'We Plan To Build A Lasting Enterprise Of 200-years, Not 10-year'

It was January, 2012 when Power2SME launched its project in India. Now a team of 230 people spread across 16 cities, it has aided close to 4-5000 small and medium enterprises (SMEs) in the manufacturing sector to build their strong foothold in the contemporary competitive market.

After serving the SMEs since the past 10 years in the corporate world, R Narayan, founder and CEO of Power2SME decided to begin his own venture to first handedly aid the manufacturing enterprises. In an exclusive interview with BW Businessworld, R Narayan shared his motivation behind the commencement of Power2SME and his insights about the contemporary SME ecosystem.

What made you incline towards opening a venture for small and medium enterprises?
I spent the first 10 years of my work life in corporate, handling the SME segment. Before I quit in 1998-99, I helped various companies with on boarding SMEs and thus, I feel I share a deep relationship with SMEs.

Everyone talks about SMEs but little is being done. The worldwide average contribution by SMEs to Gross Domestic Product (GDP) is 49 per cent. The contribution of SMEs in India to GDP is about 16-18 per cent while on the manufacturing side, it contributes only 8 per cent. The large corporate can generate employment opportunities for extra two thousand while manufacturing SMEs can provide millions of jobs. The rhetoric of MSMEs has substantially gone up but there is yet a lot to be done.

How does your firm aid the manufacturing SMEs?  
After doing a wallet analysis of SMEs, Power2SME decided to focus only on manufacturing companies. Studying the SME ecosystem, we realized we can help the SMEs most in procuring raw materials.

A raw material that a large company buys in bulk would get it for Rs 30,000 kg, but for a MSME it would be priced at for Rs 37-38,000. For lubricants, a large automobile manufacturer would buy 2 lakh litres but a MSME would buy 200 litres a week which implies a huge price difference.

A MSME is hit by non-competitive procurement of raw materials. Buying few numbers of raw materials becomes costly for them contrary to established enterprises ordering in bulk.

Secondly, the MSMEs are financially underserved. The top 8000 enterprises that the banks have given loans are large corporate. For MSMEs, they mostly get their funds from unorganized sector. It becomes very difficult to survive when large corporate are getting loans at 10.3 per cent while you are getting at 22 percent and further to that, you are servicing these large enterprises.

Providing raw materials as well as aiding them financially has seemed to have hit the cord.

Do you feel that GST would accelerate the growth of MSMEs?
It becomes challenging for any small enterprise to spread its reach to the various states due to the additional excise duty, sales tax etc. For us also, it was challenging. We had to follow the policy of ‘Buy in UP, sell in UP’ but with the one country, one tax it would be easier to expand across different regions of the country.

Also, so far there has been very little available data about sole proprietorship and partnerships. Under GST, the data about the returns would help companies like ours to view the performance of the enterprises; it would also help the banks to get a clearer picture of the companies before sanctioning a loan. The data richness that would come to India with invoice matching level would remove human intervention, human errors aiding the ecosystem as a whole.  

There is still time for the enterprises to file in their figures so only till two cycles are over that is on October 10th, would the real reflection of the Goods and Services Tax (GST) would shape up.

Majorly which regions do you service?
Haryana and Gujarat (Surat, Ahmedabad) are our top two states. Uttar Pradesh provides a decent source of business while Maharashtra is also becoming an essential market. Sector wise automobiles tops the list.

How do you analyze the current status of Power2SME?
My belief is that we build companies for a lifespan of about 200 years. We don’t build companies for 5-10 years; we build a lasting enterprise so Power2SME is still in its infancy. Yet with the 230 people, we became profitable in November 2016 and financial year 2017-18 would be the first profitable year.

We have so far raised $30 million and our average order value is Rs 40 lakhs. The main investors being Accel Partners, Kaalari, Inventus Capital and Nandan Nilekani, co-founder and Chairman of EkStep.

Your future plans for the company?
Each of my investor has come in and put further money into my company hinting the belief of the investors. In 2020, we want to be an Rs 8,000 crore company. The target is about Rs 6000-7000 crore but the company is hopeful to clear the Rs 8,000 crore benchmark with 410 employees.

I want to provide the entire ecosystem for SMEs. I will do whatever it needs on the SME side. Whatever I have the power to do.