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Access to capital: the Msme money maze

November 16, 2021
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Capital Access that looks easy on paper is difficult in practice

The government’s Make in India strategy demonstrates how important MSMEs are to India’s growth story, but capital is still hard to get. If you are considering launching a startup, here are some things to keep in mind:

KEEP FRIENDS, FAMILY AND FOREIGN FUNDS CLOSE

Most credit schemes are aimed at MSMEs that are at least three years old. If your company is newer, informal sources like family and friends must be part of your fundraising strategy. Quite often, this means looking abroad for help. Even if you are looking at a VC / PE funding, the Indian ecosystem is in its infancy and you are likely to go beyond India’s borders. But this can lead to a problem. Indian financial institutions need at least 75% Indian ownership to qualify you for most of their loan products. This is intended to encourage Indian entrepreneurs, but as a startup that might be considering all options for support – make sure foreign investors hold less than 25%.

CAUTION: COLLATERAL AHEAD!

Typically, financial institutions ask for collateral that equals (or exceeds) the loan amount. This can be a term deposit or a mortgage on your home. Indian financial organizations are very cautious about lending. Read the loan terms carefully and include all supporting documentation with your application.

PLEASE MIND THE GAP

The Small Industries Development Bank of India (SIDBI ) was established to bring MSMEs and capital together. This is excellent news for MSMEs but the execution is not perfect. Rules can be unclear and confusing. Decision-making does not always follow the on-paper criteria. If your application is rejected, you may not know why.

Government schemes to support MSMEs working on Covid-19-related projects face similar challenges. Companies that qualify for credit on paper may still be rejected without an explanation.

WHAT CAN CHANGE

Podrain’s experience has taught us that patience is key. It also helps to have an experienced, trusted financial advisor or mentor who understands the options and provides guidance on processes and documentation. Some signposts and directions from financial institutions will make navigating easier.

MSMEs should be able to quickly and easily understand what each regulator is responsible for. Clearly stated eligibility rules for each scheme and a simple explanation of the risks and benefits of each option will help entrepreneurs who are not always financial experts make the right choice. A single-window approach to clearances will make MSMEs’ search for capital much easier. Regulators can also help to match MSMEs with the right funding source for their needs. We can then rely on financial institutions and their lending officers for guidance on the right capital products and schemes.

Financial institutions also need to look beyond traditional collateral-based criteria. Very often these show only the borrower’s existing financial strength and not the intent to repay. To help new MSMEs get started, lenders may consider performance-based criteria to approve loans. For example, whether a startup pays its employees’ salaries, its taxes, and its statutory dues (GST, PF, etc.) on time is a good indication of its intent to pay. Market-based criteria used by PE/VC funds may also be used with modifications that reflect the lower risk appetite of the lender. These forward-looking strategies are consistent with the idea of financial institutions as partners in the Indian MSME growth story.

By adopting a partnership mindset, financial institutions can make capital more easily accessible to MSMEs who want to Make in India.

Increasing Share of Electronics in AUTOMOBILES

October 22, 2021
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Many recent news articles have pointed out the effect of semi-conductor chip shortages on automobile output. There will be 7.7 million fewer vehicles produced and over $210 billion in revenue lost in the year 2021 according to some reports.* This has taken many consumers – who don’t realize the extent of shift in automotive technology – by surprise.

Cars now contain more electronics than ever and their share is only growing. According to this research report from McKinsey & Company, software and electronics have become the focus of most automotive companies. Power Electronics, growing at 15% , sensors at 8% and ECU’s /DCU’s growing at 5% plus will drive the global size of the automotive electronics industries to $469 billion by 2030.

At Podrain Electronics we are working with automotive OEM’s and other players as they ride the wave of change.

Automobile OEM’s are shifting gears into electronic mode:

Automobile components that were previously electrical or mechanical systems are now getting an electronic layer. For example, we have worked with a major Indian automotive manufacturer on the prototype “anti-pinch” window sensors for their new range of SUV’s. The electric motor, which operates the power window is fitted with a sensor that can sense any obstacle and stops the winding action. Parents of fidgety children who like to put their hands out of a window or pets who like to stick their noses out into the breeze can drive easier, knowing this technology will keep them safer.

This example is the tip of the iceberg. Sensors are being used in engine, power, steering, braking and acceleration systems converting automobiles from electro-mechanical machines to electronic & software devices. For examples, a tire manufacturing OEM client of ours is integrating electronics to create a Tire Pressure monitoring system that will enable them to optimize tire pressure based on weight of the load, road and environment conditions. The ability to remotely monitor the performance of their products opens up new opportunities to provide extended support , warranties and differential pricing for them.This is only one example of an OEM whose product and commercial model are changing to suit the times.

Fleet Management & Allied Services need electronics in automobiles:

We have supported clients for GPS and Vehicle Tracking Systems manufacture – another growing space of automobile electronics. There are several use cases for Fleet Management Solutions. They help track on-time arrival and departure of vehicles, fuel consumption, route monitoring and modification, safety tracking etc. Fleet management solutions and Asset Tracking are often done by other businesses and not by the Original Equipment Manufacturer. According to Mordor Intelligence this will be a USD 22 billion in 2026** and we certainly expect to help many of the companies in this area.

The future of mobiility – whether you choose a traditional fossil fuel vehicle, an electric one or a hybrid – certainly involves electronics!

If you are looking for electronics manufacturing services support for your company contact us and we will get back to you at the earliest.

Is India Poised for an electronic manufacturing services boom?

September 1, 2021
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PODRAIN ELECTRONICS: PROTOTYPE PCBAS WITHOUT COMPROMISING ON QUALITY.

India’s Electronics Manufacturing Services Industry is poised to grow six-fold to $152 Billion in the next 5 years according to some industry body estimates. Podrain certainly believes this growth forecast is possible.

Our increasing participation is being driven by a few factors.

We have a large market within India for electronics in different sectors. Whether it is cars and tyres, electronic vehicles and their charging stations or medical equipment, products from all of these industries are set to have high-end electronics embedded in them. Products that were previously electrical or mechanical are being upgraded with the addition of electronics. Intended for both the global and local markets, India’s 700+ electronics manufacturing services companies can all grow and there will be room for more players too. The speed with which Ola Electric has ramped up its manufacturing capacity or the success that Dixon Technologies has seen in contract manufacturing are examples that have been making the news in recent times.

At Podrain, we have witnessed this potential over the past 4 years. We’ve worked with traditional companies looking to move into the new digital age. Can adding electronics help a tyre manufacturer offer new business models? Can a traditional watch manufacturer move into the digital wearables business? Can a UPS perform better, delivering uninterrupted up time despite frequent power failures?

We’ve also worked with startups building products that are completely new and innovative – a medical testing device smaller than your set top box. Or an under the pillow device that can revolutionise healthcare. Or a monitoring system that allows parents to safely track their children. The possibilities imagined by our clients promise an exciting future.

Besides the push by private companies there is increased government focus on improving indigenous manufacturing capabilities in defence and aerospace.

Apart from demand side drivers, there are supply side factors influencing India’s position in the Electronics Manufacturing space. COVID 19 disrupted supply chains globally and many players, who had never looked past China are now looking at other countries to base manufacturing operations. Major global manufacturers such as Hon Hai, Electroplast, Wistron are setting up facilities in India. The government has also been incentivising manufacture of electronics products with tax breaks, more attractive labour laws, SEZ creation etc.

The future looks bright for the Electronics Manufacturing Sector globally and for India in particular.

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