KredX Allocates 2,000 Crores for Festive Working Capital

 As businesses gear up for the upcoming festive season, KredX, India's largest supply chain finance platform, unveils the 3rd Edition of KredX’s Working Capital Festive Season Report shedding light on the evolving trends and working capital demand across sectors. While the festive season presents a unique opportunity for businesses to maximize their sales and increase their revenue growth, most of these businesses, especially MSMEs struggle because of the lack of working capital. KredX in order to meet the growing working capital demands of businesses ahead of the upcoming festive season has allocated 2,000 crores over and above the usual disbursement to prepare businesses in the runup to festive season.

Capital requirements for Indian businesses is expected to remain high as they go in for capacity expansion and inorganic growth spending. Concurrently, MSMEs, pivotal contributors to the country's GDP, are poised to witness a surge in their working capital needs. This high capital requirement is driven by the need to expand capacity in response to strong consumption growth, fueled by India's growing population, rising incomes, and increasing urbanization.

According to the 3rd Edition of KredX’s Working Capital Festive Season Report, industries such as manufacturing, logistics, and e-commerce are expected to lead the demand for working capital ahead of the 2024 festive season. The e-commerce sector, in particular, is poised to drive significant demand, with consumer appliances, fashion & apparel, and FMCG as the key commodities fueling this growth. The report highlights that the number of SKUs is increasing across all e-commerce platforms, with significant demand emerging from tier 2 and 3 cities. E-commerce services now reach over 20,000 pincodes, driving a rise in working capital requirements. Geographically, Maharashtra, Delhi NCR, Karnataka, West Bengal, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, and Telangana are anticipated to generate the majority of this demand, with 50-60% originating from tier 1 cities. Notably, Kolkata and Hyderabad, which were primarily focused on manufacturing, are now experiencing a growth rate of 200% in ecommerce. Meanwhile, Chennai, Mumbai, Delhi, and Bangalore show a growth rate of 100-150%. Additionally, tier 2 and 3 cities in Telangana, Uttar Pradesh, and Andhra Pradesh are exhibiting growth rates exceeding 500%.

In the manufacturing sector, the primary demand is foreseen in commodities such as electronics, automotive, engineering, and chemicals, with an anticipated 50-60% increase in working capital demand. Ahmedabad emerges as the front-runner among Tier-1 cities, boasting a remarkable 200% growth rate in manufacturing, closely trailed by Mumbai, Kolkata, Chennai, and Bangalore. Tier 2 and 3 cities within Delhi NCR, Tamil Nadu, Chhattisgarh, Uttar Pradesh, and Jharkhand are expected to lead the demand, with an impressive growth rate projection of 500%.

The anticipated surge in demand in e-commerce and manufacturing is forecasted to lead to an increase in working capital demand in the logistics industry, which plays a pivotal role in supporting these sectors. Expected demand is projected to come from warehousing (55%), and last-mile delivery services (45%). Tamil Nadu, benefiting from its profitable manufacturing hubs, is leading this growth, with an impressive rise from the usual 150% to over 400%.

Festive sales serve as a crucial lifeline for MSMEs, with a majority falling under the manufacturing segment, followed by e-commerce and logistics. Yet, lack of easy access to short-term credit has been the biggest hindrances faced by MSMEs impeding their growth. This year 40-50% of the working capital demand in the run-up to the festive season is expected to emanate from tier 2 & 3 cities of Gujarat, Maharashtra, and Uttar Pradesh in that order. Conversely, tier 1 cities such as Maharashtra, Tamil Nadu, Telangana, Karnataka, and Delhi NCR are projected to drive demand significantly, ranging between 20-30%.