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Carborundum Universal Ltd.

BSE: 513375 Sector: Engineering
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OPEN 219.70
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P/E 23.62
Mkt Cap.(Rs cr) 4,210
Buy Price 217.50
Buy Qty 2.00
Sell Price 235.00
Sell Qty 10.00
OPEN 219.70
CLOSE 219.60
52-Week high 408.65
52-Week low 175.00
P/E 23.62
Mkt Cap.(Rs cr) 4,210
Buy Price 217.50
Buy Qty 2.00
Sell Price 235.00
Sell Qty 10.00

Carborundum Universal Ltd. (CARBORUNIV) - Director Report

Company director report

Your Directors have the pleasure in presenting the 64th Annual Reporttogether with the Audited Financial Statements for the year ended 31st March2018. The Management Discussion & Analysis Report which is required to be furnished asper SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (hereinafterreferred to as the Listing Regulations) has been included in the Directors' Report so asto avoid duplication and overlap.


Economic Overview

The global economic growth strengthened in 2017 led by investment recovery rebound inmanufacturing & trade and an upswing in commodity prices. The momentum was driven bycontinued strong growth in emerging Asia resurgence in European economy tax cuts in theUnited States and improved spending in advanced economies. Stock market boom bitcoinbubble higher trade indices low fear factor rising Eurozone GDP and protectionistmeasures by certain developed economies defined the year 2017. As per InternationalMonetary Fund the global economy grew at 3.8 per cent. The growth was broad-basedand almost 75 per cent of the countries registered a growth. Even more important was thefact that some of the countries that had high unemployment such as many in the Euro areaparticipated in the growth surge and experienced strong employment growth. Wage growthhowever remained tepid in advanced economies despite falling unemployment rates. A lowerwage growth led to controlled inflation which had a positive impact on the financialmarkets.

Some of the larger emerging market economies such as Argentina Brazil and Russia cameout of recession. China managed to maintain its rate of expansion dispelling fears over apotential sharp slowdown as it continues to mature after decades of rapid growth. Metaland fuel prices were supported by stronger momentum in global demand as well as supplyconstraints in the energy sector including hurricane-related stoppages in the UnitedStates financial disruptions in Venezuela and security problems in the regions of Iraq.Equity valuations for major capital markets continued their ascent to register recordhighs as central banks maintained accommodative monetary policy amidst a moderateinflation. An improved economic outlook and an increased risk appetite boosted assetprices and suppressed volatility.

In India the pace of key structural initiatives continued in 2017-18. The Real Estate(Regulation and Development) Act 2016 provisions came into effect from 1st May2017. The Goods and Services Tax (GST) regime came into effect from 1st July2017. As per Asian Development Bank India's GDP growth in FY 2017 was at 6.6% compared to7.1% in FY 2016. The reduction in growth was driven by lingering effects of demonetisationwhich impacted the informal sector in the first half of FY 2016-17 and the teething issuesrelated to implementation of the GST which hampered operations of small and medium-sizedenterprises and exporters for major part of the year. Despite these short-term costs thebenefits of reforms coupled with Government's steps to improve the ease of doing businessand kick starting capital investments by way of infrastructure development projects arelikely to bolster growth in the current year and future. The signs of pick up in theeconomy can be witnessed from the improvement in indicators of industrial production andautomobile sales in later part of the year 2017. The biggest challenges for 2018would be rising oil prices increasing inflationary pressures tighter financialconditions and higher fiscal deficit. The key to this conundrum lies in the revival ofconsumer demand and private investment.

Company Performance


During the year the standalone business grew by 5 per cent and the consolidatedrevenues by 7 per cent driven by better performance of all the businesses. The growth isnot comparable to previous year‘s growth since in the year 2016-17 exciseduty was included in revenue for the full year whereas for the FY 2017-18 excise duty isincluded only for the first quarter period. On a comparable basis without consideringexcise duty standalone and consolidated sales both grew by 12 per cent.

The following table summarises the standalone and consolidated revenues - both segmentand geography wise: Rs million

2017-18 2016-17 Growth
% share Amount % share Amount %
Abrasives 55 8636 57 8592 1
Ceramics 26 4056 26 3899 4
Electrominerals 26 4107 23 3396 21
Eliminations (6) (1025) (6) (918) 12
Total 100 15774 100 14969 5
India 77 12201 79 11832 3
Rest of the world 23 3573 21 3136 14
Total 100 15774 100 14969 5
Abrasives 44 10363 46 10163 2
Ceramics 21 5068 21 4724 7
Electrominerals 38 8887 35 7694 16
Power 1 239 1 265 (10)
IT Services 2 401 2 394 2
Eliminations (6) (1379) (6) (1241) 11
Total 100 23579 100 21999 7
India 55 13048 58 12669 3
Rest of the world 45 10531 42 9330 13
Total 100 23579 100 21999 7

Demand expansion from user industries inflation of metal and commodity pricesintroduction of new products and focus on newer markets resulted in a better top linegrowth.

The Company's consolidated revenues from India increased by 3 per cent and fromrest of the world increased by 13 per cent. At a consolidated level Abrasives sales grewby 2 per cent Ceramics sales grew by 7 per cent and the Electrominerals segment grew by16 per cent.

As detailed earlier the growth over previous year is not comparable considering thechange in inclusion of excise duty in revenues.

On a comparable basis the Company's consolidated revenues from India increased by 11per cent and from rest of the world increased by 13 per cent. At a consolidatedlevel Abrasives sales grew by 9 per cent Ceramics sales grew by 11 per cent and theElectrominerals segment grew by 18 per cent.


The manufacturing team played a key role helping the Company in the growth momentumthrough effective production planning and order execution. The plants in India operated atabout 70 per cent capacity utilisation levels. Some product segments like Coated Abrasivescontinued to run at near full capacity. Continuing implementation of Total ProductiveMaintenance (TPM) at shop floors lead to improvement in efficiency of machines and theentire production process. Two plants of the Company at Hosur were awarded TPM excellenceaward and the Plants at Sriperumbudur and Maraimalai Nagar were conferred the higher levelTPM consistency Award by Japan Institute of Plant Maintenance (JIPM).

Capital expenditure during the year across all geographies was majorly in the nature ofquality enhancement line balancing and general infrastructure.

Earnings & Profitability

The Company's standalone financial results are summarised in the table below:

Rs million

As a % of Gross Sales 2017-18 As a % of Gross Sales 2016-17 Increase %
Gross Sales 15774 14969
Other Operating Income 249 229
Revenue from Operations 16023 15198
Other Income 310 343
Total Income 16333 15541
Cost of material Consumed 37 5796 34 5121 13
Purchase of stock in trade 4 709 5 818 (13)
Movement of Inventory 1 138 0 12 1050
Excise Duty on sale of goods 2 260 8 1141 (77)
Employee benefits expense 11 1742 10 1533 14
Finance Cost 0 15 1 88 (83)
Depreciation and amortisation 5 739 4 669 10
Other expenses 31 4882 30 4452 10
Total Expenses 91 14281 92 13834 3
Profit before tax 13 2052 11 1707 20
Profit after tax 9 1435 8 1218 18
Total Comprehensive Income 9 1465 8 1138 29

Aided by the growth in revenues standalone profit before tax improved to Rs2052million from Rs1707 million in the previous year. The Company uses a variety of rawmaterials for its products - Bonds Yarn Grains Calcined Alumina Tabular AluminaMullite Pet Coke Bauxite Zircon Sand amongst others. The sourcing is a prudent mix ofindigenous and imported materials. Aided by judicious sourcing and optimising throughputin production material consumption improved during the year. Other expenses increasedfrom Rs4452 million in preceding year to Rs4882 million in the current year. The increasereflects the volume growth cost increases and investment in preparing the organisationfor the expansion programmes being undertaken. power generation from the Company's Hydelpower unit in Maniyar continued to be lower this year due to inadequate rainfall. Thepower consumption was also higher in line with the higher volumes produced comparedto the previous year. Employee benefits expense increased by 14 per cent during the yearwhich is a combination of both increase in head count and salary. The overall employeecost was at 11 per cent of the revenues. The revenues of last year had excise duty for theentire year where as the revenues for this year had excise duty for the first three monthson account of implementation of GST with effect from 1st July 2017. Hence theemployee cost as a percentage of the revenues is not directly comparable.

Profit before interest and tax margin expanded at all the divisions owing to highersales and better operating leverage. Finance costs were at Rs15 million compared to Rs88million in the previous year. Profit after tax of Rs1435 million was higher compared tothat of the previous year Rs1218 million. Total Comprehensive Income increased from Rs1138million to Rs1465 million. The consolidated profit before tax (before share of profit fromassociates and joint ventures) entity-wise is represented below:

Rs million

2017-18 2016-17
CUMI Standalone 2052 1707
Subsidiaries including step down subsidiaries:
Net Access India Limited 37 35
Southern Energy Development Corporation Limited 71 90
Sterling Abrasives Limited 134 101
CUMI (Australia) Pty Limited 152 143
CUMI International Limited 284 240
Volzhsky Abrasives Works 1187 784
Foskor Zirconia Pty Limited (162) (19)
CUMI America Inc. (33) (98)
CUMI Middle East FZE 8 5
CUMI Abrasives & Ceramics Company Limited (9) 1
Thukela Refractories Isithebe Pty Limited (0) (2)
CUMI Europe s.r.o. (8) 1
Total of Subsidiaries 1661 1281
Inter Company Eliminations (643) (560)
Consolidated Profit before tax 3070 2428
Consolidated Profit after tax attributable to owners 2156 1749

On a consolidated basis the profit before tax (before share The performance of thesubsidiaries is detailed separately in this Report. of profit from associates and jointventures) increased from Segmental profitability improved across all segments owingto higher

Rs2428 million to Rs3070 million. Profit after tax and non-controlling volumeselective price increase mitigating the cost push and efficient interests was Rs2156million (previous year Rs1749 million). cost management.

Financial Position

An overview of the Company's financial position - on a Standalone and Consolidatedbasis is given below:

Rs million

Financial position Standalone Consolidated
31.03.2018 31.03.2017 % change 31.03.2018 31.03.2017 % change
Net Fixed assets (including goodwill) 4474 4595 (3) 7659 7774 (1)
Investments - Non current 2569 2541 1 1232 1195 3
Other assets:
- Inventories 2604 2268 15 4380 3867 13
- Trade receivables 3267 2563 27 4751 3806 25
- Cash and cash equivalents 740 67 1004 1847 1298 42
- Other assets 705 939 (25) 1116 1282 (13)
Total assets 14359 12973 11 20985 19222 9
Liabilities (Other than loans) 2644 2397 10 3432 3178 8
Net assets 11715 10576 11 17553 16044 9
Sources of funding:
Total equity attributable to owner 11697 10550 11 15644 13828 13
Non - Controlling interest 615 657 (6)
Loan outstanding:
- Long term borrowings 11 18 (40) 66 67 (1)
- Payable within one year 7 8 (9) 46 68 (33)
- Short term borrowings - - 1182 1424 (17)
Total loans 18 26 (31) 1294 1559 (17)
11715 10576 11 17553 16044 9
Loans (net of cash and cash equivalents) (722) (41) 1659 (553) 261 (311)

On a consolidated basis the total equity attributable to owners as on 31stMarch 2018 was Rs15644 million. There was an increase (net of dividend) to the extent ofRs1816 million. Non-controlling interest was at Rs615 million.

Liabilities (other than loans) was Rs3432 million. The loan outstandings reduced fromRs1559 million to Rs1294 million. Net fixed assets (including goodwill) decreased fromRs7774 million in the last year to Rs7659 million during the current FY 2017-18.

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 Standalone Consolidated
2017-18 2016-17 2017-18 2016-17
Cash flow from Operations 2001 2284 3238 3741
Taxes paid (685) (515) (1109) (788)
Cash flow from operating activities 1316 1769 2129 2953
Capital Expenditure (Net of disposal) (577) (750) (920) (1061)
Cash flow from other investing activities 290 293 172 248
Cash flow from investing activities (287) (457) (748) (813)
Cash flow from financing activities (356) (1329) (832) (2071)
Net Increase/(Decrease) in Cash & Cash equivalents 673 (17) 549 69
Net Cash and Cash equivalents at the beginning of the year 67 84 1298 1136
Effect of exchange rate changes on the balances of cash and cash equivalents - - 0 93
held in foreign currencies
Cash and Cash equivalents at the end of the year 740 67 1847 1298

On a standalone basis net cash generation from operations was

Rs1316 million in FY 2017-18 compared to previous year's Rs1769 million. Net cashoutflow on account of investing activities was Rs287 million majorly towards addition ofproperty plant and equipment. Net cash outflow on account of financing activities wasRs356 million which is attributable primarily to repayment of borrowings and dividendspaid. The net increase in cash and cash equivalents was Rs673 million against a decreaseof Rs17 million in FY 2016-17.

On a consolidated basis net cash generation from operations was

Rs2129 million in FY 2017-18. Net cash outflow on account of investing activities wasRs748 million. Net cash outflow on account of financing activities was Rs832 million whichis attributable primarily to repayment of borrowings and dividends paid. The net increasein cash and cash equivalents was Rs549 million against an increase of Rs69 million in FY2016-17.


The paid up equity share capital as on 31st March 2018 was

Rs188.96 million. The capital increased during the year by Rs0.30 million consequentto allotment of shares upon exercise of Stock Options by employees under the Company'sEmployee Stock Option Scheme 2007 and Employee Stock Option Plan 2016.


Consideringthepastdividendpayoutratioandthecurrentyear'soperating profit the Board hasconsidered it appropriate to recommend a final dividend of Rs1.25/-per equity share ofRs1/- each. It may be recalled that in February 2018 an interim dividend at the rate ofRs1/- per equity share of Rs1/- each was declared and paid. This aggregates to a totaldividend of Rs2.25/- per equity share of Rs1/- each for the year which is higher than theprevious year. The Company's Dividend Policy is available at dividend paid as well as being recommended for the year ended 31st March2018 is in line with this policy.


An amount of Rs500 million has been transferred to the General Reserve of the Companyas at 31st March 2018.


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 asubstance which grinds cleans scours abrades or removes solid material by rubbingaction or by impact. Abrasives are mineral like materials available in different shapessizes and types according to need. Abrasive materials and Abrasive products are utilisedin several end user industries such as manufacture of Machinery Electrical &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 enables thedivisions to reach across geographies. The Company caters to customers located around 55plus countries through its network of manufacturing facilities and marketingestablishments.

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 UnitedStates - which holds the world's second largest national market for Abrasives is expectedto deliver good growth. The market is dominated by leading players operating across theglobe.

In India the Abrasives industry is catered to 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 revenues to this industry. The unorganisedmarket is to the extent of thirty per cent of overall market. The implementation of Goodsand Services Tax brought about an uniform regime for all players to compete in the marketevenly. In the domestic Russian market there are three major players. The Company is oneof the major players in Vitrified Bonded Abrasives.

Sales Overview

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 revenues (without excise duty) from Rs7866million to Rs8470 million with improvement in margins.

The year started with the announcement of the implementation of Goods and Service Tax.The business faced a challenging first quarter owing to significant reduction in orderincoming from dealers consequent to migration to the new tax regime. The businesssubsequently improved. Restocking resumed and in the subsequent quarters the order bookimproved significantly.

The Coated business continued to register good growth in the conventional products indomestic market. The growth came about by way of launch of new products focus ontechnical products strong brand recall and dealers' readiness to invest in this productsegment as well as quality consistency of the products. Coated Abrasives division is nowat a stage where the market is growing and the demand for its products are good. These arelargely driven by the consistent quality and availability. Both these attributes aredirect outcomes of the TPM processes implemented and practised in the facilities atMaraimalai Nagar and Sriperumbudur which received the prestigious JIPM award for TPMconsistency this year. The business during the year launched breakthrough products in thiscategory. With the capacity running full this would be expanded in the coming years.

Distribution leadership has been one of the strategic pillars for the Company's growthand the business has been making steady progress on 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. Introduction of newer industrial products were pursuedduring the year which were sold through industrial distribution chain.

The Abrasives sales in Russia was higher this year owing to introduction of newproducts and targeting newer territories. Sterling Abrasives which addresses theagriculture 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 increasethe indigenous sourcing and lowering the gap between exports and imports to ensuresustainable profitability in the Abrasives business. Business continued to focus onpursuing dual strategy - firstly of moving from traditional Brown to Semi-friables togain significant competitive advantage; secondly of offering superior Coated technicalproducts with high performance Zirconia and Ceramic grains. In order to cater to increaseddemand for Coated products the division pursued contract manufacturing and as detailedabove the capacity would be augmented during this year.

The Company has adopted TPM not only as a tool but also as its strategic initiative andthis has given it a competitive edge today. TPM is an organisation-wide strategy toincrease the effectiveness of production environment especially through methods ofincreasing the effectiveness of equipment. The TPM journey which started in 2011 markedthe beginning of an era of change. The Bonded Abrasives Plant in Hosur was conferred theJIPM award for TPM excellence in Category A this year.

In the mass market Thin wheel product category the business has reorganised theproduction capacities across various plants to optimise production capacity capabilityand market proximity. The Non-standard business was engaged in productivity improvementfor customers with continued slew of new product launches. The division worked on variousresearch and development opportunities in the field of precision grinding 3D printinglight metal grinding etc.

Considering the changing landscape of manufacturing technologies the division wouldcontinue in its effort to build capabilities in newer fields and technologies.

CUMI Abrasives and Ceramics Company China which is now operational on a trading modelhas stabilised with the new business model.

Aided by buoyancy in revenues cost reduction projects and others initiatives theAbrasives business recorded an increase in standalone operating profits before interestand taxes at Rs1225 million from

Rs 1047 million last year. At a consolidated level the profits grew from

Rs 1133 million last year to Rs1325 million this year.

Key Financial Summary

Rs million

Particulars Standalone Consolidated
2017-18 2016-17 Change (%) 2017-18 2016-17 Change (%)
Revenue (excluding excise duty) 8470 7866 8 10184 9379 9
Segment results (PBIT) 1225 1047 17 1325 1133 17
Capital employed 3354 3122 7 5025 4629 9
Share to total revenue of CUMI (%) 55 57 44 45
(without eliminations)
Share to segment results (PBIT) of CUMI (%) 59 58 42 43


Business Profile

The Ceramics business has three product groups viz. Industrial Ceramics SuperRefractories and Anti-corrosives. Industrial Ceramics business offers Alumina and Zirconiaproducts of technical ceramic grades addressing Wear protection Electrical insulationThermal protection and Ballistic protection applications. The Super Refractories productgroup supplies Fired Monolithic Flow control products POW Wellfiler and fibre as alsoRefractory design and installation services addressing the insulation and thermalresistance requirements of industries. The Refractory fibre Refractory design andinstallation businesses are addressed through our joint ventures Murugappa Morgan ThermalCeramics Limited and Ciria India Limited. The Anti-corrosives product group offers Acidresistant bricks Polymer concrete cells and various other products addressing theanti-corrosion requirements of industries. The key user industries for Ceramics businessare Power Generation and Transmission Coal washeries Grain handling Sanitary tiles andSanitary ware Ballistic protection Cement Non-ferrous metals Iron and Steelindustries Carbon black Insulators Furnace building Glass Petrochemicals andConstruction.

The operations are carried out through ten manufacturing/service facilities located inIndia Australia and Russia. The subsidiaries in North America Middle East andChina also support this business in getting an extended customer reach. The IndustrialCeramics business based out of India is largely a global business and majority of thesales volumes are through exports. The Refractory business in India is predominantly alocal business.

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

Industry Scenario

There has been no significant change in the Ceramics industry structure in India whichis catered to by a few major players. With the acquisition of manufacturing assets andcustomer database of NTK Japan in FY 2015-16 the Company is now the second largestproducer of Metallized Cylinders in the world. In the Wear Ceramics space there are sixmajor players globally - the Company is one of the reputed players in the world. In theEngineering Ceramics there are around five players globally with the Company 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 fragmentedmarket with a market size of around Rs60 billion. The Company's product profile caters tothe top end temperature range applications.

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 (excluding excise duty) of the Ceramics business grew by 9 per cent ona standalone basis from Rs3688 million to Rs4013 million. Metallized Cylinders and WearCeramics products business continued the marketing efforts in targeting newer markets andpartnering with global customers. Selective price increases were taken for majority of theproducts to mitigate cost push. Significant efforts in repair and maintenance of domesticWear ceramics led to ceramic conversion of key equipment by customers in Steel and CementIndustry. The business established entry into Japanese markets through qualifications atOEM's for supply of Ceramic lined bends. New products with backing materials weredeveloped for addressing high impact applications. The business participated in Industryspecific expos like Ceramitec Powergen Japan Fine Ceramics Expo Hannover Messe FuelCell Expo etc. to increase visibility business development and for keeping abreast withthe changing technology. The Refractory business delivered good growth compared to theprevious year. The division's sales were driven by growth in Fired Refractories andAnti-corrosive segments. The business bagged Annual rate contracts from Steel and Cementplayers. This business is likely to benefit from the commodity upcycle and expansion ofcapacity in user industry viz. Steel Cement Carbon Black Glass etc. In Russia NitrideBonded Silicon Carbide Refractories registered growth in revenues.

Key Financial Summary

Rs million

Particulars Standalone Consolidated
2017-18 2016-17 Change (%) 2017-18 2016-17 Change (%)
Revenue (excluding excise duty) 4013 3688 9 5025 4514 11
Segment results (PBIT) 542 509 6 759 704 8
Capital employed 2984 2820 6 3902 3694 6
Share to total revenue of CUMI (%) 26 27 22 22
(without eliminations)
Share to segment results (PBIT) of CUMI (%) 26 28 24 27


The new Metallized Cylinder manufacturing line with assets from NTK Japan wascommissioned and the production commenced during the year. The total combined capacity ofMetallized Cylinder now is 1.72 million numbers. Approval for new cylinders hasbeen obtained from global customers after rigorous testing spanning over many months. Thecontract manufacturing for base level Ceramics which started in 2014-15 continuedsuccessfully during the current year. Third production line was established during theyear enabling the business to cater to higher volume requirements from the customer.

The Industrial Ceramics division started its TPM journey in 2014-15 and with sustainedand intense efforts cleared TPM Health Check by CII TPM Club of India during January2017. The division cleared the JIPM second stage assessment during November 2017 for TPMExcellence level I award a key milestone in Company's quest for excellence. The divisionfinally received the coveted Category A TPM Excellence award in March 2018 from JIPM.

Continuing its quest for manufacturing excellence the rolled throughput yield has beenon a continuous upward trajectory since 2015-16. Operation Equipment Effectivenessparameter also registered a new high during the year. The division could implementmulti-cavity mould for near net shape moulding and commissioned Ceramic Injection Mouldingline. In-house raw material was produced for Engineering Ceramics and Metallized Ceramicsproduct enabling a better grip on the quality and the timely availability.

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 the products are taking itsshape and developments on these product range have been proved with customers. Theseproduct lines are of standard regular consumables off the shelf. With strengthened dealernetwork constant revenues has been planned during the coming year.


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 carried out througheight 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 Diesel ParticulateFilter Semiconductor and others.

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

Industry Scenario

The focus on improving the ecosystem by initiating environmental regulations andpollution controls in China has brought about a paradigm shift in the industry. China hascatapulted itself from a low cost producer of materials to a responsible supplier ofquality products and an environmental compliant country. The other players including theCompany who were always into supplying quality products with superior environmentfriendly production processes emerged more competitive in the transformed market. Thisnew scenario has led to an inflationary situation.

The Fused Alumina installed capacity globally continued to be around 2 milliontons with major capacities being in China some of which could possibly be shut due to newenvironment regulations. 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 country specific developments andexchange rates.

In the Silicon Carbide space the installed capacity would be anywhere to the extent of1.5 million to 2 million tons with large portion of it being in China. Here as well it canbe estimated that some amount of capacities could be shut due to the current situationprevailing in China.

VAW Russia with a capacity of 0.08 million tons is the one of the largest singlelocation capacities in the world.

In the Fused Zirconia space the global capacity could be approximately 0.07 milliontons. China would occupy around 25 per cent of the global market. The Company with acapacity of 0.01 million tons is a significant player globally.

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 Rs4055 million compared to last yearstandalone revenues of Rs3191 million.

The year 2017 was beneficial to the Company owing to stricter pollution controls andnew environmental regulations in China. The fused aluminum oxide business of the Companycapitalised this opportunity and increased its volume and prices in the domestic andinternational markets across product lines.

The fine powder business of Silicon Carbide at Kakkanad Kerala has seen renewedheights with one of the world's largest manufacturer of Diesel Particulate Filterapproving the fine powder for their requirement. The business registered good growth froma low base for this product category.

With the Automobile Steel and Glass business starting to do better in 2017 the demandfrom Abrasives and Refractory customers were higher during the year.

The Russian subsidiary ran at near full capacity. The volumes were higher in thecurrent year considering last year the business registered lower production on account oftransformer shutdown. The business being a significant net exporter in foreign currencyis mitigated from the risk of rouble currency fluctuations.


The business focused on manufacturing strategies like outsourcing of activities foraugmenting volumes with minimum investment protection of intellectual properties throughappropriate process and product patents spear heading innovation and TPM measures to becompetitive and efficient in control of cost as an underlining measure to attain thetargeted production volumes.

The relocated Alumina facility from South Africa scaled up and delivered the productsas per the market requirements. The modernised Alumina plant with efficient furnace systemgave the business the advantage of producing high end variants of Alumina. This alsohelped the business in augmenting the production and sales volume of Alumina beyond whatwas contemplated at the start of the year.

The raw material sourcing team had to grapple up with multiple challenges. Zircon SandBauxite Alumina and Electrode prices were facing turmoil in the international anddomestic market. While the electrode price increase has affected the business the longterm contract for Alumina supply and own source of bauxite has insulated the business fromthe raw material price fluctuations for Fused Alumina business.

The shortage of availability and hike in raw material prices - Zircon sand andElectrode affected the scaling up of operations of relocated Zirconia Bubble facilitysituated in India. The South African subsidiary Foskor Zirconia which is into productionof Monoclinic Zirconia was also affected due to volatile input pricing. A processmodification in Zirconia processing is expected to give the bubble processing a costadvantage and an opportunity to use low end/local raw materials. A rationalisation in theprice of electrode is expected in China and the business would be sourcing maximumrequirement from these suppliers.

The Indian policy makers and regulators also enacted and introduced policies andregulations restricting usage of materials mining activities and imposing stricter normsfor environmental compliance. In this respect the business faced challenges in sourcingraw materials like Petroleum Coke Quartz and Bauxite. The business successfullyidentified alternate sources of suppliers and carried out efficiency improvements inproduction to tide over the situation.

New adjacencies were explored in the areas of Carbon and related businesses.

The Russian plant ran at full capacity in the current year without any productiondisruptions. Input costs were kept at market competitive levels by way of prudent sourcingstrategies. The business continued in its journey of introducing various grit sizes in themarket. Toughening of environmental regulations in China is estimated to augur well forthe business going forward by way of price increase of Crystalline and Metallurgic productranges.

The profit before interest and tax increased from Rs909 million to Rs 1269million on a consolidated basis.

Key Financial Summary

Rs million

Particulars Standalone Consolidated
2017-18 2016-17 Change (%) 2017-18 2016-17 Change (%)
Revenue (excluding excise duty) 4055 3191 27 8834 7489 18
Segment results (PBIT) 325 212 54 1269 909 40
Capital employed 2396 2488 (4) 5632 5514 2
Share to total revenue of CUMI (%) 26 23 38 36
(without eliminations)
Share to segment results (PBIT) of CUMI (%) 16 12 40 35


During the year the Company generated Rs1316 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 Rs18.1 million) as on 31st March 2018stands Nil. The capital expenditure program of

Rs 577 million was financed from internal accruals.

The Company continued to have healthy cash generation in the year due to prudentcapital expenditure and efficient working capital management. The surplus has been parkedin liquid mutual funds. The Company continues to be debt free despite capacities beingcreated over the years. On similar lines the debt at a consolidated level has come downby 17 per cent compared to the previous year from Rs1559 million to Rs1294 million.Borrowings net of cash and cash equivalent level at a consolidated level stands at Rs(553)million i.e Company has surplus cash. The debt equity ratio for the Company isalmost nil at a standalone level and 0.08 at a consolidated level. The Company's BalanceSheet remains robust and it augurs well for the Company to venture into its next phase ofgrowth.

The credit ratings of the Company ‘A1+' for short-term borrowings and‘AA+Stable' for long-term borrowings were re-affirmed by CRISIL. Over the years theCompany has been resorting to a prudent mix of rupee and foreign currency borrowings tofinance its operations and achieve reduction in financing cost. The Finance Cost at astandalone level is at Rs15 million compared to Rs88 million last year. The Company earned

Rs 6 million by investing surplus cash available for short term.

At a consolidated level the interest cost has come down from

Rs181 million to Rs86 million. The repayment of loans has helped in bringing down thefinance cost. The capital expenditure program of

Rs 920 million was financed from internal accruals.

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 2018 and the date of thisreport.


The Company its subsidiaries and joint ventures in India 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 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.Periodic review of adherence to the agreed action plan is carried out. The scope ofInternal Audit is annually determined by the Audit Committee considering the inputs fromthe Statutory 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 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 ControlSystems in the 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's policies(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 ofreliable 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 also classified asPreventive or Detective. iii. General IT Controls to ensure appropriate functioning of ITapplications and systems built by the Company to enable accurate and timely processing offinancial data are - User Access rights management and Logical access; Change managementcontrols; Password policies and practices; Patch management and License management; Backupand Recovery 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 data analytics;

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 organisational 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. Being a material sciencetechnology Company innovation learning & development capability development aresignificant tools for keeping the employees engaged in making materials matter.


As business world becomes more complex and competitive the necessity of innovationbecomes the primary focus of any successful organisation. Leveraging the prevailingculture of freedom to perform there has been a focused effort in seeding innovation andnurturing ideation in the Company. CUMind - a customised innovation framework based onthe design thinking methodology was launched across all SBUs during the year. Thisframework enables entrepreneurial minds to conceive design and deliver new productsbusinesses processes and innovations for CUMI irrespective of their role or function.Grouped under the umbrella of CUMind there are four different types of modules - DOTLOG CUBE and ARC (class room learning modules to prototype). Employees in businessdivisions as well as corporate have gone through these structured workshops and many moreare planned in the coming years. During the year an IPR manual was developed in-house toserve as a ready reckoner for employees to protect the various kinds of IPRs being createdwithin the Company.

Results of this initiative is very visible as the workshop projects have led toincreasing patents being filed by the Company. Additionally to keep the spotlight oninnovation patents and copyrights are being regularly monitored by the leadership.

Capability Building and Talent Development

The Company's experience in grooming internal talents benefitted the organisationimmensely. Last year saw the launch of the CUMI Leadership Program in academiccollaboration with a premier B-School in Chennai. This highly coveted programme wasdesigned to prepare the identified High-potential talent for leadership roles and higherresponsibilities. The program covered various management topics like Business StrategyMarketing Management Personal Growth Lab etc. Now the participants are working onindividual projects to implement the learnings from these classroom modules. In additionto this a set of young managers from CUMI who were selected after a rigorous assessmenthave successfully completed the Young Leadership Program at the Group level.

Learning & Development

The Company's endeavor to be a learning organisation continued regardless of thebusiness conditions. The training initiatives have been re-defined with the objective ofbuilding capability across the organisation into a 5 Pillar approach to training. Thesefive pillars are categorised as needs arising out of performance gaps training to managespecific business requirements appropriate to work levels. A series of initiatives weretaken to scale up management and leadership capabilities at different levels. At the baseof the pyramid supervisory development workshops were launched for to improve crucialsoft skills which are delivered online in hour-long modules every week for six months. Thenew managers underwent a transition program on "Managing High Performance Team"where they were introduced to different skills and work styles. On the people side of themanagement seasoned managers were part of a program on "Managers as Coaches"conducted by the Murugappa Development Centre that introduced them to coachingcounselling and mentoring as a form of grooming team members. As the Company's workforceis getting younger the training methods are being revamped to suit the Millennials. TheGraduate Engineer trainee batch were part of a blended learning initiative called YOLO(Your Own Learning Opportunity) to manage their transition into a workplace in asystematic and effective manner. This is a year-long intervention consisting of acombination of behavioral and basic work related technical skills. A program to focusexclusively on the Four Disciplines of Execution was launched for the Abrasives divisionto propel performance through excellence in Execution. This model involved weekly WIG(Wildly Important Goal) sessions coaching and structured follow-up. This was complementedby a pricing workshop for the sales to get an insight into the pricing process.

A new frontier Thors e-learning US was introduced in training with a focus onenhancing technical and problem solving skills through contemporary training methodologiesto cater to different learning preferences of the workforce. In-house e-learning moduleshave been developed to capture tacit knowledge in niche areas. In the boundary less worldthat we now live and work it is important to develop sensitivity to different culturesand work styles - "Globesmart" tool has been introduced employees interfacingwith global clients and vendors have been provided access to an online learning tool.

Talent Acquisition

CUMI's efforts of bringing in diverse workforce from premier engineering and managementinstitutes across different geographies (as pipeline of talent for future) continuedduring the year. The talents identified and on board the Company have been given excitingprojects some in areas of adjacencies as well as breakthrough products. In order tonurture the new recruits and align them with the objectives of the organisation variousinitiatives like mentoring by senior leaders have been used extensively to connect andcommunicate.

Career Progression

The Career Progression Framework has been used in about 40 per cent employeemovements during the year. Employee transitions involve increase in responsibilitieschange in location/SBU/department etc. and this framework ensures employees expand theirexperience across various platforms and technologies so that they will have a broader viewof the business to take up larger roles in future.


With changes in business expectations the Performance Management System has also beenmodified and improved to have better alignment with the performance and goals. Theperformance management process for senior roles introduced individual qualitativeassessment on parameters like People leadership Execution Excellence and ProcessExcellence; thus keeping these as the focus areas of performance. Customer Centricity(internal or external) and Innovation is being added as part of performance assessment forthem. Robust performance system with inbuilt feedback process caters to addressing theperformance gaps as well wherever required. Additional qualitative assessment onspecified parameters helps keeping focus on customer people and results.

Sponsoring Higher Education

Employees from various SBUs have successfully completed their Company sponsored Mastersof Technology in Manufacturing Management course through a Distance Learning module. Thisprogram has been a great success over the years both in terms of enhancing thecapabilities of the employees and as a pride-inducing factor. Similarly a certificationprogram has been launched for junior supervisors in collaboration with a reputedengineering college. The curriculum covers technical modules applicable for supervisorcadre and has been jointly developed by the Company and the college. There are periodicassessments through written tests mini projects and internal marks.

Employee Relations

The drivers of Employee Engagement Dipstick survey were the guiding light of allemployee related initiatives across the Company. The Hosur Bonded Abrasives unit and theKoratty Minerals unit have successfully signed Long Term Settlement during the year. As anoutcome of the settlement there is significant improvement in the flexibility andproductivity. Industrial relations have been very cordial and productive across all units.The Company continues its commitment to employ and empower women through variousinitiatives including extended maternity leave policies and friendly work place policies.The Company has a policy on prevention of Sexual Harassment at workplace in line with therequirement of the Sexual Harassment of Women at the Workplace (Prevention Prohibition

& Redressal) Act 2013. An Internal Complaints Committee (ICC) has been set up toredress any complaint regarding sexual harassment and the ICC did not receive anycomplaint during the year.

In alignment with the sustainable community building philosophy the CUMI Center forSkill Development at Hosur and Edapally continued to play a significant role in honing theskills of its students from the less privileged community to support their eventualemployment. The Company and its employees work closely with the communities in theneighbourhood of its plants and provides need based support including children'seducation infrastructure development medical camps and tree planting and othereco-friendly initiatives. For more details refer the Corporate Social Responsibilitysection of this Report.

Safety and Health

Offering a safe workspace has always been a priority for the Company. The Safety Riskmitigation plan was meticulously enforced during the year. The efforts in terms of safetypatrolling identifying & removing unsafe conditions analysing near misses &eliminating them and offering training to maintain awareness amongst the operating teamscontinued. Safety Manuals have been prepared and published. Mandatory health check-ups andthe online health monitoring system helps in actively tracking the health and associatedrisks for employees. Additionally the behavioural safety awareness programmes throughsafety kiosks have been set up and are now functional in units.


The year 2017-18 continued to be a year of recognition for the Company in variedfields.

The Sriperumbudur & Maraimalar Nagar plants recipients of the prestigious JapanInstitute of Plant Maintenance (JIPM) for TPM excellence in year 2015 received the JIPMaward for Excellence in Consistent TPM commitment during the year. The Bonded AbrasivesPlant and the Industrial Ceramics Plant in Hosur were conferred the JIPM award for TPMexcellence in Category A this year marking a historical event of four divisions of theCompany being recognised with these coveted awards in Kyoto Japan during March 2018. TheCompany also received the Golden Peacock award for Corporate Governance in the engineeringsector for the year 2017 in due recognition of its governance practices.

The Electrominerals division was conferred HR excellence award by the Confederation ofIndian Industry (CII). The Maniyar team of this division also won the Safety award 2017from the Factories & Boilers department Government of Kerala.

The total staff on rolls of the Company (including joint ventures and subsidiaries) ason 31st March 2018 was 5074 with 3285 employees in India (previous year 5203with 3427 employees in India).


Volzhsky Abrasive Works Russia operated its Silicon Carbide plant to near capacity.Sales increased from RUB 4267 million to

RUB 5095 million due to higher volumes in Silicon Carbide and uninterrupted production.Abrasives and Refractories sales grew compared to last year owing to introduction of newproducts and expanding target markets. On the profitability front the entity registered agrowth in profitability (after tax) from RUB 585 million to RUB 814 million. FoskorZirconia South Africa recorded a sales of ZAR 155 million compared to ZAR 191 millionlast year. The entity's profit after tax dropped from 5 million ZAR loss to a loss of 33million ZAR. The adverse movement arose due to significant high input cost and lower salesvolumes.

In CUMI Australia the business in Lined Equipment continued to be good. Sales grewfrom AUD 16.3 million to AUD 18.1 million. Profit after tax grew from AUD 2 million to AUD2.1 million.

Sterling Abrasives had a sales of Rs803 million compared to the last year's sales ofRs712 million. Profit after tax increased from Rs66 million to Rs91 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 is same as last year's level. The loss was CNY 0.9 millioncompared to profit of 0.06 million last year.

The sales of CUMI America recorded a good growth - USD 7.5 million from USD 6.2 milliondriven mainly by the increase in sales of both Bonded Abrasives and Industrial Ceramics.The loss was at 0.5 million USD in the current year as against USD 1.5 million loss in theprevious year.

For CUMI Middle East sales grew from USD 2.3 million to USD 3.2 million.Profits for the year were at USD 0.12 million against a profit of USD 0.07 million duringthe previous year.

Southern Energy Development Corporation Limited (SEDCO) the gas based power generationsubsidiary recorded a sales of Rs239 million as against Rs265 million last yearconsequent to constrained supply in gas from Oil and Natural Gas Corporation. Profit aftertax de-grew from

Rs 62 million to Rs51 million.

Net Access India which provides IT facilities management and other allied servicesincreased its sales from Rs394 million to Rs401 million. Profit after tax grew from Rs24.1million to Rs27.3 million.

CUMI International Limitd Cyprus recorded a revenue of USD 5.1 million representingmainly dividend income as against last year's income of USD 5.5 million. CUMI Europes.r.o based out of Europe made a loss of CZK 2.6 million. Performance of associates andjoint ventures are given in note no. 6A and 6B respectively of the consolidatedfinancials. Consolidated Financial Statements (incorporating the financial results of theCompany its subsidiaries and associates/joint ventures) have been provided in the AnnualReport. Other than the associates/joint ventures referred in the Annual Report there areno associate/joint venture companies within the meaning of Section 2(6) of the CompaniesAct 2013. A statement containing the key financial highlights of each subsidiary basedon the Financial Statements prepared by them under applicable local regulations for theirrespective financial years is also provided 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 2017-18 2016-17 2015-16 2014-15 2013-14
Generation of Gross Value added 4550 3959 3789 3071 2829
(Excludes exceptional income)
Breakup on Application of Value added
Payment to employees and directors 1760 1549 1429 1309 1270
Payment to shareholders (on payment basis) 330 189 377 235 281
Payment to Government 732 543 564 374 349
Payment to Lender 0 33 64 49 44
Towards replacement and expansion 1728 1645 1355 1104 885
4550 3959 3789 3071 2829

- 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

- Towards replacement and expansion is Retained earning + Depreciation + Deferred tax


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 evaluateand mitigate risks impacting business including those which may threaten the existence ofthe Company. 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. The Company also has developed a structured risk management policyencompassing the risk management objectives principles process responsibility forimplementation maintenance of risk registers risk reporting framework etc. Riskmanagement also forms an integral part of the Company's Business Plan.

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 of the existing manufacturing processes with developments in the industry andin this connection has made arrangements with technical research institutions andtechnology consultants. The Company has been making investments in the next level ofIndustry 4.0 in select modules. Industry 4.0 is the current trend of automation and dataexchange in manufacturing technologies.

Considering that Electrominerals products are produced by way of fusion process whichconsumes a lot of electricity power cost remains one of the key levers which canfavourably or adversely affect our profitability based on the changes in the electricitycost. Apart from pricing in some locations availability of power becomes a constraint.Getting access to captive power and creating facilities for captive power generationcontinues to be a vital strategy of CUMI. The Company also explores ways to source powerfrom open access at competitive rates.

Fuel cost increase is another area of concern. Petroleum based products are usedeither as a direct raw material or as a fuel for the firing process. Any increase in thecost of fuel impacts the profitability adversely. Improvements in firing technologies areavenues which the Company continues to pursue for dealing with the challenges. The Companyis also pursuing projects 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. Foreign Exchange risk on foreign denominated loansimports and exports are mitigated by adopting a country-based Forex policy periodicmonitoring and use of hedging instruments. Efforts are being taken to manage both exportsand imports to ensure that at Company level there is a natural hedging mechanism.

As a risk mitigation measure of the cyber security threat and in continuation of the ITsecurity review plan during the year the Company undertook a mobile application securityassessment as well as a review of the security programme management. The findings weredeliberated and the priorities drawn out including promoting information securityawareness amongst the employees strengthening network security posture installingsecurity incidence & event management platform carrying out proactive vulnerabilityassessment & penetration testing etc. and enhancing Information Security policies& procedures across various business units.

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.


Global growth is expected at 3.9 per cent next year as per IMF supported by strongmomentum favourable market sentiment and recovery in commodity prices favouring commodityexporters. Reversing two years of declining growth Indian economy is set to expand at 7.3per cent in 2018-19 and at 7.6 per cent in 2019-20 aided by various growth oriented newpolicy measures as per Asian Development Bank. India would become the fastest growinglarge economy for next two years given that China's growth forecast is lower than that ofIndia. The main growth driver for Indian economy would be rural consumption continuedinfrastructure development projects and healthy exports growth on the back of pick-up ingrowth in advanced economies.

The pick-up in infrastructure capex - Central Government's road construction push -Bharatmala Pariyojana would be significantly positive for the Company. Normalisation ofdomestic markets post GST disruption growth of Stainless Steel Aerospace Railways andRobotic industries Urbanisation

& Infrastructure and Light weighting trends will favourably impact Company'sbusiness.

Growth in Automobiles and Auto ancillary industry would open up opportunities for highperformance Minerals and Abrasives business. Growth in commercial vehicles led by pick upin infrastructure capex increased mining activity and commodity business wouldfavourably impact Company's business.

The Company's significant share of sale comes from outside India. Globally themarketing and manufacturing entities are spread across Middle East Europe China Russiaand North America. The uptick is the global economy with rising commodity price wouldbenefit the

Company. The demand for the Company's products would be favourably spurred byindustrialisation activity rising per capita income and consumer spending enhancedmanufacturing activities and increase in investments.


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

Description As on 31.03.2017 Movement (Net of Deletions) As on 31.03.2018
Loans given by the - - -
Corporate guarantee 1691.08 35.56* 1726.64
given by the Company
Investments made by the 2541.16 27.41** 2568.57

*Due to Exchange difference **On account of fair valuation

Current Investments - investment in mutual funds as on 31.03.2018 was Rs544.79million.


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 permitted 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 for quarterlyreview by the Committee. Further revised estimates or changes if any to the proposedtransactions for the remaining period are also placed for approval of the Committee on aquarterly basis. Besides the Related Party transactions entered during the year are alsoreviewed 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 of the Directors and KMPs had any pecuniary relationship or transaction with theCompany other than those relating to remuneration in their capacity asDirectors/Executives and corporate action entitlements in their capacity as shareholdersof the Company.


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

The Company continues to engage in Corporate Social Responsibility (CSR) activitiesdirectly as well as through implementation agencies. The Company set up the CUMI Centrefor Skill Development (CCSD) in year 2012 at Hosur to build a skill bank of a technicallycompetent and industry ready work force from the less privileged sections of the Society.During the FY 2015-16 the Company replicated this model in Edapally Cochin. CCSDprovides specialised training based on National Council on Vocational Training syllabusfor the rural youth drawn from socially and underprivileged sections of the society. Threeyear training is imparted with a stipendiary payment and free boarding facilities thusenabling the enrolled students to earn while they learn. The job oriented skill trainingenhances their employability and aids in uplifting their socioeconomic status. Thetechnically trained students can be employed by any industrial entity once they completethe training programme. The Company continues to harness the potential of CCSD centres sofar established. During the year 64 students from the CCSD Hosur passed with flyingcolours and graduated from the Centre. The Company takes pride in informing that fewstudents have earned accolades at national/ regional level for their par excellenceperformance in academic and technical areas.

In addition to the CCSD the Company has also been contributing to the cause of healthand education by making grants to AMM Foundation an autonomous charitable trust engagedin philanthropic activities in the field of education and healthcare since 1953. Duringthe year the Company's focus areas for these grants were in the education sector throughcontributions to Vellayan Chettiar Higher Secondary School Tiruvottiyur (VCHSS) - whichhas been making a difference in the field of education for the past 50 years. The schoolruns with the vision - To provide Quality Education with good virtues for the underprivileged and marginalised communities around Tiruvottiyur. With an objective to providethe students of the VCHSS adequate facilities for excelling in sports the Companythrough the agency undertook a project during the year for development of playground(football ground) in addition to meeting the running expenditure of the school. Besidesthe above the Company also actively pursued local community assistance programmes in andaround its plant and office locations anchored by its employees. The Company's CSR policyis available on the Company's website at the following link policies.html.

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 2016-17 consequent to the mandatory reporting of itsbusiness responsibility initiatives under the Listing Regulations the Company hadformulated a consolidated Policy on Business Responsibility which lays down the broadprinciples guiding the Company in delivering its various responsibilities to itsstakeholders. The Policy is intended to ensure that the Company adopts responsiblebusiness practices in the interest of the social set up and the environment so that itcontributes beyond financial and operational performance. A copy of the Policy isavailable at and the BusinessResponsibility Report for the year ended 31st March 2018 in terms of Regulation34 of the Listing Regulations is annexed to this report as Annexure B.


Board of Directors and Key Managerial Personnel

As at 31st March 2018 the Board of the Company comprised nine Directors ofwhich majority (six) are independent. During the year Mr. P S Raghavan and Mr.Sujjain S Talwar were appointed as Additional Directors and their appointment asIndependent Directors of the Company for a term of 5 years effective 9th May2017 was approved by the shareholders at the 63rd Annual General Meeting heldon 31st July 2017. Mr. M Lakshminarayan and Mr. Shobhan M ThakoreIndependent Directors who were appointed for a term of three years at the 60thAnnual General Meeting held on 1st August 2014 retired on 31stJuly 2017. The Board places on record its appreciation for the services rendered by Mr.Lakshminarayan and Mr. Shobhan Thakore during their tenor as Directors of the Companyincluding as members of the various Committees of the Board. Following the changes in theBoard composition the constitution of the various Committees of the Board were alsoreviewed and revised during the year the details of which are provided in the CorporateGovernance Report.

Further the shareholders at the last Annual General Meeting held on 31stJuly 2017 approved the re-appointment of Mr. K Srinivasan for a further period of twoyears from 23rd November 2017 till 22nd November 2019.

Mr. M A M Arunachalam retires by rotation at the forthcoming Annual General Meetingand being eligible has offered himself for re-appointment. A proposal for hisre-appointment is included in the Notice convening the 64th Annual GeneralMeeting for consideration 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 and Ms. Rekha Surendhiran Company Secretarycontinue to be the Key Managerial Personnel of the Company as per Section 203 of theCompanies Act 2013. During the year Mr. Sridharan Rangarajan stepped down from hisposition as Chief Financial Officer of the Company effective the closing hours of 17thJanuary 2018 on account of his elevation as President & Group - CFO of theMurugappa Group. The position of the Chief Financial Officer is vacant since then and theCompany having identified suitable candidate(s) is in the process of filling up thevacancy.

Board Meetings

During the year six 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 were used in the overall Boardevaluation comprising various aspects of the Board's functioning in terms of structureits meetings strategy governance and other dynamics of its functioning besides thefinancial reporting process internal controls and risk management. The evaluation of theCommittees was based on their terms of reference fixed by the Board besides the dynamicsof their functioning in terms of 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 the Board as whole and the Non-IndependentDirectors was carried out by the Independent Directors at their separate meeting heldduring 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 Board nominations lays down the qualification norms in terms ofpersonal traits experience background and standards for independence besides thepositive attributes required for a person to be inducted into the Board of the Company.Criteria for induction into Senior Management positions have also been laid down.

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

The Board Nomination criteria and the Remuneration policy are available on the websiteof the Company at https://www.cumi-murugappa. com/policies.html.

Composition of Audit Committee

The Audit Committee of the Board comprises only Independent Directors. Mr. T L PalaniKumar is the Chairman and other members are Mr. Sanjay Jayavarthanavelu Mrs. Bharati Raoand Mr. Sujjain S Talwar who was inducted into the Committee on 9thMay 2017 in view of the retirement of Mr. M Lakshminarayan on 31st July2017. During the year five Audit Committee meetings were held the details of which areprovided in the Corporate Governance Report.

Statutory Auditors

During the year the office of M/s. Deloitte Haskins & Sells CharteredAccountants (FR No. 008072S) Chennai as the Statutory Auditors of the Company expired atthe conclusion of the 63rd Annual General Meeting (AGM) held on 31stJuly 2017. The Board places on record its appreciation for the services rendered by M/sDeloitte Haskins & Sells during their long tenor as Auditors of the Company.

In line with the requirements of the Companies Act 2013 the Company with the approvalof the shareholders at the Annual General Meeting held on 31st July 2017appointed M/s. Price Waterhouse Chartered Accountants LLP (Reg. No. FRN 012754N/N500016)(PWC) as the Statutory Auditors of the Company to hold office from the conclusion of 63rdAnnual General Meeting until the conclusion of the 68th Annual GeneralMeeting at a remuneration of Rs3866000/- for the FY 2017-18 subject to annualratification by the shareholders at every AGM if required under the relevant provisionsof the Act at a remuneration decided by the Board based on the recommendation of the AuditCommittee. The Companies (Amendment) Act 2017 has dispensed with the requirement ofannual ratification of the Statutory Auditor's appointment. However as on the date ofthis report the said provision has not yet been notified. In case the above is notnotified prior to the date of the Annual General Meeting then the proposal seekingapproval of the shareholders for ratification of the Auditor's appointment would be placedat the 64th AGM. The Board at its meeting held on 4th May 2018based on the recommendation of the Audit Committee has determined the remuneration of theStatutory Auditors as Rs4200000/- for the FY 2018-19 (excluding out of pocket expensesincurred by them in connection with the Audit and applicable taxes).

As required under Regulation 33 of the Listing Regulations the Auditors have confirmedthat they hold a valid certificate issued by the Peer Review Board of the Institute ofChartered Accountants of India. The Report given by M/s. Price Waterhouse CharteredAccountants LLP on the Financial Statements of the Company for the year ended 31stMarch 2018 is provided in the financial section of the Annual Report. There are noqualifications reservations adverse remarks or disclaimers given by the Auditors intheir 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 2017-18 on aremuneration of

Rs400000/-. Further the said firm has also been appointed by the Board to conduct thecost audit for the FY 2018-19 at the same remuneration. The Companies Act 2013 mandatesthat the remuneration payable to the Cost Auditor is ratified by the Members. Accordinglya resolution seeking the shareholder's ratification of the remuneration payable to theCost Auditor for the FY 2018-19 is included in the Notice convening the 64thAnnual General Meeting.

Secretarial Audit

M/s. R Sridharan & Associates Practising Company Secretaries Chennai wasappointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company forthe FY 2017-18. 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 a PractisingCompany Secretary confirming compliance is annexed to and forms an integral part of thisReport.

CEO/CFO Certificate

Mr. K Srinivasan Managing Director has submitted a certificate to the Board on theintegrity of the Financial Statements and other matters as required under Regulation 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 forthe financial year ended 31st March 2018 applicable accounting standards havebeen followed and no material departures have been made from the same; the accountingpolicies mentioned in Note 3 of the Notes to the Financial Statements have been selectedand applied consistently and judgments and estimates that are reasonable and prudent havebeen made so as to give a true and fair view of the state of affairs of the Company at theend of the financial year and of the profit of the Company for that period; proper andsufficient care has been taken for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act 2013 for safeguarding the assets ofthe Company for preventing and detecting fraud and other irregularities; the annualaccounts have been prepared on a going concern basis; that internal financial controls tobe followed by the Company have been laid down and that such internal financial controlsare adequate and operating effectively; proper systems have been devised to ensurecompliance with the provisions of all applicable laws and that such systems are adequateand 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 Company is in compliance with the Secretarial Standard on Meetings of the Board ofDirectors (SS-1) and Secretarial Standard on General Meetings (SS-2).


The information on energy conservation technology absorption expenditure incurred onResearch & Development and forex earnings/ outgo as required under Section 134(3)(m)of the 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).

Under the Company's Employee Stock Option Scheme 2007 no Option grants have been madesince February 2012. The Employee Stock Option Plan 2016 (ESOP 2016) was implemented inFebruary 2017 with the approval of the shareholders and currently governs the grant ofOptions to employees. During the year 2017-18 a grant of 70214 options was madeto eligible employees. The disclosures with respect to Options granted under the ESOP 2007and ESOP 2016 are contained in the Corporate Governance Report. Further the disclosuresrelating to Stock Options as per Securities and Exchange Board of India (Share basedEmployees Benefits) Regulations 2014 read with the circular issued by SEBI on 16thJune 2015 has been provided on the Company's website and is available in the link Both the ESOP Scheme 2007 and ESOP2016 are in compliance with the SEBI (Share Based Employee 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 4 2018 Chairman