10 Years

SME Ratings

MSME Rating is a comprehensive and independent third-party evaluation of the MSME. It takes into account the financial position and several qualitative parameters of the MSME that have a bearing on the creditworthiness of the entity. Adequate credit flow to MSMEs helps in driving the overall growth of the economy. SMERA facilitates this by undertaking an independent, third-party and comprehensive assessment of the overall conditions of MSMEs. SMERA's MSME ratings aid in enhancing the credibility of the MSME units, facilitate growth and also serve as a tool for self evaluation and improvement.

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SMERA has developed a rating methodology framework which mainly addresses the following areas:

Industry Risk

The industry in which an enterprise operates plays a crucial role in the credit risk assessment. It is a key determinant of the level and volatility of earnings of any business

Business Risk

Business risk is the possibility of a default on account of circumstances connected with the customer's business activities, SMERA's business risk analysis encompasses the following aspects:

  • Market Risk
    Market risk is the exposure of the unit to the forward and backward linkages in the course its business and the risk of facing sustained periods of unfavourable trends due to various factors such as , raw material prices, single product dependence and pricing inflexibility.
  • Operating Efficiency
    In markets where competitiveness is largely determined by price, the market position is determined by the unit's operational efficiency. This is reflected in the unit's ability to maintain and improve its market share and command differential in pricing. In a competitive market, it is critical for any business unit to control its costs at all levels. This assumes greater importance in commodity businesses, where low cost producers have an edge. Cost of production to a large extent is influenced by the location of the production unit(s), access to raw materials, access to human resources, scale of operations, technology, level of integration, experience and the ability of the unit to efficiently use its resources.

Management Risk

Management risk refers to the risk of non payment arising out of a business failure linked to the inefficacies of the management. Management risk assessment involves evaluation of the management quality on the basis of educational qualification, professional experience and business attitude. Majority of the Indian SMEs are essentially managed by one or two key persons. In this scenario, the quality of management personnel becomes critical. The following factors are critical in assessing management quality:

  • Character
    Relates to the willingness to pay. Apart from the characteristic disposition of honesty and integrity, several other aspects are judged including
    • Repayment track record of the previous borrowings
    • Financial interest in the business
    • Quality of infrastructure
  • Ability
    Relates to the capacity to pay. Creditworthiness of the company is assessed based on its financial strength
  • Capacity
    Refers to the borrower having the technical, managerial and financial abilities to operate profitably.
    Past experience of the management in handling similar business, performance of group companies and their track record, vision and mission of the management, organisation structure, succession issues, net worth and corporate governance also plays an important role in the assessment of management risk.

Financial Risk

Financial risk analysis involves thorough evaluation of the financials of the SMEs through a careful analysis of the audited financials and auditor's report and notes to accounts. Ratio analysis, financial disclosures and off balance sheet items andtheir impact on the profitability is studied and analysed in detail. Further, the source of funding and its impact on the capital employed structure is also analysed. Availability of liquid investments, unutilized lines of credit, financial strength of group companies, market reputation, relationship with financial institutions and banks and enterprise's experience of tapping funds from different sources also play an important role in financial analysis. Past performance of the company, level of financial transparency i.e. quality of documentation and the future plans play an important role in the rating assessment. While the focus of rating exercise is to evaluate the future cash flow adequacy for servicing debt obligations, a detailed review of the past financial statements is critical for better understanding of the influence of all the business and financial risk factors. Evaluation of the existing financial position is also important for determining the sources of secondary cash flows and claims that may need servicing in the future.

New Project Risk

The scale and nature of new projects can significantly influence the risk profile of an entity. Unrelated diversifications into new segments are invariably assessed in greater detail. The underlying risks in new projects include time and cost overruns, non-completion operational risks and market risk. Besides clearly establishing the rationale of new projects, the protective factors that are assessed include track record of the management in project implementation, experience and quality of the project implementation team, experience and track record of the technology supplier, implementation schedule, status of the project, project cost comparisons, financing arrangements, tie-ups with suppliers, market outlook and plans.

Other Parameters

Besides these five broad factors, other parameters like environmental clearances, impact of subsidies and sales tax deferral loans, changes in accounting policies, unabsorbed depreciation and business loss, non-insurance or inadequate insurance of assets, extraordinary or windfall gains and losses, analysis of bank statements, violations of accounting standards if any, change in management, impact of new monetary or fiscal policies or significant development in the industry are thoroughly assessed on case to case basis. Legal risks, foreign exchange fluctuation risk and hedging mechanism (if any) followed by the enterprise is studied in detail.


Date Entity Name Rating
30 Aug 13 Gravita India Limited MSME 4
30 Aug 13 Technoma India MSME 4
30 Aug 13 Anmol Polymers Private Limited MSME 3
29 Aug 13 Asence Pharma Private Limited MSME 3
28 Aug 13 Unnati Writing Products Private Limited MSME 5
28 Aug 13 Tirupati Balaji Riders Oil Company Private Limited MSME 4
28 Aug 13 Mora Industries MSME 4
28 Aug 13 Ames Impex Electricals Private Limited MSME 5
28 Aug 13 Equifit Technoart MSME 5
28 Aug 13 J K Industries (West) MSME 6
27 Aug 13 Manglam Paper Private Limited MSME 4
27 Aug 13 Linen Craft MSME 4
  
Rating Scale Explanation
MSME 1 Highest
MSME 2 High
MSME 3 Above Average
MSME 4 Average
MSME 5 Below Average
MSME 6 Inadequate
MSME 7 Low
MSME 8 Lowest
Category Rating Fees Service Tax* Total
Less than 50 Lacs 40,050 INR 4,950 INR 45,000 INR
Between 50 to 200 Lacs 45,034 INR 5,566 INR 50,600 INR
More than 200 Lacs 59,986 INR 7,414 INR 67,400 INR

* Service Tax is calculated as per present rate of 12.36%

Benefits

Benefits

  • Aids in enhancing the credibility of the MSME unit.
  • Helps open doors to the corporate sector, especially for MSMEs having a large vendor base.
  • Facilitates international trade and commerce by building confidence amongst potential trading partners.
  • Motivates MSMEs in adopting good governance practices for long term benefits.
  • Serve as a tool for self evaluation and improvement.
  • Enables entry in D & B's largest B2B global database of over 162 million business records.


Contact Us

Mr. Virendra Goyal
Business Development, Small & Medium Enterprise
E: [email protected]
T: +91 22 6714 1177
M: +91 99300 74009

Helpdesk
T: +91 22 6714 1177



Testimonials

"We here with convey our greeting on awarding us SMERA rating of D3, which helped towards reduction in Interest rate for our Working Capital facilities by 0.25% from Bank of India,Vatva Industrial Estate Vatva Ahmedabad."

Mr. Girish Shah
Zedex Clothing Pvt. Ltd.

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