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SMED I G E S T

• Exploring new funding options in MSMEs space

Benefits of MSME Registration

Impact of Section 185 under new Companies Act 2013

Technology Upgradation Fund Scheme – A thrust to textile and jute industry

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CARE

JULY - DECEMBER 2014

CARE SME Digest Jul-Dec 2014

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About CARE RatingsCARE Ratings commenced operations in April 1993 and over nearly two decades, it has established itself as the second-largest credit rating agency in India. With the rating volume of debt of around Rs.57,111 billion (as on March 31, 2014), CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings has also emerged as the leading agency for covering many segments like that for banks, sub-sovereigns and IPO gradings.

CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

With majority shareholding by the leading domestic banks and financial institutions in India, CARE’s intrinsic strengths have also attracted many other investors.

CARE’s registered office and head office is located at 4th floor, Godrej Coliseum, Somaiya Hospital Road, Sion (East), Mumbai - 400 022. It has also started its second office in Mumbai at Andheri since June 2013. In addition, CARE has regional offices at Ahmedabad, Bangalore, Chandigarh, Chennai, Coimbatore, Hyderabad, Jaipur, Kolkata, New Delhi, Pune and international operations in Male’ in the Republic of Maldives. With independent and unbiased credit rating opinions forming the core of its business model, CARE Ratings has the unique advantage in the form an External Rating Committee to decide on the ratings. Eminent and experienced professionals constitute CARE’s Rating Committee.

CARE’s SME VerticalValue-added services for SMEs

• Wide product offering: MSE Rating, SME Rating, Bank Loan Ratings, Due Diligence Services, Channel Partner Evaluation• Data base of more than 6,000 SME entities • SME digest: A Quarterly publication for analytical inputs• SME Newsletter: Daily publication on news in SME sector• Operating from ten branches across India• MoU with leading banks for interest & rating fee concession • A team of qualified analysts

Compilation Team

Yogesh Dixit : Chief General Manager Email: [email protected] Cell: +91-22-6754 3456

Yogesh Shah : Dy. General Manager Email: [email protected] Cell: +91-79-4026 5603

Nitin Jha : Manager Email: [email protected] Cell: +91-79-40265619

Sameer Shaikh : Graphics Designer Email: [email protected] Tel: +91-22-6754 3452


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Table of ContentFrom DeskMr. D. R. Dogra, MD & CEO - CARE Ratings .............................................................................................................6

Mr. Yogesh Dixit, Executive Vice President & Head - SME, CARE Ratings ...........................................................7

Research & Articles1. Exploring new funding options in MSMEs space .................................................................................................10

2. Benefits of MSME Registration ................................................................................................................................12

3. Trend of PE Investments in MSME segment .........................................................................................................16

Learning1. Impact of Section 185 under new Companies Act 2013........................................................................................20

2. Technology Upgradation Fund Scheme – A thrust to textile and jute industry ...............................................25

Rating Guide1. Rating approach for SME/MSE ratings ...................................................................................................................32

2. NSIC-CARE MSE Rating Scale & Definitions ........................................................................................................34

3. SME Rating Scale & Definitions ...............................................................................................................................35

Leading SMEs1. Analysis of highly rated Small-Scale entities .........................................................................................................38

2. Summary profile of micro & small enterprises rated by CARE ..........................................................................39

3. Profiles of top rated micro & small enterprises .....................................................................................................40

Recognition1. Testimonials from entities rated by CARE .............................................................................................................53

Awareness Efforts1. Synopsis of seminars and events organised by CARE .........................................................................................68

2. MSME News updates ................................................................................................................................................70

From Desk


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Innovation is the need of the hourMicro, Small & Medium Enterprises (MSMEs) are the backbone of an

economy and a major source of entrepreneurial innovation and skills.

They have been playing a pivotal role in the country’s overall economic

growth and have achieved sturdy progress over the last couple of years.

One must use innovative tools to meet the requirement of MSMEs while

dealing with information asymmetry issues. Information has power

and unless it is available to masses it cannot be harnessed. Information

related to various schemes, programmes, institutions, products and

policies must be easily available to the MSMEs at a point. In this issue

of SME Digest, we have articles on exploring new funding options in

MSME space, benefits of MSME registration, changes in Company’s Act

2013 and its impact on MSMEs and Technology Upgradation Scheme in

the textile industry.

Financing had been the major impediment in the growth of MSMEs

which had aggravated due to demand shock in recent past and the

rising working capital requirements with elongation of credit period.

The international experience of ‘bond market in European countries’,

‘crowd funding in USA & UK’, ‘SME exchanges in China’ suggests

alternatives like SME exchanges, bond markets, crowd funding are

most likely to thrive on a national or regional basis that unites local

borrowers and investors through dedicated platforms. Private equity

would nurture the innovative business ideas. The regulatory support

and credit rating agencies like CARE could play a vital role in building

investor confidence and bringing transparency in the system to widen

its reach. We encourage our readers to adopt the best trade practices

and increase the skill level for better operations of the enterprise.

This will bring them closer to contributing more towards the overall

development of the economy.

D.R. Dogra,MD & CEO, CARE Ratings

From MD & CEO’s Desk


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Rating: A developmental tool for MSMEs As we all know, the Micro, Small & Medium Enterprises (MSME) sector

holds key to India’s insurmountable challenges of job creation, building

a strong manufacturing-driven economy and balanced regional growth.

Despite several challenges, enterprises in a few industrial segments

and geographical regions have done extremely well while others have

lagged behind. These trends could be a tremendous source of learning

for us and guide us in our pursuit to build a factory-driven economy.

Some of the strategies like ancillarisation have done extremely well,

which need to be furthered with greater emphasis. Developing a vibrant

ecosystem for promotion and growth of MSMEs in the vicinity of large

public sector enterprises and private industries could be one of the ways

to move ahead. This resolves the problem of market access for small

enterprises. Though such ecosystems already exist in many locations

across India, revitalising them with the best infrastructural facilities

and quality-oriented manufacturing practices could give good results

to begin with.

An environment wherein small enterprises learn lessons of advancement

in manufacturing technology and productivity improvement strategies

from the large ones, could be a dream come true. On the other hand,

the large enterprises could utilise the entrepreneurial character of

small ones to continually innovate and churn out new product lines.

The manufacturing world is highly competitive. It is critical that

entrepreneurs train themselves to face the rough and tumble of an open

market, fast. The best way to do this is by sharpening learning abilities

of people in a collaborative environment. It is a well-accepted fact that

promotional pushes and protective policies do not help in the long

run. In our rating experience, we have come across several enterprises

which benefited significantly from their sharp focus on learning and

collaborative practices.

The other key trend which has gathered significant momentum and

proved successful is export orientation. Several exporting enterprises in

small and medium categories have been extremely successful in making

their mark in the international market. They are the true examples of

what an entrepreneurial and innovative mind-set could achieve. Many

From Head-SME


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such enterprises are now acquiring companies in foreign territories to

access new markets and technology at a completive cost. This trend is

only going to strengthen in the years to come. These entrepreneurs are

the torch bearers for all those who are excited by the export market.

India’s strengths of cheap labour, large qualified young manpower,

availability of raw material in ample quantity and large agricultural

base could be the true building blocks for a highly export-oriented

business activity. Here again, in our rating experience, we have come

across several highly successful entrepreneurs in the export market.

Many of them earn significantly higher profit margin than their peers in

the domestic markets in the same product segment.

We also see another trend wherein enterprises in sectors like food

processing, garments, etc, have progressed in a decentralised fashion.

This clearly underlines that there could be multiple models of growth

and they all could have their own merits. However, what remains

important is we chip away at the key bottlenecks which stifle the sector,

at a brisk pace. It is heartening to note that the government is singularly

focused on making it easy to set-up and do business in India.

At CARE Ratings we are constantly endeavouring to focus ourselves

on the development needs of the sector. We have been positioning

the tool of ratings centrally in the MSME sector, as the key driver of

development and growth. While on one hand ratings serve the basic

need of risk assessment, which helps setting up an agenda for risk

mitigation, our sharper focus has been on easing the access to credit

for thousands of micro and small enterprises. Ratings also make the

cost of credit competitive for enterprises which are rated high; thus,

their compulsion to depend on subjective ways of credit assessment by

lenders, is done away with. Currently, rating is the only tool in the market

which promotes best practices among micro and small entrepreneurs in

a holistic manner. Those who keep their house in order get rewarded

by way of high ratings-this starts a virtuous cycle of stock-taking and

remedial action, leading to growth and sustainability.

Yogesh DixitExecutive Vice President & Head – SME, CARE Ratings

Research & Articles


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Exploring new funding options in MSME Space

MSMEs are indeed the backbone of the economy with lots of employment generation potential and a major source of entrepreneurial innovation and skills. They have been playing a pivotal role in the country’s overall economic growth and have achieved sturdy progress over the last couple of years. Bank credit to this segment has grown at a compounded annual growth rate (CAGR) of 30% in last five years ending FY13 (refers to the period April 1 to March 31). However, lot more still requires to be done. In all, 92.7% of MSMEs are yet to get access to the banking finance. Thereby, we are yet to reach miles along to realise the fullest possible potential. It is deplorable that despite recognising a widespread need for supporting the sector, the progress on the ground is extremely lackluster and the extent of financial exclusion in the sector is very high.

With this backdrop, it is believed that traditional banking may require sea change in its approach in MSME space. Banking would require a different approach not only because we need to reach out the wide spread entities across the country and manage a trade-off between growth & margins, but also the quality of advances has to be proper with a system of continuous monitoring of the large portfolio. Some innovative financing tools elaborated as under may be useful in this regard.

MSME Financing

The first one can be factoring and reverse factoring. Factoring is a form of receivables finance whereby a business sells or assigns its accounts receivables (ie, invoices) to a finance company (called a factor) at a discount in exchange for immediate money with which to finance continued business. Though the reverse factoring technique is similar to the traditional factoring in many ways, the prime distinctive parameter here is the initiating party. In reverse factoring, the buyer (generally large corporate) initiates the transaction in order to help their small suppliers finance their receivables. This facilitates banks to be exposed to the credit risk of the large corporate factor rather than MSMEs. This also helps to circumvent need for comprehensive credit information MSMEs. Large corporates in turn can utilise channel partner (supplier/customer/dealer) evaluation services of credit rating agencies (CRAs), such as CARE Ratings, to de-risk their exposure. This can work as a win-win situation for all stakeholders.

The second could be extensive use of credit score model. The banks, in developed countries, use a version of a computerized loan-evaluation system, referred to as credit scoring, to assess would-be borrowers. The credit scoring approach, which is based on the use of computer technology and mass production methods, was originally designed to handle consumer loans, but are now being used effectively for lending to small businesses by predicting their potential loan delinquency. Credit scoring offers a modern alternative for the traditional method of evaluating loans for small businesses where loans were approved on the basis of the banker’s qualitative judgement and the financial condition carried significant weight in the appraisal process.


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Third, in post BASEL-II era, banks have been giving due weight to the external credit rating of independent CRAs. Banks have also entered into Memorandum of Understanding (MoU) with CRAs for providing finance at concessional rate to the rated MSMEs. It is felt that the use of credit rating and due diligence services of CRAs should be explored to its fullest extent. Presently, less than 75,000 MSMEs are rated, which represent less than 1% of the total volume. CARE Ratings and NSIC have an alliance to rate MSME units, with subsidised rating fees by NSIC to the extent of 75%. Furthermore, the subsidisation scheme had been enhanced from the current Rs.174 crore to Rs.600 crore in the 12th Five Year Plan. Exposure to credit rating automatically allows SME units to engage in innovation, better financial discipline and benchmarking among the peers. Due diligence report, on the other hand, provides valuable inputs to sanctioning authorities on the profile verification and SWOT analysis of the MSMEs.

Fourth would be balancing the equity needs of MSMEs through seed equity financing along with normal bank credit. While PE deals in July-Sept quarter of 2013 grossing $2.1 billion taking the total for first 9 months to $8.13 billion, which is 34% higher compared with the same period in 2012. However, when we look towards equity investments into small and medium enterprises (SMEs), it had witnessed 25% fall on year to date basis. In 2013, investments into SME space totalled $970 million across 132 transactions, whereas in 2012 investments for the similar period totalled $1,296 million across 176 transactions. It is believed that introduction of a proper equity-cum-loan scheme for MSMEs by some banks in the future can make wonders in this segment. This has become even more feasible with regulatory changes allowing listing of MSMEs without IPO, making easy exit for equity investors.

One of the new concepts is ‘Crowd Funding’. Crowd funding is seeking funds (in small amounts) from multiple investors through a web-based platform or a social networking site for a specific project, business venture or social cause which could help start-ups struggling to raise funds. The idea is in initial stage with SEBI coming out with a consultation paper on crowd funding in July 2014, to provide alternative financing sources to start-ups. As per the paper, the issue fund-raising is capped at Rs.10 crore a year for each start-up. The draft norms say crowd funding for financial returns will need a demat account which restricts its scope.

In addition to the above, primary and secondary debt market for MSMEs is yet to be explored in India. Modelled on the efficacious running junior exchanges in developing as well-developed countries, step to setup SME exchanges was in the right direction aiming to take care of the equity needs of MSME segment. Since the introduction of exchanges, total 66 companies are listed on SME exchanges till June 27, 2014. BSE SME recorded 43 initial public offerings (IPOs), while NSE emerge has recorded 5 companies. Although this is a good beginning in this segment on equity front, SME exchanges are in nascent stage and the stocks listed on BSE SME exchange have very low liquidity starting from around a couple of thousand shares, and all stocks listed do not get traded every day. Furthermore, MSMEs are still unable to see fund rising in the form of NCDs and commercial paper. RBI has relaxed minimum eligible rating from A2 to A3 for issuance of commercial paper. However, there is lack of market appetite to subscribe for A2 and below-rated papers. In the event regulator makes policy interventions to ensure better liquidity and instills investors’ confidence, significant money can be mobilised. Third party evaluation, by credit rating agencies in form of IPO grading, instrument rating, etc, could also assist in building investor confidence.

MSMEs are the imperative growth pillar of the economy and a major source of entrepreneurial innovation and skills. Financing had been the major impediment in their growth which had aggravated due to demand shock in the recent past and the rising working capital requirements with elongation of the credit period. The international experience of ‘bond market in European countries’, ‘crowd funding in USA & UK’, ‘SME exchanges in China’ suggests alternatives like SME exchanges, bond markets, crowd funding are most likely to thrive on a national or regional basis that unites local borrowers and investors through dedicated platforms. Private equity would nurture the innovative business ideas. The regulatory support and credit rating agencies like CARE could play a vital role in building investor confidence and bringing transparency in the system to widen its reach. Aforementioned ways and collaborated efforts would go a long way in fulfilling financing need of MSMEs which would be a stepping stone towards achievement of sustainable development objective for a developing nation like India.

Contributed by:D.R. Dogra, MD & CEO, CARE Ratings


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Benefits of MSME Registration- MAKE THE MOST OF YOU

Every organisation in India is governed by its governing body, which derives its power from the associated act defined by the Indian Parliament. The same way Micro, Small and Medium Enterprises (MSMEs) in India have their legal and conceptual framework under “Micro, Small & Medium Enterprises Development Act (MSMED Act), 2006”, which has its main purpose of promotion and development of small and medium enterprises in the country.

MSME registration that falls under the MSMED Act, 2006, facilitates promotion and development of enterprises and improves its functioning. Any class of enterprise can apply for SME registration which includes proprietorship enterprises, enterprises managed by Hindu undivided family, enterprises run by association of individuals, co-operative societies, partnership firms, private limited companies and public limited companies.

It is surprising to note that as per Fourth All India Census of Micro, Small & Medium Enterprises, 2006-07, there were around 261.01 lakh MSMEs in India, of which only 5.94% of the entities were registered with various District Industries Centers (DICs).

MSME in India

How is an MSME defined?In accordance with the provision of MSMED Act, 2006, the MSMEs are classified in two classes:(1) Manufacturing enterprises- The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprises are further classified into micro, small and medium, based on the amount of investment in


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plant and machinery. (2) Service Enterprises: The enterprises engaged in providing or rendering of services. The Service Enterprises are further classified into micro, small and medium, based on the amount of investment in equipments.

Is it compulsory to get registered?By enacting MSME act in India, Government has simplified many aspects related to MSME and in the same way registration procedure has been also simplified. As far as Micro and small enterprises (MSEs) are concerned, the registration is not compulsory for them as per the Section 8(1) of the MSMED Act, 2006. However, looking to the benefits available to them, it is advisable to get registered. For the medium enterprise engaged in production of goods, the registration is compulsory.

Why should an MSME get registered? The MSME Ministry has unveiled several schemes that help in promoting the MSME sector in India. Unregistered MSMEs can avail of financial help from banks and other institutions, but to obtain the benefit of the various benefits and schemes offered by the MSME Ministry, registration is essential. Some of the benefits for which the registered MSMEs are eligible are narrated below:

• Right to receive timely payment for the goods supplied: As per the section 16 of the MSMED Act, 2006, if any buyer fails to make payment to the supplier, the buyer shall be

liable to pay compound interest with monthly rest to the supplier on that amount from the date immediately following the date agreed upon (in case of written agreement) or after the 15 days from the day the goods are delivered or services are rendered (in case of no written agreement), at three times of the bank rate notified by the Reserve Bank. The act also stipulates that that even if the buyer and supplier is agreed in writing, such period shall not exceed 45 days from the day of delivery of goods or rendering of services. This benefit is made available only to those micro & small enterprises (MSEs) who have filed memorandum with the DIC as mentioned u/s 8 of the MSMED Act, 2006.

• Collateral free loans: Under the scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the registered MSEs

can get the bank finance for term loan and working capital facility up to Rs.100 lakh without any collateral security or third party guarantee. The same is also available for non-fund-based facilities like bank guarantee and letter of credit. Only primary charge would be crated on current or fixed assets.

• Credit linked capital subsidy scheme: The scheme facilitates technology upgradation of registered MSEs. A 15% capital subsidy is made available on

institutional finance availed by the registered unit for induction of well-established and improved technology in approved sub-sectors/products. The maximum limit of loan for calculation of capital subsidy under the scheme is Rs.100 lakh with a maximum subsidy of Rs.15 lakh. As per the data published by the DC-MSME, since inception of the scheme (ie, October 2000), 28,287 units have availed subsidy of Rs.1,619.32 crore till March 31, 2014.


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• Price preference policy:In order to provide assistance and support to MSEs for marketing their products, the Government of India has been

extending various facilities to the MSEs registered with National Small Industries Corporation (NSIC) under its Single Point Registration Scheme (SPRC). Under the price preference policy, the registered unit can get benefits like availability of tender sets free of cost, exemption from payment of earnest money deposit, exemption from payment of security, price preference up to 15% over the lowest quotation of large scale units. In addition to the facilities, 358 items are also reserved for exclusive purchase from MSME sector.

Here, it is important to note that only those units which are registered with Directorate of Industries (DI)/District Industries Centre (DIC) are eligible to register themselves with NSIC and any scheme offered by NSIC.

ISO 9000/ISO 14001 Certification Reimbursement Scheme Any SME having permanent registration certificate is eligible to avail the incentive under this scheme. The scheme

envisages reimbursement of charges of acquiring ISO-9000/ISO-14001/HACCP certifications to the extent of 75% of the expenditure subject to a maximum of Rs.75,000 in each case.

Market Development Assistance Scheme The scheme offers funding upto 75% in respect of to and fro air fare for participation by MSME Entrepreneurs in

overseas fairs/trade delegations. The scheme also provides for funding for producing publicity material (upto 25% of the costs) sector-specific studies (upto Rs.2 lakh) and for contesting anti-dumping cases (50% upto Rs.1 lakh).

Bank Credit Facilitation Scheme To meet the credit requirements of MSME units, NSIC has entered into a Memorandum of Understanding with various

nationalized and private sector banks. Through syndication with these banks, NSIC arranges for credit support (fund or non-fund-based limits) from banks without any cost to MSMEs. All documentations pertaining to completion and submission of a credit proposal to banks shall be undertaken by NSIC, thereby saving cost and time to MSME.

Performance and Credit Rating Scheme A scheme for MSEs has been formulated in consultation with Indian Banks’ Association (IBA) and Rating Agencies

(CARE Ratings is one among them). NSIC has been appointed the nodal agency for implementation of this scheme through empanelled agencies. Under this scheme, NISC provides subsidy to the extent of 75% of the fees (subject to a ceiling depending on the turnover of the unit being rated). The objective of this scheme is to create awareness among small-scale units about the strengths and weaknesses of their existing operations and to provide them an opportunity to enhance their organisational strengths so as to make them enable to get the easy access to credit.

• BILL Discounting Scheme and Raw Material Assistance Scheme The scheme covers discounting of bills arising out of sales made by small-scale units to reputed public limited

companies/state and central government departments/undertakings. The scheme also helps the registered MSEs by way of financing the purchase of raw material (both indigenous and imported). Under this scheme, the registered MSEs having high score on performance & credit rating (ie, SE 1A, SE 2A & SE 1B) can avail the benefit of concessional rate of interest.

What is the process of registration?MSME registration procedure mainly includes two parts, first is Enterprise Memorandum – I and second is Enterprise Memorandum – II.

Enterprise memorandum – I (EM-I) is the form which needs to be filed by the units who intend to start providing services or to start production of goods (ie, Greenfield entities).

When a unit files EM-I, after duly verification and compliance, DIC will issue the provisional registration certificate


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Provisional Registration Certificate: This is given for the pre-operative period and enables the units to obtain the term loans and working capital from financial institutions/banks under priority sector lending. It also facilitates to obtain facilities like accommodation, land, other approvals, etc. Moreover, in order to obtain various necessary NOCs and clearances from regulatory bodies such as Pollution control board, Labour regulations. Such certificate is normally valid for 5 years.

Enterprise memorandum – II (EM-II) is the form which should be filled once the unit gets started producing the goods or started providing services.

When a unit files EM-II, after duly verification and compliance, DIC will issue the permanent registration certificate

Permanent Registration Certificate:As and when a provisionally registered unit goes into the production stage, it can apply for permanent/final registration by filing Enterprise Memorandum – II and an existing and functioning unit can directly apply to permanent/final registration without going to the procedure of provisional registration. Such certificate is given in perpetuity.

Where to get registered?Offline Registration:An MSME if chooses to get registered, it can apply to District Industries Centre/ Directorate of Industries at a place where they are situated which is the primary registering centre.

Online registration: As DIC is the primary registration body, many states have started facilitating online registration for MSME, where unit can apply, track the status of application and can get registration certificate online.

SummaryThe MSME sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last few decades. Furthermore, recognising the contribution and potential of the sector, the definitions and coverage of MSE sector have been broadened significantly under Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The government is also putting all its efforts to promote the development of Indian MSMEs through various schemes. However, it has been observed that large chunk of MSMEs are still unregistered. Hence, it is suggested that looking at the various benefits specifically available to the registered units; every MSME should get itself registered to get most out of it.

Prepared by:Saurin Mehta (Analyst)

Ruchir Kapadia (Dy. Manager)


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Trend of PE Investments in SME Segment

India’s image as an attractive investment destination over the last few years has been impaired by frequent policy reversals, corruption scandals and indecisiveness. Furthermore, depreciation of rupee (compared with dollar) of around 52% during January 2008- March 2014 had resulted in negative returns to the foreign investors. PE investors look for political stability, clarity and stability in the fiscal and tax regime and currency depreciationas the critical factors in their investing decisions.Now, the situation has changed, India had completed its general elections and a business-friendly government with a clear majority is in place. The market sentiments are that the new government will create a growth-oriented and consistently applied regulatory and policy environment and take appropriate administrative action to kick-start projects, and revive the investment cycle. In this backdrop, the PE industry is poised to contribute to the Indian economy on a larger scale than earlier, due to a number of reasons which are fundamental to the industry’s own evolution as well as to the state of entrepreneurship in India.

On overall basis (large corporates and SMEs), India-focused PE players have seen over rise in the investments in H1CY2014 ($4.93 billion, 229 deals) when compared with total investments in H2CY2014 ($3.63 billion) as per the data by ENY; due to improvement in the sentiment post general elections, investments in June 2014 amounted to $0.93 billion. There has been sustained increase in investments in technology sector (H1FY14, more than 48 transactions forming 80% of the total) were in venture/early stage, but there is renewed interest among other sectors in early stages like healthcare, packaged food industry and innovate manufacturing activities. Major activity is expected to be recorded in the second half of CY2014, lot of dry capital to be invested into innovative and sustainable business ideas. Along with the existing capital, the fund-raising activity by India-focused private equity firms have improved, during H1CY2014, $1.9 billion was raised.

Trend for PE investment in SMEs in H1CY2014Overall PE investment in India in small and medium enterprises improved when compared in terms of total investments. However, its growth remained subdued. PE investors have never before emphasised the importance of diligence as they do today. Even before they do a deep dive into the business, PE funds attempt to get feedback on the promoters, and whether they would be credible partners. Apart from the usual background checks on the promoters and the company, they try and learn from the experiences previous investors and business partners have had. This is where third party credit rating agencies like CARE Ratings could play a significant role in the background check and assessment of credit risk profile of entity.

The deals that happened in H1CY2014 in SME (having turnover of less than Rs.100 crore during last financial year), following is the brief snapshot:

Few of the highlights on the investments side in H1CY2014Private Equity Investor Company Investment Amount

(In million USD)Sector Region

Somerset Indus Prognosys Medical Systems 3.3 Healthcare KarnatakaAspadaInvests Capital Float 2 Finance KarnatakaPeepul Capital Cura Healthcare 6 Healthcare Tamil NaiduBanyanTree Nilon Enterprises Pvt. Ltd. NA Packaged Food MaharashtraAspada Invests Schedulers Logistics 2 Logistics MaharashtraIndividual Investors Bajaao.com 5.8 E-commerce MaharashtraAspada Invests NeoGrowth Credit Private Limited 1.7 Finance MaharashtraTata Capital InnovitiEmbedded Private Limited 1.7 Payment Solutions KarnatakaMayfield SecurensPvt. Ltd. 6 Technology MaharashtraTano Capital Sanghvi Brands 10 Wellness Services Maharashtra


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IFC Nephrocare 7 Healthcare Andhra PradeshMatrix Partners Five Star Business Credits NA Finance Tamil NaiduAspada Invests ThinkLink 1.7 Logistics HaryanaOrbiMed Asian Hospital NA Hospitals DelhiDSG Consumer Partners Saraf Foods 1.7 Packaged Food Gujarat

Source: DealCurry.com; NA-Not Available;

Sectors which got continued investors from fund managers were IT/ITES, healthcare and BFSI. In terms of states, Maharashtra and Karnataka were the key states which received the high PE investments in SME segment.

New Funds Launched• India Aspiration Scheme- by Sanjay Gupta- expected corpus Rs.100 crore.• Multiples Alternate Private Limited- Expected corpus $500 million.

Government crowding out effect or much needed reforms?Government launched India Inclusive Innovation Fund through The National Innovation Council and the Ministry of MSME with an initial corpus of Rs.500 crore to support the business and livelihood at the base of the pyramid. The fund is having a tenure of nine years which will be backed by the government as well as PSUs, the corpus is targeted to reach Rs.5,000 crore in two years. The fund approved by the Union Cabinet will be registered under SEBI’s Alternative Investment Fund Category I guidelines and will invest in innovative ventures that are scalable, sustainable, profitable across sectors like healthcare, food, nutrition, agriculture, education and skill development, energy, financial inclusion, water, sanitation employment generation, etc. IIIF would also partner the entire ecosystem in this space including incubators, angel groups and also public research and development programmes and laboratories to support the commercialisation and deployment of socially relevant innovative technologies and solutions. However, this should not be viewed as crowding out effect by private equity investors, as there are ample avenues for investments, on the contrary, this should further reinstate the confidence of investors, as government is taking the initiatives by targeting the long-standing shortcomings of MSMEs in the nation.

The way forward Forward looking approach of investors towards the potential unlocking avenues in MSMEs is expected to invite further investments, especially after the positive sentiments in the market and pro-business policies by new government with stability. SMEs today are burdened by challenges of access to finance as well as technology obsolescence wherein PE investor could play a crucial role by meeting the funding requirement as well as influencing key strategic decision for long-term growth prospects. Regulators and law makers have to address major issues faced by the segment like dearth of easy finance and credit instruments (which in turn would attract PE investments), limiting of regulatory policies, availability of modern technology, basic infrastructure facility, effective labour laws and availability of the skilled labour. With the commitment for providing effective governance, the nation seems to be poised for better growth and hence attracting further investments.

Prepared by:Ravi Kataria, AnalystAkhil Goyal Manager

Learning


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Impact of Section 185 under New Companies Act 2013

IntroductionIn new Companies Act 2013, section 185 is one section which seems to be more stringent, as it states that no company shall directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its director or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person. Offence of the section makes not only lender but also borrower liable for prosecution.

This section has been notified from the first phase of implementation of Companies Act 2013, ie, from September 12, 2013. Still, the section is most debatable and being interpreted differently.

The detailed explanation of this section is given below through summary chart and different questions and answers.

Summary Chart:

Questions and Answers1. Why there is requirement of section 185?The intent of section 185 is to ensure that directors, who are sitting in the position of trustees for the shareholders, do not use their powers to benefit themselves by lending the money of the company to themselves or their entities.

2. From which date, this section 185 came in to force?This section has been notified from the first phase of implementation of Companies Act 2013, ie, from September 12, 2013.

3. What are the different prohibitions under section 185 of the Companies Act 2013?As per the new Companies Act 2013, all companies (including public companies as well as private companies) are prohibited to do following four types of transactions (directly or indirectly).a) It cannot give any type of loans to specified persons.b) It cannot give any type of loans represented by book debt to specified persons.c) It cannot give any guarantee in connection with any loan taken by specified persons.d) It cannot provide any security in connection with any loan taken by specified persons.

4. Who are those specified persons?The specified person includes….a) Directors of company, their partners, their relatives.b) Directors of holding company, their partners, their relatives.


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c) Any Firm in which director or a relative of director is partner.d) Any Private Company in which the director is a member or director.e) Anybody corporate in which minimum 25% of total voting power (in general meeting) is exercised or controlled by any director or jointly by two or more directors.f) Anybody corporate in which the board of directors, managing director or manager is accustomed to act in accordance with the directions or instructions of the board, or of any director/s of the lending company.

5. Who includes in the definition of relatives?Relatives includes following persons.a) Spouse.b) Father (including step-father)- Father’s father- Father’s mother.c) Mother (including step-mother)- Mother’s father- Mother’s mother.d) Son (including step-son)- Son’s wife- Son’s daughter- Son’s son.e) Daughter (including Step-daughter)- Daughter’s husband.f) Brother (including Step-brother)- Sister (including Step-sister).g)/Member of H.U.F.

However, brother’s wife, sister’s husband, son’s son’s wife, son’s daughter’s husband, daughter’s son, daughter’s son’s wife, daughter’s daughter, daughter’s daughter’s husband, are not relative under new Companies Act 2013.

6. What are the different exemptions under section 185?For following transactions, section 185 is not applicable.

a) Any loan made by a holding company to its wholly-owned subsidiary company is exempted from the requirements under this section (means the company can give advances to its subsidiary even though there are common directors, if it is wholly-owned), provided that such loans made are utilised by subsidiary company for its principle business activities.

b) Any guarantee given or security provided by a holding company in respect of any loan made by any bank or financial institutions to its subsidiary company or to its wholly-owned subsidiary, provided that such loans made are utilised by subsidiary company for its principle business activities.

c) The company can give loan to the managing director/whole-time director as a part of the conditions of service extended by the company to all its employees or pursuant to any scheme approved by the members by a special resolution.

d) The company can, in ordinary course of business (ie, the company’s main business is lending), provide loans or provide guarantee or securities, provided the minimum rate of interest charged by the company shall not be less than the bank rate declared by RBI.

7. What are the different penal provisions under Companies Act, 2013, for not following section 185?On violation of section 185 -

a) The company shall be punishable with the minimum fine of Rs.5 lakh, which may extended to Rs.25 lakh.

b) The directors or the other person to whom any loan/guarantee/security is provided, shall be punishable with imprisonment (maximum 6 months) or minimum fine of Rs.5 lakh, which may be extended to Rs.25 lakh or both.

8. Whether applicable to private companies?This section is applicable to both private and public limited companies.Recently, on June 24, 2014, MCA issued draft notification in which it proposed to exempt such private companies which fulfill both of the following criteria.

a) A private company which does not have aggregate borrowing from Banks, Financial Institutions, or any bodies corporate more than twice of their paid-up capital or Rs.50 crore, whichever is less.


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b) It has not allotted its share capital to anybody corporate.

However, this notification is currently in the draft mode and only once it gets approved will be applicable.

9. Is it allowed to invest by way of equity shares/ preference shares in such companies?Yes, the company can invest by way of equity shares or by way of preference shares in any company.

10. Whether section 185 is applicable to only lending company or it also applies to the borrowing company?Because the penal provisions for non-compliance with the requirements of section 185 extend not only to the lending company but also to the borrower (including a borrowing company), compliance should be ensured by both the lender and the borrower.

11. Can the company give loan to its shareholders?This section prohibits the company for giving loan and advances to its directors. However, there is no prohibition as far as the loan given to shareholder is concerned. So, the company is allowed to give loan to its shareholders.

12. What will happen to the existing loans as at the notification date?It is a well-accepted principle that any amendment to an existing provision or a new provision would apply prospectively unless specified otherwise. Furthermore, the wording of the section states that “no company shall ‘advance’ any loan or ‘give’ any guarantee or ‘provide’ any security…….” Since these words imply present (or future) actions, it can be argued that the prohibitions in the section would apply to only new loan/guarantee/security.

The loan can still continue to appear in the books of accounts of company; however, it cannot be renewed and is to be repaid on the end of the term. If its a loan repayable on demand then still it is suggested to make a formal agreement with the tenure specified in it.

13. What is meant by loan by way of book debt? This clause appears to be very precarious as any book debt in the books of the company, in the name of any director or any other person in whom the director is interested will be treated as a loan. Hence, a company cannot make “credit sales” or cannot accept any contract or provide any service on credit basis to any person as more elucidated in Section 185.

However, there is another view also, that if the company sells its goods to such persons at same terms and conditions (ie, price, payment terms, discount, etc) at which it sells its product to other non-related parties, then the company can sells its goods on credit at the same terms and conditions.

14. Any records to be maintained for such loans?Yes, a register should be maintained in Form MBP 2 and entered therein separately, the particulars of loans and guarantees given, securities provided and acquisitions made as aforesaid. The entries in the register shall be made chronologically in respect of each such transaction within seven days of making such loan or giving guarantee or providing security or making acquisition. The entries in the register (either manual or electronic) need to be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose.15. Can the holding company give loan to its subsidiary company? As per Rule 10 of The Companies (Meeting of Board and its powers) Rules, 2014, the company can give advances to its wholly-owned subsidiary and also can give guarantee or security on behalf of its subsidiary (wholly-owned as well as others). However, it cannot give the loan to its subsidiary if it is not wholly-owned.

16.Whether guarantee/ security which are already provided to banker against any loan need to be reversed?Guarantee/securities which were already provided before the date of applicability of this section need not to be reversed.


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However, whenever such facilities are reviewed by the bank/FI (after the date of applicability of this section), these cannot be renewed. So, the bank/ FI may ask for additional security and release the guarantee issued by the companies.

17.Whether amount given as share application money can be considered as loan?If shares allotted within 60 days from the date of share application money are given, then such amount cannot be considered as a loan. Otherwise it will be treated as a loan if the company does not receive back that money within 75 days from the date of infusion of amount.

18.What is the meaning of term “ ordinary course of business”The phrase “ordinary course of business” is not defined under the Companies Act, 2013, or rules made there under. However, following two points may be considered for deciding ordinary course of business.

a) Is the company engaged in lending activity regularly?

b) Lend not only to directors and related parties but also to arm length parties or unrelated parties.

Impact of section 185 on SMEsSection 185 is applicable to every company irrespective of its size of operations. While widely held listed companies suffer from the broad provisions, it will hit more harshly on closely-held companies who tend to have regular transactions in the group almost as running current accounts. As even a single common director will prohibit loans to the companies within the same group, for most closely-held groups, this would practically put significant restriction on loan among the group companies. Hence, section 185 prohibits the earlier practice of companies maintaining running current accounts with group companies to manage liquidity without charging interest. This was not so under the Companies Act, 1956, and the few instances where there were restrictions, internal approvals usually resolved the issue. Section 185, however, has no method to permit it by approval of the board or shareholders or even central government. Granting of such loans is a violation that attracts fine/imprisonment.

Recently, on June 24, 2014, MCA issued a draft notification in which it proposed to exempt such private companies who have not allotted their share capital to body corporate and whose aggregate borrowing (from banks + financial institutions + body corporate) does not exceed two times of its paid up capital or Rs.50 crore whichever is less. However, currently, it is a draft notification only and will be applicable only when it is approved by both houses of Parliament.

Various possible options As against the new provisions of section 185, which prohibits loan to director, following options are still available if the company wants to transfer the funds to those entities.

a) Changing the composition of a board of borrowing company.

b) Changing the composition of a group partnership firm.

c) Making borrowing company as a wholly-owned subsidiary of lending company.

d) Converting the group company or group partnership firm in to limited liability partnership (LLP).

e) Converting a group private limited company in to public limited company and restructuring the board in such manner that the voting power of common directors kept below 25% in such public limited company.

Conclusion• The changes in the Companies Act regarding this section are expected to improve governance & transparency in the

affairs of the companies in light of the applicable laws keeping in view the fiduciary character of the directors of the company.

• With the new regime in place with respect to loans to directors, it can be concluded that no company can offer loan to its directors except in case such director is a managing director or a whole-time director and such proposed loan is either a part of the conditions of service extended by the company to all its employees; or pursuant to any scheme approved by


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members vide special resolution, or such company is in the business of extending loans.

• The provisions of section 185 of the Companies Act, 2013, do not provide any exemption to a private company as provided in the provisions of Section 295 earlier. However, the company whose primary business is that of lending is exempted from the provisions of Section 185 of the Companies Act, 2013.

Prepared bySmit Mehta, Analyst

Mohit Agrawal, Manager


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Technology Upgradation Fund Scheme (TUFS)

Textile industry plays fundamental role in the Indian economy having significant social and economic implications. The industry has grown from single cotton mill of Mumbai in 1854 to 18,790 factories in the textile sector in 2011-12 (ASI 2011-12). It is the second largest source of employment generation after agriculture and provides direct employment to around 35 million people across India. It contributes to approximately 14% of the total industrial production and 2% to overall GDP (at factor costs). Furthermore, it has 11% share in the total manufacturing exports with total exports of USD 40.2 billion in 2013. As per the data released by the ‘UN Comtrade’, the Indian textile industry stands at second position in global textile exports, second only to China.

The textile value chain extends from raw material, ie, fibres to finished products, ie, clothing and made-ups, with spinning, weaving, knitting and processing coming in between as intermediate processes. The textile industry can be broadly segmented into two categories, ie, ‘Yarn & fibre (natural and manmade)’ and ‘Processed fabrics, readymade garment & apparel’. The value chain of textile industry is as per the chart given below:

Raw Material Ginning Spinning Weaving Knitting Processing Garment Production

• Raw Cotton • Natural Fibre • Yarn • Fabric • Processed Fabric • Garment

• Jute • Man Made Fibre

• Silk and Wool

Indian textile industry is highly fragmented in nature with majority of the unorganised units being concentrated to weaving, knitting, processing and garmenting with spinning being concentrated to organised sector. Unorganised sector can further be classified to powerloom (weaving), handlooms (weaving) and hosiery units (knitting/garmenting).

Indian textile industry, despite its high economic importance and resource advantage, is characterised by relatively higher costs, low productivity and technological backwardness as compared with other competitive nations especially China. India faces stiff competition from its neighbouring nations like Pakistan, Bangladesh and China who possess competitive advantage in textile in terms of labour costs, tax advantages and other input costs.

However, with decline in the working-age population in China coupled with increasing labour costs, India stands a big opportunity with its relative advantage. Furthermore, it is imperative for Indian textile industry to improve its productivity by modernising technology and skills upgradation. The active policy support from the government in terms of incentive programmes and taxation is also very crucial for the capacity building.

In order to channelise investments towards the textile sector and to facilitate balance growth in various segments across the value chain, the ministry of textile launched Technology Upgradation Funds Scheme (TUFS) in 1999. TUFS is a flagship scheme launched by the ministry of textiles which aims at providing finance at subsidised interest rate for modernisation and upgradation of technology in textile industry. The objective is to provide technological edge to the textile sector and to improve productivity across the value chain.

The evolution and scope of TUFSThe scheme was initially commissioned for 5 years started from April 1999 and was subsequently extended till March 2007. The scheme was restructured w.e.f April 28, 2011, with a view to encourage investments in slow growing sectors like weaving, encouragement to forward integration and tighter administrative controls and monitoring of the scheme during the 11th five year plan.

The scheme is available to both organised and the unorganised sector of the textile industry. Technology upgradation would ordinarily mean induction of state-of-the-art or near-state-of-the-art technology. The main thrust of the scheme is given to


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segments like garmenting, technical textiles and processing having higher growth potential and scope for employment generation. The aim is to bridge the quality and cost gap and to make Indian textiles globally competitive.

The scope of the scheme includes segments across the value chain such as spinning, cotton ginning & pressing, silk reeling & twisting wool scouring, combing and carpet industry, synthetic filament yarn texturising, crimping and twisting, viscose filament yarn (VFY)/viscose staple fibre (VSF), weaving/knitting, fabric embroidery and technical textiles including non-wovens, garment, design studio, made-up manufacturing, processing of fibres, yarns, fabrics, garments and made-ups and the jute industry are eligible to avail subsidy under this Scheme for their technology upgradation requirements.

The government funding under the scheme is available in the form of interests reimbursements (IR), capital subsidy (CS) and margin money subsidy (MMS). The incentives under the scheme are extended through the network of Nodal Agencies and Nodal Banks in conformity with the scheme and financial norms of the Financial Institutions concerned. The following table depicts the progress of TUFS in India.

Trends in TUFS Disbursement (Rs. Crore)

Period Application received Application sanctioned Application disbursed

No. Project Cost No. Project Cost Amount No. Amount Subsidy Released

2006-07 12,336 61,063 12,589 66,233 29,073 13,168 26,605 824

2007-08 2,408 21,254 2,260 19,917 8,058 2,297 6,854 1,143

2008-09 6,113 56,542 6,072 55,707 24,007 6,111 21,826 2,632

2009-10 2,384 28,005 2,352 27,611 6,612 2,361 8,140 2,886

2010-11 256 397 256 397 254 240 282 2,759**

2011-12 - - - - - - - 2,935

2012-13 - - - - - - - 1,516

2013-14 - - - - - - - 415#Source: Ministry of Textiles, Government of India and Care Research#Subsidy released as on March 31, 2013**Pertains to 2010-11

Segment-wise progress of restructured TUFS (Rs. Crore)

Category No. of Application

Project Cost

Sanctioned Loan amount

Loan under TUFS

CAP for Project Cost

Subsidy for All

CAP for Subsidy Amt.

Subsidy claimed

No. of Applications

Amount

Spinning 282 9,721.16 5,977.37 5,421.64 12,194 1,102.65 210 157 32.34

Weaving 734 2,358.73 1,785.98 1,718.69 6,097 464.83 225 299 29.49

Processing 374 4,162.19 1,911.63 1,814.25 9,849 536.31 424 179 26.95

Garmenting 402 726.91 470.67 413.01 3,752 106.22 200 215 19.37

Others 1,652 18,603.25 10,394.97 9,500.25 15,008 2531 799 1,097 149.28

Total 3,444 35,572.24 20,540.62 18,867.84 46,900 4,741.01 1,858 1,947 257.44Source: Ministry of textiles

Revised Restructured Technology Upgradation Funds Scheme The Restructured TUFS w.e.f April 28, 2011 to March 31, 2012 was further extended upto March 31, 2013. However, during the 12th five year plan, the scheme was further revised to address the issues of fragmentation and promoting forward integration; promoting investments with smaller investment in MSME sectors; and the introduction of a Hire Purchase Financing Model for weaving sector. Accordingly, the scheme will be known as Revised Restructured Technology Upgradation Fund Scheme (RR-TUFS) with the total budget outlay of Rs.11,952.80 crore. The incentives available under RR-TUFS in various segments are as per the table below:


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Subsidy benefits available under RR-TUFS

Sectorial Cap Cap on Spinning sector only – 26% of the plan outlay.

Cotton Ginning & Bale Pressing 5% Interest Reimbursement (IR)

Spinning • 2% IR for new standalone spinning machinery. • For standalone spinning a value cap of Rs.250. (standalone spinning with project cost above Rs.250 crore will

not be eligible for subsidy). • 5% IR for spinning units with matching capacity in weaving/knitting/processing/garmenting.

Weaving • Weaving preparatory machines- 5% IR.• 6% IR and 15% capital subsidy or 30% MMS on brand new shuttleless looms.• 2% IR or 8% MMS on second-hand imported shuttleless looms with 10 years vintage and with a residual life of minimum

10 years. IMSC would review the extent of subsidy on import of second-hand shuttleless looms on progress in indigenous manufacturing of shuttleless looms.

• For 30% MMS – capital ceiling is Rs.5 crore and MMS cap Rs.1.5 crore

Processing, Garmenting & Technical Textiles

5% IR and 10% CS.

Knitting & Fabric Embroidery 5% IR.

Handloom and Silk Sector 5% IR or 30% CS.

Synthetic Filament Yarn Texturizing, Crimping and Twisting

5% IR.

Viscose staple fibre (VSF) and Viscose filament yarn (VFY)

5% IR.

MSME & Jute Industry 5% IR or 15% MMS.MMS cap is Rs. 75 lakh.

CAD, CAM and Design Studio 5% IR.

Technical Know-How Investment in the acquisition of technical know-how including expenses on training and payment of fees to the foreign technicians- 5% IR.

Hire- Purchase Scheme A pilot project for hire-purchase of new shuttleless looms shall be introduced with a plan outlay of Rs.300 crore within TUFS to enable poor powerloom weavers, having limited capacity to make capital investments, to upgrade their looms through payment of easy instalments.The main objective will be a SPV will be formed and SPV would procure the looms. SPV will provide looms on rental/lease basis to the weavers. The ownership of the looms will transfer only at the end of the term of hire purchase.

Subsidy Cap Availability under RR-TUFS for 12th Five Year Plan period (Rs. Crore)

Category Type of unit Subsidy Cap Limit Earmarked*

Subsidy Utilised for UIDs approved

Available Subsidy Cap

(1) (2) (3) (4) (5) = (3)-(4)

Standalone Spinning

MSME 47.48 2.81

Non-MSME 427.32 109.02

Total 474.80 111.83 362.97

Others

MSME 188.77

MMS 49.54

Non MMS 171.48

Total 221.02

Non-MSME 1,698.97 598.04

Total 1,887.74 819.06 1,068.68

Total

MSME 236.25 223.83

Non-MSME 2,126.29 707.06

Grand Total 2,362.54 930.89 1,431.65* A minimum of 10% of the outlay for new sanctions is earmarked for MSME sector. In addition surplus subsidy cap available under Non-MSME can be utilised as and when earmarked subsidy cap for MSME sector is exhausted.

Assessment of the schemeThe TUFS has been the blue chip scheme of the ministry of textiles for the development of textile and jute industry and yet been marred by criticism. The critical assessment of the scheme is provided as below:


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A. Skewed distribution of benefitsThe TUF scheme has not benefited all the states equally. The scheme has been highly skewed to benefit some states significantly higher than the other. The below table provides the state-wise release of funds under TUFS during FY10-FY12.

State-wise release of funds (Rs. crore)

State / Union Territory 2009-10 2010-11 2011-12

Andhra Pradesh 136.51 157.90 202.78

Assam - 0.05 -

Bihar - 0.18 0.06

Chandigarh (UT) 6.63 9.04 16.36

Chhattisgarh 0.43 0.05 -

Dadra and Nagar Haveli (UT) 6.71 7.97 7.22

Daman and Diu (UT) 2.31 2.80 6.46

Delhi (UT) 62.76 45.80 50.27

Gujarat 338.74 414.88 333.98

Haryana 64.76 46.76 38.77

Himachal Pradesh 7.33 7.36 6.87

Jammu and Kashmir 8.60 9.78 10.89

Jharkhand 0.92 0.53 1.21

Karnataka 88.11 65.11 65.32

Kerala 24.54 25.97 22.62

Madhya Pradesh 26.91 41.47 40.62

Maharashtra 726.21 701.57 820.47

Orissa - 0.50 -

Pondicherry 0.58 0.28 0.38

Punjab 367.19 380.68 439.26

Rajasthan 147.08 151.69 171.73

Tamil Nadu 728.74 591.17 603.09

Uttar Pradesh 99.07 72.82 66.42

Uttaranchal 8.30 8.41 13.00

West Bengal 29.31 38.48 25.59

Total 2,882.46 2,782.35 2,934.77Source: Press Information Bureau

It is evident from the above table that four states, ie, Maharashtra, Tamil Nadu, Gujarat and Punjab accounting for 75% of the total funds released. The skewed investment is due to the fact that high concentration of textile activities remained in these states, nevertheless, the other states (particularly the north east region) have lagged behind in attracting investment. Furthermore, the spinning sector has been the major beneficiary under the scheme and low investment segment such as weaving and garmenting have remained behind.

B. Environmental aspects has been ignoredThe environmental aspect of the textile industry has been significantly ignored by the scheme. The scheme does not provide for any incentive for the investment towards disposal of hazardous wastes and effluent treatment facilities. Furthermore, there is a lack of support from the textile units (particularly from dying units) for the primary treatment of effluents. Inadequate waste disposal methods and conformity of standards set by environmental legislations sometimes, also becomes the hurdle in the expansion process.

C. Operational InefficienciesThere are several issues particularity with the nodal agencies and lending institutions pertaining to the subsidy claims. Besides, textile industry is experiencing under-utilisation of installed capacity enhanced by the upgradation of technology.


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There have been considerable delays by the lending agencies in the submission of subsidy claims at the specified date as well as partial submission of claims. The utilisation certificates and the Claim Correctness Certificate which needs to be submitted by the lending institutions are not in order and consequently there are delays in submission of claim.

D. High dependence on imports for machinery requirementsNearly half of the textile machinery requirement is fulfilled through the imports of machines due to the underdeveloped Indian textile machinery industry. The share of domestic demand for textile machinery has remained in the range of 47%-56% as provided in the table below:

Actual demand for textile machinery, parts and accessories (Rs. Crore)

Years Production Export Production (Minus Exorts)

Imports (less parts imported by machinery manufacturers I.e. 15% of production)

Total domestic demand

% Share of demand met by indigenous industry

2005-06 4,402 377 4,025 4,405 8,430 48

2006-07 5,753 425 5,328 6,021 11,349 47

2007-08 6,155 640 5,515 4,332 9,847 56

2008-09 4,063 607 3,456 3,802 7,258 48

2009-10 (E) 4,245 525 3,720 4,500 7,583 49

2010-11 6,150 650 5,550 5,000 10,500 53E: Estimated/ Source: Ministry of Textiles

The high share of imported machinery also exposes the industry to the country risk since any change in the import policy could affect the machinery supplies and hence could be a hurdle to the expansion plans of the company. Furthermore, besides burden on current account deficit, there is a significant exchange rate risk attached to this particularly for those units which do not exports. Thus, there is a need to increase indigenous share of textile machinery by channelising low-cost investment towards textile machinery industry and providing foreign technical/technical-cum-financial collaborations, especially in weaving and processing segment.

E. MSME experience of the scheme Name of the entity Pundrik Textile Mills Private Limited (PTML)

Outstanding rating CARE BB+/CARE A4+

Textile Segment Yarn (Spinning)

Net Worth 24.75 crore (As on March 31, 2013)

Type of project/investment Upgradation of textile machinery and components used in yarn manufacturing.

Amount of loan received Approximately 20 crore

Nature and extent of subsidy Interest Reimbursement – 5%

Nodal Bank/agency State Bank of India

CommentsABCL is engaged in the manufacturing of combed polyester and cotton-blended yarn at its manufacturing facility located in Ludhiana, Punjab. The company upgraded its machinery and components used in yarn manufacturing and by importing the same from Rieter (Switzerland). The total cost of machinery was Rs.20 crore, and the company is receiving 5% interest subsidy benefit under TUFS for the upgradation of machinery.

To claim the subsidy, the company files claims on quarterly basis to the bank which forwards the same to the office of textile commissioner. Once the claim is verified and approved, the office of textile commissioner releases subsidy to the bank which further releases to the company. The company normally experiences a delay of 6-12 months in receiving subsidy claims, mainly due to delayed submission of claims as well as delayed release of funds by the bank.


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The company is in view that the banks should be discarded from the intermediation process and system should be developed for online filing of claims to the office of textile commissioner directly by the client and direct receiving of subsidy once utilisation certificates and the Claim Correctness Certificate is given by the bank.

The way forwardIn order to create vibrant, modern and more integrated world class textile industry, there is a need to improve productivity, quality and skill upgradation. In this regards, TUFS has been playing a critical role for Indian textile industry to meet the global challenges and opportunities. Furthermore, some concluding remarks in this regards can be made as hereunder:

• The bottlenecks and intermediation in the schemes needs to be eradicated for the effective investment process.

• There is a need to develop an integrated system for applications and claims and a single window approach to swiftly channelise investment in the industry.

• There is a need to focus more on states which have been lagged behind in receiving benefits for the better distribution of funds and opportunities under the scheme.

• More funds needs to be directed towards low investment segment such as weaving (powerloom and handloom), garmenting and processing.

• Textile industry needs to fulfil its technology require more domestically with collaborations with foreign partner for the technical knowhow. The investment needs to be directed towards machinery segment of the textile industry.

• The investment towards disposal of hazardous wastes and effluent treatment facilities needs to incentivize under the scheme for environmental aspects.

.Contributed by

Rohit Aggarwal, AnalystMohit Sinha, Analyst

References:1. Ministry of textiles: http://texmin.nic.in/

2. Office Of the Textile commissioner: http://www.txcindia.gov.in/

3. Government of India – Ministry of New and Renewable Energy (MNRE): http://mnre.gov.in/file-manager/UserFiles/RRTUFS%20.pdf

4. Press Information Bureau: http://pib.nic.in/newsite/mainpage.aspx

5. Resolution On TUFS On Techno-Operational Parameters, Ministry Of Textiles (No.6/5/2011-TUFS)

6. Ministry of textiles: http://texmin.nic.in/aboutus/rfd/strategic_plan_2012_2017.pdf

7. International Monetary Fund (IMF): http://www.imf.org/external/pubs/ft/fandd/2013/06/das.htm

8. Government of India –Department of Scientific and Industrial Research (DSIR): http://www.dsir.gov.in/reports/isr1/Textiles%20and%20Garments/2_5.pdf

Rating Guide


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Rating Approach for SME / MSE Ratings

BackgroundSME segment plays a very vital role in the economic development of our nation. On the other hand, credit risk assessment in this segment requires a specific approach, as the factors affecting the creditworthiness are somewhat different compared with large corporate entities. Hence, to further support the growth for this sector and help the investors to determine the relative creditworthiness of entities belonging to this segment, a need for separate rating product was felt. Accordingly, CARE introduced SME ratings in 2006, which are intended solely for Small and Medium Scale Enterprises. Furthermore, CARE has signed a MoU with NSIC to introduce the NSIC – CARE Performance and Credit Rating for MSEs. This is a special rating product for units registered as MSEs.

SME ratingSME rating indicates the relative level of creditworthiness of an SME entity, adjudged in relation to other SMEs. It is an issuer-specific rating reflecting the overall general creditworthiness. It is a one-time assessment of credit risk of the rated entity in comparison with the other SMEs.

NSIC-CARE performance and credit rating for MSE entityThis rating indicates the relative level of financial strength and performance capability of an MSE entity compared with other MSEs. It is an issuer-specific rating and not a loan/bank facility-specific rating. It is a one-time assessment of the rated entity. This rating helps MSEs to obtain quicker and cheaper credit, facilitate capability assessment of MSEs by their clients and help MSEs obtain leverage from the parties in the supply chain. The Indian Bank Association (IBA) has been involved in formulating this scheme. The government has subsidised the rating fees for this rating up to 75%, enabling MSEs to get the rating at a lower cost.

Rating MethodologyThe rating exercise would take into account the industry dynamics, operational performance, financial risk characteristics, management capability and the future prospects of the entity for arriving at the overall risk profile of the SME unit. A brief discussion about key criteria is given below:

Industry dynamicsNo SME unit can isolate itself from the impact of industry dynamics. The industry parameters that affect an SME unit would include overall demand-supply scenario, level of entry barrier, competition level, availability of substitutes and technological trends and government support to the sector, cyclicality and seasonality of the industry. Therefore, CARE believes that the promoters’ ability to manage the business on industry impact is very crucial.

Operational performanceAgainst the backdrop of the industry, CARE assesses the entity’s operating strengths and weaknesses vis-a-vis its competitors. Many SMEs have inherent strength and relatively strong positioning (including market share) in their business segment, which is considered as a credit positive.

For assessing the business risk, long-term sustainability of the business model is very important. Many SME units are part of some large groups. In that case, the entity’s importance and positioning within the group, its inter-linkages of operations and transaction transparency are also evaluated.

In order to assess the smoothness of functioning of the day-to-day operations, timely availability and sufficiency of raw materials, manpower, utilities are analysed with the major focus on locational and technological edge over others. The entity’s initiatives for clean and green environment are also evaluated during the site visit.


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Business strength is derived by assessing the customer profile, product profile, revenue mix and bargaining power with the stakeholders. An interaction with key customers and suppliers also provide input for strength of relations with the rated SME unit. Depending on the category of the product and a wide distribution network would be essential to gain competitive advantage.

Financial risk analysisCARE believes that the quality of accounts is of prime importance as a significant part of financial risk analysis is based on the reported financial statements, disclosures and information submission. The audited financial results give more comfort than the unaudited/provisional results. CARE believes that among the SME units, limited companies have better accounting & disclosure systems, as they need to follow regulatory and specific ICAI guidelines. CARE also believes that in specific legal entities, viz, partnership and proprietorship firms, the risk of withdrawal of capital exists. CARE evaluates the financial flexibility (through gearing ratios, debt protection ratios and hybrid ratios), liquidity (measured by current & quick ratio, proportion of liquid assets, operating cycle, working capital management, cash flow from operating activities, etc), business efficiency & profitability (indicated by turnover ratios, profitability ratios, return ratios, growth ratios, etc). While evaluating the gearing ratios for SME units, CARE also sees the proportion of bank funds (excluding unsecured loans by the promoters, friends and relatives) as dependency on external funds may be lesser in certain SME entities, which is considered as a credit positive.

In order to evaluate the track record and relations with the banks, CARE team interacts with the bankers/lenders to know the overall conduct of account. Cash flow analysis is the most important parameter for assessing the creditworthiness.

Management capabilityCARE critically evaluates the quality of management as one of the most important parameters that supports the credit strength of an SME unit. CARE team interacts with the SME promoters/key management personnel for understanding their business insight, vision, future growth strategy and approach towards the perceived risk factors. Most SMEs are family-managed entities and highly dependent on a single person. To assess the depth of the management, CARE analyses the quality of the second line management, succession planning, organisation structure and internal control systems.

The promoter’s experience in the business (including within the relevant industry sector) and track record of operations of the rated entity would act as a key criteria for assessing the management competence. CARE believes that the management having experience of several business cycles and familiarity for project implementation would have an edge. The management’s skill to expand clientele, new trade initiatives and level of priority to the finance function are equally vital.

Project risk analysisThe high level of project risk can also affect the financial strength of an SME unit, which can be assessed by project feasibility, size and project gearing and stabilisation issues, post implementation. CARE believes that the promoter’s track record in project implementation and project status including financial closure is equally vital

The rating outcome is ultimately an assessment of the above factors and their linkages to arrive at the overall assessment of credit strengths and weaknesses by taking into account the industry’s cyclicality. While the methodology encompasses comprehensive technical, financial, commercial, economic and management analysis, credit rating is an overall assessment of all aspects of the issuer.

DisclaimerCARE’s MSE rating is an independent opinion on performance capability and financial strength. The rating is a one-time exercise and it will not be kept under surveillance. The validity of the rating is one year from the date of provisional communication of rating, subject to no significant changes / events occur during this period that can materially impact the operational and financial parameters of the entity. The rating is not an audit and also not a recommendation for entering into any transaction with the entity. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.


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NSIC-CARE MSE Rating Scale & Definitions

Rating MatrixFinancial Strength

High Moderate Low

Performance Capability

Highest SE 1A SE 1B SE 1C

High SE 2A SE 2B SE 2C

Moderate SE 3A SE 3B SE 3C

Weak SE 4A SE 4B SE 4C

Poor SE 5A SE 5B SE 5C

Definitions:SE 1A Highest Performance capability: High Financial strength. Prospects of performance are the highest and the entity has

high capacity to meet its financial obligations.

SE 1B Highest Performance capability: Moderate Financial strength. Prospects of performance are the highest. However, the entity has moderate capacity to meet its financial obligations.

SE 1C Highest Performance capability: Low Financial Strength. Prospects of performance are the highest. However, the entity has low capacity to meet its financial obligations.

SE 2A High Performance capability: High Financial strength. Prospects of performance are high and the entity has high capacity to meet its financial obligations.

SE 2B High Performance capability: Moderate Financial strength. Prospects of performance are high. However, the entity has moderate capacity to meet its financial obligations.

SE 2C High Performance capability: Low Financial Strength. Prospects of performance are high. However, the entity has low capacity to meet its financial obligations.

SE 3A Moderate Performance capability: High Financial strength. Prospects of performance are moderate. However, the entity has high capacity to meet its financial obligations.

SE 3B Moderate Performance capability: Moderate Financial Strength. Prospects of performance are moderate and the entity has moderate capacity to meet its financial obligations.

SE 3C Moderate Performance capability: Low Financial strength. Prospects of performance are moderate. However, the entity has low capacity to meet its financial obligations.

SE 4A Weak Performance capability: High Financial strength. Prospects of performance are weak. However, the entity has high capacity to meet its financial obligations.

SE 4B Weak Performance capability: Moderate Financial Strength. Prospects of performance are weak. However, the entity has moderate capacity to meet its financial obligations.

SE 4C Weak Performance capability: Low Financial Strength. Prospects of performance are weak and the entity has low capacity to meet its financial obligations.

SE 5A Poor Performance capability: High Financial strength. Prospects of performance are poor. However, the entity has high capacity to meet its financial obligations.

SE 5B Poor Performance capability: Moderate Financial Strength. Prospects of performance are poor. However, the entity has moderate capacity to meet its financial obligations.

SE 5C Poor Performance capability: Low Financial Strength. Prospects of performance are poor and the entity has low capacity to meet its financial obligations.


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SME Rating Scale & DefinitionsCARE SME RATING SYMBOLS& DEFINITIONS

CARE SME Rating Definition

CARE SME 1 The level of creditworthiness of an SME, adjudged in relation to other SMEs is the Highest

CARE SME 2 The level of creditworthiness of an SME, adjudged in relation to other SMEs is High

CARE SME 3 The level of creditworthiness of an SME, adjudged in relation to other SMEs is Above Average

CARE SME 4 The level of creditworthiness of an SME, adjudged in relation to other SMEs is Average

CARE SME 5 The level of creditworthiness of an SME, adjudged in relation to other SMEs is Below Average

CARE SME 6 The level of creditworthiness of an SME, adjudged in relation to other SMEs is Inadequate

CARE SME 7 The level of creditworthiness of an SME, adjudged in relation to other SMEs is Poor

CARE SME 8 The level of creditworthiness of an SME, adjudged in relation to other SMEs is the Lowest. Such entities may also be in default.

Leading SMEs


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Analysis of higher rated Small Scale entities

The NSIC-CARE MSE ratings grade the businesses registered as MSEs on two distinct parameters, viz, performance capability and financial strength. The rated units are compared with other MSE units operating in the same industry. If a unit is operating in a niche product segment, then comparison is made with MSEs having similar exposure to business and industry risk factors. The entities covered in this report are highly rated having ratings SE 1A and SE 2A, indicating high to highest performance capability and high financial strength.

The entities covered in this report belong to diverse industries like plastic packaging, solar energy products, industrial valve, electric equipment, education, construction, tool & dies manufacturing, pharmaceutical research services, EPC contractor for power transmission and distribution projectsand textileindustry. Furthermore, 10 of the entities are private limited and public limited entities, one is trust, while three are proprietorship and two are partnership firms. The limited liability form of a business entity is viewed more favourably by CARE as it not only indicates the entity’s compliance with applicable norms but also indicates the promoters’ commitment towards its business. Moreover, such a form is also viewed favourably by banks when it comes to secured lending. In a proprietorship or partnership form of business, the ability to withdraw and infuse capital easily creates difficulties in judging the net-worth base and other financial parameters like leverage, thus restricting the financial flexibility of an entity with lending institutions also relatively being reluctant to take exposure to them.

The parameters considered by CARE for arriving at the performance capability grade can be broadly divided into management and business risk parameters. For entities getting a high grade on the performance capability, the management profile is characterised by a long operational track record of the entity (usually more than 10 years), vast experience of the promoter in the main line of business and technically qualified promoters. Their business risk profiles are characterised by established relationships or strategic tie-up with reputed clients, which have a strong position in their respective industry segments, established marketing and distribution setup, relatively diversified product portfolio catering to various end-user industries and proximity to key customers & raw material suppliers. However, these entities are exposed to industry downturns which would impact their business profiles through adverse impact on their customers. This, though, would be applicable for majority of MSEs and hence units catering to various end-user industries are better placed than others.

The financial strength of the entities is characterised by healthy growth in turnover, comfortable leverage position, healthy profitability and good liquidity indicators (See the table below). The operating cycle as expected is on the higher side mainly due to the entities’ position in the industry value chain resulting in relatively lower bargaining power vis-a-vis customers and high degree of competition resulting in the need to keep higher inventory and extend high credit to the customers.

Table 1: Distribution of select financial parameters for the few selected entitiesFinancial Parameter High Low Median

Growth in turnover (2-year CAGR %) 127 -20 17.59

PBIDT margin (%) 19.37 6.60 13.44

PAT margin (%) 9.49 0.45 4.13

Interest coverage 13.92 2.42 7.20

Overall gearing 2.36 0.00 0.79

Working capital turnover 29.30 2.79 4.50

Average inventory period 165 0 44

Average collection period 119 0 47

Working capital cycle 133 -56 51

Besides the above parameters, CARE also looks at the ability of the promoters to bring in funds in the form of capital and/or unsecured loans from their own sources to support the operations as and when required. Finally, the relationship with the bankers and the regularity of servicing the debt obligations in a timely manner are also factors while arriving at the financial strength grade for an entity.


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Summary profile of small-scale entities rated by CARE

Below is a profile of small-scale entities rated by CARE during the quarter ended June 2014 (Q1FY15).


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IndexList of the entities covered in the report Rating Page

Bullion FlexipackPvt. Ltd SE 2A 41

Deshmukh Solar Energy Pvt. Ltd SE 2A 42

Hawa Valves (India) Pvt. Ltd SE 1A 43

KantilalChunilal& Sons Appliances Pvt. Ltd. SE 2A 44

KBM Extrusion Machines Pvt. Ltd SE 2A 45

KovaiKalaimangal Educational Trust SE 2A 46

Mahalaxmi Engineering and Construction SE 2A 47

Nixon Engineering SE 2A 48

Pharmaffiliates Analytics & Synthetics Pvt. Ltd. SE 2A 49

Sreelakshmi Electrical Services SE 2A 50

Zonac Knitting Machines Pvt. Ltd. SE 1A 51

Profiles of top rated small-scale entities


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Name of the entity Bullion Flexipack Private LimitedRating SE 2 A

Rating Valid Till June 25, 2015

Entity profile Operation profileYear of Incorporation 2001 Products / Services Shrink sleeves and carry bags

Constitution Private limited company Major Brands NA

SSI Registration number

240191203334 (dated December 07, 2010) Total Number of employees

97

Nature of Business Manufacturing Key Customers Loreal India Pvt. Ltd., Paragon Polymer Pvt. Ltd., Wave Distilleries & Beverages Ltd.

Industry Plastic and plastic packaging

Controlling/Registered Office

328/15, Jarod Rasulabad Road, Nr. Referral Hospital, Off. Baroda-Halol Express Highway, Jarod, Vadodara, Gujarat -391510

Key Suppliers Reliance Industries Limited, Hanwha and C corporation, Manish Packaging Pvt. Ltd

Management Profile Bankers & AuditorsKey Promoter Mr Nari C. Shahani Name of the Auditor Dinesh Thakkar & Co.

Total Experience( in years)

Over 30 years Major Bankers Bank of Baroda

Certifications / Awards

ISO 9001-2008

Financial Profile

Key StrengthExperienced and qualified partners

Experienced promoters in plastic and plastic packaging industry.

Long track record of operations of the company.

ISO-certified manufacturing facilities.

Established relations with customers and suppliers.

Diversified base of over 200 customers.

Healthy operating margins.

Moderate capital structure and debt coverage indicators.


42

Name of the entity Deshmukh Solar Energy Private Limited (DSEPL)Rating SE 2 A

Rating Valid Till May 12, 2015

Entity profile Operation profileYear of Incorporation 2010 Products / Services Solar Photovoltaic (PV) based Power Pack

System, inverters, Home Lighting System, Streetlights System, Power Fencing, Building Integrated PV System, Education Kit, Freezeand Hybrid System.

Constitution Private limited company Major Brands NA


27 020 12 04369 (dated September 15, 2011) Total Number of employees

40

Nature of Business Assembling & installation of Solar Energy Products and manufacturing of solar panels

Key Customers Maharashtra State Government, Waree Retails Pvt Ltd, Worden Surgical Pvt Ltd

Industry Renewable energy sources


26 A, Market Yard, Dindori Road, Opp Of Panchavati Police Station, Panchawati, Nashik, Maharashtra – 422003

Key Suppliers Su-Kam Power Systems Limited, Waaree Retails Pvt. Ltd., Exide Industries

Management Profile Bankers & AuditorsKey Promoter Mr Sampatrao Narayanrao Deshmukh Name of the Auditor ZawarSomani And Company


34 years Major Bankers Canara Bank


ISO 9001:2008

Financial Profile

Key StrengthExperienced management.

In-house testing facilities along with diversified product portfolio.

Supply tie-up with ‘Su-Kam Power Systems Limited’ for the supply of power conditioning unit (inverter).

Financial risk profile marked by high profitability margins, moderate solvency position, comfortable liquidity position along with high-interest converge ratio.


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Name of the entity Hawa Valves (India) Private LimitedRating SE 1 A


Entity profile Operation profileYear of Incorporation 2001 Products / Services Valve Manufacturing

Constitution Private Limited Company Major Brands NA


270211201177 (dated September 28, 2001) Total Number of employees

180

Nature of Business Industrial valve manufacturing Key Customers National Petroleum Cos. Co., PTS Resources, GalfarEngg&Cont, Shell Iraq Petroleum

Industry Manufacturing


R-16, TTC, MIDC Industrial Area, Rabale, Navi Mumbai 400701

Key Suppliers CastechFoundaries, JsonsFoundaries

Management Profile Bankers & AuditorsKey Promoter Mr Javed Anwar Hawa Name of the Auditor M/s Bhoira Associates


28 years Major Bankers Union Bank of India


American Petroleum Institute and registered supplier to ‘Shell Petroleum Development Company

Financial Profile

Key StrengthVast experience of the promoters and management team in the valve manufacturing

Established track record of operations with demonstrated execution capabilities as highlighted by the repeat orders from the customers.

Established trade relationship with reputed clientele (including BHEL, IOCL, L&T, Shell, Petronac, GalfarEngg & others) along with geographically diversified customer base.

Products of HVIPL are accredited by American Petroleum Institute and HVIPL is an registered supplier to the Shell group.

Continuous growth in the scale of operations, comfortable operating margins, moderate capital structure and debt coverage indicators.

Regular infusion of funds to support the operations as well as capex.


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Name of the entity KantilalChunilal& Sons Appliances Private LimitedRating SE 2 A


Entity profile Operation profileYear of Incorporation 1950 Products / Services Component Heaters, Circulation

Heaters, Process Heaters, Canteen Equipments&electrical household appliances



240221242137 (dated August 25, 2011) Total Number of employees

40

Nature of Business Manufacturing of electric heating systems Key Customers Enpro Industries Pvt. Ltd., Exide Ind., Reliance Industries Limited

Industry Electrical Equipment


48/49, Road no.-3, Jawahar Road, Udhna, Surat ,Gujarat -394012

Key Suppliers Abhishek Ispat, Bansali Steel, Hi Tech Electricals

Management Profile Bankers & AuditorsKey Promoter Mr. Nirupam Doshi Name of the Auditor DSI & Co., Surat


33 years Major Bankers NA


Bureau of Indian Standards (BIS) Certification

Financial Profile

Key StrengthLong operational track record of over five decades.

Vast experience of the promoters over three decades.

Comfortable liquidity position marked by negative working capital cycle and healthy current and quick ratios.

Reputed clientele like Material Organization (Indian Navy), Reliance Industries Limited, etc.

Diversified product portfolio and well-diversified customer base.

Bureau of Indian Standards (BIS) Certification.

Increasing scale of operations and resourceful promoters


45

Name of the entity KBM Extrusions Machines Private LimitedRating SE 2 A

Rating Valid Till April 08, 2015

Entity profile Operation profileYear of Incorporation 2005 Products / Services Single Screw Extruder, Parallel Twin

Screw, Strand Pelletizer Twin Screw Extruder and other machines which have application in plastic industry.

Constitution Private Limited Company Major Brands KBM Extrusion


110719159 (dated July 13, 2005) Total Number of employees

36

Nature of Business Manufacturing of plastic extrusion machineries

Key Customers Trade King Ltd, BSS Industries, UIC Corporation Pvt Ltd, Reo Brothers

Industry Manufacturing of plastic extrusion machineries


B-14/15, Virwani Industrial Estate, OFF, Western Express Highway, Goregoan East, Mumbai, Maharashtra-400063

Key Suppliers Alloy India, Panchal Machinery, Rajhans Plastics Machinery, Advance Power systems, Shanti Gear Ltd.

Management Profile Bankers & AuditorsKey Promoter Mr Gautam Kumar Makhija Name of the Auditor Kothari Mehta & Associates


Major Bankers Union Bank of India


ISO 9001:2008

Financial Profile

Key StrengthLong and established track record of operations.

Experienced directors with around 20 years of experience.

Comfortable capital structure and debt coverage indicators.

High profitability margins.


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Name of the entity KovaiKalaimagal Educational TrustRating SE 2 A


Entity profile Operation profileYear of Incorporation 1992 Products / Services Engineering, arts, commerce,

matriculation, etc.

Constitution Trust Major Brands NA



340

Nature of Business Imparting education Key Customers NA

Industry Education


Vellimalaipattinam, Naraseepuram, Coimbatore - 641109

Key Suppliers NA

Management Profile Bankers & AuditorsKey Promoter Mr K.A Chinnaraju

Mr ThangabelMr S. SubramaniamMr P. Shanmugadevi

Name of the Auditor M/s. PKF Sridhar & Santhanam, Tamil Nadu


28 years35 years30 years24 years

Major Bankers Corporation Bank


NA

Financial Profile

Key StrengthExperienced trustees.

Track record of more than two decades in the field of education.

Diverse course curriculum with moderate enrolment rate.

Satisfactory infrastructure.

Comfortable capital structure and debt coverage indicators.


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Name of the entity Mahalaxmi Engineering and ConstructionRating SE 2 A


Entity profile Operation profileYear of Incorporation 2005 Products / Services NA

Constitution Proprietorship concern Major Brands NA


080171104450 (dated June 12, 2014) Total Number of employees

20

Nature of Business Construction Work Key Customers Tata Projects Limited, Cairn India Limited

Industry Construction


Raneja House, AkashwaniMarg near PHED, Laxmi Nagar, Barmer, Rajasthan-344001

Key Suppliers Purshttam Das Jagdish Chand, MaaVankal Service Station, Marwar Steels

Management Profile Bankers & AuditorsKey Promoter Mr Mangilal Sharma Name of the Auditor M/s Priyanka Bairathi, Jodhpur (Rajasthan)


17 years Major Bankers No existing bank facilities


NA

Financial Profile

Key StrengthExperienced proprietor in the field of construction industry.

Support from group entity being present in the similar industry.

Long-standing and established relationship with customers.

Reputed clientele.

Healthy profitability margin, comfortable capital structure and debt coverage indicators


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Name of the entity Nixon EngineeringRating SE 2 A


Entity profile Operation profileYear of Incorporation 2005 Products / Services Press tools, dies and sheet metal

components

Constitution Proprietorship firm Major Brands NA


330011218106 (dated June 26, 2012) Total Number of employees

40

Nature of Business Manufacture of press tools, dies and sheet metal components

Key Customers M/s JBM Auto systems Private Limited, M/s. Caparo Engineering India Private Limited, TAFE India Limited, Sinto Bharat Manufacturing Private Limited

Industry Engineering


Door No.335,SIDCO Industrial Estate, Ambattur,Chennai,Tamil Nadu-600098

Key Suppliers NA

Management Profile Bankers & AuditorsKey Promoter Mr L Antony Name of the Auditor M/s.V.Iyyappan & Associates, Chennai


24 years Major Bankers Vijaya Bank


NA

Financial Profile

Key StrengthLong experience of the proprietor of more than two decades in the same line of business.

Established track record of the firm of nearly nine years.

Reputed clientele which includes Caparo Engineering India Pvt.Ltd., TAFE India Limited, JBM Auto Systems Pvt. Ltd, Sinto Bharat Manufacturing Pvt. Ltd.

Established and relatively long association with the customers.

Growing scale of operations with a total operating income registering a compounded annual growth rate of 42% during FY11-13.

Comfortable capital structure and moderate debt coverage indicators.


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Name of the entity Pharmaffiliates Analytics & Synthetics Private LimitedRating SE 2 A


Entity profile Operation profileYear of Incorporation 2006 Products / Services Medicinal Chemistry Research& Analysis



060011100508 (dated April 06, 2012) Total Number of employees

80

Nature of Business Services (Pharmaceutical Research and Development)

Key Customers Ranbaxy Laboratories Limited, MylanLaboratories Limited, Torrent Phamaceuticals Limited

Industry Pharmaceuticals Industry


#166, Sector-10, Panchkula, Haryana – 134109

Key Suppliers Council of Europe, Amba Traders, British Pharmacopeia London

Management Profile Bankers & AuditorsKey Promoter Mr A.K. Sabharwal Name of the Auditor M/s Paramvir& Associates




ISO 9001:2008, ISO 17025

Financial Profile

Key StrengthQualified and experienced promoter.

Growing scale of operations and moderate profitability margins.

Comfortable capital structure and satisfactory debt coverage indicators.

Comfortable operating cycle.

Reputed and moderately diversified customer base.

Favourable prospects for growth of CRAMS (Contractual research and manufacturing services) in India.


50

Name of the entity Sree Lakshmi Electrical ServicesRating SE 2 A


Entity profile Operation profileYear of Incorporation 2003 Products / Services Transmission lines and Substation erection

Constitution Proprietorship Concern Major Brands NA



22

Nature of Business Execution of projects in power transmission and distribution

Key Customers Andhra Pradesh Transmission Corporation, Karnataka Power Transmission Company Limited, Maharashtra State Electricity Transmission Limited

Industry Construction – Infrastructure utilities


Flat No: 506; BJP Office Road; Kukatpally, Hyderabad, Andhra Pradesh-500072

Key Suppliers Venkateshwara Electricals, V.V.N. Steels, Vijaya Electricals

Management Profile Bankers & AuditorsKey Promoter Mr Chandra Mohan Reddy Name of the Auditor Mr Shiva Kumar Reddy, Hyderabad


17 Major Bankers Vijaya Bank, Hyderabad


NA

Financial Profile

Key StrengthExperienced promoter with established presence in the market for more than a decade in the industry.

Consistent growth in the total operating income during FY11-FY13.

Comfortable capital structure and satisfactory debt coverage indicators.

Reputed clientele with satisfactory order book position.

Price escalation clause for raw material price fluctuations with key customers.


51

Name of the entity Zonac Knitting Machines Private LimitedRating SE 1 A


Entity profile Operation profileYear of Incorporation 1988 Products / Services Socks, stockings, tights, leggings,

handkerchief, etc.

Constitution Private Limited Major Brands Bonjour, Bongio and Vami


090101200087 (dated January 31, 2007) Total Number of employees

245

Nature of Business Manufacturing Key Customers Max Landmark Group, Canteen Stores Department, Lifestyle International, Trent Limited, Arvind Brand Limited

Industry Textile and Textile Products


Plot No. D-1, D-2, Site-B, UPSIDC Industrial Area, Surajpur, Greater Noida, District Gautambudh Nagar, Uttar Pradesh -201306

Key Suppliers Not shared by client

Management Profile Bankers & AuditorsKey Promoter Mr Raj Kumar Jain Name of the Auditor Vinay Jain & Associates




NA

Financial Profile

Key StrengthExperienced management and long track record of operations.

Growing scale of operations and moderate profitability margins.

Moderate capital structure and coverage indicators.

Strong brand presence.

Well-established marketing and distribution network.

Recognition


53

Testimonials

BalajiAccu-Preci Parts Pvt Ltd


54

Deshmuskh Solar EngeryPvt. Ltd.


55

Hawa Valves (India) Pvt. Ltd.


56

Jakhotia Plastics Pvt. Ltd.


57

Sree Lakshmi Electrical Services


58

S V Motors


59

Uniexcel Agencies & Services Pvt Ltd

Awareness Efforts


61

Synopsis of Seminars and Events with CARE’s participation

BWI Business World SME Ambitions eventBusinessworld conducted a panel discussion on “Imagine where your Ambition could take you”. The esteemed three-member panel included Mr Yogesh Dixit, EVP- CARE, Mr Manish Chhabra (MD Hygienic Research and Mr Shailesh Patil (MD Kesari Travels). While Mr Dixit spoke on how important technology is for a ratings firm, the other members emphasised on adoption of technology in the early stages of business. The discussion brought out the importance of adopting right technology partner to help steer the road to success and cost is no longer a deterrent for MSMEs as most applications are now available on cloud.

(L-R) Shailesh Patil, MD, Kesari Travles, Manish Chhabra, MD & CEO, Hygienic Research, Yogesh Dixit, EVP, CARE and Anup Jayaram, Associated Editor, BW|Businessworld

The Federation of Andhra Pradesh Chambers of Commerce and Industry (FAPCCI) organized a SME event at Hyderabad on August 8, 2014, wherein CARE Ratings acted as Silver Partner.

Mr Aakash Jain (Manager MSME) represented CARE Ratings & delivered presentation on value addition by Credit rating agency. The event was attended by 70-80 entrepreneurs and consultants.


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CARE officials attend the “Customer Meet” held on 20thAugust2014 at Vapi Industrial Association, Vapi. The key speaker was Mr Shailendru Shankar (Zonal Manager-Bank Of Maharashtra- Gujarat) & Mr AjeetYadav (MD- CMC Textile) & Mr Ananda Prakash Jha (Manager -MSME- Care Ratings).

Mr Ananda Prakash Jha (Manager–MSME) during the seminar

The officials from CARE also participated in an event at Ongole in Syndicate Bank’s SME meet where 50 SMEs and branch heads were the audience in June 2014.


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MSME News updates1. Pharma companies hope to post double-digit growth following scrap of cap on price of formulation packs India’s pharmaceutical industry hopes to post double-digit growth this fiscal following the drug price regulator’s

decision to scrap its July order to cap prices of 108 formulation packs of anti-diabetic and cardiovascular drugs (Source: Economic Times).

2. Manufacturers of complex fertilisers plan to raise prices by 5-10% Domestic manufacturers of complex fertilisers are planning to raise prices by 5-10% to offset an increase in raw material

cost, say dealers and analysts. Prices of raw materials such as phosphoric acid and ammonia have gone up by 7-15% over the last few weeks. Adding to the industry’s woes is the US dollar, which appreciated from Rs.61.4 to Rs.60 during this period. (Source: Economic Times)

3. Foreign investment norms in construction further relaxed Foreign investment norms in the construction sector were relaxed further Wednesday with the size of an individual

project reduced to 20,000 sqmts, against 50,000 sqmts earlier, and by bringing down the minimum capital requirement by half to USD 5 million. (Source: SME Times)

4. Good news for MSMEs soon The Micro, Small and Medium Enterprises (MSMEs) of the country may soon get some ‘Good News’ from the central

government as the ministry of MSME would roll out a ‘New MSME Policy’ soon, Secretary, Ministry of Micro, Small and Medium Enterprise (MSME). (Source: SME Times)

5. Government to set up 15 tech centres to scale up SME clusters The government is setting up 15 new technology centres to scale up competitiveness of small and medium enterprises

(SMEs) through clusters.

Announcing at CII’s 7th National Cluster Summit, Mr Madhav Lal, Secretary, MSME Ministry, said “capacity building in areas of cost, productivity, design and soft skills training can altogether transform the growth trajectory of an existing enterprise without a need to invest in infrastructural requirements like land, machinery etc.” (Source: Business Line)

6. MSME minister hints at excise boost for revival Union minister gave small and micro enterprises a reason to breathe easy at the time of economic gloom. The macro,

small and medium enterprises (MSMEs) minister on Tuesday hinted at amendments in exemption of excise duty on goods manufactured by the units. Mishra said the government is considering making amendments as rising prices of raw materials are taking a toll on the profitability of small-scale units and “they are losing out to the growing influence of Chinese products” in Indian market. (Source: Times of India)

7. UNDP to aid energy efficiency programme The United Nations Development Programme (UNDP) is implementing a project by which India’s steel re-rolling mills

can use advanced energy-efficient technologies called second generation (SG) technologies for energy conservation, according to Knowledge News Network, a media platform that focuses on the Indian micro, small and medium enterprise (MSME) sector. The project is a part of the programme, ‘Upscaling energy-efficient production in the small-scale steel industry in India’, being implemented with support from Australian Aid and the union ministry of steel. UNDP has identified five SG technologies in selected steel re-rolling mills in India for energy conservation and will support their adoption. (Source: Business Standard)


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8. Aluminium utensils industry feels the heat of competition The aluminium utensils industry in Jagadhri in Haryana is feeling the heat of competition from low-cost

substitutes, with the share of aluminium utensils in the utensils industry shrinking viz-a-viz stainless steel. As a result, capacity utilisation has come down to 60% in the last few years. The cluster comprises around 100 aluminium utensils manufacturers, a majority of them in the micro, small and medium enterprise (MSME) category. (Source: Business Standard)

9. New law proposed for small factories The Labour Ministry has proposed the Small Factories (Regulation of Employment and Conditions of Services) Bill

to govern wages and conditions of work in small and medium enterprises (SMEs). The Bill envisages rules for wages, overtime hours, social security and appointment of factory inspectors in units employing fewer than 40 workers. While the government introduced the Factories Act (Amendment) Bill, 2014, in the Lok Sabha in August, the new Bill has been proposed to align the work conditions in the SMEs with the Factories Act amendments and allow enterprises to file compliance forms online as the government announced earlier this month. (Source: The Hindu)

10. Bankruptcy code for SMEs soon The government on Monday took the first step to provide small and medium enterprises (SMEs) with an exit option

in case of bankruptcy. The government formed a committee, headed by former Lok Sabha secr¬etary-general an¬d former law secretary Mr T K Vishwanathan, which will prepare a report on corporate bankruptcy framework for SMEs by February 2015. (Source: mydigitalfc.com)

11. Government plans to revamp SME, SEZ tax regime The government is getting down to business to boost local manufacturing and create jobs and is working on a series

of measures, including revamp of the tax system for the small-scale sector, ship-building and special economic zones (SEZs).

Work has also begun on speeding up the system of clearances for the mining and power sector, including allocation of coal, after the government managed to rework the environment and forest clearance mechanism that was seen as a major hurdle for projects to take off. (Source: Economic Times)

12. Government to ensure all PSUs procure 20% from MSMEs The government would ensure that all the public sector units (PSUs) procure 20% of goods from Micro, Small,

and Medium Enterprises (MSMEs). As far as procurement policy is concerned, only 32 PSUs have complied with the 20% mandatory procurement out of 277 PSUs. The government is looking at amending public procurement policy to incorporate provisions against PSUs who fail to meet the mandatory at least 20% procurement by April 2015. (Source: SME Times)

13. SBI to have dedicated SME branches The nation’s largest lender State Bank of India, which is flush with liquidity as large corporates are holding back

investments, is focusing on increasing its SME loan book by opening dedicated branches across the country. Earlier there were sourcing teams and branches for SMEs and sanctions were done after being appraised by the SME city credit cell. But now there will be dedicated SME branches that will only do SME advances. (Source: Deccan Chronicle)

14. Snapdeal ties up with SMB body to aid entrepreneurs With an eye on taking the number of sellers on its online marketplace to 100,000 by the end of this fiscal, Snapdeal

on Monday announced a tie-up with National Institute for Entrepreneurship and Small Business Development (NIESBUD), which provides training, consultancy and research to promote entrepreneurship. (Source: The Financial Express)

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CIN

# L

67

19

0M

H1

99

3P

LC

07

16

91

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