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Carborundum Universal Ltd.

BSE: 513375 Sector: Engineering
BSE 15:52 | 19 Mar 336.70 -9.75






NSE 15:55 | 19 Mar 338.30 -9.65






OPEN 347.00
VOLUME 13664
52-Week high 428.00
52-Week low 252.50
P/E 46.83
Mkt Cap.(Rs cr) 6,360
Buy Price 336.70
Buy Qty 1901.00
Sell Price 0.00
Sell Qty 0.00
OPEN 347.00
CLOSE 346.45
VOLUME 13664
52-Week high 428.00
52-Week low 252.50
P/E 46.83
Mkt Cap.(Rs cr) 6,360
Buy Price 336.70
Buy Qty 1901.00
Sell Price 0.00
Sell Qty 0.00

Carborundum Universal Ltd. (CARBORUNIV) - Director Report

Company director report

Your Directors have pleasure in presenting the 63rd Annual Report togetherwith the Audited Financial Statements for the year ended 31st March 2017. 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

Moderate global trade subdued investment and heightened policy uncertainty markedanother challenging year for the world economy. As per International Monetary Fund (IMF)the global growth was estimated to be at 3.1 per cent in 2016. The growth could have beenbetter had it not been for the anaemic performance in advanced economies. The year alsowitnessed events defined by political shocks in advanced economies that impactedeconomies all over the world - first the decision by the United Kingdom electorate inJune 2016 to leave the European Union followed by the United States Presidential electionin November 2016. Both the events had ramifications well beyond their borders and willcontinue to have implications in 2017 and beyond. The picture in emerging markets anddeveloping economies around the world remained diverse. The growth rate in China was oneof the slowest in the last twenty six years. However it was within the Government'starget and a bit stronger than the expectations. Strong fiscal support and a boomingproperty market were the main factors that drove China's economic growth in 2016. TheLatin American countries such as Argentina and Brazil were in recession. Oil pricesincreased during the year reflecting an agreement among major producers to trim supply.The Russian economy has responded well in the last two years to the dual shocks ofcollapsing oil prices and the continuation of Western sanctions. Activities in Russia wereslightly better in 2016 owing to firming up of oil prices. With strong infrastructure andreal estate investment in China as well as the expectation of fiscal easing in the UnitedStates prices for base metals also strengthened during the year.

In India against the backdrop of robust macro-economic stability the year was markedby two major domestic policy developments the passage of the constitutional amendmentpaving the way for implementing the transformational Goods and Services Tax (GST) and theaction to demonetise the two highest denomination notes in the country. With respect toGST we broadly know that it is going to be positive for the organised sector. However itis expected to have teething troubles in the initial phase and the impact of the same onearnings is yet to be ascertained. Demonetisation had a short-term impact but is expectedto provide long term benefits. The landslide victory of the ruling party of the CentralGovernment in the assembly elections held during November 2016 provided visibility ofpolitical stability to the Indian economy. These developments cemented India's reputationas one of the few bright spots in an otherwise grim global economy. India is not onlyamongst the world's fastest growing major economies underpinned by a stable macro-economywith declining inflation and improving fiscal and external balances but also one of thefew economies embarking on major structural reforms. As per Asian Development Bank thegrowth in Indian economy for the year 2016 was at 7.1 per cent. This was below the 7.9 percent growth in 2015 partly due to currency demonetisation. The Indian stock marketsbraced the odds of Brexit Presidential elections in the United States election and thedemonetisation.

Company Performance Revenues

During the year the standalone business grew by nine per cent and the consolidatedrevenue also grew at the same rate driven by better performance of all the businesses. Thefollowing table summarises the standalone and consolidated revenues - both segment andgeography wise:

Rs. million



% share Amount % share Amount %
Abrasives 57% 8592 57% 7844 10%
Ceramics 26% 3899 25% 3383 15%
Electrominerals 23% 3396 24% 3299 3%
Eliminations -6% (918) -6% (767) 20%
Total 100% 14969 100% 13759 9%
India 79% 11833 80% 11035 7%
Rest of the world 21% 3136 20% 2724 15%
Total 100% 14969 100% 13759 9%

Rs. million



% share Amount % share Amount %
Abrasives 46% 10163 46% 9217 10%
Ceramics 21% 4724 20% 4085 16%
Electrominerals 35% 7694 37% 7486 3%
Power 1% 265 1% 219 21%
IT Services 2% 394 1% 296 33%
Eliminations -6% (1241) -5% (1059) 17%
Total 100% 21999 100% 20244 9%
India 58% 12669 58% 11732 8%
Rest of the world 42% 9330 42% 8512 10%
Total 100% 21999 100% 20244 9%

Production consistency higher throughput in special products focused efforts inbuilding businesses with global customers and favourable product mix with higher share oftechnical products provided the topline growth.

The Company's consolidated revenue from India increased by eight per cent and from restof the world increased by ten per cent. At a consolidated level Abrasives sales grew byten per cent Ceramics sales grew by sixteen per cent and the Electrominerals segment grewby three per cent.


The manufacturing team played a key role helping the Company in the growth momentumthrough effective production planning and order execution. On an average the plants inIndia operated at about seventy per cent capacity utilisation levels. Some productsegments like Coated Abrasives and Metallized Ceramics ran at near full capacity.Continued implementation of Total Productive Maintenance (TPM) at shop floors lead toimprovement in efficiency of machines and the entire production process. The Tiruvottiyurplant was awarded the JIPM Excellence Award at Kyoto Japan in March 2017. With this wehave three major plants of the Company certified in TPM. The Industrial Ceramics plant atHosur also successfully completed the CII TPM Health Check during January 2017 and is nowready for JIPM TPM excellence assessment.

Capital expenditure during the year across all geographies was majorly in the nature ofcapacity additions besides automation quality enhancement line balancing and generalinfrastructure. TPM initiatives and few manufacturing technology projects helped findingadditional capacities in Coated products which came in handy to cater to the increaseddemand from customers. The relocation projects from South African entities to India gotcommissioned in the fourth quarter of 2016-17. The Zirconia Bubble Fusion Plant andAlumina Fusion Plants - will result in the creation of one of the most advanced andintegrated Electromineral complexes in the world. The new facilities will add about 25000tons of fused minerals generation. The Slide gate products facility was also commissionedsuccessfully in Jabalpur. Earnings & Profitability

The Company's standalone Financial Results are summarised in the table below:

Rs. million

As a % of Gross Sales 2016-17 As a % of Gross Sales 2015-16 Increase %
Gross Sales 14969 13759 9%
Other Operating Income 229 183 25%
Revenue from Operations 15198 13942 9%
Other Income 343 399 -14%
Total Income 15541 14341 8%
Cost of material Consumed 34% 5121 36% 4886 5%
Purchase of stock in trade 5% 818 6% 761 7%
Movement of Inventory 0% 12 -1% (70) -117%
Excise duty on sale of goods 8% 1141 7% 1023 11%
Employee benefits expense 10% 1533 10% 1413 8%
Finance Cost 1% 88 1% 89 -2%
Depreciation and Amortisation 4% 669 5% 621 8%
Other expenses 30% 4453 29% 3942 13%
Total Expenses 92% 13834 92% 12666 9%
Profit before Tax 11% 1707 12% 1675 2%
Profit after Tax 8% 1218 8% 1164 5%
Total Comprehensive Income 8% 1138 9% 1197 -5%

Aided by the growth in revenues standalone Profit before tax improved to Rs.1707million from Rs.1675 million in the previous year.

The Company uses a variety of raw materials for its products - Bonds Yarn GrainsCalcined Alumina Tabular Alumina Mullite Pet Coke Bauxite Zircon Sand amongst others.The sourcing is a prudent mix of indigenous and imported materials. Aided by judicioussourcing and optimising throughput in production material consumption improved during theyear.

Other expenses increased from '3942 million in preceding year to Rs.4453 million in thecurrent year. The increase reflects the volume growth cost increases and investment inpreparing the organisation for the expansion programmes being undertaken. Power and fuelcost also increased during the current year. Captive power generation from the Company'sHydel power unit in Maniyar was lower due to inadequate rainfall. The power consumptionwas also higher in line with the higher volumes produced compared to the previous year.Rates for fuel inched up after bottoming out in the last year.

Employee benefits expense increased by eight per cent during the year which is acombination of both increase in head count and salary. The overall employee cost wasmaintained at ten per cent of the revenues.

Profit before interest and tax margin expanded for Abrasives and Ceramics owing tohigher sales and better operating leverage. The margins for Electromineral business werelower owing to power cost increase on account of below average rainfall impacting theHydel power generation.

Finance costs were at '88 million compared to '89 million in the previous year. Profitafter tax of Rs.1218 million was higher compared to that of the previous year Rs.1164million. Total comprehensive income decreased from Rs.1197 million to Rs.1138 million.

The consolidated Profit before tax (before share of Profit from associates and jointventures) entity-wise is represented below:

Rs. million

2016-17 2015-16
CUMI Standalone 1707 1675
Subsidiaries including step down subsidiaries:
Net Access India Limited 35 25
Southern Energy Development Corporation Limited 90 30
Sterling Abrasives Limited 101 79
CUMI (Australia) Pty Limited 143 123
CUMI International Limited 240 (222)
Volzhsky Abrasives Works 784 897
Foskor Zirconia Pty Limited (19) 90
CUMI America Inc (98) (69)
CUMI Middle East FZE 5 (10)
CUMI Abrasives & Ceramics Company Limited 1 (206)
Thukela Refractories Isithebe Pty Limited (2) (68)
CUMI Europe s.r.o 1 (10)
Total of Subsidiaries 1281 659
Inter-Company Eliminations & Consolidation adjustments (560) (123)
Consolidated Profit before Tax 2428 2211
Consolidated Profit after Tax attributable to owners 1749 1441
Consolidated Total Comprehensive Income attributable to owners 2142 1263

On a consolidated basis the Profit before tax (before share of Profit from associatesand joint ventures) increased from Rs.2211 million to Rs.2428 million. Profit after taxand Non-controlling interests was Rs.1749 million (previous year Rs.1441 million). Theperformance of the subsidiaries is detailed separately in this Report.

Total comprehensive income increased from Rs.1263 million to Rs.2142 million.

Segmental profitability improved for Abrasives and Ceramics; however it dropped inElectrominerals on account of lower volumes adverse exchange movement in Russianoperations and increase in power costs in India.

Financial Position

An overview of the Company's financial position is given below:

Rs. million

Financial position



31.03.2017 31.03.2016 01.04.2015 % change 31.03.2017 31.03.2016 01.04.2015 % change
Net Fixed assets (including goodwill) 4595 4435 4156 4% 7774 7437 7729 5%
Investments-Non current 2541 2561 2319 -1% 1195 1293 1181 -8%
Other assets:
- Inventories 2268 2252 2085 1% 3867 3704 3742 4%
- Trade receivables 2563 2532 2231 1% 3806 3675 3439 4%
- Cash and cash equiv. 67 84 56 -21% 1298 1136 965 14%
- Others 939 839 659 12% 1282 1432 1073 -10%
Total assets 12973 12704 11506 2% 19222 18676 18128 3%
Liabilities (Other than loans) 2397 2029 1912 18% 3178 2934 3142 8%
Net assets 10576 10675 9594 -1% 16044 15743 14987 2%
Sources of funding:
Total equity attributable to owner 10550 9584 8758 10% 13828 11923 11006 16%
Non-Controlling interest 657 622 578 6%
Loan outstanding:
- Long term borrowings 18 259 512 -93% 67 362 567 -82%
- Payable within one year 8 506 7 -98% 68 566 635 -88%
- Short term borrowings - 326 317 -100% 1424 2270 2202 -37%
Total loans 26 1091 836 -98% 1559 3199 3403 -51%
10576 10675 9594 -1% 16044 15743 14987 2%
Loans (net of cash and cash equivalents) (41) 1007 780 -104% 261 2063 2438 -87%

On a standalone basis the total equity as on 31st March 2017 was Rs.10550million. Additions for the year (net of dividend) was Rs.966 million.

Liabilities (other than loans) increased from Rs.2029 million in last year to Rs.2397million during 2016-17. The Loan outstandings reduced significantly from Rs.1091 millionto Rs.26 million.

Other assets increased from Rs.5708 million to Rs.5837 million.

Net fixed assets (including goodwill) increased from Rs.4435 million to Rs.4595million. The major capex pursued and commissioned during the year were relocated projectsviz. Bubble Zirconia plant and Fused Alumina plants Thin Wheel expansion withconsolidation of Chinese entity machineries into India debottlenecking in Coatedoperations and routine maintenance & improvement capex.

On a consolidated basis the total equity attributable to owners as on 31stMarch 2017 was Rs.13828 million. There was an increase (net of dividend) to the extent ofRs.1905 million. Non-controlling interest was at Rs.657 million.

Liabilities (other than loans) was '3178 million. The Loan outstandings reducedsignificantly from '3199 million to Rs.1559 million.

Net fixed assets (including goodwill) increased from Rs.7437 million in the last yearto Rs.7774 million during the FY 2016-17. Capital Expenditure at a consolidated levelduring the year was at Rs.1268 million. Other assets increased from Rs.9947 million toRs.10253 million.

Cash Flow

The Company's cash flow generation is healthy The following table summarises theCompany's consolidated and standalone cash flows for the current and previous years:

Rs. million

Cash flow



2016-17 2015-16 2016-17 2015-16
Cash flow from Operations 2284 1633 3741 2615
Taxes paid (515) (514) (788) (837)
Cash flow from operating activities 1769 1119 2953 1778
Capital Expenditure (Net of disposal) (750) (1028) (1061) (843)
Cash flow from other investing activities 293 144 248 116
Cash flow from investing activities (457) (885) (813) (727)
Cash flow from financing activities (1329) (206) (2071) (856)
Net Increase/(Decrease) in Cash & Cash equivalents (17) 29 69 195
Net Cash and Cash equivalents at the beginning of the year 84 56 1136 965
Effect of exchange rate changes on the balances of cash and cash equivalents held in foreign currencies 93 (24)
Cash and Cash equivalents at the end of the year 67 84 1298 1136

On a standalone basis net cash generation from operations was Rs.1769 million in FY2016-17 compared to previous year's Rs.1119 million. Better cash generation came fromefficient working capital management with respect to receivables and inventories. DaysSales Outstanding (DSO) reduced and Inventory Turns increased compared to the previousyear.

Net cash outflow on account of investing activities was Rs.457 million majorly towardsaddition of property plant and equipment. Net cash outflow on account of financingactivities was Rs.1329 million which is attributable primarily to repayment of borrowingsand dividends paid. The net decrease in cash and cash equivalents was Rs.17 millionagainst an increase of Rs.29 million in FY 2015-16.

On a consolidated basis net cash generation from operations was Rs.2953 million in FY2016-17. Net cash outflow on account of investing activities was '813 million. Net cashoutflow on account of financing activities was Rs.2071 million which is attributableprimarily to repayment of borrowings and dividends paid. The net increase in cash and cashequivalents was Rs.69 million against an increase of Rs.195 million in FY 2015-16.


The paid up equity share capital as on 31st March 2017 was Rs.188.66million. The capital increased during the year by Rs.0.28 million consequent to allotmentof shares upon exercise of Stock Options by employees under the Company's ESOP Scheme2007.


Considering the past dividend payout ratio and the current year's operating Profit theBoard has considered it appropriate to recommend a final dividend of Rs.0.75 per equityshare of Rs.1/- each. It may be recalled that in February 2017 an interim dividend at therate of Rs.1/- per equity share of Rs.1/- each was declared and paid. This aggregates to atotal dividend of Rs.1.75/- per equity share of Rs.1/- each for the year which is higherthan the previous year. During the year the Board has adopted a Dividend Policy which isavailable at policies.html. The dividend paid aswell as being recommended for the year ended 31st March 2017 is in line withthis policy.


An amount of Rs.500 million has been transferred to the General Reserve of the Companyas at 31st March 2017.


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


Business Profile

The business is into manufacture and sales of Abrasives. The key product segments areBonded Abrasives Coated Abrasives Super Abrasives and allied products.

An Abrasive is a substance which grinds cleans scours abrades or removes solidmaterial by rubbing action or by impact. Abrasives are mineral like materials available indifferent shapes sizes and types according to need. Abrasive materials and Abrasiveproducts are utilised in several end user industries such as manufacture of MachineryElectrical & Electronic equipment Transportation and Metal fabrication among others.

The division has more than sixty years of experience in Abrasives manufacturing. Thetechno-commercial knowledge of the team and their wealth of experience has been thestrength of the division in manufacturing world class products.

In order to match all international standards and to compete globally the divisionsources its raw materials both from the Electrominerals division and from best suppliersacross the world. These cost-effective manufacturing techniques and quality controlsystems form the core of the division's objectives - best products and customersatisfaction at affordable prices.

The business is driven by a combination of manufacturing and marketing entities. Thereare ten manufacturing plants located in India Russia and Thailand. The marketing entitiesin North America Middle East China and distributors across the globe enable the divisionto reach out across geographies.

The Company caters to customers located around fifty five countries through its networkof manufacturing facilities and marketing establishments.

Industry scenario

The global Abrasives market is segmented based on region. Asia Pacific represents thelargest and the fastest growing market for the Abrasives industry and China is the largestproducer of Abrasive materials and Abrasive products. The growing demand for various typesof Abrasives from transportation building & construction and other durable goodsindustries is expected to drive the Asia Pacific Abrasives market. Growth in the US -which holds the world's second largest national market for Abrasives is expected todeliver a moderate growth. The market is dominated by leading players operating across theglobe.

In India the Abrasives industry is catered by few leading players serving majorportion of the Indian market. Imports are predominantly in the high and low end Abrasives.The Bonded Abrasives and the Coated Abrasives are important segments in the Indianscenario and contribute maximum in terms of revenue to this industry.

In the domestic Russian market there are three major players. The Company is one ofthe major players in Vitrified Bonded Abrasives.

Sales Overview

The Abrasives business stepped into 2016-17 against the backdrop of positivemacro-economic factors considering perceived uptick in investment climate ability of newGovernment to push structural reforms like fast track clearance for infra projects GSTrollout energy related reforms etc.

The focus for the Abrasives business was to grow topline at better than the marketgrowth rate with significantly better profitability. Accordingly the Abrasives businesson a standalone basis recorded a growth in revenue from Rs.7844 million to '8592 millionwith improvement in margins.

The Coated business registered good growth in the conventional products in domesticmarket. The growth came about by way of launch of new products focus on technicalproducts strong brand recall and dealers' readiness to invest in this product segment andquality consistency of the products. Coated Abrasives division is now at a stage where themarket is growing and the demands for its products are good. These are largely driven bythe consistent quality and availability. Both these attributes are direct outcomes of theTPM processes implemented and practised in the facilities at Maraimalai Nagar andSriperumbudur.

The Non-standard business was engaged on productivity improvement for customers with aslew of new product launches. The Company forayed into showcasing itself as a technologyexpert and create value for customers through conducting seminars to enhance the knowledgelevel of its customers. Metal working fluid also delivered good growth riding on the backof portfolio enlargement with focus on machining.

Distribution leadership has been one of the strategic pillars for the Company's growthand the business has been making steady progress in this front. During the year thebusiness aggressively appointed new channel partners and expanded its dealer network bothin India and abroad. Retail development and industrial storming initiatives were conductedfor better market penetration.

The Abrasives sales in Russia increased this year owing to introduction of new productsand targeting newer territories. Wendt India which addresses the Super Abrasives &Grinding machines market had a marginal growth in its revenues. Sterling Abrasives whichaddresses the agriculture related applications delivered a good growth during the year.


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 in theAbrasives business. Business continued to focus on pursuing dual strategy - firstly ofmoving from traditional Brown to Semi-friables to gain significant competitive advantage;secondly of offering superior Coated technical products with high performance Zirconiaand Ceramic grains.

In order to cater to increased demand for Coated products the division pursuedcapacity expansion projects in Maraimalai Nagar to ensure feed with higher width acrossall product ranges in cloth and paper to Sriperumbudur Coated facility.

Today's successful organisations require a significant competitive advantage hence itis utmost essential for companies to use winning strategies to survive and be successful.The Company has adopted TPM not only as a tool but also as its strategic initiative andthis has given the Company a competitive edge today. TPM is an organisation-wide strategyto increase the effectiveness of production environments especially through methods ofincreasing the effectiveness of equipment. The TPM journey which started in 2011 markedthe beginning of an era of change. Sriperumbudur and Maraimalai Nagar plants were awardedTotal Productive Maintenance (TPM) award for Excellence - Category "A" by JapanInstitute of Plant Maintenance (JIPM) during 2014-15. In 2015-16 the Tiruvottiyur plantqualified for the JIPM audit after clearing the CII TPM Health check. This yearTiruvottiyur plant was awarded the JIPM

Key Financial Summary

Excellence Award for Excellence - Category "A". In the years to come otherAbrasives plants - Hosur and Uttarkhand will strive towards achieving TPM certification.

In its TPM pursuit the Company has taken Total Effectiveness as a prime focus whichincludes Productivity Quality Cost Delivery Safety Environment Health and Morale.Today we have reached higher levels of Overall Equipment Effectiveness (OEE) On TimeDelivery reduction in energy consumption; Defect Phenomena Elimination Breakdownelimination by significant percentage; Productivity improvement by substantial quantum -the Company continues its journey towards World Class Manufacturing Management Standards.

The entity in Russia completed the up-gradation of bond production facility invitrified Abrasives area. New products like high-porosity Bonded Abrasives were introducedto the local markets during the year.

As a part of the restructuring initiatives in China the manufacturing operations havebeen discontinued and a new business model for the future business operations has been setup. This will pave the way for future growth in China.

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.1047 million from Rs.937 million last year. At a consolidated level the Profits grewfrom '831 million last year to Rs.1133 million this year.

Rs. million




2016-17 2015-16 Change 2016-17 2015-16 Change
Total revenue 8592 7844 10% 10163 9217 10%
Segment results (PBIT) 1047 937 12% 1133 831 36%
Capital employed 3122 3301 -5% 4629 4720 -2%
Share to total revenue of CUMI 57% 57% - 46% 46% -
Share to segment results (PBIT) of CUMI 58% 53% - 43% 34% -

Ceramics Business Profile

The Ceramics business has three product groups viz. Industrial Ceramics SuperRefractories and Anti-corrosives.

Industrial Ceramics business offers Alumina and Zirconia products of technical ceramicgrades addressing wear protection electrical insulation thermal protection and ballisticprotection applications. The Super Refractories product group

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 bricks 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 Industrial Ceramics business based out of India is largely a global business andmajority of the sales volumes are through exports. The Refractory business in India ispredominantly a local business.

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

Industrial Ceramics division celebrated its silver jubilee in November 2016. Thedivision over the years has been able to carve a niche for itself in the business of highAlumina Ceramics. The division has grown exponentially over the past years and is nowstrategically placed to step into the next level of growth journey.

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 Cylinders business in 2015-16 and itsmanufacturing assets and customers database were acquired by the Company's Ceramicsbusiness. The Company is now the second largest producer in the world. In the WearCeramics space there are six major players globally - the Company is one of the reputedplayers in the world. In the

Key Financial Summary

Engineering Ceramics there are around five players globally with CUMI Ceramics beingrelatively smaller in size.

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.

Refractory industry in India is a highly fragmented market with a market size of aroundRs.60 billion. The Company's product profile caters to the top end temperature rangeapplications.

The Refractory industry in Russia is a highly fragmented market and Volzhsky AbrasivesWorks (VAW) caters primarily to the aluminium industry in Russia.

Sales Overview

Revenues of the Ceramics business grew by 15 per cent on a standalone basis from '3383million to '3899 million.

Metallized Cylinders and Wear Ceramics products business sustained the continuedmarketing efforts in targeting newer markets and partnering with global customers. Thisyear the business could achieve breakthrough sales in Engineered Ceramics business withits highest ever sales. Business is working on strategic initiatives to maintain currentshare as also identifying to grow up the value chain in both structural and functionalceramic products.

The Refractory business delivered good growth compared to last year. The division'ssales were driven by growth in Fired Refractories and Anti-corrosive segments. Newproducts like Tap Hole Clay and Slide gate faced delays in customer acceptance and salesof these products are expected to pick up significantly during 2017-18.

In Russia Nitride Bonded Silicon Carbide Refractories registered growth on revenues.

Rs. million




2016-17 2015-16 Change 2016-17 2015-16 Change
Total revenue 3899 3383 15% 4724 4085 16%
Segment results (PBIT) 509 398 28% 704 501 41%
Capital employed 2820 2754 2% 3694 3558 4%
Share to total revenue of CUMI 26% 25% - 21% 20% -
Share to segment results (PBIT) of CUMI 28% 23% - 27% 21% -


The Industrial Ceramics division accomplished important business milestones during theyear. A new state-of-the-art Research and Development facility (DSIR approved Lab) wasinaugurated during the second quarter of the year with advanced characterisation andresearch facilities. The new Metallized Cylinder manufacturing line with assets from NTKJapan was set up and the commissioning is likely to commence during early 2017-18.

The contract manufacturing for base level Ceramics started in 2014-15 continuedsuccessfully during the current year. Focus was given on improving efficiency throughreduction in reclaim improvement in grinding and lapping. Significant focus and effortswere given towards new product development in Wear Ceramics resulting in introduction ofvalue added Ceramic products. The business continued its pursuit in strengtheningrelationship and strategic co-operation with key OEMs. During the year the business wasable to qualify as partner with OEM's for the new products launched.

The division started its TPM journey in 2014-15 and with sustained and intense effortscleared TPM Health Check by CII TPM Club of India during January 2017.

The Refractory business in last three years has invested in new technology mainly forIron & Steel and Foundry industries. The business has also invested in consumable(flow control) products mainly for mini Steel industry and this investment is expected toprovide growth opportunities from the year 2017-18.

Electrominerals Business Profile

The major product groups of this segment are Fused Alumina (comprising Brown and WhiteAlumina) Silicon Carbide (crude macro and fine) Fused Zirconia Alumina Zirconia PearlZirconia and Zircon Mullite. The Company also manufactures a range of ‘specialities'like Semi Friable Azure-S and fine powders for niche markets. The operations are carriedout through eight manufacturing facilities located in India Russia and South Africa.

The business focusses on aggressive growth in the export market with suitable productportfolios and provides customers with application specific products with an objective toattain improved product profitability. For this the business ensures speedy execution ofprojects and enhanced asset utilisation.

The business intends to continue its focus on special products through internalcapability building and strategic partnerships in the market place to promote its productsin different parts of the world.

Key user industries for this business are Abrasives Refractories Steel PhotovoltaicBrake linings Nuclear energy Wooden laminates Friction composites Semiconductor andothers.

The business has captive bauxite mines sand mines and a captive power plant.

Industry Scenario

The Fused Alumina installed capacity globally is around 2 million tons with majorcapacities being in China. The Company is largely a local player with customers based inIndia. Apart from the domestic players imported products have a visible share in theIndian market. Competitive imports become favourable or unfavourable depending on FreeTrade Agreements between countries duty structures and exchange rates.

In the Silicon Carbide space the installed capacity would be anywhere to the extent of1.5 to 2 million tons with large portion of it being in China VAW Russia with a capacityof 0.08 million tons is the second largest single location capacity in the world.

In the Fused Zirconia space the global capacity could be approximately 0.07 milliontons. China would occupy around twenty five percent of the global market. The Company witha capacity of 0.01 million tons is the third in the world.

The Company continues to retain its position as one of the reputed manufacturers ofSilicon Carbide and Fused Zirconia.

Sales Overview

The Electrominerals business recorded revenues of '3396 million compared to last yearstandalone revenues of '3299 million.

The year 2016 was a year of challenges for the exports of Electromineral business. TheSolar Photovoltaic business which supported the business in the first half of the year2016-17 was almost nil during second half coupled with weak market in China & Europethat affected the sale of value added products.

In South Africa the Fused Zirconia sales was flat. The Russian operations continued tofuse with full capacity utilisation. The entity also launched various grits with newfractions meeting industry requirements. During the year the Russian business faced powershortage due to transformer shutdown for around two months which affected the productionvolumes for the year by around 4000 tons.


The relocated facilities from South Africa were commissioned in Cochin India in March2017. The new Zirconia Bubble Fusion Plant and the two Alumina Fusion Plants will resultin creation

of one of the most advanced and integrated Electromineral complexes in the world. Thedirect job creation from this project will primarily be in the technology and applicationside; it is also expected to create indirect jobs in the front and backend of the supplychain. The new facilities will add at full capacity about 25000 tons of fused mineralsgeneration.With the commissioning of these facilities the Company has developedcapabilities in manufacturing a wide range of Aluminas Silicon Carbide ZirconiasEngineered grains like Azure S Microporous high temperature insulation mineral-Nebuloxmicrogrits and treated grains.

Product mix of special minerals improved compared to the previous year. However thenew developed grits had to pass through the long qualification cycle with new customersand product acceptance. 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.

Key Financial Summary

The joint project with Abrasives team for developing high performance grits yieldedsubstantial dividends leading to development of cutting edge Abrasive products.

Maniyar experienced lowest ever rainfall and it significantly affected the powergeneration. The Electrominerals division's profitability was impacted on account of that.

The existing Maniyar Hydel project serves only twenty five per cent of the division'spower requirement. This would make highly imperative for the Minerals business toestablish an additional power project as the power demand for the business would be goingup from current level due to the ramp up of the facilities commissioned. The Company hasannounced to set up a 21 MW captive Hydel power project in Keerithode and is in theprocess of getting final Governmental approvals.

The Profit before interest and tax dropped from Rs.1270 million to Rs.909 million on aconsolidated basis owing to lower volumes arising out of power outage in Russianoperations and adverse movement in exchange re-statement of receivables and payables. Theresults were further impacted by the lower power generation at Maniyar.

Rs. million




2016-17 2015-16 Change 2016-17 2015-16 Change
Total revenue 3396 3299 3% 7694 7486 3%
Segment results (PBIT) 212 334 -37% 909 1270 -28%
Capital employed 2488 2400 4% 5514 5026 10%
Share to total revenue of CUMI 23% 24% - 35% 37% -
Share to segment results (PBIT) of CUMI 12% 19% - 35% 52% -


During the year the Company generated Rs.1769 million of cash surplus from itsoperations on a standalone basis.

All debts have been serviced on time. The Company's long and short term borrowings(other than financial lease of Rs.26 million) as on 31st March 2017 stands Nil.The capital expenditure program of Rs.774 million was financed from internal accruals.

This year owing to healthy cash generation which has occurred due to prudent capitalexpenditure and efficient working capital management the Company was able to pay back allthe bank borrowings at the standalone level. This is a landmark achievement for theCompany and it has become debt free since the Company embarked on its growth phase. Onsimilar lines the debt at a consolidated level has come down by fifty per cent comparedto the previous year from '3199 million to Rs.1559 million. Borrowings net of cash andcash equivalent level at a consolidated level stands at Rs.261 million.

The debt equity ratio for the Company now is at its best - nil at a standalone leveland 0.11 at a consolidated level. The Company's balance sheet is robust and it augurs wellfor the Company to venture into its next phase of growth.

The credit ratings of the Company 'A1+' for short-term borrowings and 'AA+Stable' forlong-term borrowings were re-affirmed 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 '88 million compared to '89 million last year. The Company availed export financingloans at low interest rate to bring down the overall borrowing cost. The Company alsoearned Rs.18 million by investing surplus cash available for short term.

At a consolidated level the interest cost has come down from Rs.229 million to Rs.181million. The repayment of loans helped in bringing down the finance cost.

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

There are no material changes and commitments affecting the financial position of theCompany which have occurred between 31st March 2017 and the date of thisreport.


The Company its subsidiaries and joint ventures in India have adopted Ind AS witheffect from 1st April 2016 pursuant to the Companies (Indian AccountingStandard) Rules 2015 notified by Ministry of Corporate Affairs on 16thFebruary 2015. The Company has completed the modification of accounting and reportingsystems to facilitate the adoption of Ind AS. The implementation of Ind AS is a majorchange process effected since Q1 of the FY 2016-17 and the Company has presented the IndAS transition impact on the standalone and consolidated financial results (referStandalone note no. 48 and Consolidated note no. 43 respectively in the FinancialStatements).


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 so as to effectively ensure the reliability of operationswith adequate checks and balances.

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 theStatutory Auditor and the Management.

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

The Company during the year carried out an intensive vulnerability assessmentsecurity configuration review targeted threat assessment internal penetration testingand application security review for its network and all IT assets as a risk mitigationmeasure from security breach perspective. The findings were deliberated and the prioritiesdrawn out including promoting information security awareness amongst the employeesstrengthening network security posture installing security incidence & eventmanagement platform carrying out proactive vulnerability assessment & penetrationtesting and enhancing Information Security Policies & Procedures across variousbusiness units.

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 adequacy and effectiveness of the Internal Control Systems inthe Company.


Internal Control is a process effected by an entity's Board of Directors Managementand other personnel designed to provide reasonable assurance regarding the achievement ofobjectives relating to operations reporting and compliance - as defined by the Committeeof Sponsoring Organisations (COSO) of the Treadway Commission (appointed by SEC USA).

As per Section 134 of the Companies Act 2013 the term ‘Internal FinancialControls' (IFC) means the policies and procedures adopted by the Company for ensuring:

a) orderly and efficient conduct of its business including adherence to company'spolicies

b) safeguarding of its assets

c) prevention and detection of frauds and errors

d) accuracy and completeness of the accounting records and

e) timely preparation of reliable financial information

The three key components of IFC followed by the Company are:

i. Entity Level controls (ELC) that the management relies on to establish theappropriate "tone at top" relative to financial reporting are - Code of ConductEnforcement of Delegation of Authority Hiring and Retention practices Whistle blowermechanism and other approved policies and procedures.

ii. Process Level controls (PLC) to ensure that processes are predictable stable andconsistently operating at the targeted level of performance with only a normal variationare classified into Manual or IT - Dependent Manual or Automated Controls. They are alsoclassified as Preventive or Detective.

iii. General IT Controls to ensure appropriate functioning of IT applications andsystems built by the Company to enable accurate and timely processing of financial dataare - User Access rights management and Logical access; Change management controls;Password policies and practices; Patch management and License management; Backup andRecovery of data.

The adequacy of Internal Financial Controls 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 by the independent Internal Audit;

• Implementation of sustainable solutions to Audit observations.

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


The Company's focus on the key organizational asset - its employees remains toppriority. The Company continues to focus on hiring right candidates looking at theemployee's entire life cycle ensure timely interventions that help build a long lastingand fruitful career for them. With this in mind the Company has initiated severalpositive changes in its Human Resource practices during the year.

Helping Employees Build Their Career

The Employee Engagement survey results over the last few years have indicatedcommunication clarity on career prospects for employees as an improvement area. Theleadership team ideated on this aspect and a career progression framework was launchedduring the year. Employees were explained about the various modes of progression withinthe organisation with the help of case studies. Further the process of communication toemployees on the opportunities that are available across the length and breadth of theorganisation and the myriad possibilities of learning from a variety of roles andexperiences that would help hone the leadership skills was institutionalised. The annualappraisal cycle has also been aligned with this framework.

Capability Development

The efforts taken over the past years has ensured that a pipeline of ready talent isavailable for key leadership roles has culminated in identification of High-Potentialemployees across all Strategic Business Units including subsidiaries. This group of HighPotential leaders has been drawn from all departments and locations from the middlemanagement. The process of identification involved manager assessment psychometricself-profiling and peer review. These identified High Potential employees will be made togo through rigorous Leadership Program during the coming year.

One of the key efforts taken during the year was promoting an Innovation Culture. Thesenior leadership was trained on 3-Box methodology of Innovation and subsequently thelearning was cascaded down to the rest of the employees. The objective of the program wasin building creative confidence helping people question challenging the status quolooking deep inside the work that was being done daily and finding new ways to solveproblems. Business projects based on this innovative thinking methodology have been drawnup for the year 2017-18. To aid the process Design Thinking was introduced to theLeadership team to focus their energies on an empathetic customer-centric mode forInnovation; which could uncover newer markets for both the Company and its customers.

As the Company's workforce continue to become younger the training methods wererevamped to appeal to Millennials. The Company's Graduate Engineer Trainee (GET) batch of2016-17 were part of a blended learning initiative called YOLO (You Only Learn Once) tomanage their transition into a workplace in a systematic and effective manner. This is ayear-long intervention consisting of a combination of behavioral and basic work relatedtechnical skills.

This year a select set of young managers from the Company have successfully completedthe Young Leadership Program at the Group level.

Propelling Performance

In the ongoing quest to have better dialogue and feedback about performance themid-year appraisal was emphasized in 2016-17 to stay on track towards goals for the year.In-house training programs were conducted for managers on crucial performanceconversations particularly on the methods of performance improvement planning.

All the business divisions of the Company now have DSIR approved R&D departmentsstaffed with a mix of young and well experienced talent including a few doctorates withinternational experience. Their performance evaluation parameters were defined toencourage industry-institute collaborations and research paper publications.


The Company has been embracing technology with fervour and during 2016-17 it haslaunched several initiatives in employer branding through social media such as FacebookTwitter Glassdoor Flock and LinkedIn Teams have been formed to update information onthese applications with a response mechanism relevant to the audience. Efforts towardsthis initiative have started to yield positive results - recruitment has received a boostand potential and new hires now hold the Company's brand amongst the best employers.

The Company's HR website has also been revamped to appeal to the younger workforce. Ithas been made more user-friendly in layout and usage. A mobile app was also introduced forease of access by the employees.

Employee Relations

Across all the plants of the Company cordial employee relations were maintainedthrough proactive grievance handling mechanisms total employee involvement and engagementwith employees in various developmental initiatives. Programs were organized to lookbeyond the employees and reach out to their families to offer career counselling sessionsfor the children and organise plant visits. The strength of the family's bond with theCompany has shown up in engagements scores as well.

The Company continues its commitment to employ and empower women through variousinitiatives including establishing and implementing extended maternity leave policies andfriendly work place policies. The Company also has a policy on prevention of SexualHarassment at workplace in line with the requirements of the Sexual Harassment of Women atthe Workplace (Prevention Prohibition & Redressal) Act 2013. An Internal ComplaintsCommittee (ICC) has been set up to redress any complaint regarding sexual harassment andthe ICC did not receive any complaint during the year.

Sustainable Community Building is a guiding philosophy of the Murugappa Group. The CUMICentre for Skill Development at Hosur and Edapally continued to play a significant role inhoning the skills of its students from the less privileged community in support of theireventual employment.

The Company works closely with the communities neighbouring the manufacturing plantsand provides them need based support. The different business units have undertakenactivities such as educating about road safety child rights parenting blood donationand career guidance for youngsters in the communities. Business units have also embarkedupon training women on social entrepreneurship extending support to senior citizens andmaking donations to schools to build infrastructure. For more details please refer theCorporate Social Responsibility section of this Report.

Safety and Health

As part of the TPM efforts many improvements have been introduced to inculcate safehabits like safety patrolling identifying and removing unsafe conditions identifyingnear- misses and eliminating them training to maintain awareness among the operatingteams etc. As a next step conduct of behavioural safety analysis and providing trainingto employees on behavioural safety through Safety Kiosks is being planned. Some of theplants have also embarked on initiatives such as ergonomic studies to reduce fatigue inthe shop floor.

Mandatory periodic health check-ups and a sophisticated online health monitoring systemto monitor the health status of all employees on a real-time basis were rolled out. Thehealth centres are equipped with facilities to handle on-site emergencies.


The year 2016-17 continued to be a year of recognition for the Company in variedfields.

A new state-of-the-art Research & Development centre at the Industrial Ceramicsdivision in Hosur was inaugurated in August 2016. This centre like the many other R&Dcenters across business units has been recognised by the Department of Scientific andIndustrial Research.

The Industrial Ceramics division celebrated its Silver Jubilee in November 2016 and asdetailed earlier the Electrominerals division set up a first of its kind compositeElectrominerals facility during March 2017.

On the awards front the Company received the Golden Peacock award in the categories ofCorporate Ethics and Corporate Social Responsibility for the year 2016. TheElectrominerals division was conferred a National Award for Excellence in CSR by NationalCSR Leadership Foundation for its many CSR initiatives. The Industrial Ceramics andElectrominerals divisions also won the CII Industrial Innovation Award for 2016 and havebeen included in the list of ‘Top 25 innovative organisations'.

The total staff on rolls of the Company (including joint ventures and subsidiaries) ason 31st March 2017 was 5203 with 3427 employees in India (previous year 5066with 3225 employees in India).


Volzhsky Abrasive Works Russia operated its Silicon Carbide plant to near capacity.However sales dropped since the previous year from RUB 4284 million to RUB 4267 milliondue to lower volumes in Silicon Carbide business owing to transformer breakdown impactingabout two months fusion process. Abrasives and Refractories sales grew compared to lastyear owing to introduction of new products and expanding target markets. On theprofitability front the entity registered a drop in profitability (after tax) from RUB686 million to RUB 585 million.

Foskor Zirconia South Africa recorded a sales of Rand 191 million compared to Rand 192million last year. The entity's profit after tax dropped from 12 million ZAR to a loss of5 million ZAR. The adverse movement in re-statement of forex on receivables payables ledto the loss.

In CUMI Australia the business in Lined Equipment continued to be good. Sales grewfrom AUD 16.2 million to AUD 16.3 million. Profit after tax grew from AUD 1.8 million toAUD 2 million.

Sterling Abrasives had a sales of Rs.712 million compared to the last year's sales ofRs.669 million. Profit after tax increased from Rs.52 million to Rs.66 million. The userindustry for this company is primarily the agro industry.

CUMI Abrasives and Ceramics Company the Chinese subsidiary had a sales of CNY 22million for the year which was lower than the last year's level of CNY 27 million. Thesubsidiary has sold its land and buildings and its manufacturing assets during the yearand the business model has been transitioned to a trading model. The profit after tax wasCNY 0.06 million (owing to gains on sale of land and buildings) compared to loss of CNY 20million last year.

The sales of CUMI America recorded a good growth (USD 6.2 million from USD 5.1million) driven mainly by the increase in sales of both Bonded Abrasives and IndustrialCeramics. The loss was at 1.5 million USD in the current year as against the 1 million USDloss in the last year.

For CUMI Middle East sales grew from USD 1.8 million to USD 2.3 million. Profits forthe year were at USD 0.07 million against a loss USD 0.16 million.

Southern Energy Development Corporation Limited (SEDCO) the gas based power generationsubsidiary recorded a sales of Rs.265 million as against Rs.219 million last year due toimproved supply in gas from Oil and Natural Gas Corporation. Profit after tax grew fromRs.23 million to Rs.62 million.

Net Access India which provides IT facilities management and other allied servicesincreased its sales from Rs.296 million to '394 million. Profit after tax grew fromRs.16.6 million to Rs.24.1 million.

CUMI International Limited Cyprus recorded a revenue of USD 5.5 million representingmainly dividend income as against last year's income of USD 3.3 million.

CUMI Europe s.r.o based out of Europe made a profit of CZK 0.5 million.

Performance of associates and joint ventures are given in note no. 6A and 6Brespectively of the consolidated financials. Consolidated Financial Statements(incorporating the financial results of the Company its subsidiaries and associates/jointventures) have been provided in the Annual Report. Other than the associates/jointventures referred in the Annual Report there are no associate/joint venture companieswithin the meaning of Section 2(6) of the Companies Act 2013. A statement containing thekey financial highlights of each subsidiary based on the financial statements prepared bythem under applicable local regulations for their respective financial years is alsoprovided in the Annual Report.


The Company has been able to constantly add value and the summary of value addition isgiven below in the table:

Rs. million

Particulars 2016-17 2015-16 2014-15 2013-14 2012-13
Generation of Gross Value added 3959 3789 3071 2829 2766
(Excludes exceptional income)
Breakup on Application of Value added
Payment to Employees and Directors 1549 1429 1309 1270 1133
Payment to Shareholders (on payment basis) 189 377 235 281 281
Payment to Government 543 564 374 349 309
Payment to Lenders 33 64 49 44 85
Towards replacement and expansion 1645 1355 1104 885 958
3959 3789 3071 2829 2766

- Gross Value Added is Revenue less Expenditure (excluding depreciation expenditureon employee & directors service Long term interest)

- Payment to Government is Current tax + Dividend distribution tax

- Replacement and expansion is Retained earning + Depreciation + Deferred tax

Payment to Employees and Directors grew at a CAGR of 8% over the last 5 years. Paymentto Government grew at 15% CAGR over the similar period. The Company had been constantlyinvesting towards replacement and expansion expenditure at a CAGR of 14% to ensurefulfilment of market demand.


The Company has constituted a Risk Management Committee aligned with the requirementsof the Companies Act 2013 and Listing Regulations. The details of the 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 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. The Company seeks to address these technology gaps through continuousbenchmarking the existing manufacturing processes with developments in the industry and inthis connection has made arrangements with technical research institutions and technologyconsultants. The Company has been making investments in the next level of Manufacturing4.0 in select modules. Manufacturing 4.0 is the current trend of automation and dataexchange in manufacturing technologies.

Sub-par utilisation of capacities may lead to inadequate leverage benefits. The Companyis ramping up its marketing efforts towards successful product establishment and marketacceptance of its products exploring development of alternate products and establishing arange of applications.

This year the Company has commissioned projects relocated from South Africa to India.The products produced in these relocated facilities would have to be quality compliantexhibit product consistency gain customer acceptance and be compliant to user industryrequirements. Any delay in successful production or acceptance of the product will impacttimely capacity utilisation of these projects.

Considering that Electrominerals 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. Apartfrom pricing in some locations availability of power becomes a constraint. Gettingaccess to captive power and creating facilities for captive power generation continues tobe

a vital strategy of CUMI as can be exhibited from Maniyar SEDCO and the proposedsetting up of a project at Keerithode.

Fuel cost increase is another area of concern. Petroleum based products are usedeither as direct raw material or as fuel for the firing process. This year the fuel costsincreased after two successive years of decrease. Any increase in the cost of fuel impactsthe profitability adversely. Improvements in firing technologies are avenues which theCompany continues to pursue for dealing with the challenges. The Company is also pursuingprojects to reduce the risk exposed on variability of fuel prices.

The Company deals with multiple currencies and is thus exposed to translation risk onaccount of adverse currency movements. After two continued years of rouble depreciationthe year 2016-17 witnessed an appreciation.

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.

This year the senior leadership received expert advisory on risk management from areputed leading consultant wherein the effectiveness of the Company's internal controlframework in addressing risks and accomplishing its goals & objectives were evaluated;policies procedures and control assessments in response to identified risks werereviewed; Risk dashboard was designed to track key risk indicators.

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 of the IMF global economic activity is pickingup with a long awaited cyclical recovery in investment manufacturing and trade. Worldgrowth is expected to rise from 3.1 per cent in 2016 to 3.5 per cent in 2017. Strongeractivity and expectations of a more robust global demand coupled with agreed restrictionson oil supply have helped commodity prices recover from their troughs in early 2016.Higher commodity prices have provided some relief to commodity exporters and reduceddeflationary pressures. Financial markets are buoyant and expect continued policy supportin China besides fiscal expansion and deregulation in the United States. If confidence andmarket sentiments remain strong short-term growth could be expected.

However there is a wide dispersion of possible outcomes around the projections giventhe uncertainty surrounding the policy stance of the new United States administration andits global ramifications. Inward-looking protectionist policies threaten global economicintegration and the co-operative global economic order which have served the worldeconomy well especially emerging market and developing economies. Geopolitical risks anda range of other non-economic factors continue to weigh on the outlook in variousregions-civil war and domestic conflict in parts of the Middle East and Africa the tragicplight of refugees and migrants in neighbouring countries and in Europe acts of terrorworldwide and the protracted effects of a drought in eastern and southern Africa. If thesefactors intensify they would deepen the hardship in directly affected countries.Increased geopolitical tensions and terrorism could also take a large toll on globalmarket sentiment and economic confidence. Coming to the Indian economy last year itdelivered a respectable growth despite global headwinds and internal monetary & fiscalpolicy changes. Corporate earnings for the third quarter astonished everybody on theupside showing no significant slowdown from the Government's demonetisation. The readingsharply contrasted the picture painted by high- frequency indicators which had pointed tomuted activity due to a shortage of hard currency sparking concerns that the growthfigures do not reflect reality in India's economy and could be revised downwards.Meanwhile data for the fourth quarter was positive; industrial production rebounded inJanuary and the PMIs rose in February On the political front the Government gained majorvictories in a number of state elections including the country's most populous stateUttar Pradesh. The result reflected support to Prime Minister's economic reform agenda andshowed that his popularity remained strong despite the bold demonetisation programme. Thevictory would pave the way for newer reforms in the coming year. As per Asian DevelopmentBank India's economic growth is projected to pick up to 7.4% in 2017 primarily on higherconsumption. The growth would be abetted by improved investor confidence lower foodprices and better policy reforms.

FY 2017-18 is likely to be driven by the Government spending especially in theinfrastructure sector. The promise of infrastructure sector would not be limited to FY2017-18 but the investments are expected over a couple of years. The Government isinvesting in building roads bridges highways airports waterways etc. offering ample ofopportunities for the private players. Rapid urbanisation and resultant growth ininfrastructure construction and auto industry would be the key market driver for IndianAbrasives and Ceramics consumption.

Strong demand drivers such as higher productivity shortening replacement cyclechanging consumer preferences with increasing aspiration to shift to premium products andhigher per capita income Government's thrust on affordable housing and continued pursuitof ‘Make in India' initiative is expected to favourably impact the Company'sbusinesses.

Auto ancillary sector holds a lot of promise given the fact that the penetration ofautomobiles in India is the lowest amongst world's top 10 auto markets. Moreover India isalso being looked upon as manufacturing hub for low end or small cars by the OEMs. Thesecars would be manufactured in India and exported around in South East Asian MiddleEastern African and Latin American nations. Indian auto ancillary enjoys substantialcompetitive advantage due to the availability of qualified professionals at reasonablecost and quality conscious supply chain. Growth in automobiles and auto ancillary industrywould open up opportunities for high performance Minerals and Abrasives business.

Ushering in of GST will bring about the shift from unorganised to the organised sectoras the former is expected to lose their price competitiveness. Abrasives sector has areasonable share of the unorganised segment. The share shift from customers towardsorganised players can be anticipated.

Globally the marketing and manufacturing entities are spread across Middle EastEurope China Russia and North America. The demand for the Company's products would befavourably spurred by industrialisation activity rising per capita incomes and consumerspending enhanced manufacturing activities and increase in investments. Boost inconstruction & manufacturing sectors and per capita incomes would result in bolsteringdemand for industrial consumables products for which the Company would stand to be amajor beneficiary.


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 31.03.2016 Additions Deletions As on 31.03.2017
1. Loans given by the Company - - - -
2. Corporate guarantee given by the Company 2609.93 29.18 948.03 1691.08
3. Investments made by the Company 2446.36 34.00 2480.36


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 approval of the Committee is obtained on aquarterly basis for transactions which are of foreseen and repetitive nature. Omnibusapprovals in respect of transactions which are not routine or which cannot be foreseen orenvisaged are also obtained as provided under the applicable laws. The list of RelatedParties is reviewed and updated periodically as per the prevailing regulatory conditions.

The details of transactions proposed to be entered into with Related Parties are placedbefore the Audit Committee for approval on an annual basis before the commencement of thefinancial year. Thereafter a statement containing the nature and value of thetransactions entered into by the Company with Related Parties is presented by the ChiefFinancial Officer for quarterly review by the Committee. Further revised estimates orchanges if any to the proposed transactions for the remaining period are also placed forapproval of the Committee on a quarterly basis. Besides the Related Party transactionsentered during 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 isavailable on the Company's website at the following link None of the Directors and KMPs had any pecuniary relationship or transactionwith the Company other than those relating to remuneration in their capacity as Directors/Executives and corporate action entitlements in their capacity as shareholders of theCompany.


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 set up the CUMI Centre for Skill Development (CCSD) in year 2012 at Hosurto build a skill bank of a technically competent and industry ready work force from theless privileged sections of the Society During the FY 2015-16 the Company replicated thismodel in Edapally Cochin. CCSD provides specialised training based on National CouncilVocational Training syllabus for the rural youth drawn from socially and underprivilegedsections of the society. Three year training is imparted with a stipendiary payment andfree boarding facilities thus enabling the enrolled students to earn while they learn.The job oriented skill training enhances their employability and aids in uplifting theirsocioeconomic status. The technically trained students can be employed by any industrialentity once they complete the training programme. The Company continues to harness thepotential of CCSD centres so far established.

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. During theyear the Company's focus areas for these grants were contributions to AMM VellayanChettiar Higher Secondary School Tiruvottiyur - which has been making a difference in thefield of education for the past 50 years. The school runs with the vision - To provideQuality Education with good virtues for the under privileged and marginalized communitiesaround Tiruvottiyur. During 2016-17 the Company also undertook AMM Murugappa ChettiarCentenary scholarships for eligible under privileged college students across Tamil Nadu.Besides the above the Company also actively pursued local community assistance programmesin and around its plant and office locations.

The Company is headquartered in Chennai and has three of its Abrasives plants operatingin and around Chennai. Despite being affected by the Vardah cyclone in December 2016 theCompany in the quintessential CUMI-way helped the community and rescue workers throughsupply of food packets and other necessaries. The Green development programmes of theCompany are being pursued with more rigour post the destruction of a large number of treesin our plants.

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.


The Company's ethical and responsible behaviour complements its corporate culture.Being a public listed company the Company recognises that its accountability is notlimited only to its shareholders from a financial perspective but also to the largersociety in which it operates. During the year consequent to the requirements of reportingof its business responsibility initiatives becoming mandatory under the ListingRegulations the Company formulated a consolidated Policy on Business Responsibility whichlays down the broad principles guiding the Company in delivering its variousresponsibilities to its stakeholders. The Policy is intended to ensure that the Companyadopts responsible business practices in the interest of the social set up and theenvironment so that it contributes beyond financial and operational performance. A copy ofthe Policy is available at and theBusiness Responsibility Report for the year ended 31st March 2017 in terms ofRegulation 34 of the Listing Regulations is annexed to this report as Annexure B.


Board of Directors and Key Managerial Personnel

The Board of the Company comprises eleven Directors of which majority (eight) areindependent. As at 31st March 2017 the Board comprised nine Directors. Duringthe year Mr. M A M Arunachalam was appointed as an Additional Director and he holdsoffice till the date of ensuing Annual General Meeting. The Company has received a noticefrom a shareholder proposing his candidature as Director in the ensuing Annual GeneralMeeting.

Mr. M Lakshminarayan and Mr. Shobhan M Thakore Independent Directors who wereappointed for a term of three years at the 60th Annual General Meeting held on1st August 2014 would be retiring on 31st July 2017. In view oftheir proposed retirement basis the recommendation of the Nomination and RemunerationCommittee the Board reviewed its composition. Mr. P S Raghavan and Mr. Sujjain S Talwarwere appointed as Additional Directors at the meeting held on 9th May 2017.Further considering that Mr. Raghavan and Mr. Sujjain Talwar satisfy the independencecriteria prescribed in applicable regulations the Board has also recommended theirappointment as Independent Directors of the Company for a term of 5 years commencing from9th May 2017 to the shareholders. Following the changes in the Boardcomposition the constitution of the various Committees of the Board were also reviewedand revised.

Further the Nomination and Remuneration Committee at its meeting held on 9thMay 2017 also considered extending the services of Mr. K Srinivasan whose term as ManagingDirector of the Company would be expiring on 22nd November 2017. Based on theCommittee's recommendation and subject to the approval of the shareholders the Board hasre-appointed Mr. K Srinivasan as the Managing Director of the Company for a further periodof two years from 23rd November 2017 till 22nd November 2019.

Mr. M M Murugappan retires by rotation at the forthcoming Annual General Meeting andbeing eligible has offered himself for re-appointment.

Suitable proposals regarding the above changes in the Board composition have beenincluded in the Notice convening the 63rd Annual General Meeting forconsideration and approval by the shareholders.

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 five 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 andRemuneration Committee. Structured assessment forms which were duly reviewed and revisedduring the course of the year were used in the overall Board evaluation comprising variousaspects of the Board's functioning in terms of structure its meetings strategygovernance and other dynamics of its functioning besides the financial reporting processinternal controls and risk management. The evaluation of the Committees was based on theirterms of reference fixed by the Board besides the dynamics of their functioning in termsof meeting frequency effectiveness of contribution etc.

Separate questionnaires were used to evaluate the performance of individual Directorson parameters such as their level of engagement and contribution objective judgement etc.The Managing Director's evaluation was based on leadership qualities strategic planningcommunication engagement with the Board 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 held during the year.

Policy on Appointment and Remuneration of Directors

Pursuant to Section 178(3) of the Companies Act 2013 the Nomination and RemunerationCommittee of the Board has formulated the criteria for Board nominations as well as thepolicy on remuneration for Directors and employees of the Company. The criteria for Boardnominations lays down the qualification norms in terms of personal traits experiencebackground and standards for independence besides the positive attributes required for aperson to be inducted into the Board of the Company. Criteria for induction into SeniorManagement 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. The Remuneration Policy was reviewed by the Boardduring the year. Further details are available in the Corporate Governance 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 comprises onlyIndependent Directors. Mr. T L Palani Kumar is the Chairman and the other members are Mr.M Lakshminarayan Mr. Sanjay Jayavarthanavelu and Mrs. Bharati Rao. Mr. Sujjain S Talwarhas been inducted into the Committee on 9th May 2017. During the year fiveAudit Committee meetings were held the details of which are provided in the CorporateGovernance Report.

Statutory Auditors

M/s. Deloitte Haskins & Sells Chartered Accountants (FR No. 008072S) Chennaiwere appointed as Statutory Auditors of the Company at the 62nd Annual GeneralMeeting to hold office upto the conclusion of the 63rd Annual General Meeting.Their office as Auditors will expire at the conclusion of the ensuing Annual GeneralMeeting.

In line with the requirements of the Companies Act 2013 the Company is required toappoint new Auditor in the place of M/s. Deloitte Haskins & Sells. Based on therecommendation of the Audit Committee the Board of Directors have recommended theappointment of M/s. Price Waterhouse Chartered Accountants LLP (Reg. No.FRN012754N/N500016) as the Statutory Auditors of the Company to hold office from theconclusion of this Annual General Meeting until the conclusion of the 68thAnnual General Meeting of the shareholders of the Company at a remuneration of'3866000/- for the FY 2017-18 subject to annual ratification by the shareholderspursuant to applicable laws. A resolution seeking the approval of the shareholders for theappointment of Statutory Auditors is included in the Notice convening the ensuing AnnualGeneral Meeting.

The proposed Auditors have confirmed their eligibility under Section 141 of theCompanies Act 2013 and the Rules framed thereunder for appointment of Statutory Auditors.Further as required under Regulation 33 of the Listing Regulations they have alsoconfirmed that they hold a valid certificate issued by the Peer Review Board of theInstitute of Chartered Accountants of India.

The Board of Directors take the opportunity to place on record its gratefulappreciation for the contribution and services rendered by M/s. Deloitte Haskins &Sells its partners and managers during their tenure as the Statutory Auditors of theCompany.

The Report given by M/s. Deloitte Haskins & Sells on the Financial Statements ofthe Company for the year ended 31st March 2017 is provided in the financialsection of the Annual Report. There are no qualifications reservations adverse remarksor 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 and amendments thereof the Company is required to maintain costaccounting records in respect of products of the Company covered under CETA categorieslike organic and inorganic chemicals electrical or electronic machinery steel plasticand polymers ores and mineral products other machinery base metals etc. Further thecost accounting records maintained by the Company are required to be audited.

The Board on the recommendation of the Audit Committee had appointed M/s. S Mahadevan& Co. (firm no. 000007) Cost Accountants Chennai to audit the cost accountingrecords maintained by the Company under the said Rules for the FY 2016-17 on aremuneration of Rs.400000/-. Further the said firm has also been appointed by the Boardto conduct the cost audit for the FY 2017-18 at the same remuneration.

The Companies Act 2013 mandates that the remuneration payable to the Cost Auditor isratified by the Members. Accordingly a resolution seeking the shareholder's ratificationof the remuneration payable to the Cost Auditor for the FY 2017-18 is included in theNotice convening the 63rd Annual 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 2016-17. The report of the Secretarial Auditor is annexed to and forms part of thisReport (refer Annexure F). 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.


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 2017 applicable accounting standards have been followed and no material departureshave been made from the same;

• the accounting policies mentioned in Note 3 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 E).


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 and forms part of this Report (refer Annexure C).


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


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 D).

During the year FY 2016-17 with the approval of the shareholders obtained through aPostal Ballot process the Company introduced and implemented the Carborundum UniversalLimited ESOP Plan 2016 (ESOP 2016) for grant of 3772000 Stock Options to eligibleemployees of the Company including any Managing Director and Whole-time Director as wellas that of its subsidiaries. Under the earlier Company's ESOP Scheme 2007 no Optiongrants have been made since February 2012. The ESOP 2016 introduced in February 2017currently governs the grant of Options to employees. The disclosures with respect toOptions granted under the ESOP 2007 and ESOP 2016 are contained in the CorporateGovernance section forming part of this Report. Further the disclosures relating to StockOptions as per Securities and Exchange Board of India (Share based Employees Benefits)Regulations 2014 read with the circular issued by SEBI on 16th June 2015 hasbeen provided on the Company's website and is available in the link the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share BasedEmployee Benefits) Regulations 2014.


The Board gratefully acknowledges the co-operation received from various stakeholdersof the Company viz. customers investors channel partners suppliers governmentauthorities banks and other business associates during the year. The Board also places onrecord its sincere appreciation of all the employees of the Company for their commitmentand continued contribution to the Company.

On behalf of the Board
Chennai M M Murugappan
May 9 2017 Chairman