Credit and Finance for MSMEs: The increase in the cost of procuring raw materials in machine tools manufacturing, especially when the costs of imported aggregate goods and components scale up that lead to supply chain impact, is a challenge for MSMEs as it impacted product delivery and affected business, Anbu Varathan, Director General & CEO, Indian Machine Tool Manufacturers’ Association (IMTMA) told Financial Express Online. The association, formed in 1946, represents nearly 500 machine tool makers – around 90 per cent of the organised machine tools and allied equipment manufacturers in the country. The machine tools market has been among the worst-hit sectors due to a significant impact on the auto industry that had plummeted to zero sales in April 2020 due to the national lockdown.
“The jump in the cost of aggregates has impacted us as well. For example, steel prices have gone up, and currently, we are not in a position to pass it on to our customers. Hence, our margin will take a hit. Sheet metal prices have also increased 20 per cent due to an increase in steel prices,” Chandrashekara Bharathi, Founder, AceMicromatic Manufacturing Intelligence Technologies and member, IMTMA told Financial Express Online. Also, exchange rates have risen steadily over the years, whether it’s USD or Yen, hence, “whatever imports we have made such as control systems from Japan and Germany, it has impacted our profitability particularly at a time when customers demand better pricing,” he added.
The auto sector witnessed an impressive growth during the first quarter of FY22 amid ease in lockdown restrictions and phased restart of factories and businesses. As per the data by the Society of Indian Automobile Manufacturers (SIAM), Q1 saw 113 per cent growth in domestic sales to 3,180,039 units vis-a-vis 1,492,612 units during the year-ago period.
“Indian machine tools industry has been largely dependent on the auto sector. Whenever the auto sector is strong, the machine tools industry is strong. Emerging user industries such as aerospace, defence, railways, power, medical equipment, electronics, etc. also provide good business opportunities for the machine tools industry. However, whenever there is degrowth in the auto sector or any of these other user industries, the machine tools industry is impacted,” added Varathan.
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However, MSMEs have been reluctant to invest in new technologies as a large amount of capital investment is required. Varathan said companies also shy away from investing in digital technologies as they evolve at a very fast rate even as companies need to create a ready pool of workforce that can use those digital technologies. “Around 50 per cent of our customers are MSMEs who are experiencing cost pressure on the labour front and procurement front. While growth in the auto sector is good for the machine tools sector but it isn’t enough to potentially create a large-scale difference to what is happening to machine tools companies in the short term,” said Bharathi.
According to the association, the increase in budget outlay for railways, power, infrastructure, etc., is expected to trigger demand for capital goods and machine tools. The new growth sectors identified by the government with Production-Linked Incentives are also expected to spur the demand for machine tools. Moreover, IMTMA said the Reserve Bank of India’s one-time loan recast for companies under stress due to the Covid outbreak is expected to benefit MSMEs that are under financial stress besides helping their cash flow situation. “The Indian machine tools industry expects a growth of around 8-10 per cent, primarily driven by infrastructure spending and investments in emerging and champion sectors,” Ravi Raghavan, Vice President, IMTMA told Financial Express Online.