CUMI mulls options of relocating South African subsidiary plant

The plant has started producing a new product - Z450. It has taken a longer time to find acceptance in market than the management had expected

Murugappa Group manufacturing firm Carborundum Universal (CUMI) may look at options, including relocating the plant under its South African subsidiary — Foskor Zirconia — if the business does not turn around by the end of the current quarter. 

The plant produces monoclinic- and calcia-stabilised zirconia, with fumed silica as a by-product. The by- product could be used in various applications, including ceramic colours, abrasives, chemicals and refractory products for the glass and steel industries. 

The plant has started producing a new product — Z450 — a synthetic material for various applications, including high temperature insulation. The product has taken a longer time to find acceptance in market than the management had expected. 

With this, the company is struggling between the older products and supporting new ones. 

It has advantages in relocating to various geographies, including Russia where there are benefits in terms of power prices, the company management recently told analysts. Earlier, it had shut down two plants — a bubble zirconia plant and Thukela Refractories — in South Africa, and relocated them to India.

“The market for Z450 has not picked up as fast as the company expected. This has resulted in Forskor Zirconia to lose money. We have had multiple talks, including whether to continue running it, or to shut it and shift the plant to Russia or India,” K Srinivasan, managing director of CUMI told Business Standard.

“I hope the fourth quarter (Q4) would be one way or the other determining where we would go as far as Foskor Zirconia is concerned. We should either be able to turn around, or take a call on it,” he told analysts in an earnings call earlier. 

During the quarter-ended December, the consolidated profit before interest and tax (PBIT) margins of the electro minerals division of CUMI saw an impact of Rs 6 crore because of the lower performance in Foskor Zirconia, and the non-operation of its Maniyar Hydel Power Plant in Kerala due to floods. 

The customers need to tweak their process a little to switch from the monoclinc zirconia to Z450. It also needs to get tested and approved by their customers. 

Convincing these two levels of customers and the testing and the tweaking processes has taken larger time than what it was expected.