Rating Criteria For Different Key Industries. 1.

Rating Criteria For Auto Ancillary Industry Indian auto ancillary industry is relatively small by global standards. The auto ancillary industry is a significant contributor to the countrys overall growth, both in terms of exports and employment. The performance of auto ancillary sector is closely linked to the auto sector. Demand-swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand. Demand is derived from original equipment manufacturers (OEM) as well as replacement market. SMERA has rated MSMEs opeRating in various businesses and positions in the value chain. Auto ancillary industry faces pricing pressure as well as cyclical demand from its customers. BUSINESS RISK ANALYSIS: Customer Concentration Risk Most of the auto ancillary units face customer concentration risk. Due to high dependence on few customers, the performance of their customers is important for the auto ancillary unit. Diversified customer base would result in lesser volatility and less correlation performance with a specific OEM. Performance Of The OEM Past and expected performance of the OEM as well as share of OEM in the automobile market should be considered. Expansion plans helps to understand the increase in potential orders. Balance Between Direct Sales To Domestic OEM, Export And Aftermarket Perfect balance with direct sales to domestic OEM, export and aftermarket ensures smooth functioning of the auto ancillary units in various business cycles. Position & Significance In The Value Chain Position of the auto ancillary unit in the value chain is important to understand its significance in the value chain. A high position in the supply chain ensures lesser threat of new entrants and less risk of price erosion. Technology & Processes Technology used in the manufacture of auto components in developed countries is much better than in developing countries like India. Japanese automobile industry has influence on the Indian automobile industry and its allies.

OEM checks the quality management practices that are adopted by the auto ancillary units. OEM also ascertains as to whether the auto ancillary unit practices Six Sigma, JIT, etc. Auto ancillary units adopt quality improvement methodologies such as Quality Control, TPM (Total Productivity Management), TQM (total quality management) and Zero Defects. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the auto ancillary industry. Here various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION The key success factors of the Auto Ancillary industry are: a. b. c. Customer Concentration Risk Position & Significance in the Value Chain Technology & Processes

2. Rating Criteria For Chemical Industry Indian chemical industry has a strong and diversified base encompassing many areas such as organic and inorganic chemicals, plastics, fibers, dyestuffs, paints, pesticides, insecticides, specialty chemicals, drugs and pharmaceuticals. In world ranking, India stands 12th in terms of production. The chemical industry is one of the fastest growing sectors in India. It contributes 2.8% in the GDP of the country. The compounded annual growth rate (CAGR) of the major chemicals by the end of the 10th five year plan (2001-02 to 2006-07) is 4.69% as against 5.55% in it consumption during the corresponding period. The growth in import and export of the major chemicals increased annually at the rate of 14.79% and 14.13% respectively. Broadly the chemical industry is divided into two segments, bulk chemicals and specialty chemicals. Bulk chemicals category includes those chemicals and materials which are produced in large quantities, typically using continuous processes although they may be manufactured in large batch equipment. The price of these chemicals tends to be a more important factor than their performance. Specialty chemicals are produced by a complex, interlinked industry. In the strictest sense, specialty chemicals are chemical products that are sold on the basis of their performance, rather than for their composition. They can be single-chemical entities or formulations/combinations of several chemicals whose composition sharply influences the performance and processing of the customers product. Products and services in the specialty chemicals industry require intensive knowledge and powerful innovation. BUSINESS RISK ANALYSIS Product Mix MSMEs in the chemical industry are largely determined by the product mix and competitive position of the product in the market. SMERA has identified major factors which have impacted the margins of the MSMEs in specialty and bulk chemical segments. Typical specialty chemicals tend to be of a wide range, with smaller production quantities, but higher purity levels. It is observed that specialty chemical offers better margins to players as compared to bulk chemicals as the specialty chemical segment is backed by unique technology and process. Proportion of specialty chemicals in the cost of production is immaterial and hence their price volatility does not impact the end product. On the other hand, bulk chemicals are pure commodities and their prices are highly volatile and have a bearing on the cost of production on very specific players. Demand And Supply Position

Capital spending cycles can also create negative pressures, particularly when competing companies are flush with cash at the same time. The bunched capacity additions can disrupt supply dynamics and lower product prices for considerable period of time until the new capacity is absorbed by slower growing demand. Government policies can affect the industry. Introduction of large increments of new supply as oil and natural gas rich nations seek to develop what are, in some instances, "stranded" (very low cost) raw materials into higher margin chemical products. This can create supply/ demand imbalances. Diversity A Chemical company may be helped by the diversity of the industry. The diverse nature of a company's product portfolio may help mitigate the risk that accrues from volatile prices and demand in specific products. External Risk As many of the raw materials used by chemical companies are petroleum based, many companies have significant direct and indirect exposure to the price of crude oil/natural gas. Upsurges in crude oil and natural gas prices have a negative impact on not only because they can increase opeRating expense, but also because there may be material delays in passing these higher costs through to the customer. Price And Margin Trend Consumers of specialty chemicals make purchasing decisions based primarily on performance, but price can be a factor in their decision making process. As a result, specialty chemical manufacturers invest heavily in marketing efforts to demonstrate the ability of their products to meet the specific performance requirements of their customers. Price trend of bulk drugs are seen to be a direct reflection of the variation in either down stream product price or input prices. Thus SMERA analyzes these price determinants to understand the trend. Environmental Issues The chemical industrys work with environmental issues is even more important than in other industries. Moreover, chemical products with environmentally hazardous properties are one of the main environmental concerns in the chemical industry. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the chemical industry. Various financial ratios are tracked to have an idea of the performance of the industry.

CONCLUSION In conclusion, the key success factors of the chemical industry are, a. b. c. d. Cost competitiveness Diversified product mix for domestic as well as international market Technology capabilities Environmental and safety measure

3. Rating Criteria For Engineering Industry Indian engineering industry is a major contributor to the countrys economy. The engineering goods sector consisting mainly of intermediate and capital goods have fared better during 2007-08. The engineering sector has emerged as the largest contributor to Indias total merchandise exports, even ahead of gems & jewellery. Indias export of engineering goods was USD 33.7 billion in the year 2007-08. The industry exports grew by 27.34% in 2007-08 as against the same period in 2006-07. The engineering industry comprises of both heavy and light engineering sectors. The heavy engineering market contributes to about 80% of the net engineering production. The segments in the engineering sector are diverse, including power equipment, heavy electrical machinery, textile machinery, machine tools, earthmoving & construction equipment, mechanical equipment, road construction equipment, oil & gas equipment, sugar machinery (Distilleries), cement machinery, processing plants and industrial furnaces. The Union Governments focus on the infrastructure and power sector has given a strong momentum to the engineering and capital goods sector. BUSINESS RISK ANALYSIS Order Concentration Order visibility and order quality are the main analytical aspects that distinguish heavy manufacturing companies from general or light manufacturers. An order for heavy equipment is usually placed when the industrial customer expects rising demand for products or when production machinery becomes obsolete. The impact on cash flows can be mitigated by diversification across regions as well as customer industries, flexible delivery schedules if accepted by the customer, and most of all, a lean and flexible cost base. A strong backlog of orders relative to annual production volumes provides visibility for future work flows as well as flexibility in planning production for optimal capacity utilization. The diversification of the customer serves to mitigate order and revenue volatility in the heavy engineering industry. The MSMEs who have diversified customer base and flexibility in the production pattern have maintained the market position. Other factors that could provide stability to sales are export sales, a reasonable proportion of spare part sale and other job work services. End User Profile The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement, petrochemicals, oil and gas, refineries, fertilizers, mining, railways, automobiles, textiles, etc. Light engineering goods are essentially used as inputs by the heavy engineering industry. The customers are typically industrial companies, or utilities which acquire the machinery under their capital expenditure budgets and

depreciate the equipment over a number of years. The rated heavy manufacturing industry, as defined in this methodology, comprises a relatively high number of companies of varying size, product and customer mix, and regional focus. Large orders have their advantages too. . Competition is often less intense than for standard products, which in turn enhances profitability. The ability to extract advance payments from customers can also be an indication of the market position and pricing power of a manufacturer. Advance payments will also signal the liquidity and solvency of the customers thereby reducing credit risk exposure. Diversification Diversification has three principal dimensions: geographical, segments/products and customer diversification. Diversification provides a platform from which to stabilize sales and protect earnings by offsetting variations in demand in a given product or market. Geographical diversification is viewed as a positive factor because it reduces: (i) Companys vulnerability to the vagaries of a single region, (ii) Impact of economic cycle in individual regions, and (iii) The impact of regional regulatory, environmental, product liability or safety issues. Segmental and product diversification balances and offsets exposure to the volatility of demand and price competition in particular industries and mitigates weaknesses in any one market or product line. Key Cost Drivers It was observed that the MSMEs which have continuously focused on inventory management have maintained their position in the market even in the economic down turn. The input cost in any engineering companies is around 55- 60%. Further power also impacts the cost structure of heavy engineering manufacturer. Another large component of the cost structure is efficient workforce. The flexibility of labor is important to mitigate the volatility of order and work flow. Many manufacturers have opted to shift labor-intensive production to improve on productivity as well as labor cost. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the engineering industry. Here various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION

In conclusion, the key success factors of the Engineering industry are: a. b. c. d. e. Focusing on order trends and quality Diversification Market structure and competitive position Cost position and profitability Financial policy, liquidity and capital structure

4. Rating Criteria For Food And Food Processing Industry India is the world's second largest producer of food next to China, and has the potential of being the largest producer. The growth of the food industry in India stems from the consistently increasing agricultural output. The Indian food market accounts for about two thirds of the total Indian retail market. The Indian food industry is estimated to be worth over $200 million. India is one of the worlds major food producers but accounts for less than 1.5 per cent of international food trade. This indicates the vast scope for both investors and exporters. The total food production in India is likely to double in the next ten years. There is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages and Soft Drinks and Grains are important sub-sectors of the food processing industry. The food processing industry provides crucial linkages between industry and agriculture. To aid the growth of the food processing industry, the government has implemented schemes including the setting up of food parks, packaging centers, integrated cold chain facilities, value-added centers, and modern abattoirs. The food processing industry in India was seeing growth even as the world was facing economic recession. The industry is presently growing at 14 per cent. BUSINESS RISK ANALYSIS Business Profile The MSMEs rated by SMERA are mainly engaged in trading of agricultural commodities, food processing and processing of edible and non-edible oil. Edible oil in India is widely consumed and therefore the revenue pattern of edible oil business is more stable then any other in food industry. Price And Margin Trend The Indian food industry, both primary and processed, is poised for a positive growth on account of retail evolution. For food processing business it is important to have the right product concept that meets consumer expectations and in this, the industry is no exception. In food processing sector it was found that the companies who have focused on innovative products and fast changing consumer needs have improved their margins and revenue.

On the other hand MSMEs engaged in the business of oil refining and trading in agriculture has largely depended on the climatic condition. Therefore the prices of the product are highly volatile which sometimes put pressure on margins. Further inventory management plays an important role in maintaining the margin in food business as most of products are perishable. Technology In a global business environment, to keep pace with fast changing technology/ innovations, it is essential to have world class R&D and manufacturing facilities. This is the key to building capacity. It was studied that the MSMEs who have adapted R&D in their manufacturing have performed well. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the food processing industry. Various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION In conclusion, the key success factors of the food and food processing industry are, a. b. c. Diversified product mix for domestic as well as international market Strong research and development capabilities Efficient inventory management

5. Rating Criteria For IT & ITES Industry Information Technology (IT) and ITeS-BPO sector plays a vital role in the growth of the Indian economy. Indian IT & ITeS industry grew at a rate of 33% in FY 2008 and earned revenue of around USD 64 billion. The industrys contribution to the countrys GDP has grown significantly from 1.8% in 1999-2000 to around 5.5% in 2007-08 and it is estimated to grow to 5.8% in 2008-09. The size of the Indian IT& ITeS industry is estimated to reach USD 71.7 billion in 2008-09. Over the past decade, IT industry has become one of the fastest growing industries in India. India has emerged as the fastest growing IT hub in the world, its growth dominated by software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, IT Outsourcing and Infrastructure Management. Strong demand over the past few years has placed India among the fastest growing IT markets in the Asia-Pacific region. Software segment includes engineering and Research & Development (R&D) services, IT-enabled Services and Business Process Outsourcing (ITeS-BPO) BUSINESS RISK ANALYSIS Market Position Product Mix The highly competitive software services include companies that provide a wide range of services such as data processing, training, consulting, maintenance, engineering services and final product. The industrys vertical market exposure was well diversified across several mature and emerging sectors. Banking, Financial Services and Insurance (BFSI) remained the largest vertical market for Indian IT-BPO exports, followed by high end technology and Telecom. The horizontal segments that most Indian software companies operate are training, software service and project consultancy as well as productized services. SMERA examines various risks pertaining to technology, growth and end users of products. Geographical Diversification In Export Geographic diversification can potentially offset the impact of cyclicality, depending on economic trends in different geographic markets. SMERAs assessment of geographic diversification therefore takes into consideration differences in economic trends between regions and countries. It also takes into account the profitability of the MSMEs in IT & ITES in any given location. Geographic

diversification is a positive factor depending on when the company has recovered the start-up costs of entering the market. Our assessment of geographic diversification also covers diversification in export market. For example, MSMEs providing services in Europe and US would score better than a company opeRating only in Europe. Human Resources And Knowledge It is widely believed that the key to the success of the Indian software exports is the supply of trained, low cost software professionals. It is estimated that wage costs in India are about 1/3rd to 1/5th of the US wage costs for comparable work. The size of the talent pool complements the cost advantage. In IT & ITES industry the attrition rate of the employees is high. SMERA analyzes the company in terms of the companys ability to attract, train and retain the employees. Management quality is a key feature in evaluating the non-financial parameter. Customer Base Vertical and horizontal segments in IT & ITES industry would invariably have varying degrees of exposure to very large players. The credit quality, opeRating performance and market position of these companies will have a significant bearing on the performance of the service provider market. Any improvement in diversity is likely to result in profits. Over-dependency on a single or a limited number of customers can result in the risk of greater volatility and high correlation of performance of that customer. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial Risk analysis of the IT & ITES. Here various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION In conclusion, the key success factors of the IT & ITES industry are a. b. c. Diversified domestic as well as international market Technology capabilities Effective management of Man power

6. Rating Criteria For Logistic Land Industry Logistics is defined as the process of planning, implementing, and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption so as to meet customer requirements. The Indian logistics industry is characterized by dominance of an unorganized market. Logistic industry in India is a highly fragmented industry and broadly covers freight transportation, warehousing, packaging, customs clearing and forwarding, inventory management, labeling and order processing. Logistic service providers allow companies to focus on their core competence. The infrastructure required for moving goods from one place to another involves the active roles of Roads, Railways, Ports & Shipping, Airlines and Express Cargo / Courier companies. It is estimated that logistics spends INR 90 trillion globally and India contributes around INR 4 trillion. The Indian industry is increasingly looking at improvement in supply chain and logistics activities as a means to gain the competitive edge by adopting logistics and Supply Chain Management (SCM) concepts & practices. The major sectors contributing to the logistics market include Pharmaceuticals, Chemicals, Automotives, Auto Spares, Computer Peripherals, fast moving consumer goods (FMCG), Engineering products, Machinery, Spares, retail and healthcare sectors. BUSINESS RISK ANALYSIS Revenue Stability For our analysis, we shall take a value chain view of the logistics sector and identify unique segments within the sector. The road transportation and warehousing segment in logistic industry would perhaps show the greatest growth potential in coming years. These segments traditionally are extremely fragmented, small scale and scattered geographically. A majority of players in this industry have been small entrepreneurs running family owned businesses. Because reliability is a good predictor of revenue stability, SMERA reviews the customer service performance history in terms of percentage of on-time deliveries and arrivals, contract renewal rates, lost or diverted shipments, and safety record. We also consider customer service programs and how they influence overall operations. SMERA believes that shippers are generally willing to pay premium rates for higher quality service. Just in time approach is one of key element of a good rated company. Customer Concentration SMERA looks for predictability in revenue from long-term contracts with shippers, regional or product dominance, and core demand for the product being shipped (for example, the long-term demand stream for metal is more predictable than for footwear)

. We also take into account concentration risk and the potential impact, should the issuer fail to perform under these major contracts. SMERA also recognizes the longterm relationships with the customers as providing the basis for revenue stability. Manpower Skills This lack of focus on developing manpower and skills for the logistics sector has resulted in a significant gap in the number and quality of manpower in the sector. This gap, unless addressed urgently, is likely to be a key impediment in the growth of the logistics sector in India, and consequently, could impact growth in industry. This underscores the need for identifying areas where such manpower and skill gaps are critical, and developing focused action plans to improve the situation. SMERA has also emphasized on this parameter because efficient manpower skill will improve the quality and efficiency of logistics service providers. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the logistics industry. Various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION The key success factors of the Logistics (land transportation) industry are a. b. c. Quality of Service Customer concentration in terms of their long term relationship Quality of manpower

7. Rating Criteria For Steel Industry Iron and steel are the main ingredients for any major manufacturing industry. Both heavy and light engineering industrial products largely use iron and steel as its major inputs. Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization. The level of per capita consumption of steel is considered as one of the important indicators of socio-economic development and living standard of the people in any country. India is the fifth largest steel producing country in the world. Indian steel industry is growing at CAGR of more than 10% from the period 2003-04 to 2007-08. The steel industry contributes to 1.3% of Indias GDP and accounts for 10% in excise duty collections in 2006-07. The industry provides employment to 0.4 million people directly and 0.6 million people indirectly. Government of India is aiming to boost its steel production to 110 million tonnes by 2020 from the current level of 49 million tonnes. The steel industry is mature, cyclical and highly competitive on a global basis. The frame work of SMERAs analysis incorporates evaluation of MSMEs business risk , which primarily includes market position, and opeRating efficiencies. BUSINESS RISK ANALYSIS Market Position Market share and the customer profile are the main features of any steel making company to define a market position. Indian steel industry is characterized by fragmentation, particularly in the downstream segment, with a large number of unorganized players. According to SMERA, the steel industry can be classified in three different ways. The most significant is classification by type of plants, namely, integrated steel plants and secondary steel plants. Integrated steel plants engage in the entire spectrum of steel making operations, commencing from extracting iron ore and coal until the stage of steel manufacture. Secondary steel units undertake only a portion of the operations. Primary producers (Integrated Steel Producers (ISPs)) in the country produce a majority of flat products and secondary producers (mini steel plants) produce most of the long products. A number of companies are also active in distribution and trading of steel and other commodities, as well as non-related businesses. Most of the MSMEs in India are secondary steel units. Customer Profile Customer profile in any segment of the steel industry determines its business position. Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get

favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits. SMERA believes that effective diversification of customer base exhibits a greater degree of revenue consistency. Diversification may also be across geographical locations, including export sales. Level Of Competition The steel industry is truly global in terms of competition with leading producing countries like China significantly influencing global prices through aggressive exports. Steel, being a commodity, branding is not common and there is little differentiation between competing products. The intensity of the competition is influenced by the demand and supply of the companys product and their concentration in different geographies. The demand pattern of the steel industry is highly cyclical according to the end user industry. The competition in secondary steel units is high as their products are mainly used in infrastructure sector. Flat product consumption is higher in developed countries as they are used in automobiles, consumer durables, etc. Product Mix The nature of products produced, industries sold to, and the mix between commodity and value-added products are an important part of the Rating criteria. In steel industry the product range may cover several grades and product types. Typically steel industry products range from flat to long products. Primary producers are those players who process the mined ore into primary metal, which is commercially available in the form of rods, ingots, cathodes, products like foils, extrusions, dry batteries, castings etc. either by procuring the metal from the primary producers or from scrap. The extent of value addition is another crucial factor for differentiating steel companies. Value products offer high realization for the company which in turn boosts the companys profitability. Technology The future growth prospects of MSMEs in steel industry largely depend on efficient use of available energy resources. It was recognized that small and medium enterprises not only need greater awareness but also technical, financial and institutional support in order to develop and adopt efficient technologies. The art of using efficient technology can enable companies to achieve a competitive cost position. OpeRating Efficiencies

Given the industry characteristics of underlying pricing volatility, limited producer pricing power, sensitivity to underlying economic conditions, and a relatively high fixed-cost base, particularly at the integrated producers; elements that are within a company's ability to manage, such as cost structure and opeRating efficiency, are important considerations in the Rating analysis. Factors that measure costs and opeRating efficiency help in assessing a company's ability to operate through economic downturns and its ability to not only continue servicing its debt, but also meet other obligations, which can vary extensively on a geographic basis due to regulatory, environmental compliance and other differences. The cost structures of the integrated steel companies or the backward integration companies are different from the secondary steel producers. The raw material volatility does not materially impact the integrated steel producer as they have control over prices. On the other hand the rapid escalation in all input costs has an impact on minimill producers. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the steel industry. Various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION The key success factors of the Steel industry are a. b. c. d. Diversified customer base Cost Efficiency and Profitability Diversification in client base Value addition in product mix

8. Rating Criteria For Textile Industry The textile sector is important to the country on account of its contribution to income generation, employment and exports. The industry is self-reliant and complete in value chain, right from availability of raw materials to manufacture of garments. India is the third largest producer of cotton in the world. However, the Indian textile industry that used to dominate the world trade until the early 1960s has a very small share now. SMERA has rated number of companies right from yarn manufacturer to ready made garments. It has been observed, that the MSMEs in textile industry have adapted themselves to the cyclical nature of the industry and simultaneously diversified the product range to minimize the risk. For example organized players in MSMEs have modernized their manufacturing process and therefore have been able to enter the export market. Factors impacting risk and credit quality of the textile industry are outlined below. BUSINESS RISK ANALYSIS Business Volatility Seasonality is a factor for most apparel companies. Even general apparel companies that sell around the year tend to generate a bulk of their income in the fall/winter season, when unit prices are higher, and during holidays, when unit demand is high. Higher volatility creates lesser room for error in product or operational execution. It has been observed that the textile units which have a command on the volatility of the business have maintained their market position. Excellence In The Product And Assortment In any yarn market the quality of the product is distinguished by the range of the count. More the count of the yarn, the finer is the quality. Further the price of yarn also depends on the number of the counts. Price of finer count yarn is substantially higher than the coarser count. Fabric manufacturers are distinguished by the commodity texture and the color range. Fabric quality depends on its processing. The least processed fabric before it goes to garmenting will have least price elasticity. Readymade garment is the final stage of textile chain. In this stage adding variety to the product range is not difficult because it is not commoditized in nature. Diversified Product Mix SMERA has observed that diversified product mix in yarn as well as fabric has strengthened the market position of the players. Further diversified product mix and backward integration in garment units has reduced the impact of commodity price fluctuations on profitability. Likewise fabric manufacturers who have expanded the range of fabric, color and designs have been successful in developing relationship with exporters and international retailers.

Geographical Diversification Geographical diversification both within the country as well as internationally and diversified customer base are key factors for long term revenue generation. From past decades India is seen as one of the major supplier of textile products all over the world. In SMERAs view, an MSME having effective cost control, modern plants and good export exposure is placed in a globalised trade regime. Efficient Procurement Of Raw Materials Units in the textile industry have maintained profit margin by efficient procurement of raw material. Raw cotton is the major raw material for most of fabric manufacturers. It accounts for around 60-65% of the cost of production and has significant impact on operational performance of textile units. Cotton as an agriculture commodity is exposed to many factors like crop area, monsoon, type of fertilizer, pest control, etc. Hence impact on these factors will affect the price of cotton. A commodity like cotton is price sensitive, so fluctuations in the prices would impact the procurement pattern of the textile unit. Further, Indian textile units are increasingly influenced by the international price movements. This is because of the liberalization of import and growth in trade around the world. Hence combination of imported and domestic cotton would command the price as well as margins of the business. Cost Structure Labor and power are two key cost elements in the textile units. Labor: Labor is a major cost element in handloom units in the textile Industry. Further this sector gives good revenue generation from exports. Given the industrys labor intensive nature, affable relations help ensure uninterrupted operations and controlled labor cost. Frequent labor problems in any textile unit will impact labor efficiency and the profit of the company. Power: Power is one of the most important cost elements in the power loom units in textile industry. It accounts for around 10 percent of the cost of the production. It has been observed by SMERA that frequent power cuts have impacted the quality of yarn as well as fabric of manufacturers. It as also been surveyed that many units in the textile industry have put up captive power plants as a measure to reduce power cost. Units in the coastal regions have opted for alternative source of power such as wind mill. Factors like captive generation facilities, power cost reduction measure and efficient power consumption would impact the over all operations of textile units. Modernization

It is observed that MSMEs in the textile units lag behind international standards where technology and modernization are concerned. Only few financially strong units resort to continuous modernization. Units which have done continuous modernization have improved installed capacity as well as captured export market. FINANCIAL RISK ANALYSIS SMERA follows the standard criteria used in all manufacturing companies for the financial risk analysis of the textile industry. Various financial ratios are tracked to have an idea of the performance of the industry. CONCLUSION The key success factors of the Textile Industry are: a. b. c. d. Efficient raw material procurement Diversified customer base Diversified product mix for domestic as well as international market Efficient method for controlling power and labour cost