, and more.
Ease of Doing Business for MSMEs: Covid-related stress has taken a significant toll on MSMEs particularly micro and small businesses across sectors. In fact, a number of such enterprises such as restaurants, supermarkets, beauty salons, pharmacy stores, kirana stores, logistics service providers, manufacturers, and more have been looking to sell themselves due to various challenges since Covid struck last year. The reasons spanned across issues related to credit, supply chain, apart from relocation, new business launch, competition, lack of customers, and more, according to a number of such micro-enterprises Financial Express Online spoke with.
“There are multiple reasons to sell the business. After the second lockdown, the customer base gradually decreased for us while financially also we have been in a very complicated situation. We are currently at a loss of around Rs 25 lakhs. Moreover, the customer base has also reduced. This led to lower sales for us,” said a supermarket owner based in Hyderabad. Such units who shared their reasons to sell businesses sought anonymity in their comments.
Likewise, a Chennai-based manufacturer of air fresheners is also looking to sell his business and move to new opportunities with the lesser offline or physical setup. “Our sales turnover has been badly hit amid impact on supply chain due to Covid. While recovery is there but I want to look at other avenues where there is less hassle due to Covid-like situations and minimum physical presence.” Then there is a private school in Bahraich, Uttar Pradesh whose owner wants to shift abroad and sell it as parents are hesitating to send children to attend classes due to Covid fear while parents don’t have the wherewithal as well for digital education of their kids. Similarly, an adventure park owner in Hyderabad wants to sell it since “it is demanding a lot of our time,” he said. The owner’s primary business is microbreweries that was impacted during Covid. However, with the ease of lockdown restrictions and recovery in demand, the owner wants to dedicate more time to it now.
“Post-Covid, majority of small businesses have been looking to sell themselves due to issues such as health issues, lockdown-related challenges, working capital issues, etc. So Covid has significantly affected them,” Vishal Devanath, Founder, SMERGERS told Financial Express Online. SMERGERS is an online investment banking platform facilitating buying and selling of businesses online.
According to the data from SMERGERS on MSME buying and selling, of the total 1.65 lakh businesses listed for sale, 52,000 came onboard from April 1, 2020, onwards out of which 7,000 are verified or approved listings. In fact, before Covid, the daily average of businesses listing for sale was 10 that increased to 20 before the second wave, and is currently about to cross 25.
“It would cross 25 this month but I think it would remain at that level for at least the next six months now. Currently, we have 5,000 businesses looking to get listed. However, we may end up putting only around 1,000 on our platform following their verification as many of such enterprises are often not legitimate or registered. Also, we need to understand who are their owners, why they are looking to sell, and other details,” added Devanath.
Even as small businesses were hit hardest due to Covid, which reportedly led to the closure or temporary shutdown of some of these units, there is no official data on the number of such shutdowns. “As MSMEs are there in both formal and informal sector, data regarding temporary or permanent closure of the units are not maintained by the Government of India in Ministry of MSME,” former MSME Minister Nitin Gadkari said in a written reply to a question in the Rajya Sabha. Last year as well in September, former MSME MoS Pratap Chandra Sarangi in Rajya Sabha had said that “no such record is available” for the number of MSME units shut down during the March-August 2020 period of the pandemic. In fact, there is no data with the government on the number of MSMEs closed down from FY15 to FY20, Sarangi had said.
While micro and small enterprises are looking to sell themselves, the scenario at the ecosystem level seems to be moving towards recovery. For instance, according to the latest edition of the Retail Business Survey by the Retailers Association of India (RAI), retail sales in August 2021 were at 88 per cent of the pre-pandemic levels (August 2019), as against 72 per cent in July 2021. In categories, Quick Service Restaurants (QSR) showed signs of growth with 12 per cent sales in August 2021 as compared to August 2019 sales, while the food & groceries category indicated a growth of 4 per cent. However, beauty & wellness, which included salons, apparel, footwear and jewellery were yet to catch up to the pre-pandemic levels of sale.
“Laggards are still the garments, footwear, jewellery, and beauty & personal care. The indication of customer cheer is related to these items while electronics, food, and QSR are doing well. Consumer durable is on the right path as well. We can get the remaining 12 per cent recovery by October if there is no third wave. Retailers are sitting with cautious optimism as we are seeing customers now coming out for shopping and eating,” Kumar Rajagopalan, CEO, RAI had told Financial Express Online.
“There is not much of an overall impact now. Things are turning normal. While initially last year, there were challenges due to the lockdown but in the past few months, recovery is visible as customers are coming back. Most of the sectors are doing alright except hospitality and travel and tourism,” Dinesh Rai, Former Secretary, Ministry of MSME and Founder Chairman, Alliance of Indian MSMEs told Financial Express Online.