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Carborundum Universal Ltd.

BSE: 513375 Sector: Engineering
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OPEN 357.00
VOLUME 48969
52-Week high 364.80
52-Week low 228.00
P/E 54.69
Mkt Cap.(Rs cr) 6,584
Buy Price 348.90
Buy Qty 57.00
Sell Price 0.00
Sell Qty 0.00
OPEN 357.00
CLOSE 357.20
VOLUME 48969
52-Week high 364.80
52-Week low 228.00
P/E 54.69
Mkt Cap.(Rs cr) 6,584
Buy Price 348.90
Buy Qty 57.00
Sell Price 0.00
Sell Qty 0.00

Carborundum Universal Ltd. (CARBORUNIV) - Director Report

Company director report

Your Directors have pleasure in presenting the 62nd Annual Report togetherwith the Audited financial statements for the year ended 31st March 2016. TheManagement Discussion & Analysis Report which is required to be furnished as per SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 (hereinafter referredto as the Listing Regulations) has been included in the Directors' Report so as to avoidduplication and overlap.


Economic Overview

The year 2015 witnessed unusual volatility in the international economic environment.Global economic activity remained subdued. As per International Monetary Fund (IMF)growth in emerging market and developing economies declined while a modest recoverycontinued in advanced economies. The global economy growth rate is estimated at 3.1 percent in 2015. As per IMF update the three key transitions that continue to influenceglobal outlook are: (1) the gradual slowdown and rebalancing of economic activity in Chinaaway from investment and manufacturing towards domestic consumption and services (2) lowerprices for energy and other commodities; Oil prices have declined markedly since September2015 due to oversupply and continued moderate demand. Lower oil prices strain the fiscalpositions of fuel exporters and weigh on their growth prospects while supporting householddemand and lowering business energy costs in importers especially in advanced economicswhere price declines have been passed on to end users and (3) a gradual tightening inmonetary policy in the United States in the context of a resilient U.S. recovery asseveral other major economy's central banks continued to ease monetary policy.

Amidst this depressed outlook India stood out as a haven of stability and an outpostof opportunity. Its economic growth is amongst the highest in the world helped by areorientation of Government spending towards needed public infrastructure. Economic growthin India accelerated in fiscal year 2015 despite a double-digit decline in exports.Regardless of a weak monsoon for a second consecutive year agriculture grew by 1.1 percent in FY 2015 mainly due to strong growth in livestock. As per Asian Development Bankafter growing by 5.9 per cent in FY 2014 industry accelerated further to 7.3 per cent inFY 2015. Expansion in services moderated to 9.2 per cent. Private consumption growth isestimated to have picked up to 7.6 per cent in FY 2015 from 6.2 per cent a year earlier.Advance Government estimates point to the economy growing at 7.6 per cent in FY 2015-16similar to last year.

On the Government's "reform to transform" agenda a series of measures eachincremental but collectively meaningful have been enacted. There have also been somedisappointments especially such as the delay in introduction of Goods & Services TaxLand and Labour Law reforms. Markets remained volatile amidst fears that the globalrecovery could be getting delayed.

Company Performance


The standalone business grew at 11 per cent driven by Abrasives and Electromineralbusiness.

Demand improvement from user industries new product launches expanding customer basewresting market share resulted in a better topline growth.

The Company's consolidated revenue from India increased by 6 per cent and from rest ofthe world dropped by 3 per cent resulting in worldwide revenues increasing by 2 per centfrom last year levels.

At a consolidated level Abrasives sales grew by 6 per cent whereas sales ofElectrominerals segment remained at the same level due to rouble translation and windingdown of operations at Thukela Refractories Isithebe Pty Ltd. South Africa. Ceramic salesat a consolidated level decreased by 3 per cent.

The standalone top line summary is as follows:

Rs. million
31.03.2016 31.03.2015
Net sales & income from contracts & services
India 10086 9268
Rest of the world 2724 2250
Total 12810 11518
Other operating revenue 183 169
Total operating revenue 12993 11687

The consolidated top line summary is as follows:

Rs. million
31.03.2016 31.03.2015
Net sales & income from contracts & services
India 11621 10962
Rest of the world 8943 9225
Total 20564 20187
Other operating revenue 279 315
Total operating revenue 20843 20502


Most of the plants in India operated at about 70 per cent capacity utilisation levels.The manufacturing team continued implementation of Total Productive Maintenance (TPM) atshop floors leading to improvement in efficiency of machines and the entire productionprocess.

Lower fuel rates coupled with moderation in commodity prices usage of alternate costeffective raw materials improvement in raw material consumption and process improvementsresulted in containment of the manufacturing costs. Various value adding cost cutting andproductivity improvement projects were undertaken to minimise the impact on the operatingprofits despite lower plant utilisation.

Capital expenditure during the year across all geographies was in the nature ofmaintenance automation quality enhancement line balancing and general infrastructure.The relocation projects from South African entities to India is in progress and isexpected to be completed in the next financial year.

Earnings & Profitability

Aided by the growth in revenues standalone earnings from operations before exceptionalitems interest depreciation and tax improved to Rs.1985 million (previous year Rs.1490million).

Profit before interest and tax margin expanded for all segments due to higher sales andlower costs mainly from fuel and other commodities.

Finance costs were at Rs.89 million compared to Rs.87 million in previous year. Profitbefore tax and exceptional income increased from Rs.1125 million to Rs.1673 million.Profit after tax of Rs.1163 million was lower compared to that of the previous yearRs.1483 million (previous year included an exceptional item of Rs.869 million).

On a consolidated basis profit before exceptional items and tax increased from Rs.1639million to Rs.2439 million. Profit after tax and minority interest was Rs.1428 million(previous year Rs.1326 million included exceptional item of Rs.565 million).

Segmental profitability improved for Abrasives and Electrominerals; however it droppedfor Ceramics. In Electrominerals profits increased due to restructuring of the SouthAfrican entities.

Financial Position

On a standalone basis shareholders funds as on 31st March 2016 was Rs.9470million. Additions for the year (net of dividends) was Rs.871 million.

Non-current liabilities was Rs.682 million. Current liabilities increased from Rs.1887million to Rs.2438 million.

Non-current assets (including fixed assets capital work-in-progress etc.) increasedfrom Rs.6629 million to Rs.7265 million primarily on account of capital expenditureincurred during the year. Current assets were higher at Rs.5325 million.

On a consolidated basis shareholders funds as on 31st March 2016 wasRs.11859 million. There was an increase (net of dividends) to the extent of Rs.972million. Minority interest was at Rs.713 million.

Non-current liabilities was Rs.797 million and Current liabilities was Rs.5466 million.

Non-current assets (including fixed assets capital work-in-progress etc.) increasedfrom Rs.8786 million to Rs.8679 million. Current assets increased to Rs.10157 million.

Cash Flow

On a standalone basis net cash generation from operations was Rs.1236 million in FY2015-16. Net cash outflow on account of investing activities was Rs.885 million. Net cashoutflow on account of financing activities was Rs.322 million which is attributableprimarily to repayment of borrowings and dividends paid. The net increase in cash and cashequivalents was Rs.29 million against a decrease of Rs.50 million in FY 2014-15.

On a consolidated basis net cash generation from operations was Rs.2239 million in FY2015-16. Net cash outflow on account of investing activities was Rs.1009 million. Net cashoutflow on account of financing activities was Rs.891 million which is attributableprimarily to repayment of borrowings and dividends paid. The net increase in cash and cashequivalents was Rs.131 million against an increase of Rs.282 million in FY 2014-15.


The paid up equity share capital as on 31st March 2016 is Rs.188.38 millionand increased during the year by Rs.0.20 million consequent to allotment of shares uponexercise of stock options by employees under the Company's ESOP Scheme 2007.

During the year the Hon'ble High Court of Madras sanctioned and confirmed the Schemeof Amalgamation of Cellaris Refractories India Limited (CRIL) a wholly owned subsidiaryof the Company with it effective from the appointed date 1st April 2015.Consequent to this merger the authorised share capital of the Company increased fromRs.250 million (250000000 equity shares of Rs.1 each) to Rs.387.25 million(387250000 equity shares of Rs.1 each).


Considering the past dividend payout ratio and the current year's operating profit theBoard has considered it appropriate to recommend to the shareholders of the Companyconfirmation of the interim dividend of Rs.1.50 per equity share of Rs.1 each paid duringthe year as the final dividend. This dividend was paid as Rs.1 per equity share inFebruary 2016 and Rs.0.50 per equity share in March 2016. The dividend of Rs.1.50 perequity share of Rs.1 each paid during the year is higher than last year.


The amounts available for appropriation and the recommended appropriations on astandalone basis are given below:

Rs. million
Available for appropriation
Profit after tax 1162.78
Balance brought forward from previous year 3006.21
Total 4168.99
Recommended appropriation
Transfer to general reserve 500.00
- Interim 282.56
Dividend Tax
- Interim 4.18
Final Dividend (previous year)* 0.03
Balance carried forward 3382.22
Total 4168.99

*Represents dividend ofRs.29160 on 58320 equity shares allotted under the ESOP Scheme2007 to employees subsequent to the date of approval of the annual accounts by the Boardon 1st May 2015 and before the book closure date last year.

Information required to be provided in the Management Discussion and Analysis as perthe Listing Regulations is given below:


The business profile market developments and current year performance are elaboratedin the following sections:


Business Profile

This business comprises the following major product groups viz. Bonded AbrasivesCoated Abrasives (including Non-Wovens) Super Abrasives Metal working fluids and PowerTools. The operations are carried out through eleven manufacturing facilities located inIndia Russia China and Thailand. The marketing entities located in North America andMiddle East enables the division to reach out to those geographies.

Abrasives are materials that are used to grind abrade or clean work pieces to givedesired shape and finish. They are of different types but can be broadly classified intoBonded Coated Loose Abrasive Grains Super Abrasives and others. Abrasives are used in awide spectrum of industries the key among them being automobile engineeringfabrication wood working construction home maintenance and infrastructure.

The Company caters to customers located around fifty five countries through its networkof manufacturing facilities and marketing establishments. It is one of the major playersin India and Russia.

Industry scenario

The global industry continues to be led by few players who have a complete portfolio ofAbrasive products. There are also a large number of players specialising in specificcategories of Abrasives. No major international mergers & acquisitions deals werewitnessed during the year.

The Indian Abrasives industry is catered to by a few large players numerous smallerplayers specialising in select products and imports from China catering to the low end ofthe market. India continues to be a focus region for major global players with itseconomic growth better than most of the other regions in the world.

In the domestic Russian market there are three major players. The Company is a majorplayer in Vitrified Bonded Abrasives. Imports continue to service a sizeable portion ofthe market though in the last couple of years import quantum has marginally reduced owingto a depreciated rouble.

Demand for Industrial Abrasives is fostered by renewed industrialisation activity inthe developing regions rising per capita income and consumer spending enhancedmanufacturing activities in the durables sector and increased fixed investments. Boost inthe construction and manufacturing sectors and per capita income would result inbolstering demand for Industrial Abrasives.

There was no major change in the industry structure during the year.

Sales Overview

Notwithstanding the delay in implementation of several announced projects deluge inthe Southern region of India as well as lower than average festive season demand theAbrasives business on a standalone basis recorded a growth in revenue from Rs.6689 millionto Rs.7260 million a growth of 9 per cent.

The growth was fuelled by recovery in the domestic business of select Resinoid productsfrom prior year lows increase in exports of smaller size Resinoid wheels betterperformance from Coated products import substitution introduction of new technicalproducts and continued usage of captive high performance grains across products.

During the year the business aggressively appointed new channel partners and expandedits dealer network. Retail development and industrial storming initiatives were carriedout which gave the necessary mileage. Emphasis was given on the core business withintroduction of new products and brands in the Vitrified standard range and selectResinoid ranges. New technically advanced products were launched in Bonded non-standardspace. Successful realisation of the synergy effect of consolidation of Super Abrasivesand Power Tools gave higher growth in those product segments.

In Coated products business aggressively targeted new territories through new productlaunches upgraded select products to international benchmarks and targeted Tier II andTier III segments. In Exports bulk supplies were made to international customers andtalks were also initiated with new customers. In Non-Woven business the focus during theyear continued on increased participation in the industrial segment and development of newproducts.

Continued marketing activities with various partners introduction of new technicallyadvanced products and favourable pricing with a superior application engineering helpedCUMI Abrasives division to remain competitive in the market ahead of its peers.

The Abrasives consumption in Russia further declined this year due to the economicrecession and a contraction in the economic activity. The translation of sales in Russianrouble into Indian rupees further accentuated the impact. Chinese entity also had a lowersales. Wendt India which addresses the Super Abrasives & Grinding machines market hada marginal growth in its revenues.


Manufacturing supported the marketing initiatives well in terms of timely deliveryproduct performance and consistency.

The key strategy over the years has been to increase the indigenous sourcing andlowering the gap between exports and imports to ensure sustainable profitability inAbrasives business. Key initiatives undertaken towards fulfillment of the strategy werecommencement of techno commercial projects to sustain cost reductions joint projects withElectrominerals division identification of alternate suppliers and business partneringwith key suppliers. Raw material power and fuel costs were contained below the plannedlevels which led to better profitability.

Significant number of value projects tailored to meet cost reduction throughimprovement in material efficiencies labour productivity improvements and maintenanceefficiencies continued during the year.

Modifications were made in the production process which resulted in better productconsistency and performance. Focus continued to be on consolidation of operations andmaximising the investments made in the earlier years.

Last year Sriperumbudur and Maraimalai Nagar plants were awarded Total ProductiveMaintenance (TPM) award for Excellence - Category "A" by Japan Institute ofPlant Maintenance (JIPM). The journey continued this year also with Thiruvottriyur plantpassing the first test thus qualifying for the JIPM audit after clearing the CII TPMHealth check. TPM activities were also initiated in the Hosur and Uttarakhand plants. TPMbenefits in enhancing equipment effectiveness debottlenecking various constraints in theproduction process thus releasing additional capacity and reducing lead time inproduction.

As a part of the restructuring initiatives in China the manufacturing operations havebeen discontinued and a new business model for the future business operations is beingevaluated.

Aided by buoyancy in revenues and cost reduction projects and others initiatives thebusiness recorded an increase in standalone operating profits before interest and taxes atRs.941 million from Rs.679 million last year. At a consolidated level the profits grewfrom Rs.627 million last year to Rs.892 million this year.

Key Financial Summary

Rs. million




2015-16 2014-15 Change 2015-16 2014-15 Change
Total revenue 7260 6689 9% 9117 8590 6%
Segment results (PBIT) 941 679 39% 892 627 42%
Capital employed 3301 3259 1% 5106 5496 (7)%
Share to total revenue of CUMI 57% 58% 44% 43%
Share to segment results (PBIT) of CUMI 56% 55% 31% 29%


Business Profile

The Ceramics business has three product groups viz. Industrial Ceramics SuperRefractories and Anti-corrosives. Industrial Ceramics business offers Alumina and Zirconiaproducts of technical ceramic grades addressing wear protection electrical insulationthermal protection and ballistic protection applications. The Super Refractories productgroup supplies fired monolithic flow control products POW wellfiler and fibre as alsorefractory design and installation services addressing the insulation and thermalresistance requirements of industries. The Refractory fibre Refractory design andinstallation businesses are addressed through our joint ventures Murugappa Morgan ThermalCeramics Limited and Ciria India Limited. The Anti-corrosives product group offers acidresistant cements polymer concrete cells and various other products addressing theanti-corrosion requirements of industries.

The key user industries for Ceramics business are power generation and transmissioncoal washeries grain handling sanitary tiles and sanitary ware ballistic protectioncement non-ferrous metals iron and steel industries carbon black insulators furnacebuilding glass petrochemicals and construction.

The operations are carried out through ten manufacturing/ service facilities located inIndia Australia and Russia. The subsidiaries in North America Middle East and China alsosupport this business in getting an extended customer reach.

The Company is one of the major players in India Australia and Russia in specificproduct groups.

Industry scenario

There has been no material change in the Ceramics industry structure in India which iscatered to by a few major players. Globally however NTK Japan exited Metallized ceramicsbusiness and its equipment and technology were acquired by CUMI Ceramics business.

CUMI is a reputed and a leading international player in specific market segments.

In Australia CUMI is one of the major players in the lined equipment and mineralprocessing industry. There are about a dozen players in the industry most of whom marketproducts imported from China and USA.

The Refractory industry in Russia is a highly fragmented market with several players.Volzhsky Abrasives Works (VAW) caters primarily to the aluminium industry in Russia.

Sales Overview

Revenues of the Ceramics business grew by 1 per cent on a standalone basis from Rs.3146million to Rs.3189 million.

The Industrial Ceramics division had a reasonable growth on the back of significantincrease in Metallized Ceramics and Engineering Ceramics business. The business was ableto tide over the challenges of deferment in schedules from select customers by adding newcustomers and augmenting the customer basket.

Domestic Wear Ceramics business which is around fifty to sixty per cent projectdependent continued to grapple with the issues of project deferrals in power sector. Inorder to derisk project dependency the business focussed on ceramics conversionopportunities and repairs & maintenance in coal washeries mining cement and privatepower plants. The business also strengthened relationship with Original EquipmentManufacturers (OEM) from non-power sector.

In exports cement and power segments were targeted in ASEAN countries Middle EastChina and South Africa.

The business in lined equipments from Australian market continued to be good. TheAmerican ceramics business leadership has been strengthened and consequently futurestrategies to target that market have been initiated.

The growth in Industrial Ceramics was offset by lower sales in Refractories business inIndia. In Russia Nitride Bonded Silicon Carbide Refractories which primarily caters toaluminum industry registered growth on revenues abetted by broad basing the range ofRefractory products.

Key Financial Summary

Rs. million




2015-16 2014-15 Change 2015-16 2014-15 Change
Total revenue 3189 3146 1% 4678 4817 (3)%
Segment results (PBIT) 398 363 10% 659 678 (3)%
Capital employed 2754 2587 6% 3998 4002 0%
Share to total revenue of CUMI 25% 27% 23% 24%
Share to segment results (PBIT) of CUMI 24% 29% 23% 32%


The Industrial Ceramics division was able to successfully complete the debottleneckingproject in Metallized business resulting in increasing the current capacity to 1 millioncylinders per annum. For this innovation the division won recognition as one of the top25 innovating companies in India from the Confederation of Indian Industry. This year thebusiness embarked on a significant milestone to double the capacity of the MetallizedCylinder plant in Hosur by acquiring machinery and technology from NTK Japan. The newplant will have the capability to produce 720000 cylinders per annum and is expected to beoperational in the next financial year. With this expansion the Company can boast ofbeing a significant player in the Metallized space internationally with an overallcapacity of 1.72 million cylinders per annum.

Key Research and Development projects were initiated targeting steel applicationsimplementing casting and moulding technologies and conceptualizing new product developmentwith composites. Successful completion of these R&D projects would enable the businessto target high value added products.

The Refractories business over the last two years has invested on new technology fornew product lines mainly for iron & steel and foundry industry. Last year theCompany took a decision to shift the plants of Thukela Refractories Isithebe Pty Ltd.South Africa relating to flow control and POW wellfiller products to Jabalpur India. Thefacility will target mini steel plants in India and is expected to get commissioned in thenext financial year. With these investments the Refractory business intends to leveragetechnology new products and service capabilities to be competitive in the target marketsegments.


Business Profile

The major product groups of this segment are Fused Alumina (comprising brown and whiteAlumina) Silicon Carbide Fused Zirconia Alumina Zirconia and Zircon mullite. TheCompany also manufactures a range of 'specialitiesRs. like Semi Friable Azure-S and finepowders for niche markets. The operations are carried out through eight manufacturingfacilities located in India Russia and South Africa. Key user industries for thisbusiness are abrasives refractories steel photovoltaic brake linings nuclear energywooden laminates semiconductor and others. The business also has captive bauxite minessand mines and a captive power plant.

Industry Scenario

The market structure in the global Electrominerals business remained largely unchanged.

In Fused Alumina the Company is largely a national player with customers based inIndia. Apart from the domestic players imported products have a visible share in themarket. Competitive imports become favourable or unfavourable depending on Free TradeAgreements between countries duty structures and exchange rates.

In the global Electrominerals business the Company continues to retain its position asone of the reputed manufacturers of Silicon Carbide and Fused Zirconia.

Sales Overview

The Electrominerals business recorded revenues of Rs.3127 million which was 34 percent higher compared to last year standalone revenues of Rs.2338 million. The growth waslargely due to higher Alumina sales.

In the standalone business demand for Electrominerals grains was moderate fromRefractory customers however the Abrasive grains showed a good growth trend. Thebusiness could establish its special products with domestic and internal customers. Bulksupplies of Silicon Carbide Micro fine powders were made to some of the solar photovoltaiccustomers.

In South Africa the Fused Zirconia sales was marginally lower but the profits grew atthe back of operational efficiency and restructuring. The Russian operations continued tofuse with full capacity utilisation. The business being a net exporter in foreigncurrency continued to benefit from a depreciated rouble delivering a stellar top linegrowth in rouble currency. The entity also launched various grits with new fractionsmeeting industry requirements.


The fused minerals operations in South Africa which was acquired during the secondquarter of FY 2012-13 were mothballed and the two furnaces meant for fusion is beingrelocated to Edapally plant in India in this year. The production is expected to commencefrom next financial year. The Bubble Zirconia plant in South Africa which faced productionrelated challenges is also being relocated to Edapally India. The new plant is expectedto commence next year.

The merger of wholly owned subsidiary Cellaris Refractories India Limited with theCompany was completed during the year. The commercial establishment of light weightalumina cells for use in Refractory industry is in progress.

A grain treatment facility is in the process of being set up which will enable creationof value added grains. With an aim to meet the applications and serve the user industrybetter the business continues to modify adapt and improve various production processesfor ensuring improvement in recovery minimising generation of by-products achieving ahigher throughput and generating grains with higher purity and better specifications.

In Russia in order to provide the required level of quality and production volume theSilicon Carbide processing plant commissioned a crushing complex which is now operational.This has enabled the plant to introduce various grit sizes in the market.

With higher sales and reduction in the losses from the South African entities theprofit before tax and interest has increased from Rs.797 million to Rs.1299 million on aconsolidated basis.

Key Financial Summary

Rs. million




2015-16 2014-15 Change 2015-16 2014-15 Change
Total revenue 3127 2338 34% 7314 7275 1%
Segment results (PBIT) 335 203 65% 1299 797 63%
Capital employed 2400 1607 49% 5026 4291 17%
Share to total revenue of CUMI 24% 20% 36% 36%
Share to segment results (PBIT) of CUMI 20% 16% 45% 37%


During the year the Company generated Rs.1236 million of cash surplus from itsoperations on a standalone basis.

All debts have been serviced on time. The Company's long term debt position as on 31stMarch 2016 stands at Rs.259 million and total debt position stands at Rs.1091 million. Thecapital expenditure program of Rs.1031 million was financed largely from internalaccruals. The consolidated loan funds has come down to Rs.3108 million from Rs.3402million.

The credit ratings of the Company Rs.A1+Rs. for short-term borrowings and 'AA+Stable'for long-term borrowings were reaffirmed by CRISIL. Over the years the Company has beenresorting to a prudent mix of rupee and foreign currency borrowings to finance itsoperations and achieve reduction in financing cost. The finance cost at a standalone levelis at Rs.89 million compared to Rs.87 million last year. At a consolidated level theinterest cost has come down from Rs.253 million to Rs.227 million.

With the Indian entity enjoying a significant natural hedge a cautious approach wasadopted to hedge the remaining exposures. The Company adopts prudent tax managementpolicies.

The Company's debt equity ratio continues to be healthy at 0.12 on a standalone basisand 0.26 on a consolidated basis.

There are no material changes and commitments affecting the financial position of theCompany which have occurred between 31st March 2016 and the date of thisreport.


The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. The controls have been designed and categorised based on thenature type and the risk rating.

The Internal Audit team evaluates the effectiveness and adequacy of internal controlscompliance with operating systems policies and procedures of the Company and recommendsimprovements if any. Significant audit observations and the corrective/preventive actiontaken or proposed to be taken by the process owners are presented to the Audit Committee.Annual review of adherence to the agreed action plan is carried out. The scope of InternalAudit is annually determined by the Audit Committee considering the inputs from StatutoryAuditors and management.

Capital and revenue expenditure are monitored and controlled with reference to approvedbudgets. Investment decisions are subject to formal detailed evaluation and approvalaccording to schedule of authority in place. Review of capital expenditure undertaken withreference to benefits forecasted is done. Physical verification of assets is periodicallyundertaken.

The Audit Committee reviews the overall functioning of Internal Audit on a periodicalbasis. The Committee also discusses with the Auditors periodically on their views on thefinancial statements including the financial reporting system compliance with accountingpolicies & procedures and the adequacy/effectiveness of the Internal Control Systemsin the Company.


The adequacy of Internal Financial Controls existing in the Company to ensure orderlyand efficient conduct of its business including adherence to the Company's policiessafeguarding of its assets prevention and detection of frauds and errors accuracy andcompleteness of accounting records and the timely preparation of reliable financialinformation is ensured by:

• Documentation of the risks and controls associated with the major processes;

• Validation and classification of existing controls to mitigate risks;

• Identification of improvements and upgrades to the controls;

• Improving the effectiveness of controls on residuary risks through dataanalytics;

• Performing testing of controls;

• Implementation of sustainable solutions to Internal Audit observations;

The Audit Committee periodically evaluates Internal Financial Controls to ensure thatthey are adequate and operating effectively.


In the year 2015-16 CUMI recorded an impressive double digit growth inspite ofcontinued uncertainty and volatility in the market. CUMI HR played a significant role inthe ever demanding VUCA world in attracting right talents nurturing and retaining them.The key HR imperatives were addressed through six strategic pillars namely buildingleadership pipeline scaling up capability across the organisation propellingperformance enhancing people productivity improving safety performance and corporatesocial responsibility.

Building Leadership Pipeline

The HiPo exercise was launched into the second orbit with the culmination ofpsychometric profiling and development of Individual Development Programme. The goal ofthe HiPo initiative is to secure long-term talent planning and ensure a strong leadershippipeline. These future leaders are taken through targeted development and successionplanning techniques. The second round of talent identification has been initiated acrossall SBU's through an online evaluation by managers and individual assessments. To build acareer path for eligible employees a strategic initiative called Career managementframework has been evolved by a committee comprising the senior leadership of CUMI. Theframework provides guidelines on lateral career mobility assessment based promotionsinter-functional movements and a well-articulated roadmap.

Scaling up Capability

CUMI encourages employees to constantly upgrade the skills/competencies in their areasof work and supports any initiative that gives them this opportunity. The Group organisedBusiness Leadership Programme has had many leaders from CUMI. The recently launched YoungLeadership Programme for middle management also saw highest

participation from CUMI. Both these leadership programmes are running successfully andthe executives upon completion will take over different roles. To enhance the technicalknow-how of the operation managers the Company has extended sponsorship forBachelors/Masters programmes in field of manufacturing technology.

Capability Development

The Learning and Development plan was rolled out with the same rigour and attention asany other management task. At CUMI the objective is to have a well-managed learning anddevelopment programme to enhance right skill sets and relevant knowledge to enable peopleto achieve operational and futuristic outcomes. The learning solutions were designed inaccordance with Training Needs Analysis and besides this SBU specific learninginitiatives were designed and implemented leading to a quantum jump in the performance.CUMI leadership team and key executives were trained on the three box strategic thinkingand the concept has been percolated across the organisation with a vision to identifyindividuals or teams to come up with breakthrough ideas and growth initiatives.

Propelling Performance

Several initiatives on structural alignment were taken up during the year to improvethe business unit efficiency and productivity. The structural changes and movement oftalent between functions has given impetus to the marketing and R&D functions withcompetitive advantage to each SBU. Certain businesses have been strategically realigned toimprove efficiencies and synergy during the year and the people transition were welladdressed.

Employee Engagement

The Engagement Survey conducted last year was instrumental in identifying the areas ofdisaffection. The results were shared to all stakeholders and focus groups were formed toaddress different drivers. Concrete plans were taken up to engage employees on parameterslike care recognition and career opportunities. The results of the dipstick survey showedsignificant improvement in these parameters.

Employee Relations

Proactive steps and structured problem solving mechanisms with focus on people issuesand regular communication on business related issues ensured cordial industrial relations.A purposive and positive climate was maintained throughout the year in all themanufacturing plants. A comprehensive long term settlement incorporating new productivityparameters with flexibility in operation was signed in the Abrasives and Electromineralsdivisions.

Corporate Social Responsibility

Sustainable Community Building is a guiding philosophy of the Murugappa Group. Imbibingthis philosophy CUMI which had successfully set up the CUMI Centre for Skill Development(CCSD) in Hosur a few years ago replicated this model in Edapally during the year. Thesecentres host over 160 students from the less privileged community in the skill buildingscheme and support their eventual employment. CUMI works closely with the neighbouringcommunities across the manufacturing plants and provide them need based support.

Safety and Health

In a continuous effort towards maintaining a safe working environment awarenesssessions training on usage of personal protective equipments were conducted. Identifyingand eliminating unsafe working conditions were focus areas at the unit level. Thesededicated efforts have resulted in reduced occurrence of accidents. All locations striveconstantly towards a zero accident scenario. Initiatives on preventive health care for allemployees backed by an Online Health Monitoring System has also been a constant focusarea. Ongoing efforts including development of a safety manual with detailed StandardOperating Procedure and clear roles & responsibilities near miss identificationexercise TPM implementation will take safety performance to the next level.

The Company continues its commitment to employ and empower women through variousinitiatives including establishing and implementing extended maternity leave policiesfriendly work place policies for women etc. The Company also has a policy on prevention ofSexual Harassment at workplace in line with the requirements of the Sexual Harassment ofWomen at the Workplace (Prevention Prohibition & Redressal) Act 2013. An InternalComplaints Committee (ICC) has been set up to redress any complaint regarding sexualharassment and the ICC did not receive any complaints during the year.


The year 2015-16 was a year of recognition for the Company in varied fields. The SuperRefractories division of the Company completed 50 years and the golden jubilee celebrationwas graced by the presence of its esteemed customers and dealers.

The Edapally unit of Electrominerals division earned the Silver Medal for the IndiaGreen Manufacturing Challenge conducted by International Research Institute for theManufacturing (IRIM). The Jabalpur plant of the Company was conferred the BusinessExcellence Award by the Jabalpur Chamber of Commerce & Industries.

As indicated earlier the Industrial Ceramics division was recognised as one of the Top25 Innovative organisations at the CII Innovation Awards 2015. Besides it also receivedthe 5S model company award at an event organised by ABK-AOTS. The division was alsorecognised as the Best Supplier by ABB India Limited besides winning the golden award forKaizen display from Quality Circle forum of India.

Besides the above the Company participated in several exhibitions and conferences thesignificant among them being the Grindtec in Augsbury Germany and Ceramitec MunichGermany where it was well received. Further the CUMI Centre for Skill Development inEdapally received the formal approval order by the State Industrial Training Departmentfrom Mr. Shibu Baby John Minister of Labour and Rehabilitation at a function organised bythe Government of Kerala on 19th May 2015.

The total staff on rolls of the Company (including joint ventures and subsidiaries) ason 31st March 2016 was 5066 with 3225 employees in India. (Previous year 5020with 3111 employees in India)


Volzhsky Abrasive Works Russia recorded net sales growth over the previous year fromRUB 3428 million to RUB 4284 million due to improvement in sales volumes of SiliconCarbide and higher realisation due to exports. The entity had the highest ever fusionvolumes surpassing last year levels. The sales of Refractories improved due to robustorder book and costlier imports. Abrasives sales remained at around the same level. TheAbrasives consumption in Russia declined this year due to the economic recession andcontraction in the economic activity. On the profitability front despite hike in powerrate on the back of price gain from exports the entity registered an increase inprofitability (after tax) from RUB 438 million to RUB 686 million.

Foskor Zirconia South Africa recorded net sales of Rand 192 million compared to Rand197 million last year. The entity's profit after tax improved from last year's loss of ZAR8 million to a profit of ZAR 13 million.

In CUMI Australia the business in lined equipment continued to be good. Net sales grewfrom AUD 15.44 million to AUD 16.2 million. Profit after tax remained same at last years'level of AUD 1.8 million.

Sterling Abrasives had a net sales of Rs.620 million compared to the last years' netsales of Rs.625 million. Profit after tax dropped from Rs.54 million to Rs.52 million onaccount of higher depreciation arising out of capacity expansion. The user industrycomprises majorly of agro polishing industry.

CUMI Abrasives and Ceramics Company the Chinese subsidiary had a net sales of CNY 27million for the year which was lower than the last year's level of CNY 33 million. Theloss was CNY 20 million against a loss of CNY 13 million in the last financial year. Aspart of the restructuring initiatives in China the manufacturing operations have beendiscontinued and a new business model for the future business operations is beingestablished.

The net sales of CUMI America recorded a good growth (USD 5.1 million from USD 4.5million) driven mainly by the increase in sales of both Bonded Abrasives and IndustrialCeramics. The losses were in the levels of USD 0.8 million as against a loss level of USD0.6 million in FY 2014-15. During the year consequent to the consolidation of itsoperations with CUMI America CUMI Canada was legally wound up and hence ceased to be asubsidiary of the Company.

For CUMI Middle East net sales almost remained flat at USD 2 million owing to a tepidMiddle East market. Profits for the year reduced from USD 0.15 million to a loss of 0.16million.

During the year CRIL was merged with the Company and its operations were integratedwith Electromineral operations. Therefore CRIL ceased to be a subsidiary of the Company.Consequently financial results of the entity forms part of the Electromineral standalonenumbers.

Southern Energy Development Corporation Limited (SEDCO) the gas based power generationsubsidiary recorded a net sales of Rs.219 million as against Rs.180 million last year dueto improved supply in gas from Oil and Natural Gas Corporation. Profits after taxsubstantially grew from Rs.7 million to Rs.23 million due to favourable gas price.

Net Access India which provides IT facilities management and other allied servicesincreased its net sales from Rs.252 million to Rs.296 million. Profits after tax grew fromRs.15.9 million to Rs.16.7 million. The business has introduced new service offerings andis increasing the share of its external customers.

Thukela Refractories Isithebe South Africa recorded a net sales of Rand 0.8 millionas compared to Rand 77 million last year. The drop in net sales was due to winding down ofits operations. The loss levels subsequent to the exit has come down from Rand 54 millionto Rand 14 million and its closure is in the final stages.

CUMI International Limited Cyprus recorded a revenue of USD 3.2 million representingmainly dividend income as against last year income of USD 4.8 million.

CUMI Europe s.r.o based out of Europe to serve the European markets better withproducts and services of CUMI group had a turnover of CZK 7.9 million. Loss levels wereat CZK 3.7 million. The entity is in the process of establishing its business presence.

Performance of joint ventures are given in note no. 42 of the standalone financials.

Consolidated financial statements (incorporating the financial results of the Companyits subsidiaries and joint ventures) have been provided in the Annual Report. Other thanthe joint ventures there are no associate companies within the meaning of Section 2(6) ofthe Companies Act 2013. A statement containing the key financial highlights of eachsubsidiary based on the financial statements prepared by them under applicable localregulations for their respective financial years is also attached.


Pursuant to the requirements of the Listing Regulations and the Companies Act 2013 theCompany has constituted a Risk Management Committee. The details of Committee and itsterms of reference are set out in the Corporate Governance Report forming part of thisReport.

The Company has a robust business risk management process to identify evaluate andmitigate risks impacting business including those which may threaten the existence of theCompany. This framework seeks to create transparency minimise adverse impact on thebusiness objectives and enhance the Company's competitive advantage. This also defines therisk management approach across the enterprise at various levels including documentationand reporting. The framework has different risk models which help in identifying risktrends exposure and potential impact analysis at a Company level as also separately forthe business segments. Risk management forms an integral part of the Company's BusinessPlan.

The key business risks identified by the Company and its mitigation plans are as under:

Over the past few years the Company has acquired various technologies. Delay insuccessful conversion of the technology and application knowledge to profitable businessmodel may lead to an adverse impact on the return on investments. Proper training ofapplication team collaborator's guidance product validation at the user's end andleveraging the external expertise are some of the mitigating efforts the Company continuesto pursue.

The Company operates across various technology platforms and product verticals builtover the years. Relative advantages and disadvantages of such technologies are studied andadvances are tracked. Any new technology may impact the performance of the Company in thelong run. Such new technologies in the related space as also in adjacencies arecontinuously tracked and monitored. The Company seeks to address these technology gapsthrough continuous benchmarking the existing manufacturing processes with developments inthe industry and in this connection has made arrangements with technical researchinstitutions and technology consultants. The in-house Research and Development teams whichhave been strengthened over years are working on various state of the art projects.

The Company manufactures various products which results in exposure to numerous rawmaterials. Risks associated with raw material availability threat of substitutes andsupplier concentricity could impact the quality and timely delivery of finished products.The risks are mitigated to include alternative sources after thorough testing andevaluation.

Underutilisation of capacities may affect the performance of the Company going forward.The Company is ramping up its marketing efforts towards successful product establishmentand market acceptance of the products exploring development of alternate products andestablishing a range of applications.

This year the Company has relocated capital projects from South Africa to India. Therelocated projects are in various stages of installation and commissioning and any delayin timelines would affect the successful ramp up of business volumes. The productsproduced in those relocated facilities would have to be quality compliant exhibit productconsistency gain customer acceptance and be compliant to user industry requirements. Anydelay in successful production or acceptance of the product will impact timely capacityutilisation of these projects.

Considering Electromineral products are produced by way of fusion process whichconsumes lot of electricity power cost remains one of the key lever which can favourablyor adversely affect our profitability based on the changes in the electricity cost. Ourmanufacturing facilities are located in diverse geographies with differing power ratesadopted and driven by the local laws and policies. Apart from pricing in some locationsavailability of power becomes a constraint. In order to mitigate this threat the Companycontinues to liaise with the local regulatory bodies and local Government. The Companyalso constantly strives to bring about technological changes in its manufacturingprocesses which leads to lower power consumption. Getting access to captive power andcreating facilities for captive power generation continues to be a vital strategy of CUMIas can be exhibited from Maniyar and SEDCO.

Fuel cost increase is another area of concern. Petroleum based products are usedeither as direct raw material or as fuel for the firing process. Any increase in the costof fuel impacts the profitability adversely. Improvements in firing technologies areavenues which the Company continues to pursue for dealing with the challenges. Last twoyears however the Company was favourably impacted owing to the global cool off in oilprices.

The Company deals with multiple currencies and is thus exposed to translation risk onaccount of adverse currency movements. In the last two years rouble depreciation hasimpacted our consolidated topline growth. The Company has taken steps to maximiseprofitability.

Foreign Exchange risk on foreign denominated loans imports and exports are mitigatedby adopting a country based Forex policy periodic monitoring and use of hedginginstruments. Efforts are being taken to manage both exports and imports to ensure that atCompany level there is a natural hedging mechanism.

The Company's input materials are not commoditised and does not warrant any specifichedging to be undertaken. With respect to output materials adverse impact of changes incommodity prices on user industries could impact the sales which are mitigated bydevelopment of alternate products establishing new range of applications etc. as detailedabove. The other mitigation measures for dealing with increase in fuel costsnon-availability of raw materials etc. have been dealt separately in the above paragraphs.


According to the World Economic Outlook - January 2016 of the International MonetaryFund (IMF) global growth is forecast at 3.4 per cent in 2016. The pickup in globalactivity is projected to be gradual. The slowdown and rebalancing of the Chinese economylower commodity prices and strains in certain large emerging market economies willcontinue to weigh on growth prospects in 2016-17.

As far as India is concerned while public investment and urban consumption were themajor drivers of growth in FY 2015 revival of private investment and rural consumption iscritical if growth is to remain strong in FY 2016. As per Asian Development Bank growthis projected at 7.4 per cent in FY 2016 marginally lower than the 7.6 per cent achievedin FY 2015 as the expected decline in external demand offsets a pickup in domestic demand.Moreover the weak balance sheets of public sector banks will hamper lending and growthprospects. Growth is expected to pick up a bit to 7.8 per cent in FY 2017 helped by theGovernment's strengthening of public sector banks' capital and operations privateinvestments benefitting from corporates delivering results the financing of stalledprojects and an uptick in bank credit.

A revival in domestic growth would result in kick starting several postponed projectsin steel power glass cement insulation and general engineering industry which wouldhelp the Company to register a good growth. The Company expects a good growth in revenuein the backdrop of positive macroeconomic factors considering favourable investmentclimate perceived ability of new Government to push structural reforms like fast trackclearance for infrastructure projects GST energy related reforms controlled fiscaldeficit and normalisation of current account deficit.

The demand for Abrasives is ever increasing owing to opportunities arising out ofglobal mega trends. Indian growth story is one of the key triggers for multinationalcompanies to increase its presence in this region. This throws a different challenge forCUMI Abrasives to cope up with international competition to protect its market share andmeet the futuristic demand through high performance products and deliver sustainableprofitable growth.

Rapid urbanisation and resultant growth in infrastructure construction and autoindustry would be the key market

driver for Indian Abrasives consumption. Higher productivity and success of 'Make inIndia' initiative is also expected to favourably impact the Abrasives market.

Globally marketing entities are spread across Middle East Europe China and NorthAmerica. The growth in Middle East is likely to come from higher spend on infrastructureand shift towards a non-oil economy and open industrialisation. In China high speed railnetwork projects and creation of satellite towns is likely to expand the market.

Emergence of Central and Eastern Europe as automotive hubs is expected to lead toupsurge in economic activity. In North America increased prevalence of metal fabricationand revival in housing market will result in revenue growth for the Company.

The Company will continue to pursue efforts to control costs. In this year the Companyspent majority of its capital expenditure towards relocation projects. Considering thefacilities that have been expanded over the last years the Company would invest majorlyin maintenance in the forthcoming year. With most of the facilities running at moderateutilisation levels higher sales is expected to result in significant leverage leading tobetter results next year.


The Company has not accepted any deposits from the public falling within the ambit ofSection 73 of the Companies Act 2013 read with Companies (Acceptance of Deposits) Rules2014 and no amount of principal or interest was outstanding as on the balance sheet date.


The particulars of loans guarantees and investments covered under Section 186 of theCompanies Act 2013 are given below.

Rs. million
Sl. No Description As on 31.03.2015 Additions Deletions As on 31.03.2016
1 Loans given by the Company 44.20 - 44.20 -
2 Corporate Guarantee given by the Company 3224.66 59.70 674.42 2609.93
3 Investments made by the Company 2375.00 205.98 134.63 2446.36


The Company as per the requirements of the Companies Act 2013 and Regulation 23 of theListing Regulations has a Policy for dealing with Related Parties.

In line with its stated policy all Related Party transactions are placed before theAudit Committee for review and approval. Prior omnibus approval of the Committee isobtained on a quarterly basis for transactions which are of foreseen and repetitivenature. The statement containing the nature and value of the transactions entered intoduring the quarter is presented at every meeting by the Chief Financial Officer for thereview and approval of the Committee. Further transactions proposed to be entered insubsequent quarter are also presented. Additionally details of transactions proposed tobe entered into with Related Parties on an annual basis are placed before the committee atthe commencement of the financial year. Besides the Related Party transactions enteredduring the year are also reviewed by the Board on an annual basis.

All transactions with Related Parties entered during the financial year were in theordinary course of business and on an arm's length basis. There are no materiallysignificant related party transactions made by the Company with its Promoters DirectorsKey Managerial Personnel or their relatives which may have a potential conflict with theinterest of the Company at large. There are no contracts or arrangements entered into withRelated Parties during the year to be disclosed under Sections 188 (1) and 134 (h) of theCompanies Act 2013 in form AOC-2.

The Company's policy on dealing with Related Parties as approved by the Board has beenuploaded and is available on the Company's website at the following link. of the Directors and KMPs had any pecuniary relationship or transaction with theCompany other than those relating to remuneration in their capacity asDirectors/Executives and corporate action entitlements in their capacity as shareholdersof the Company.


The Murugappa Group is known for its tradition of philanthropy and community service.The Group's philosophy is to reach out to the community by establishing service orientedphilanthropic institutions in the field of education and healthcare as the core focusareas. The Company being a constituent of the Group has been upholding this tradition byearmarking a part of its income for carrying out its social responsibilities.

The Company continues to engage in Corporate Social Responsibility (CSR) activitiesdirectly as well as through implementation agencies.

The Company has set up the CUMI Centre for Skill Development (CCSD) in year 2012 atHosur to build a skill bank of a technically competent and industry ready work force.During the year the Company replicated this model in Edapally Cochin. The Centreprovides specialised training based on National Council Vocational Training syllabus forthe rural youth drawn from socially and underprivileged sections of the society. The threeyear training is imparted with a stipendiary payment and free boarding facilities thusenabling the enrolled students to earn while they learn. The job oriented skill trainingenhances their employability and aids in uplifting their socioeconomic status. Thetechnically trained students can be employed by any industrial entity once they completethe training programme.

In addition the Company has also been contributing to the cause of health andeducation by making grants to AMM Foundation an autonomous charitable trust engaged inphilanthropic activities in the field of education and healthcare since 1953. The Companyalso actively pursues local community assistance programmes in and around its plant andoffice locations.

The Company headquartered in Chennai and which has three of its Abrasives plantsoperating in and around Chennai despite being affected by the floods in December 2015 notonly kept its factories running continuously but in the quintessential CUMI-way helped thecommunity at large through supply of food packets and other necessaries to highly impactedareas. The Company supplied water draining motors to schools inundated in the rains aswell as food and safe drinking water to the authorities and volunteers engaged in therelief work. The energetic employees of the Company regardless of the personal sufferingthey were undergoing during the floods quickly formed rescue teams and assisted in theevacuation activities. The Company also procured and administered cholera preventivemedicines to its employees and their families.

The Company's CSR policy is available on the Company's website at the following link

The Annual report on the CSR activities in the prescribed format is annexed hereto asAnnexure A and forms part of this Report.


Board of Directors and Key Managerial Personnel

The Board of the Company comprises eight Directors of which majority (six) areindependent. During the year Mrs. Bharati Rao was appointed as an Independent Directorunder Section 149 of the Companies Act 2013 at the 61st Annual General Meetingby the shareholders for a term of 4 years.

Mr. M M Murugappan retires by rotation at the forthcoming Annual General Meeting andbeing eligible has offered himself for re-appointment. Approval of the members is beingsought at the ensuing Annual General Meeting for his re-appointment and the requisitedetails in this connection is contained in the Notice convening the meeting and theCorporate Governance Report.

The Company has received declarations from all its Independent Directors confirmingthat they meet the criteria of independence prescribed both under the Companies Act 2013and the Listing Regulations.

Mr. K Srinivasan Managing Director Mr. Sridharan Rangarajan Chief Financial Officerand Mrs. Rekha Surendhiran Company Secretary continue to be the Key Managerial Personnelof the Company as per Section 203 of the Companies Act 2013 and there were no changesduring the year.

Board Meetings

During the year eight Board Meetings were held the details of which are given in theCorporate Governance Report.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and the Listing Regulations theBoard carried out an annual performance evaluation of its own performance the Directorsindividually as well as the evaluation of the working of its various Committees as per theevaluation framework adopted by the Board on the recommendation of the Nomination &Remuneration Committee. Structured questionnaires were used in the overall Boardevaluation comprising various aspects of the Board's functioning in terms of structuregovernance and dynamics of functioning besides the financial reporting process internalcontrols and risk management. The evaluation of the Committees was based on their terms ofreference fixed by the Board. Separate questionnaires were used to evaluate theperformance of individual Directors on parameters such as their level of engagement andcontribution objective judgement etc.

The Chairman was also evaluated based on the key aspects of his role. The performanceevaluation of the Independent Directors was carried out by the entire Board. Theperformance evaluation of the Chairman and the Non-Independent Directors was carried outby the Independent Directors at their separate meeting.

Policy on Appointment and Remuneration of Directors

Pursuant to Section 178(3) of the Companies Act 2013 the Nomination and RemunerationCommittee of the Board of the Company has formulated the criteria for Board nominations aswell as the policy on remuneration for Directors and employees of the Company.

The criteria for Board nominations lays down the qualification norms in terms ofpersonal traits experience background and standards for independence besides thepositive attributes required for a person to be inducted into the Board of CUMI. Criteriafor induction into senior management positions have also been laid down.

The Remuneration policy provides the framework for remunerating the members of theBoard Key Managerial Personnel and other employees of the Company. This Policy is guidedby the principles and objectives enumerated in Section 178(4) of the Companies Act 2013and reflects the remuneration philosophy and principles of the Murugappa Group to ensurereasonableness and sufficiency of remuneration to attract retain and motivate competentresources a clear relationship of remuneration to performance and a balance betweenrewarding short and long-term performance of the Company. The policy lays down broadguidelines for payment of remuneration to Executive and Non-Executive Directors within thelimits approved by the shareholders. Further details are available in the CorporateGovernance Report.

The Board Nomination criteria and the Remuneration policy are available on the websiteof the Company at

Composition of Audit Committee

The Audit Committee of the Board of CUMI comprises only Independent Directors. Mr. T LPalani Kumar is the Chairman and the other members are Mr. M Lakshminarayan Mr. SanjayJayavarthanavelu and Mrs. Bharati Rao. During the year five Audit Committee Meetings wereheld the details of which are provided in the Corporate Governance Report.

Statutory Auditors

M/s. Deloitte Haskins & Sells Chartered Accountants (FR No. 008072S) Chennai wereappointed as Auditors of the Company at the 60th Annual General Meeting to holdoffice upto the conclusion of the 62nd Annual General Meeting subject to annualratification by the General Body. Their office as Auditors will expire at the conclusionof the ensuing Annual General Meeting.

M/s. Deloitte Haskins & Sells have offered to continue as Auditors of the Companyfor one more year and have furnished their consent in this regard. In view of thetransition period provided in Section 139 of the Companies Act 2013 read with theCompanies (Audit and Auditors) Rules 2014 they are eligible to continue as Auditors forone more year and accordingly with the recommendation of the Audit Committee the consentof the shareholders is being sought at the ensuing Annual General Meeting for theirappointment as Statutory Auditors from the conclusion of the 62nd AnnualGeneral Meeting till the conclusion of the 63rd Annual General Meeting at aremuneration of Rs.4200000 excluding out of pocket expenses incurred during the audit andapplicable service taxes.

The Auditors have confirmed their eligibility under Section 141 of the Companies Act2013 and the Rules framed thereunder for continuation of their term. Further as requiredunder Regulation 33 of the Listing Regulations they have also confirmed that they hold avalid certificate issued by the Peer Review Board of the Institute of CharteredAccountants of India.

The Report given by the Auditors on the financial statements of the Company is providedin the financial section of the Annual Report. There are no qualifications reservationsadverse remarks or disclaimers given by the Auditors in their report.

Cost Auditors

Pursuant to Section 148 of the Companies Act 2013 read with Companies (Cost Recordsand Audit) Rules 2014 the Company is required to maintain cost accounting records inrespect of products of the Company covered under CETA categories like organic andinorganic chemicals electrical or electronic machinery steel plastic and polymers oresand mineral products other machinery base metals etc. Further the Cost accountingrecords maintained by the Company are required to be audited.

Your Directors on the recommendation of the Audit Committee had appointed M/s. SMahadevan & Co. (firm no. 000007) Cost Accountants Chennai to audit the costaccounting records maintained by the Company under the said Rules for the FY 2015-16 on aremuneration of Rs.400000. Further the said firm has also been appointed to conduct thecost audit for the FY 2016-17 at the same remuneration.

The Companies Act 2013 mandates that the remuneration payable to the Cost Auditor isratified by the members and accordingly a resolution seeking the member's ratification ofthe remuneration payable to the Cost Auditors is included in the Notice convening the 62ndAnnual General Meeting.

Secretarial Audit

M/s. R Sridharan & Associates Practicing Company Secretaries Chennai wasappointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company forthe FY 2015-16. The report of the Secretarial Auditor is annexed to and forms part of thisReport (refer Annexure E). There are no qualifications reservations adverse remarks ordisclaimers given by the Secretarial Auditor in the Report.

Compliance Management

The Company's in house compliance management system tracks compliances across thevarious factories and offices of the Company. This tool has a comprehensive coverage ofthe various applicable laws and is periodically updated based on the regulatory changes.

Corporate Governance

In terms of Regulation 34(3) read with Schedule V of the Listing Regulations aseparate section on Corporate Governance including the certificate from the StatutoryAuditors confirming compliance is annexed to and forms an integral part of this Report.

CEO/CFO Certificate

The Managing Director and the Chief Financial Officer have submitted a certificate tothe Board on the integrity of the financial statements and other matters as required underRegulation 17(8) of the Listing Regulations.

Directors' Responsibility Statement

Pursuant to the provisions contained in Section 134(3)(c) of the Companies Act 2013the Board to the best of its knowledge and belief and according to the information andexplanations obtained by it confirm that:

• in the preparation of the annual accounts for the financial year ended 31stMarch 2016 applicable accounting standards have been followed and no material departureshave been made from the same;

• the accounting policies mentioned in Note 2 of the Notes to the financialstatements have been selected and applied consistently and judgments and estimates thatare reasonable and prudent have been made so as to give a true and fair view of the stateof affairs of the Company at the end of the financial year and of the profit of theCompany for that period;

• proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company for preventing and detecting fraud and otherirregularities;

• the annual accounts have been prepared on a going concern basis;

• that internal financial controls to be followed by the Company have been laiddown and that such internal financial controls are adequate and operating effectively;

• proper systems have been devised to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.


The extract of the Annual Return in the prescribed form MGT 9 is annexed to and formspart of this Report (refer Annexure D).


The information on energy conservation technology absorption expenditure incurred onresearch & development and forex earnings/outgo as required under Section 134(3)(m) ofthe Companies Act 2013 read with Rule 8 of the Companies (Accounts) Rules 2014 isannexed to as Annexure B and forms part of this Report.


There are no significant and material orders passed by the regulators or courts ortribunals impacting the going concern status of the Company's operations in future.


The information on employees and other details required to be disclosed under Rule 5 ofthe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isannexed to and forms part of this Report (refer Annexure C).

Further the disclosures relating to employees stock options as per Securities andExchange Board of India (Share based Employees Benefits) Regulations 2014 read with theguidelines issued by SEBI on 16th June 2015 has been provided on the Company'swebsite and is available in the link TheCompany's ESOP Scheme of 2007 governs the grant of options to employees. During the year2015-16 there were no changes made to the Scheme. Further no fresh options have beengranted under the Scheme since February 2012.


The Board gratefully acknowledges the cooperation received from various stakeholders ofthe Company viz. customers investors channel partners suppliers governmentauthorities banks and other business associates during the year.

The Board also places on record its sincere appreciation of all the employees of theCompany for their commitment and continued contribution to the Company.

On behalf of the Board
Chennai M M Murugappan
May 4 2016 Chairman

Annexures to the Report of the Directors

Given as required under Section 134 of the Companies Act 2013 and the Companies(Accounts) Rules 2014 and Companies (Appointment & Remuneration of ManagerialPersonnel) Rules 2014. All information furnished relates to Carborundum UniversalLimited India as a standalone entity.



1. A brief outline of the Company's CSR policy including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects / programs The Company is cognizant of its responsibility towards the society in which it operates and has been engaged in CSR activities directly through the establishment of skill development centre as well indirectly through contributions to AMM Foundation an autonomous charitable trust in the field of Education and Flealthcare in addition to pursuing activities for the benefit of community around its local areas of operations. In line with its objectives and practices the CSR policy focuses on Flealth Education and Skill Development. The policy is uploaded in the website of the Company.
2. Website link where the CSR policy is uploaded
3. The Composition of the CSR Committee Mr. Shobhan M Thakore Chairman (Independent Director)
Mr. Aroon Raman (Independent Director)
Mr. K Srinivasan (Managing Director)
4. Average net profit of the Company for last three financial years Rs. 937.27 million
5. Prescribed CSR Expenditure (two per cent of the amount as in item 3 above) Rs. 18.75 million
6. Details of CSR spent during the financial year
(a) Total amount spent for the financial year Rs. 22.06 million
(b) Amount unspent if any Nil

(c) Manner in which the amount spent during the financial year is detailed below:

Rs. million
SI. No. CSR Project or activity identified Sector in which the project is covered Project or Programs - location Amount Outlay/direct by Co.* Amount spent on the projects or programs 1) direct expenditure 2) overheads Cumulative Expenditure upto reporting period Amount Spent Direct/ agency
1. CUMI Centre for Skill Development Enhancing employment skills in manufacturing sector Flosur Krishnagiri DistrictCochin Ernakulam District 11.44 13.88 13.88 Direct
2. Grant to Valliammai Achi Hospital Flealth Kadayalumoodu Kanvakumari District 1.10 1.10 1.10 Agency
3. Grant to Vellayan Chettiar Higher Secondary School (VCFISS) Education Thiruvottiyur Chennai District 8.27 7.08* 7.08* Agency
Total 20.81 22.06 22.06

Agency: AMM Foundation

* Grant made during the year for VCHSS was t8.27 million as against which a sum oft7.08 million was utilised by the implementing agency as of 31st March 2016(therefore the total CSR incurred was t23.25 million for the year). Note: In addition tothe above during the year 2015-16 the Company contributed Rs. 7.5 million to theChief Minister's Relief Fund for providing relief to the victims of the heavy rains andresultant floods in Tamil Nadu.

7. Reasons for shortfall in spend: NA

8. The implementation and monitoring of CSR Policy for the FY 2015-16 is in compliancewith the CSR objectives and Policy of the Company.

On behalf of the Board
Chennai K Srinivasan Shobhan M Thakore
May 4 2016 Managing Director Chairman - CSR Committee



The energy conservation measures undertaken during the year were in the nature of ofidentifying and optimising the power consumption in the various power intensiveequipments modifying the manufacturing process replacement with efficient energyconserving equipments enhancing cycle time and sourcing of alternate fuels.

Dust collectors fans and other consumer appliances were replaced with energy efficientproducts. Suitable vendor for supply of solar power equipments for lighting of office incertain production facilities were identified. LED lightings and boiler flue gas excessair control were installed. Material lifts were modernised. On/off timer for street lightswere introduced.

Savings in fuel consumption for kilns were achieved by modification in kilnsinstallation of energy efficient VFD blowers. Usage of alternate fuels like biodiesel etc.were pursued which led to reduction in fuel costs.

The Company was able to achieve considerable savings due to the above energy savingmeasures implemented across divisions. Further energy savings was achieved by prudentsourcing of power from exchanges.

During the year ended 31st March 2016 a capital investment of Rs.10.51million was made on energy conservation equipments across the various SBU's.


Efforts made towards technology absorption adaptation and innovation:

In 2015-16 utilisation of high performance grains was taken as the major focus areawhich enabled the products to be used extensively in various niche products and criticalapplications. Successful market establishment of the high performance products wascompleted in FY 2015-16 resulting in market share gains both in Indian market and in theInternational market. Further the business also developed modified versions of key rawmaterial inputs particularly resins which resulted in significant improvement in theperformance of grinding wheels.

A technology agreement was inked in the area of metallization process. The businessalso explored the various casting and moulding technologies. Stabilisation of productionprocess of light weight Refractory materials pursued with modification in the cooling andmonitoring systems. Grain recovery improvement projects and by-products recycling projectswere undertaken by the Electrominerals division.

Technology absorption continued for making reinforced composite products forapplications in power and chemical industries.

Benefits derived as a result of the above efforts:

Products were established for various grinding applications in foreign markets. Marketshare for select products improved in various user industries. New industries and marketswere targeted through new generation bond and resins. High Performance belts and discswere established across various applications in the domestic and international markets.New products were established for auto after market. New moulding and casting technologiesenabled the business to produce thin film products. Exports increased and productacceptances concluded owing to the changes made in the product ingredients.

Imported technology:

No new technology was imported during the year. The details of the technology importedin the last three years reckoned from the beginning of FY 2015-16 are:

Technology imported Rubber center-less Roll Grinding wheel High temp ultra-lite Refractory products
Year of import 2012-13 2014-15 2012-13
Has technology been fully absorbed Yes Yes Yes
If not fully absorbed areas where this has not taken place reasons therefor and future plans of action.


Research and Development (R&D) efforts during the year continued to focus on newproduct/applications development. The R&D centres of the Company at Thiruvottiyur andHosur were approved in the form of renewal of recognition by the Department of Science andIndustrial Research (DSIR) Government of India. During the year an application wassubmitted to DSIR for recognising the in-house R&D facility at Kalamassery Cochin. Wealso have an in-house R&D facility at Ranipet.

Across the CUMI group of companies there was continuous focus on technologyinnovations including creation of several IPs in form of patent/ design/ trademarkregistrations peer review paper presentations in international forums and journals.


Rs. million
Capital (including CWIP) 17.28
Recurring 81.99
Total 99.27
Total expenditure as a percentage to net sales 0.77%


Rs. million
Particulars 2015-16 2014-15
Foreign Exchange Earnings 2951 2391
Foreign Exchange Outgo
- Revenue 2893 2472
- Capital 409 42



A. The details of employees who were paid remuneration in excess of Rs. 500000 permonth or Rs. 6 million per annum during 2015-16 as per Rule 5(2) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 are as follows:

Name and Age Designation/Nature of duties Gross remuneration paid (Rs.) Qualification and experience (years) Date of commencement of employment Previous employment
1 2 3 4 5 6
Muthiah M (56) Executive Vice President Human Resources 7307825 M.A (SW) and PG Dip. in Management (32) 15.10.2003 Plant HR Head Hyundai Motor India Limited
Ananthaseshan N (53) President Abrasives 8934190 M.Sc (Applied Science) M.Tech Material Science (30) 19.02.1986(e)
Sridharan Rangarajan (50) Chief Financial Officer 8283055 B.Com ACA Grad CWA (30) 22.06.2011 CFO Indian Operations - TIMKEN
Rajagopalan R (57) Executive Vice President Refractories & Prodorite 8103295 B.E. (Mech) MBA (Oubs) (36) 01.10.1980(e) -
Srinivasan K (58) Managing Director 17224924 B.Tech (Mech) (36) 30.01.2002 Vice President Wendt (India) Limited


(a) Remuneration as shown above includes salary allowances Company's contribution toprovident superannuation and gratuity funds medical facilities and perquisites valued asper income-tax rules. During the year no options were granted under the Employees stockoption scheme 2007. The Employee Stock Options granted to employees in the earlier periodare accounted based on intrinsic value as permitted by applicable SEBI Regulations. Sinceoptions are granted at the closing market price prior to date of grant the intrinsicvalue is nil.

(b) The employment of the above persons is whole time in nature and terminable with 3months' notice on either side.

(c) Mr. K Srinivasan was re-appointed as the Managing Director by the Board from01.02.2015 till 22.11.2017 with the approval of shareholders at the 61st AnnualGeneral Meeting. He is subject to the service conditions of the Company.

(d) The above mentioned employees are not relatives (in terms of the Companies Act2013) of any Director of the Company. Further no employee of the Company is covered bythe Rule 5(2)(iii) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 (Employee holding by himself or with his family shares of 2% or more in theCompany and drawing remuneration in excess of the Managing Director). Hence the detailsrequired under Rule 5(3)(viii) is not applicable.

(e) Date of joining as graduate engineer trainee.

(f) The remuneration details are for the year 2015-16 and all other particulars are ason 31st March 2016.

B. The details of remuneration during the year 2015-16 as per Rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are asfollows:

(i) Ratio of remuneration of each Director to the median remuneration of the employeesof the Company for the financial year:

Name Designation Ratio
M M Murugappan Chairman 25.35
T L Palani Kumar Independent Director 2.71
M Lakshminarayan Independent Director 2.85
Shobhan M Thakore Independent Director 2.28
Sanjay Jayavarthanavelu Independent Director 2.41
Aroon Raman Independent Director 2.27
Bharati Rao Independent Director 2.66
K Srinivasan Managing Director 38.37

(ii) Percentage increase in the remuneration of each Director Chief Executive OfficerChief Financial Officer Company Secretary in the financial year:

Name Designation Increase(%)
M M Murugappan Chairman 33.36
T L Palani Kumar Independent Director 3.30
M Lakshminarayan Independent Director 5.50
Shobhan M Thakore Independent Director (0.54)
Sanjay Jayavarthanavelu Independent Director 4.84
Aroon Raman Independent Director (2.14)
Bharati Rao* Independent Director NA
K Srinivasan Managing Director 7.14
Sridharan Rangarajan Chief Financial Officer 22.92
Rekha Surendhiran Company Secretary 13.27

• Joined during 2014-15 hence not comparable Notes:

• During the year eight Board meetings of the Company were held. The increase inremuneration of the Non-Executive Independent Directors is on account of sitting fees paidfor attending the meetings.

• Sitting fee is paid based on attendance of the Non-Executive Director. Decreasepercentage in remuneration of Non-Executive Directors is on account of non-participationat certain meetings.

• Mr. K Srinivasan's remuneration for the year includes an unavailed LTA componentof FY 2013-14 received during the year. This has been appropriately factored in whilecomputing the increase % above.

• During the year there was a grade change for Mrs. Rekha Surendhiran. Furtherthe remuneration received by her during the year includes an unavailed LTA component forthe FY 2013-14 and FY 2014-15 which have been appropriately factored in while computingthe increase % above.

(iii) Percentage increase in the median remuneration of employees in the financialyear: 10.19 per cent. (employees who were in employment for the whole of FY 2014-15 &whole of FY 2015-16 considered for this purpose).

(iv) Number of permanent employees on the rolls of the Company as on 31stMarch 2016: 2020.

(v) Explanation on relationship between average increase in remuneration & Companyperformance (standalone):

Annual increase in employees remuneration is based on Company and individualperformance. The individual performance parameters varies based on employee cadres. Formanagement cadre employees the performance is based on parameters such as financialperformance customer perspective internal process improvements and learning &development. For non-management cadre and others the performance is based on operationalperformance of SBUs/locations/ branches and long term settlements.

The average increase in employee remuneration effected during the year 2015-16 was 7.80per cent. This increase is based on the Company's performance in the preceding financialyear their individual performance as well as other external factors such as inflationindustry standards etc. The Company's performance for the year 2015-16 increased by 11.18per cent in terms of revenue from operations the profits before tax and exceptionalincome increased by 48.74 per cent and the market capitalisation decreased by 6.72 percent as compared to the previous year.

(vi) Comparison of the remuneration of the Key Managerial Personnel and each KeyManagerial Personnel against the performance of the Company:

Rs. million
Aggregate remuneration of Key Managerial Personnel (KMP) in FY 2015-16 28.84
Revenue from operations for the year 2015-16 12993
Remuneration of KMPs (as a % of revenue) 0.22%
Profit before tax and exceptional income for the year 2015-16 (PBT) 1673
Remuneration of KMPs (as a % of PBT) 1.72%


Rs. million

Particulars K Srinivasan Managing Sridharan Rangarajan Rekha Surendhiran
Director Chief Financial Officer Company Secretary
Remuneration in FY 2016 17.23 8.28 3.33
Revenue from operations for the year 2015-16 12993
Remuneration as a % of revenue 0.13% 0.06% 0.03%
PBT for the year 2015-16 1673
Remuneration as a % of PBT 1.03% 0.50% 0.20%

(vii) Variations in the market capitalisation of the Company and price earnings ratioas at the closing date of the current financial year and previous financial year:

Particulars 31.03.2016 31.03.2015
Market Capitalisation of the Company (Rs. million) 33060.6 35443.5
Closing Price at the BSE Ltd. (in Rs.) 175.50 188.35
Closing Price at the National Stock Exchange Ltd. (in Rs.) 175.45 190.20
Price Earnings Ratio as at the closing date 28.42 23.87

(viii) Percentage increase over decrease in market quotations of the shares of theCompany in comparison with the last public offer: The last public offer was made in 1994and the data is incomparable.

(ix) The average percentile increase already made in the salaries of employees otherthan the managerial personnel in the last financial year is 7.80 per cent and the averagepercentage increase in the managerial remuneration is 17.57 per cent (employees who werein employment for whole of FY 2014-15 and whole of FY 2015-16 considered for thispurpose).

The increase in employees remuneration is based on the parameters referred in earlierparas. This also applies to the Managing Director. The increase in Managerial remuneration(other than MD) is on account of increase in sitting fees paid to the IndependentDirectors during the year consequent to more number of Board meetings held during the yearas well as increase in commission payable to Chairman due to improved performance of theCompany.

The Managerial remuneration is subject to regulatory ceiling limits. Other thanManaging Director the remuneration of Directors comprises only sitting fees andcommission.

There are no exceptional circumstances for increase in Managerial remuneration.

(x) Key parameters for variable component of remuneration of Directors

Managing Director: The remuneration of Managing Director includes annual incentivecomponent at 100 per cent levels. The actual payment in the year is linked to theCompany's performance in the previous financial year based on qualitative and quantitativefactors and is paid as determined by the Nomination and Remuneration Committee.

Other Directors: The remuneration of Non-Executive Directors comprises sitting fees andcommission. Sitting fees is paid based on the attendance at Board/ Committee meetings.Differential fee structure exists for Board and its Committees. Also based on the termsof reference of the Committee different sitting fee structure exists among theCommittees.

Commission to Non-Executive Directors is subject to a maximum of 1% of net profits ofthe Company. In keeping with evolving trends in industry the practice of payingdifferential commission to Directors based on time spent by them has also been adopted.Further details regarding the remuneration of Directors is available in the CorporateGovernance report.

(xi) Ratio of remuneration of the highest paid Director to that of the employees whoare not Directors but receive remuneration in excess of the highest paid Director duringthe year: Not Applicable.

(xii) Affirmation that the remuneration is as per the Remuneration policy of theCompany: The Company affirms that the remuneration is in compliance with its Remunerationpolicy.