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Carborundum Universal Ltd.

BSE: 513375 Sector: Engineering
NSE: CARBORUNIV ISIN Code: INE120A01034
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Carborundum Universal Ltd. (CARBORUNIV) - Director Report

Company director report

Your Directors have the pleasure in presenting the 67th Annual Reporttogether with the Audited Financial Statements for the year ended 31st March2021. 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 toavoid duplication and overlap.

ECONOMIC OVERVIEW & COMPANY PERFORMANCE

Economic Overview

The year 2020 which began with concerns over an unfamiliar epidemic spreading in a fewprovinces of Chinahas left unimaginable losses on a global scale in its wake - both interms of loss of lives and livelihood. As global growth contracted sharply by 3.3% overthe year almost every single major economy except for China saw steep declines innational output albeit with a marked divergence in the pattern and intensity of thedecline. This divergence in economic output was caused by two sets of factors - first thedifferences in the fundamental economic structures of various countries such as thedependence on tourism and exports and the fiscal muscle of their respective Governments;and second differences in the policy routes adopted with respect to tackling thepandemic and the rigour of implementation of these measures.

India early on saw one of the strictest lockdowns in the world. The country whichbegan its financial year amid the lockdown recorded one of the steepest contractions inGDP among major economies - an abysmal 24% compared to the single digit declines seen inthe same quarter among its peers. However with the gradual easing of the lockdownrestrictions over Q2 demand pent-up within some sections of the economy came backstrongly fuelled by the ‘forced' cost savings over previous quarters. Particularlyconstruction and home renovations outperformed expectations. With the sudden influx of anable workforce into the rural economy after the wave of ‘reverse migration' somesections of this economy helped impede the overall decline in growth - particularly inaffordable housing tractors and two wheeler segments. As expected the preference forpersonal modes of transportation increased and over the festive season certain segmentsof passenger vehicles grew. Notwithstanding these tailwinds the Indian economy enteredtechnical recession in Q2 recording a decline of 7.3%. The interest of consumers whichgained traction over the festive season buoyed demand towards the end of Q2 and in Q3the economy teetered towards positive territory growing at 0.4%. Around this time Europebegan to experience the second wave of the pandemic and growth in the region was hamperedyet again. Not only have economic divisions widened between nations but also withinnations. In a grim estimate the IMF suggests that an additional 95 million people couldhave entered extreme poverty in 2020. The damage caused by COVID-19 to economies stilllooms large - human capital formation and capability building has been impeded owing toeducational institutions in many developing economies remaining closed for prolongedperiods or operating with sub-par online infrastructure. With plants and factories acrossthe world being operated intermittently for a good part of H1 shocks to supply chain werefelt across economies with acute shortages in minerals commodities metals andlogistics. In complete discord to this were market sentiments which remained surprisinglybullish especially over the second half of the year. While valuations were rising onone-hand safe-haven assets were rising on the other. Asset markets were buoyed byexpectations of vaccines and fiscal stimulus.

Going forward the IMF estimates that the Indian Economy will grow by 12.5 % in FY2021-22. There are clear headwinds and tailwinds to the economy now; the Union Budget'sheavy focus on infrastructure and the PLI scheme are expected to keep investmentsentiments positive. Many organisations have sizeable corpus for investment due to theinability to invest over FY 2020-21 - however the pace of investment remains to be seen.The IMF has as recently as April 2021 revised its global growth estimate to 6% in 2021and 4.4% in 2022. With massive stimulus packages being announced by advanced economiessuch as the US spill-over effect on trading partners such as India is expected to bepositive.

However uncertainties caused by the emergence of new variants with higher rates oftransmission cast a shadow over growth prospects. Even as this report goes intopublication India is at the brink of the second wave and has been dubbed the ‘newground zero' of the pandemic. There could be little respite from commodity markets;average oil prices are expected to reach USD 58.52/bbl in 2021 a 30% rise from the lowbase of 2020. Metal prices are expected to rise owing to China's strong rebound. As ofthe beginning of the calendar year 2021 India's industrial output was still in declineand inflation was inching up. Continued inflationary pressures could dampen consumersentiments and reduce consumption expenditure. In short 2021 will also be a testing year- as businesses and governments strive to get back on their feet and to make up for thegrowth lost over 2020 while prioritising the health and safety of people above everythingelse.

Company Performance

Revenues

During the FY 2020-21 standalone revenues marginally increased by 1.6 per cent and theconsolidated revenues also marginally increased by 1.4 per cent. The Company began itsfinancial year at the peak of a nation-wide lockdown. Plants except for thepower-generating units / continuous processes - had been quickly and safely shut down. ITinfrastructure to enable remote working options were rolled out. As the lockdown waslifted utilisations across plants slowly ramped up over Q2 and in Q3 many segments sawstrong demand from domestic and export markets. However the shortage of materials risinginput costs and the availability of containers posed a challenge. Some segments alsowitnessed a higher share of exports with incremental growth coming from export customerswishing to de-risk their supply chains. The growth story among subsidiaries is mixed.While Volzhsky Abrasive Works and Sterling Abrasives Limited performed well recordinggrowth CUMI (Australia) Pty Limited (CAPL) CUMI America Inc. CUMI Abrasives andCeramics Company Limited China (CACCL) and CUMI Middle East (CME) were impacted by ahost of factors. CAPL was especially impacted by the brewing trade tensions between Chinaand Australia - which manifested in the form of lower iron ore off-take from China. TheAbrasives segment is almost flat on a consolidated level and marginal increase at astandalone level. The Electrominerals segment grew 3.8% at a consolidated level and 7% ata standalone level supported by growth in volumes and realisation. Higher productivityand prudent cost control helped almost double the profits at a standalone level. TheCeramics segment de-grew by 2.2% on a standalone level and 0.3% on a consolidated level.While demand from domestic core industries has been tepid this year the demand forTechnical Ceramics driven by technology transformations in the Auto industry and theinterest towards clean energy has driven growth. The following table summarises thestandalone and consolidated revenues - both segment and geography wise:

2020-21

2019-20

Growth
% share Amount % share Amount %
Standalone
Abrasives 50 8177 50 8147 0
Ceramics 30 5007 32 5120 (2)
Electrominerals 27 4396 25 4109 7
Eliminations (7) (1087) (7) (1145) (5)
Total 100 16493 100 16231 2
India 75 12425 76 12261 1
Rest of the world 25 4068 24 3970 2
Total 100 16493 100 16231 2

2020-21

2019 - 20

Growth
% share Amount % share Amount %
Consolidated
Abrasives 38 9931 39 9953 (0)
Ceramics 24 6272 24 6290 (0)
Electrominerals 41 10644 40 10258 4
Power 1 229 1 237 (3)
IT Services 2 410 2 471 (13)
Eliminations (6) (1445) (6) (1515) (5)
Total 100 26041 100 25694 1
India 51 13289 51 13097 1
Rest of the world 49 12752 49 12597 1
Total 100 26041 100 25694 1

The Company's consolidated revenues from India and from rest of the world increased by1 per cent.

Manufacturing

The manufacturing team played a vital role in safely closing or scaling down operationsfollowing the announcement of the nation-wide lockdown and in restarting operations as andwhen permitted. The teams have also realigned shop-floor layouts to ensure safe workenvironment. Continued focus on cost control helped the Company make gains in profitmargins. All major capexes have been executed as planned.

Earnings & Profitability

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

As % of Sales 2020-21 As % of Sales 2019-20 Increase %
Sales 16494 16231 2
Other Operating Income 229 281 (18)
Revenue from Operations 16723 16512 1
Other Income 423 473 (11)
Total Income 17146 16985 1
Expenses
Cost of material consumed 36 5999 39 6267 (4)
Purchase of stock in trade 3 530 4 626 (15)
Movement of Inventory 3 559 (2) (296) (289)
Employee benefits expense 12 1962 12 1959 0
Finance Cost 0 3 0 4 (23)
Depreciation and amortisation 4 614 4 670 (8)
Power & Fuel 10 1671 11 1809 (8)
Other expenses 20 3251 22 3551 (8)
Total Expenses 88 14589 90 14590 0
Profit before tax before exceptional item 16 2557 15 2395 7
Exceptional items(net) (1) (112) - - -
Profit before tax 15 2445 15 2395 2
Profit after tax 11 1840 12 1913 (4)
Total Comprehensive Income 12 1913 11 1740 10

Standalone profit before tax stood at `2445 million as compared to

` 2395 million during the previous year.

The Company uses a variety of raw materials for its products - Bonds Cotton YarnGrains Calcined Alumina Tabular Alumina Brown fused Alumina White fused AluminaSilicon Carbide Mullite Pet Coke Bauxite Zircon Sand amongst others. The sourcing is aprudent mix of indigenous and imported materials. Aided by judicious sourcing andoptimising throughput in production material consumption continued to marginally improveduring the year.

Other expenses decreased by 8.4% to `3251 million in the current year from `3551million in the preceding year.

Power and fuel cost decreased by 7.6% from `1809 million in the preceding year to `1671million during the current year owing to reduction in the volume and better powergeneration from the Company's Hydel power unit in Maniyar.

Employee benefits expense remained flat and the overall employee cost was at 11.9 percent of the revenues.

Profit before finance cost and tax margin expanded in all segments due to morefavourable cost structures and better realisation in some segments.

Finance costs were at `2.7 million compared to `3.5 million in the previous year.Despite the nation-wide lockdown in Q1 revenues were maintained at almost flat levelsover last year. Profit after Tax was maintained at last year's levels due to strong costcontrol measures across the Company. In addition to the above the enhanced Profits isalso attributable to the increase in income by way of sale of 2.37% of the shareholding inWendt (India) Ltd. by an offer for sale mechanism on the exchange platform to comply withthe minimum public shareholding requirement in Wendt (India) Ltd. Total ComprehensiveIncome increased from `1740 million to `1913 million.

The consolidated profit before tax (before share of profit from Associate and Jointventures) entity-wise is represented below:

2020-21 2019-20
CUMI Standalone 2445 2395
Subsidiaries including step down subsidiaries:
Indian
Net Access India Limited 29 37
Southern Energy Development Corporation Limited 103 76
Sterling Abrasives Limited 167 100
Foreign
CUMI (Australia) Pty Limited 148 185
CUMI International Limited 308 329
Volzhsky Abrasive Works 1354 1119
Foskor Zirconia (Pty) Limited (105) (205)
CUMI America Inc. 7 18
CUMI Middle East FZE 5 1
CUMI Abrasives & Ceramics Company Limited 5 (8)
CUMI Europe s.r.o. - (0)
Thukela Refractories Isithebe Pty Limited - -
Total of Subsidiaries 2021 1652
Inter Company Eliminations (670) (719)
Consolidated profit before tax and share of profit from Associate and Joint ventures 3796 3328
Consolidated profit after tax attributable to owners 2843 2724

On a consolidated basis the profit before tax (before share of profit from Associateand Joint Ventures) increased to `3796 million from `3328 million. Profit after tax andnon-controlling interests has increased to `2843 million from `2724 million. Theperformance of the subsidiaries is detailed separately in this Report.

Financial Position

An overview of the Company's financial position - on a standalone and consolidatedbasis is given below: (` million)

Financial position Standalone Consolidated
31.03.2021 31.03.2020 % change 31.03.2021 31.03.2020 % change
Net Fixed assets (including goodwill and 4293 4344 (1) 8052 7870 2
Right of use assets)
Investments - Non current 2507 2458 2 1271 1212 5
Other assets:
- Inventories 2951 3263 (10) 4605 5076 (9)
- Trade receivables 3177 2593 23 4776 4016 19
- Cash and cash equivalents 2548 2231 14 4783 3595 33
- Other assets 2980 841 255 3398 1147 196
Total assets 18456 15730 17 26885 22916 17
Liabilities (Other than loans) 3108 2059 51 4676 3261 43
Net assets 15348 13671 12 22209 19655 13
Sources of funding:
Total equity attributable to owner 15348 13671 12 21315 18584 15
Non - Controlling interest - - - 464 455 2
loan outstanding:
- Long term borrowings - - - 50 42 18
- Payable within one year - - - 25 21 18
- Short term borrowings - - - 355 553 (36)
Total loans - - - 430 616 (30)
15348 13671 12 22209 19655 13
loans (net of cash and cash equivalents) (2548) (2231) 14 (4353) (2979) 46

On a consolidated basis the total equity attributable to owners as on 31stMarch 2021 was `21315 million. There was an increase (net of dividend) to the extent of`2731 million. Non-controlling interest was at `464 million.

Liabilities (other than loans) was `4676 million. The loans outstanding reduced to `430million from `616 million. Net fixed assets (including goodwill and Right of use assets)increased to `8052 million during the current year from `7870 million in the last year.

Cash Flow

The Company's cash flow is healthy. The following table summarises the Company'sstandalone and consolidated cash flows for the current and previous year:

Cash flow

Standalone

Consolidated

2020-21 2019-20 2020-21 2019-20
Cash flow from Operations 3301 2921 5534 5061
Taxes paid (590) (610) (1026) (992)
Cash flow from operating activities 2711 2311 4508 4069
Capital Expenditure (Net of disposal) (558) (677) (1026) (1226)
Cash flow from other investing activities (1578) 369 (1669) 296
Cash flow from investing activities (2136) (308) (2695) (930)
Cash flow from financing activities (258) (864) (662) (1346)
Net increase/(Decrease) in Cash & Cash equivalents 317 1139 1151 1793
Net Cash and Cash equivalents at the beginning of the year 2231 1092 3596 1921
Effect of exchange rate changes on the balances of cash and cash equivalents - - 36 (118)
held in foreign currencies
Cash and Cash equivalents at the end of the year 2548 2231 4783 3596

On a standalone basis net cash generation from operations was

`2711 million in FY 2020-21 compared to previous year's `2311 million. Net cash outflowon account of investing activities was `2136 million majorly towards investment in bankdeposits and addition of property plant and equipment. Net cash outflow on account offinancing activities was `258 million which is attributable primarily to repayment ofborrowings and dividends paid. The net increase in cash and cash equivalents was `317million against `1139 million in FY 2019-20. On a consolidated basis net cash generationfrom operations was

`4508 million in FY 2020-21. Net cash outflow on account of investing activities was`2695 million. Net cash outflow on account of financing activities was `662 million whichis attributable primarily to repayment of borrowings and dividends paid. The net increasein cash and cash equivalents was `1151 million against `1793 million in FY 2019-20.

Key Financial Ratios (on a standalone basis)

Parameter 2020-21 2019-20 Favourable/ Comments
(Adverse) in %
R O C E % 17.64 18.14 (3) Due to increase in capital employed
Debt Equity (times) - - - CUMI is a debt free Company
PBT % to Sales* 14.82 14.76 0 Marginal increase
Asset turnover (times) 1.15 1.33 (13) Due to increase in total assets
Receivable turnover (days) 64 66 4 Supported by effective collection efforts
Inventory turnover (days) 69 75 8 Effective inventory management.
Interest Coverage Ratio (times) 1171.11 871.79 34 Reduction in Finance cost.
Current Ratio(times) 3.90 4.65 (16) Due to increase in current liabilities
Operating Profit Margin (%) * 12.95 11.86 9 Better product mix
Net Profit Margin (%) 11.15 11.79 (5) Due to decrease in Profit after tax mainly on
account of exceptional items.
Return on Net Worth (%) 12.68 14.47 (12) Due to decrease in Profit after tax mainly on
account of exceptional items.

 

*excluding exceptional income/expenses (Net)

SHARE CAPITAl

The paid up equity share capital as on 31st March 2021 was `189.59 million.The capital increased during the year by `0.18 million consequent to allotment of sharesupon exercise of Stock Options by employees under the Company's Employee Stock OptionScheme 2007 and Employee Stock Option Plan 2016.

DIVIDEND

Considering the past dividend payout ratio and the current year's operating profit theBoard has considered it appropriate to recommend a final dividend of `1.50/- per equityshare of `1/- each. It may be recalled that in February 2021 an interim dividend at therate of `1.50/- per equity share of `1/- each was declared and paid. This aggregates to atotal dividend of `3.00/- per equity share of `1/- each for the year which is higher thanthe previous year. The Company's Dividend Policy is available at https://www.cumi-murugappa.com/policies-disclosure/.

The dividend paid as well as being recommended for the year ended 31st March2021 is in line with this policy.

TRANSFER TO RESERVES

An amount of `500 million has been transferred to the General Reserve of the Company asat 31st March 2021.

PERFORMANCE OF BUSINESS SEGMENTS

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

Abrasives

Business Profile

This SBU is in the business of engineering surfaces. It manufactures and distributesrigid and flexible abrasives and adjacent products that are used in the generation ofprecision functional or enduring surfaces. The key product segments are Bonded AbrasivesCoated Abrasives Metal Working Fluid Super Abrasives and allied products.

Rigid or Bonded Abrasives products grind clean scour abrade or remove solid materialthrough a rubbing action. Bonded Abrasives are made using Glass Bonds (vitrified) orPhenolic Resin Bonds. Coated Abrasives are basically hard synthetic minerals coated on topaper fibre cloth or film and finally formed into different shapes sizes and typesaccording to application needs. Abrasive materials and Abrasive products are utilised inseveral end user industries such as Automobiles Auto Ancillary Metalworking Building andConstruction Wood Working Railways Aerospace and General Engineering.

This Business has more than sixty years of experience in Abrasives manufacturingapplication engineering and distribution. Strong Research & Development backed byapplication engineering and supported by multi generation channel partners are thestrengths of this Business. Over the years it has built world class facilities withstrong processes which gives it a cutting edge. This has been reinforced with thecommissioning of an automated world-class coated Maker plant at Sriperumbudur duringMarch 2020 thereby doubling the installed capacity of Coated Abrasives which is expectedto cater to the growing demand for coated products in the domestic and internationalmarkets.

The competitive advantage of the Business comes from its raw materials sourced from theElectrominerals Business of the Company and from the best suppliers within India andacross the world. These inputs are then formulated and the products are designed based ona deep understanding of the end-use applications that is exhibited by the very experiencedteam of application engineers across the globe.

Cost competitiveness is the overarching strategy for the Business while ensuring thatthe supply requirements and changing needs of the market are met in full.

The Business has ten manufacturing plants located across India Russia and Thailand.The marketing entities in North America Middle East China and distributors across theglobe provide strong market reach in India and over 55 markets globally.

Industry Scenario

The global Abrasives market witnessed a slowdown due to COVID-19 pandemic and theresultant lockdown scenario across the globe impacting consumption in Americas Europeand Asia Pacific. Still Asia Pacific represents the largest and the fastest growingmarket for the Abrasives industry and China continues to be the largest producer ofAbrasive materials and Abrasive products. The demand for Abrasives from industries such astransportation building and construction and other durable goods industries is on therecovery path owing to easing of lockdown restrictions across the globe. The industry isdominated by several leading players operating across the globe.

The Indian market has been continuously witnessing a shift from manual grinding methodsto mechanised processes ushering in opportunities for new products in the CoatedAbrasives segment. The Bonded Abrasives segment constitutes a key consumable in theConstruction and Transportation industries which has demonstrated high growth in the pastdecade due to rapid urbanisation and increase in disposable income. During FY 2020-21 theIndian Abrasives market was marred by slowdown across several key end user segments suchas Automotive Construction Foundry & Forgings. But the overall business scenario inIndia had shown signs of recovery beginning Q2 of FY 2020-21 due to ease of lockdown andimproved further during Q3 and Q4 resulting in major recovery across key end user segmentssuch as Automotive and Construction. The growth momentum is expected to continue throughFY 2021-22 due to positive macro-economic and micro-economic factors subject to theseverity of the second wave of the pandemic which has just started surging in India.

The unorganised market that constitutes about 30 per cent of overall market largelydominated by imports suffered a headwind due to product unavailability largely due tolockdown situations thereby benefitting the reputed domestic Abrasives manufacturers. Thissegment of the market is predominantly price driven commensurate with performancerequirement.

Sales Overview

As the financial year began under lockdown the primary focus as across all businessesof the Company was to protect the health of its employees and operate the plants understrict guidelines mandated by Central and State governments. During the yearopportunities risen out of pandemic situation such as imports substitution higheragricultural output pent-up demand in automotive segment and higher growth opportunitiesin tier 2 and tier 3 cities were leveraged and some of the initiatives are expected tosustain during FY 2021-22 as well. Despite the COVID-19 related challenges Businesscontinued to make steady progress in building distribution leadership a key strategicpillar for the Company's growth. During the year the Business appointed new channelpartners and expanded its dealer network across India. Retail development and marketstorming initiatives were conducted for better market penetration and several new digitalinitiatives were introduced that is expected to give a sustainable competitive advantagebetter and faster connect with the end user communities. New products were continued to bedeveloped and introduced in meeting the needs of customers.

Manufacturing

The segment continued its focus on products made with high performance grains byworking in coordination with the Electrominerals Business. This helped to buildcompetitive advantage by developing and establishing new range of products. The newlyinvested Coated Abrasives manufacturing capacity through an additional Maker line atSriperumbudur has been fully commercialised and the capacity utilisation is progressing asper plan. The new Maker is equipped with state-of-the-art IOT enabled process monitoringand improvement features for real-time monitoring ultimately enhancing the quality andvolume. Business had faced headwinds in terms of higher cost push and raw materialavailability during Q3 and Q4 and a part of it has been negated by price increase and costsavings initiatives adopted by Business using Total Productive Management tools. Todevelop competitive products and to cater to the need of customer quality has beenenhanced by imbibing the voice of customer through Quality Function Deployment techniques.

The elements of Industry 4.0 have been imbibed in the day-to-day operations toleverage the gains of IOT and data analytics. Several digital initiatives are beingpursued to remain competitive. Considering the changing landscape of manufacturingtechnologies the Business would continue its effort to build capabilities in newer fieldsand technologies. Horizontal deployment of such steps is likely to give it a competitiveadvantage in the changing landscape.

Key Financial Summary

Particulars Standalone Consolidated
2020-21 2019-20 Change (%) 2020-21 2019-20 Change (%)
Revenue 8177 8147 0 9931 9953 (0)
Segment results (PBIT) 1179 1083 9 1343 1129 19
Capital employed 3132 3469 (10) 4690 5008 (6)
Share to total revenue of CUMI (%) 50 50 38 39
(without eliminations)
Share to segment results (PBIT) of CUMI (%) 46 45 34 33

Ceramics

Business Profile

The Ceramics Business comprises of the Industrial Ceramics and the Refractories productgroups.

Industrial Ceramics

Industrial Ceramics Business offers advanced Ceramics in Alumina Zirconia ZirconiaToughened Alumina and Silicon Carbide products addressing wear and corrosion protectionelectrical insulation thermal protection and ballistic protection applications. The keyuser industries for Ceramics Business are Power Generation and Distribution Mining &Ore processing Cement Ferrous and Non-Ferrous Industries Automotive Battery GlassPaper Food Grain handling Petrochemicals and Ceramic Tiles. The operations are carriedout through manufacturing/service facilities located in India Australia and the US. Thesubsidiaries in North America Middle East and China also support this Business inincreasing market reach.

The Industrial Ceramics Business based out of India is largely a global business andmajority of the sales volumes are through exports. The Company is one of the major playersin India Australia and Europe and in specific product groups in Japan and China.

Refractories

Refractory is a material that has the ability to withstand load when subjected to hightemperatures up to 2000 degrees Celsius in the presence of metals non-metals and chemicalreactions. It is used in applications that require extreme resistance to heat such asreactors and furnace linings.

The Company is a leading player in complex shaped high temperature applicationRefractories Refractory cements Monolithic castables and pre-cast pre-firedRefractories. The key user industries for Refractory Business are Iron & SteelSecondary Steel Glass melting Cement kilns Carbon black reactors Rocket launch padsCeramics Petrochemicals Thermal power plants Non-ferrous melting Foundry Heattreatment furnaces etc.

Anti-corrosives

Prodorite branded Anti-corrosive material is used in highly acidic or basicenvironment. The Company is a major player in this industry serving a wide range ofChemical process industries and other industries dealing with treatment of effluents. TheCompany's product range include Acid resistant wall and floor tiles Carbon bricks Tilesanticorrosive Lining Epoxy and PU Flooring Screeding PU and Epoxy Coatings PipingSealants and Water proof construction chemicals. The Company's Poly Concrete Cells (Tanks)are also used in Copper and Zinc extraction units across the world.

Composites

Composites are primarily Glass or Carbon Fibre reinforced polymer products manufacturedthrough Vacuum infusion Pultrusion Filament winding Grating and hand lay-up methods.The product range includes large Chemical storage tanks Chimneys Flue GasDesulphurisation (FGD) spray headers Abrasion resistant Anti-corrosive pipes &Gratings Windmill nacelle covers and nose cones Automotive and Railway body panelsGratings Pallets Cable trays Flooring Chequered plates Roof sheets Chimney laddersPlatforms Bridges Louvers Fencing etc. High precision Carbon Fibre Reinforced Polymersfor defence applications is a new foray and growing area.

The operations are carried out through manufacturing/service facilities located inIndia (Ranipet Serkadu & Jabalpur) and Russia.

Industry Scenario Industrial Ceramics

The Industrial Ceramics Business has two verticals - Wear Materials offering Wearsolutions for various industrial applications; Engineered Technical Ceramics manufacturinghigh end Engineered Ceramics and Metallized Ceramics.

Under Wear Materials the Company offers wear protection solutions using AdvancedCeramics Rubber backed Ceramics and Composites in the form of Wear Resistant LinersCeramic Lined Equipment for OEM (Original Equipment Manufacturer) customers and Repair& Maintenance across key industries mentioned above. The Business has expanded itsproduct offerings and developed new applications across key industry segments. Asolutions-based approach to solve customer problems through on-site wear audits superiordesign and simulation on-site installation services enhances equipment performanceproductivity and life. The Company is a leader in Australian market and has expanded itscustomer base in America Russia and Commonwealth of Independent States and Japan.

The Business is working on enhancing capability of Ceramic Lined Equipment by offeringComplete Fabricated System Assemblies Catering to OEM and Repair & Maintenancecustomers.Project LE 2.0 is currently under progress and is expected be commissioned thisyear. Under Technical Ceramics the Company is a significant manufacturer of MetallizedCylinders in India for high voltage power transmission and distribution and caters toleading customers globally.

The Business has drawn up a clear plan to be a global leader in Metallized Ceramics forVacuum Interrupters. Towards this capacities have been further expanded by the additionof a new Continuous Metallization furnace. The Furnace has been successfully commissionedthis year and has been released for regular production. This facility would help increasevolumes with existing customers and in entering new markets. In the Engineered Ceramicsproduct segment the Business has further strengthened its position in Solid Oxide FuelCell market and has started forays into Hydrogen applications. The Business has alsocommenced bulk supplies of Ceramics for the global Electric Vehicle market. This Businessis expected to grow exponentially in the coming years. At the same time the Businesscontinues to produce Ceramic insulator bodies for Spark Plugs the demand for which hasreached record levels after the COVID-19 lockdown. An important capability that was addedin Engineered Ceramics was that of Sintered Silicon Carbide comprising of astate-of-the-art Vacuum Sintering furnace that can operate at temperatures above 2000Degrees Celsius. The facility has been commissioned and the Business is poised to cater toa wide range of demanding wear and corrosion resistance applications. Towards attainingCost Leadership across all product segments the Business is working closely with GasAuthority India Limited (GAIL) for bringing Piped Natural Gas (PNG) to the facility. Thepipeline project was executed successfully and the transition from liquid fuel to naturalgas in all the Kilns used for Ceramic Sintering is underway. This transition wouldsignificantly improve cost competitiveness of key products segments and importantly reduceemissions with the use of this clean burning fuel.

Refractories

With respect to Refractories on account of the pandemic condition across the globeconsidering the lower demand there was an expectation across various customer segmentsfor a price reduction. Iron & Steel industry and Cement industry registered goodprofits during the year also backed by reduction in prices. Due to lower demand andrescheduling of projects execution these customers exercised higher bargaining poweramongst its suppliers. During the previous years players in the Carbon black industry hadbeen undertaking capacity addition driven by the demand in the tyre industry. Thisindustry suffered during the financial year on account of low capacity utilisation andlower demand due to the pandemic which saw a marginal improvement towards the end of Q4.To de-risk their supply chain export customers who were earlier looking to diversifytheir sourcing strategy have gone back to sourcing locally on account of challengesimposed by the varied lockdown conditions in countries in different periods of time.

Anti-Corrosive and Composites

The Anti-corrosives Business has launched construction chemical products for waterproofing hygiene grade Polymer and Polyurethane flooring products for Hospitals Pharmaand Food industry. Business has also launched industrial adhesives for variousapplications during the last year. Considering the challenges from the pandemic thepenetration in the global market could not be undertaken as per plan. However withcontinued efforts these products have gained market share locally and have been provensuccessful.

The Composites Business is comprised of project-based and standard product segments.Standard products have grown significantly through introduction of Abrasion resistantgratings Chequered plates Automotive panels; in addition to the pre-existing productbasket of pipes tanks windmill nacelle cover and other products. Business hassuccessfully executed three projects of Flue Gas Desulphurisation spray headers and hasgained significant project orders for spray headers and the customer base has expanded.Business also bagged new orders for wear shield abrasion resistant anticorrosive pipingfrom thermal power plants for chemical treatment circuit desulphurisation. The Compositebusiness has also gained orders for structural components to be used in defenceapplications.

In order to replace the conventional Steel TMT bar in construction especially incorrosive environments the Business has launched FRP Composite rebar which has doublethe tensile strength than TMT bars. This rebar finds its application at construction sitesin coastal areas chemical plants and in electrical installations where EMF (ElectromotiveForce) and inductive current are of concern.

Sales Overview

Revenues of the Ceramics Business decreased by 2.2 per cent on standalone basis from`5120 million to `5007 million. The profitability of Ceramic Business increased owing tohigher volume and selective price increase.

Industrial Ceramics

Metallized Cylinders Engineered Ceramics and Wear Materials Business focused onservicing and retaining key customers during the lockdown and post lockdown period bycatering to the changing demand patterns in an agile manner. Renewed marketing efforts intargeting newer markets and partnering with global customers to garner long termsustainable business has helped in making forays into new geographies and applications.Selective price increases were undertaken for majority of the products to mitigate costpush. Significant efforts in converting conventional wear resistant materials to AdvancedCeramic and Rubberised Ceramic Composite Wear Resistant Materials yielded higher businessvolumes in repair and maintenance segment of domestic sector in Steel Mineral Processingand Cement Industry. The Business strengthened its position in Japanese markets by winningkey long term project orders for supply of Ceramic lined bend assemblies.

Refractories

Notwithstanding the difficult operating conditions the Refractory Business exhibitedresilience and ended the year with the same top line as previous year despite thetemporary suspension of operations due to lockdown in Q1 of FY 2020-21. This indicatessignificant growth during the balance three quarters of the year. The end customersegments like Cement Iron and Steel Carbon black have deferred their planned capitalexpenditure projects which has impacted the Refractory project orders. However theBusiness had identified alternate business opportunities to ensure that the Businessgrowth objectives are met.

Anti-Corrosive and Composites

Anti-corrosive Business performed well during the year with market share gain in Carbonbricks for the Phosphoric acid industry and Poly concrete cells. Composites Business hasregistered a decline in growth in the windmill industry as projects have been deferred.Composites Business has developed few customer specific products like structuralcomponents for defence applications Construction Rebar which is expected to bring growthin the coming years.

Manufacturing Industrial Ceramics

In the Metallized Cylinder space as stated earlier further capacity expansionthrough the addition of a Continuous Metallization furnace was initiated during the year.In addition a project on Smart

Manufacturing has been initiated during the year. With this capacity addition theBusiness is now a leading global player in Metallized Cylinders RefractoriesAnticorrosive and Composites Business and has obtained "TPM Excellence Award"under category A from JIPM Japan.

Due to pandemic restrictions the TPM assessments were conducted through Virtual onlinemode and the assessors could appreciate the operational efficiency and maintenanceexcellence which yielded the results in line with growth strategy.

Key Financial Summary

Particulars Standalone Consolidated
2020-21 2019-20 Change (%) 2020-21 2019-20 Change (%)
Revenue 5007 5120 (2) 6272 6289 (0)
Segment results (PBIT) 1056 1001 6 1359 1317 3
Capital employed 3484 3159 10 4619 4160 11
Share to total revenue of CUMl (%) (without eliminations) 30 32 24 24
Share to segment results (PBIT) of CUMI(%) 41 42 34 39

Electrominerals

Business Profile

The Mineral Business of the Company spans India Russia and South Africa with eightmanufacturing facilities covering product groups - Fused Alumina (comprising Brown and itsvariants and White Fused Alumina) Silicon Carbide (crude macro and fine) and AluminaZirconia. The Company also manufactures a range of ‘specialties' like Semi FriableAlumina Surface and thermally treated grains Solgel derived Alumina called as Azure SSpecialty Alumina and Ceramic fine powders for niche markets. To enhance its operationalcompetencies the Business operates its own Bauxite and sand mines and a 12 MW Hydel powerplant to insulate it from fluctuations in power tariffs. The Business focusses onaggressive growth in the domestic and export market while catering to the requirementsfrom internal customers. With a diversified product portfolio the ElectromineralsBusiness provides customers with application specific products and solutions aimed atattaining improved product performance value and profitability. For this the Businessensures speedy execution of projects enhanced asset utilisation and undertakes jointproduct development programs with customers. Business also spearheads its Research andDevelopment through a DSIR approved research facility located at Kochi.

The Business continues to pursue its focus on new and emerging areas of opportunitieslike Graphene battery materials and related areas through tie-ups for technology and bycommissioning pilot scale plants. The Graphene facility started functioning during thelast year and the products are being adapted/functionalised for various applications. Keyuser industries for this Business are Abrasives Refractories Steel Brake liningsNuclear energy Wooden Laminates Friction composites Diesel Particulate FilterSemiconductor and others.

Industry Scenario

As in the case of other businesses the year 2020-21 commenced with unprecedentedchallenges for the world and the business community alike on account of the outbreak ofCOVID-19 and the consequent lockdown declared across nations. The first quarter ofBusiness was really hit by the slowdown in the domestic/global economy which in turnimpacted the demand for minerals and materials. The Business has also undertaken austeritymeasures to control the fixed costs deferring of capital spending holding back of newrecruitments/replacement improvement in efficiency optimum sourcing of inputs etc. Withthe lifting of lockdown in many parts of the country and world the Business startedlimping back to normalcy from end of Q2.

The Business has seen an ever-increasing demand for its minerals from Q2 onwards due tothe revival of Auto and Steel sector. The increased focus of the Government ininfrastructure spending double-digit growth recorded by the domestic Auto segment and therevival of Steel industry has pushed the demand for Abrasives and Refractory products inthe domestic market. While there was a growth in demand in the domestic segment theresponse from the international market was not satisfactory except for the spurt indemand noticed from isolated segments like Diesel Particulate Filters (DPF) andsemi-conductors. The logistic issues on container availability and vessel scheduleserupted in the later part of Q3 adding to the challenges and complexities of internationaltrade and the Electrominerals Business.

Improvements in the fusion process has helped the Business to address the additionaldemand for WFA from Refractory markets. The fine powder business volumes have seen arevival on account of the increased off take of material by key end users while thedemand from semiconductors continued to be a stable support. The Business has also seensome spurt in demand for Ceramic grains from domestic and Chinese Abrasives customers. Thecommercial launch of new high performing Marlin grade Alumina Zirconia grain for CoatedAbrasives application marks another positive note for the Business during a challengingyear. The transformational products like Graphene is evolving with different variants andthe Business has come out with three variants for commercial applications.

Sales Overview

The Electrominerals Business on a standalone basis recorded revenue of

` 4396 million compared to `4109 million in the previous year.

The growth in the domestic Business can be attributed to the revival of domesticAbrasives and Refractory customers who are the biggest consumers of Electrominerals.

Business has seen a significant growth in White Fused Alumina Business mainly due tothe better performance of user industries like Steel during last year. Brown fused Aluminabusiness was affected marginally due to shortage of availability of key raw materialAbrasive grade Bauxite. The fine powder business has shown an improved performance due tohigher offtake by user industries like in Diesel Particulate Filters and Semi-Conductorapplication. The demand for other micro powders especially from laminates has helped theBusiness marginally.

Global players looking to reduce sourcing dependence on China can present opportunitiesfor the Minerals Business.

The Russian subsidiary ran at near full capacity. Higher demand for Refractory gradematerials aided the growth.

Manufacturing

Manufacturing strategies focused mainly on improving efficiencies through TPMinitiatives and value creation through grain treatments. Continued focus on innovationTPM measures and fixed cost enabled the Business to be competitive and efficient inbettering the performance. The focused Joint Development Programs in selected areas withcustomers brought faster scaling up and co-solutions.

The Business has established and scaled up its new synthetic Alumina variant ABV+ as areplacement for ABV and by improving the process further targets to replace theBauxite-based Brown Fused Alumina. This helped the Business in augmenting the productionand sales volume of Alumina from the new facilities while satisfying the additionaldemand from Abrasives Business of the Company.

The year saw highest volatility in the availability and price of critical raw materialslike Bauxite Quartz and Raw Petroleum Coke (RPC) in international and domestic market.The strategy to source Alumina internationally has helped the Business to insulate fromhigher prices. Foskor Zirconia which is into production of Monoclinic Zirconia and CalciaStabilised Zirconia was also affected due to volatile input pricing as well as the illeffects of the pandemic. However better volumes of low radioactive products for theNuclear industry and for the Steel industry shored up volumes resulting in a betterperformance compared to the previous year.

The Business has successfully produced Graphene from its new facility and establishedthree variants for commercial applications. The Business has set up a pilot scale facilityfor Graphite Synthesis and also has set up a pilot facility for development of High PuritySilicon Carbide. The Business continued in its journey of introducing application specificproduct variants.

Key Financial Summary

Particulars Standalone Consolidated
2020-21 2019-20 Change (%) 2020-21 2019-20 Change (%)
Revenue 4396 4109 7 10644 10258 4
Segment results (PBIT) 317 217 46 1359 1042 31
Capital employed 2014 2575 (22) 5760 5656 2
Share to total revenue of CUMI (%)(without eliminations) 27 25 41 40
Share to segment results (PBIT) of CUMI (%) 12 9 34 31

FINANCE

During the year the Company generated `2711 million cash surplus from its operationson a standalone basis.All debts have been serviced on time. The Company's long andshort term borrowings as on 31st March 2021 stands Nil. The capital expenditureprogram of

` 595 million was financed from internal accruals.

The Company continued to have a healthy cash generation during the year due to prudentcapital expenditure and efficient working capital management. The liquid surplus has beenparked in fixed deposits with banks. The Company continues to be debt free. On similarlines the debt at a consolidated level has come down to `430.2 million.The cash and cashequivalent level (net of borrowings) at a consolidated level stands at `6441 millionincluding deposits with tenure exceeding 3 months. The debt equity ratio for the Companyis Nil at a standalone level and 0.02 at a consolidated level. The Company's Balance Sheetremains robust and it augurs well for the growth in the prevailing conditions.

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 `3 million compared to `4 million last year. The Company earned

` 100 million by investing surplus cash available for short term.

At a consolidated level the finance cost has come down to `36 million from `63million. The repayment of loans has helped in bringing down the finance cost. The capitalexpenditure program of `1064 million was financed majorly out of 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 2021 and the date of thisreport.

INDIAN ACCOUNTING STANDARDS (IND AS) - IFRS CONVERGED STANDARDS

The Company its Subsidiaries Joint Ventures and Associate in India adopted lnd ASwith effect from 1st April 2016 pursuant to the Companies (Indian AccountingStandard) Rules 2015 notified by Ministry of Corporate Affairs on 16thFebruary 2015.

INTERNAl CONTROl

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 theeffectiveness and adequacy of internal controls compliance with operating systemspolicies and procedures of the Company and recommends improvements if any. Significantaudit observations and the corrective/preventive action taken or proposed to be taken bythe process owners are presented to the Audit Committee. Periodic review of adherence tothe agreed action plan is carried out. The scope of Internal Audit is annually determinedby the Audit Committee considering the inputs from the Statutory Auditor and theManagement. Capital and revenue expenditures are monitored and controlled with referenceto approved budgets. Investment decisions are subject to detailed evaluation and formalapproval according to schedule of authority in place. Periodical review of capitalexpenditure with reference to benefits forecasted is done. Physical verification of assetsis also periodically 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 Control Systems inthe Company.

During the year the Board with the recommendation of the Audit Committee appointedM/s. Deloitte Touche Tohmatsu India LLP as Internal Auditors of the Company for the periodfrom 1st July 2020 to 30th June 2021.

INTERNAl FINANCIAl CONTROlS

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 operationsreporting 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 the appropriate "tone at top"relative to financial reporting are - Code of Conduct Enforcement of Delegation ofAuthority Hiring and Retention practices Whistle blower mechanism and other approvedpolicies and procedures. ii. Process Level controls (PLC) to ensure that processes arepredictable stable and consistently operating at the targeted level of performance withonly a normal variation are classified into Manual or IT - Dependent or AutomatedControls. They are also classified as Preventive or Detective. iii. General IT Controls toensure appropriate functioning of IT applications and systems built by the Company toenable accurate and timely processing of financial data are - User Access rightsmanagement and Logical access; Change management controls; Password policies andpractices; Patch management and License management; Backup and 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 reviews Internal Financial Controls to ensure thatthey are adequate and operating effectively.

HUMAN RESOURCES

Coping up with the challenges posed by the unprecedented pandemic and enabling theworkforce adapt to the new normal - both from a work and wellness perspective was thepriority for the Human Resources function this year.

During the year the Human Resources strategy was focused on balancing employeewellness technology adaptation and business continuity. From taking learning anddevelopment initiatives online to promoting a sense of togetherness every effort was madeto help employees feel connected even during the unprecedented crisis. A specialcommunication channel was created to keep employees updated on heath protocols - bothinternational and national guidelines. Communication channels were created for continuousdialoguing with employees to reduce anxiety stress and preserve their mental wellnesseven during a ‘locked down economy'.

Combating COVID-19

In March 2020 as the COVID-19 pandemic spread to India actions were taken to createemployee awareness on health and safety. Across business units COVID-19 communication andawareness sessions were held to sensitise employees on the importance of social distancingnorms sanitisation hand wash and personal protective equipment. Protocols onvisitor/vendor management meetings travel etc. were drawn up and communicated. Theseprotocols underwent weekly reviews in line with the changing statutory guidelines. Withthe lockdown announced a swift transition to work from home was initiated andimplemented. Communication platforms like MS Teams were adopted across the organisation toensure teams were connected always.

A C-Safe app was created for employees to voluntarily declare their health status as asign-in process. It was also a way to help identify employees with symptoms and implementpreventive measures proactively.

The impact of the pandemic and the first lockdown made it vital to have a contingencyplan in place for a prolonged lockdown. In line with the evolving business realitiesBusiness Continuity Planning and Scenario planning were undertaken which continue to bereviewed. A dedicated quarantine centre was set up to handle the sudden spurt ofinfections at plant locations. Employees who were recommended home quarantine were able touse the quarantine centre and this reduced their stress levels and enabled speedyrecovery.

Preventive and other steps taken included steps taken included mass testing ininfection-prone areas special COVID leave policies counselling facility for employeesand their family members to ensure mental wellness.

Employee Safety and Health

Safety remains the key area of focus for the Company. Behaviour-based training bothin-person as well as virtually were conducted to promote a culture of safe working. Thebehaviour-based safety model has been piloted in select units of ElectromineralsIndustrial Ceramics and Abrasives Business. Once the lockdown was relaxed the annualmedical check-up was reinstated to track employee's health and fitness. In addition to theroutine safety training specific training and webinars were conducted to sensitiseemployees on the pandemic protocols. While the safety precautions mandated to combat thespread of the pandemic the routine and normal safety protocols in operating the plantswere also ensured.

The Internal Complaints Committee set up under the Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013 organised awareness campaignsacross units. While the e-learning modules improved employees' awareness level mime actsunder various themes were conducted to increase awareness for the workforce. Poster andmailer campaigns to increase awareness were also carried out. During the year noreferrals or complaints were received under the policy for Prevention of SexualHarassment.

Capability Building

The learning and development function needed a rejig considering the new way ofoperating businesses amidst a lockdown situation.

Functional and business requirements for management staff were identified and accessto online courses were given. Approximately 2500 (behavioural and functional) modules werecompleted during the lockdown period. The key learning programmes conducted during theyear include:

Competency-based behaviour event interview session organised for sales leaders tostrengthen the hiring process.

Focused sessions on data analytical tools like Power BI for HR teams.

Pilot programme on Sales Excellence.

LEAD (Leadership Education and Development) programme organised in association with aleading business school for Band 3 employees;

Employee Relation: weekly sessions from domain experts (external & internal) spreadover 30 weeks; and

YOLO (Your Own Learning Opportunity) workshops for Management and Graduate Trainees tohelp identify their area of interest in learning.

The Performance Enhancement Process (PEP) piloted in the Abrasives Business during theprevious year was deployed across other businesses in India. This has helped develop thegoal setting and feedback capabilities of people across the Company. The Catalyst avoluntary self-directed mentoring programme where employees directly sign up fordialogues with mentors continued its role in people development. During the year 14 newmentors were added to the programme.

Platform for Accelerated Career Experience (PACE) - a new platform for cross-functionalexperiential learning was launched during the year. The platform is envisioned to provideemployees with an opportunity to work on different projects of their choice. 26 newprojects were launched on PACE this year. 49 ‘Career Sherpas' were given anorientation on how to guide and mentor project aspirants. PACE has helped developcapability in different functional areas and improve employee engagement levelsespecially of millennials.

Employee Engagement

The work from home policy continued even after the lockdown conditions were relaxed toenable employees who could perform their role and functions under remote working to worksafely in their homes. Even at offices the safety protocols were followed to those whoopted to work from office/plant locations. With work from home continuing employeeengagement gained greater significance. The leadership team ensured regular communicationthrough different channels to dialogue with employees communicate updates and contingencyplans. Communication channels included regular communication through mailers town hallsMD's communication "Thinking Aloud" and "Ask the President" sessionswith millennials. Virtual Town Halls were also organised covering employees across theglobe. Keeping these communication channels activated has helped foster a sense ofconnection and the leadership teams to get employees' pulse and plan resourcesaccordingly. Employees who had taken extraordinary efforts to ensure business continuityduring the lockdown were honoured as ‘Unsung Heroes' in recognition for theirefforts. To end the year on a positive note an Appreciation Week was organised to promotethe culture of appreciation and to encourage individuals and teams to recognise the goodwork done during a challenging year through the Rewards and Recognition portal.

HR Excellence

CUMI participated in the 11th CII HR Excellence Assessment during the yearand was awarded "Significant Achievement in HR Excellence". The assessmentincluded a review of our HR processes enabling benchmarking with other best in classcompanies. The Assessment Team comprised 4 eminent professionals who carried out nearly250 man-hours of virtual and on-site assessment. CUMI was one among the 12 companiesawarded "Significant Achievement in HR Excellence". This recognition re-affirmsthe Company's constant endeavour towards HR Excellence and the exercise provided anopportunity to align our processes to the best in class.

Employee Relations

Cordial relationships have been maintained with employees and unions despite thedisruptions and volatile conditions caused by the pandemic and the wage settlements havebrought in greater flexibility in operations adherence to TPM practices ensuring highstandards of productivity.

Talent Acquisition & Talent Management

The focus was to continue creating a talent pipeline in the middle management level byhiring Graduate and Management trainees. Lateral hires with greater emphasis on referralsjob boards and internal transfers lowered sourcing costs. The Talent Management processwas reviewed and revised during the year. The process based on Aspiration Ability andEngagement identified 83 High potential talents. These talents undertook a 360-degreeassessment. Each individual's development plan is being formed based on the assessmentreport.

Cost focus

The pandemic and lockdown brought in new challenges on Fixed Cost. Through a structuredapproach the year saw a significant reduction of the same with focus on processes suchas:

Zero-based budgeting;

Higher focus on automation;

Improving the productivity through Six Sigma and identification of non-value addedprocesses through tools like value stream mapping.

ACHIEVEMENTS AND AWARDS

The year 2020-21 despite being challenging from an operational perspective continued tobe a year of recognition for the Company in varied fields.

The Company's Annual Report for the FY 2018-19 was selected by the South AsianFederation of Accountants of SAARC Region and conferred the Certificate of Merit in theManufacturing Sector category. This is the 2nd consecutive year of recognitionby this body of Accountants from SAARC Region thus reinforcing our transparencyexcellence in financial reporting and governance standards.

The Company's HR Processes won the recognition of ‘Significant Contribution to HRExcellence' from Confederation of Indian Industry (CII). This recognition which benchmarksHuman Resource practices with best-in-class companies underlines the robustness of ourprocesses and commitment to people wellbeing. The Company's Refractories Business atSerkadu Tamil Nadu received the ‘TPM Excellence Award in Category A' in recognitionof its achievement towards Manufacturing Excellence. The Company's plant in EdapallyKerala won the CII TPM Strong Commitment to TPM Excellence for its TPM Excellence inmanufacturing. Our commitment to safety has also been fostered through recognitions atdifferent units. The Company's Maniyar hydel power plant won the "Sreshta SurakshaPuraskar" and the Cochin SEZ plant won the "Suraksha Puraskar" fromFactories & Boilers Department Kerala. The Company's Maramalai Nagar plant secured a'4 star' from CII Southern Region for its commitment to EHS practices.

The Company's team were declared winners in IQ Fest organized by IIM Trichy underQuality Improvement category. The Industrial Ceramics Business won "Gold" awardsin Kaizen under Champions Trophy and Challenger trophy category. The Industrial CeramicsTeam also won "Gold" in Makigami Competition under Champions Trophy categoryfrom CII.

Our efforts on Innovation and Quality improvements won recognition for Kaizen Award andExcellence Award for Quality Control Concept category from CII. Our Team also won"Par Excellence" Award in National Convention for Quality Concepts competitionheld at Varanasi Uttar Pradesh.

The total staff on rolls of the Company (including Joint Ventures and Subsidiaries) asof 31st March 2021 was 5256 with 3488 employees in India (previous year 5172with 3416 employees in India).

PERFORMANCE OF SUBSIDIARIES

The Russian subsidiary recorded sales of RUB 6625 million against RUB 5994 millionduring the previous year. Growth was driven by the SiC and Refractories Business. Volumesremained encouraging throughout the year and there is a clear trend of global consumerslooking to de-risk or reduce exposure to China. Foskor Zirconia South Africa recordedsales of ZAR 293 million compared to ZAR 213 million in last year. The entity's lossreduced to ZAR 23 million as against ZAR 43 million in last year. Raw Material scarcityand soft realisations impacted the margins of the subsidiary.

Considering that its liabilities have exceeded its assets the subsidiary's Auditors'have in their report made an observation on material uncertainty relating to goingconcern. Hence the Auditors of the Company have reproduced the same in their ConsolidatedAudit Report without modifying their opinion. Considering the challenging businessconditions in South Africa the Board of Foskor Zirconia (Pty) Limited is reviewing thebusiness for initiating suitable measures in due course. CUMI Australia was impacted bythe trade tensions between China and Australia. The availability of containers alsoimpacted order fulfilment. Sales declined to AUD 18.8 million from AUD 21.8 million. Thede-growth in the business is due to COVID challenges and the logistics problem due to portcongestion. Profit after tax declined to AUD 2.0 million from AUD 2.7 million. SterlingAbrasives reported a sales of `870 million compared to the last year's sales of `799million. Profit after tax increased to `122 million from `80 million. Higher agri acreageand the reception of certain new products among end users helped growth.

CUMI Abrasives and Ceramics Company the subsidiary based in China had a sales of CNY19 million for the year compared to CNY 18 million last year.

The sales of CUMI America during the year was at USD 9 million as against USD 10million last year. The marginal reduction is due to COVID impact. The Profit after Tax foryear was USD 0.1 million as against USD 0.3 million. For CUMI Middle East sales increasedfrom USD 2.7 million to USD 3.1 million. Profit for the year was at USD 0.10 millionagainst a profit of USD 0.008 million during the previous year.

Southern Energy Development Corporation Limited (SEDCO) the gas based power generationsubsidiary recorded a sale of `229 million as against `237 million last year. The profitafter tax grew to `80 million from `55 million majorly due to reduction in gas price.

Net Access India which provides IT facilities management and other allied servicesdecreased its sales to `410 million from `471 million. The profit after tax decreased to`20.6 million from `27.2 million. CUMI International Limited Cyprus recorded a revenue ofUSD 4.43 million representing mainly dividend income as against last year's income of USD5.24 million.

CUMI Europe s.r.o is not in operation.

During the year voluntary de-registration of Thukela Refractories Isithebe PtyLimited South Africa (TRI) the Company's wholly owned step down subsidiary (subsidiaryof M/s.CUMI International Limited Cyprus) which had ceased operations was approved by theCompanies and Intellectual Property Commission (CIPC) South Africa. By virtue of thefinalisation of the de-registration Thukela Refractories Isithebe Pty Limited SouthAfrica has ceased to be a subsidiary of CUMI International Limited and accordingly a stepdown subsidiary of the Company.

Performance of Associate 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 Associate/JointVenture) have been provided in the Annual Report. Other than the Associate/Joint Venturecompanies referred in the Annual Report there are no Associate/Joint Venture within themeaning of Section 2(6) of the Companies Act 2013. A statement containing the keyfinancial highlights of each subsidiary based on the financial statements prepared bythem under applicable local regulations is also provided in the Annual Report.

ENTERPRISE VAlUE ADDITION

The Company has been able to continuously add value the summary of which is givenbelow:

Particulars 2020-21 2019-20 2018-19 2017-18 2016-17 2015-16
Generation of Gross Value added (excludes exceptional items (net)) 5153 5044 5072 4550 3959 3789
Breakup on Application of Value added
Payment to Employees and Directors 1982 1979 1839 1760 1549 1429
Payment to Shareholders (on payment basis) 284 757 520 330 189 377
Payment to Government 638 709 946 732 543 564
Payment to Lender - - - - 33 64
Towards replacement and expansion 2249 1599 1768 1728 1645 1355
5153 5044 5072 4550 3959 3789

 

- Gross value added is Revenue Less Expenditure (excluding depreciation +expenditure on Employees & Directors service + Long term interest)

- Payment to Government is Current tax+ Dividend distribution tax

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

RISKS CONCERNS AND THREATS

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. The Company also has developed a structured risk management policyencompassing the risk management objectives principles process responsibility forimplementation maintenance of risk registers review of risk movements risk reportingframework etc. Risk management 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. The requirements of power for the Company isdriven by the requirements of the Electrominerals Business. The power requirement ispartly met out of own generation from the Maniyar Hydroelectric plant. The entireproduction of power from Maniyar is utilised by the Electrominerals Business. Apart fromthis electricity is generated at the Company's subsidiary SEDCO and consumed at all itslocations in Tamil Nadu. The rest of the requirement of electricity is managed by purchasefrom respective State Electricity Boards. Utilisation of power remains one of the keyfactors which can impact the profitability either favourably or adversely based on thechanges in the power cost. As part of its strategy to build competitiveness the Companycontinues to look for opportunities to add to its captive power generation. In Russia theSilicon Carbide operations which also consumes large quantities of power sources it fromlocal utility.

The requirement of fuel is driven by the high temperature processes in the Abrasivesand Ceramics Businesses. Any increase in the cost of fuel impacts the profitability.Hence the Company has put in place plans and implement energy conservation measures toimprove its competitiveness.

The Company uses various raw materials such as Bauxite Calcined Alumina Zirconiasand Raw Pet coke Quartz and Graphite which have high price volatility. This isaddressed through annual contracts to cover volatility due to price fluctuations and alsomitigated through programs to identify alternative sources.

The Company deals with multiple currencies and is thus exposed to exchange risk onaccount of adverse currency movements. Foreign Exchange risk in 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 a Company level there is a natural hedging mechanism.

As a risk mitigation measure to address cyber security threat the Company hasundertaken a penetration assessment testing of its internet facing applications during theyear. The security threat awareness is published and promoted periodically to createawareness among stakeholders on handling the risk proactively. The security process isincluded as an important step in the IT strategy of the Company. There is considerableamount of work undertaken on scoping of information specific to the role defined toprevent any data or information leak. During the year considering that work fromhome/remote working has become the new normal data security and protection against therisk of phishing malware attacks was given priority. Awareness mailers were disseminatedacross to mitigate risk of such attacks and requisite infrastructure upgrade to supportthe remote working conditions in a secured manner was initiated.

The Company's input materials are not commoditised and does not warrant for anyspecific hedging to be undertaken. With respect to output materials adverse impact ofchanges in commodity prices on user industries could impact the sales which are mitigatedby development of alternate products establishing new range of applications etc. asdetailed above. The other mitigation measures for dealing with increase in fuel costsnon-availability of raw materials etc. have been dealt separately in above paragraphs.

The risks associated with COVID-19 has been dealt with in the section below:

COVID -19

The outbreak of the COVID-19 pandemic developed into a global crisis in the lastquarter of the FY 2019-20 forcing countries globally to impose lockdown conditions on allactivities impacting the economy at large. At the onset of the pandemic spread in Indiathe priority for the Company was the safety and health of all its employees and otherstakeholders with minimal disruption to operations. In adherence to the Governmentadvisories and considering the well-being of our stakeholders all the plants of theCompany were shut down in a safe manner following due protocols. However considering thatmost of our plants have operations involving continuous processes at high temperature asa safeguard measure minimal essential staff required for safety and maintenance weredeployed in such locations after undertaking due health and hygiene precautions.

For a Company with a legacy of operating on a model of working out of plants andoffices over 6 decades a seamless transition to remote working was made swiftly byputting in place a policy framework for operating from home with well-establishedprotocols. The robust IT platform of the Company enabled significant personnel to continueto perform their services remotely in a safe and secured manner.

Some of the plants especially those located in green zones resumed operations quicklyby mid-April after ensuring receipt of requisite permissions from the local authoritiesand in adherence to the standard operating procedures laid down by the Ministry of HomeAffairs from time to time. This adherence was ensured not only from a regulatorycompliance perspective but by keeping in mind the well-being of our employees customersand other stakeholders. All plants of the

Company resumed operations by May 2020 with permitted workforce and necessary stepswere taken by the Company to meet the customer demand globally reinforcing theirconfidence in the Company amidst these unprecedented and challenging conditions.

The COVID-19 pandemic has caused unprecedented disruption in business and operationsmodels globally. This has cascading uncertainties making market and business conditionsvolatile. While the overall business scenario in Q1 and early Q2 of FY 2020-21 was on aslowdown the ease of restrictions subsequently resulted in recovery across major segmentsin Q3 and Q4 of FY 2020-21. The Company has been able to reposition itself in Q3 throughefficient liquidity management supported by diversified global operations reliable supplychain partners passionate and dedicated employees supported by the true grit built over67 years. With markets slowly opening up and restoring to normalcy the Company adapted tothe new normal conditions and the last quarters of the year saw an uptick in performance.However the

FY 2021-22 is witnessing the second wave of the pandemic which is likely to causedisruption with some states announcing partial lockdowns to curb the spread of thepandemic which is at a much faster pace than the first wave last year. Vaccination will bea key element in managing the second wave as Governments seek to balance virus managementagainst maintaining economic activity. However having navigated the unprecedentedvolatile situation last year and on the back of the strength of its continuity plans theCompany believes that it will be able to steer through these recurring challenges for asustainable growth in future.

With respect to material changes or commitments impacting the financial position of theCompany in respect of events occurring after end of the year but before the date of thisreport the Board is of the opinion that no material adjustments in the accounting entriesor estimates accounting policies are relevant to the financial statements for the yearended 31st March 2021.

The key risks identified owing to COVID-19 which could impact the future performance ofthe Company are given below:

Risk Impact Mitigation plan
Business disruption and uncertainty Operations of the Company could be impacted due to the second wave of the continuing pandemic situation with restrictions on manpower logistical hindrances or delays low customer demands etc. which could impact the growth and profitability. Rigorous review of the business plan as well as contingency plan based on scenario planning was undertaken for a three-year period and is closely monitored by the Business Group Management Committee (BGMC) duly supported by the operating teams with timely and relevant information. Continuous engagement with customers and updating them on the status of operations and assuring them of delivery and performance.
Prudent cash management and efficient working capital management with sharp focus on collections and payments cost reduction and management.
Based on the robust safety measures deployed as well as prevailing demand position wherever permissible approvals relaxing the manpower requirements to be obtained in case stricter lockdown conditions are imposed. Employees of the Company especially the workforce are being sensitised to take the vaccination as per the eligibility announced by the Government. Assistance in the form of vaccination camps tie-ups with hospitals etc. are in progress to ensure the employees are vaccinated.
Exploring new opportunities in emerging sectors like food and pharma post COVID-19. Technological and digital advancement proposals to keep up with the transformation in the operations model and product offerings.
Employee Risk Growth momentum could be lowered due to any employee or his/her family being exposed to the infection emotional stress and impact on their wellbeing during quarantine or lockdown conditions employees not being able to adapt to remote working or not being able to carry out their functions or operations where remote working is not feasible owing to logistical contractual or security issues non -availability of migrant labour. Right from the onset of the pandemic dedicated clear communication and awareness programs to sensitise the employees on the cause and effect of the disease is being continuously conducted. Dedicated periodic calls to enquire about the health status of the employee and his or her family including neighbourhood are being made.
Dedicated Task forces for taking concerted and quick decision on matters relating to COVID-19 have been set up under the supervision of Head-HR.
In certain factories preliminary health checkups are being undertaken before a worker resumes duty. Continuous guidance on social distancing norms and hygiene given. Contractual emotional and operational guidance on remote working being given periodically.
A C-Safe app has been created for employees to voluntarily declare their health status as a sign-in process.
This helps in tracking the health status of the employees besides the annual health check-ups resumed during the year.
Special communication channel has been set up to keep employees updated on health protocols stated in both international and national guidelines.
Separate helplines 24*7 to counsel employees who require customised guidance or information has been set up.
Online learning and development programmes rolled out to keep employees engaged and up skilled during the lockdown.
Automation of routine and repeated processes to minimise the dependency on manual processes being explored continuously.
Quarantine centre to handle any sudden spurt of infections at the Company's plant location. Employees who are recommended home quarantine can use the quarantine centre.
With remote working continuing in phases since March 2020 employees have adapted to the new normal and the necessary IT infrastructure is being upgraded.
Supply chain risk Non-availability of raw materials and services to continue operations. Regular coordination with key suppliers as well as identification of alternate suppliers for expediting the services/materials critical for operations.
Regulatory or legal risk Non-adherence to the Government Advisories Standard Operating Procedures etc. exposing the Company to legal and compliance risks including those arising out of force majeure obligations. Closely monitoring the information on government circulars notifications advisories and instantly disseminating the same to the operating team for implementation as well as monitoring adherence through robust compliance management system.
Cyber security risk As more digital our operations become we are prone to cyber threats causing havoc in operations and reputation. Robust IT security policy implementation with a periodic review mechanism.

With the Company's strong track record and value focus we expect the competitivenessto increase in future and with ongoing risk assessment and minimisation efforts weanticipate to suitably minimise the impact. However the forecast for growth depends onthe pandemic being brought under control.

BUSINESS OUTlOOK AND OPPORTUNITIES

As stated in the Economic Overview section India is expected to grow at low doubledigits in FY 2022. The greatest uncertainty looming at the moment is the trajectory of thesecond wave of the pandemic in India. While businesses have corpuses to invest when andhow much they will invest remains unclear. Once investment climate improves theperformance of core sectors could improve. The performance of Construction and Auto thetwo major end users of Abrasives will depend on the level of discretionary spending byconsumers in the economy which in turn will depend on the course of the second wave.Notwithstanding the same the Company continues to explore and identify alternate and newopportunities for its various product segments across all its businesses in sectorsincluding Healthcare Digital Defence etc. to leverage growth during these unprecedentedtimes.

FIXED DEPOSITS

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.

lOANS AND INVESTMENTS

The particulars of loans guarantees and investments covered under Section 186 of theCompanies Act 2013 are given below: (` million)

Description As on 31.03.2020 Movement (Net of Deletions) As on 31.03.2021
Loans given by the Company - - -
Corporate guarantee given by the Company 550.76 (301.76) 249.00
Investments made by the 2458.42 48.89* 2507.31
Company

 

* Deletion of `0.62 million on account of divestment of marginal stakeinvestments in Wendt (India) Limited to meet minimum public shareholding requirement andbalance is due to fair valuation of investment.

As at 31st March 2021 there were no investments made in liquid funds.

RElATED PARTY TRANSACTIONS

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 that cannot be foreseen or envisaged are alsoobtained as permitted under the applicable laws. The list of Related Parties is reviewedand 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 and hence not requiringparticulars to be entered in the Form AOC-2. Further all transactions entered into withRelated Parties during the year even at arms' length basis in the ordinary course did notexceed the thresholds prescribed under the Companies (Meetings of Board and its Powers)Rules 2014 or Listing Regulations or the Company's Policy in this regard and hence nodisclosure was required to be made in Form AOC-2. Accordingly there are no contracts orarrangements entered into with Related Parties during the year to be disclosed underSections

188(1) and 134(3)(h) of the Companies Act 2013 in Form AOC- 2. The form is enclosed asAnnexure E.

There are no materially significant Related Party transactions made by the Company withits Promoters Directors Key Managerial Personnel or their relatives which may have apotential conflict with the interest of the Company at large.

The Company's policy on dealing with Related Parties as approved by the Board isavailable on the Company's website in the following linkhttps://www.cumi-murugappa.com/policies-disclosure/. None of the Directors and KMPs hadany pecuniary relationship or transaction with the Company other than those relating toremuneration in their capacity as Directors/Executives and corporate action entitlementsin their capacity as shareholders of the Company.

CORPORATE SOCIAl RESPONSIBIlITY

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 in line with its stated CSR policy.The Company set up the CUMI Centre for Skill Development (CCSD) in the 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 replicatedthis model in Edapally Cochin. During the FY 2018-19 the Company along with its JointVenture - Murugappa Morgan Thermal Ceramics Limited has replicated this model in RanipetTamil Nadu. CCSD provides specialised training based on National Council on VocationalTraining syllabus for the rural youth drawn from socially and underprivileged sections ofthe society. Three year training is imparted with a stipendiary payment and free boardingfacilities thus enabling the enrolled students to earn while they learn. The job-orientedskill training enhances their employability and aids in uplifting their socio-economicstatus. The technically trained students can be employed by any industrial entity oncethey complete the training programme. The Company continues to harness the potential ofCCSD centres so far established. The Company takes pride in informing that few studentshave earned accolades at national/regional level for their par excellence performance inacademic and technical areas. During the previous year to yield benefits to the studentcommunity as a part of its expansion plan a state-of-the-art building for impartingtraining to students of CCSD was inaugurated. During lockdown training sessions could notbe conducted but the Centre was able to keep students engaged through online sessions. Inaddition to the CCSD the Company has also been contributing to the cause of health andeducation by making grants to AMM Foundation. Further during the year grants were alsomade to Shri A M M Murugappa Chettiar Research Centre (MCRC) for Research and Developmenton Biological waste water treatment using Microbials enzymes etc. for rural areas. AMMFoundation an autonomous charitable trust is engaged in philanthropic activities in thefield of education and healthcare since 1953. The Company's focus areas for grants toimplementing agencies continued to be in the education and health sector. The grant to AMMFoundation for the education sector was through contributions to Vellayan Chettiar HigherSecondary School Tiruvottiyur (VCHSS) - which has been making a difference in the fieldof education for the past 50 years. The school runs with the vision - To provide QualityEducation with good virtues for the underprivileged and marginalised communities aroundTiruvottiyur. Further the Company has provided the students of the VCHSS a playground(football ground) developed with adequate facilities for excelling in sports and set up anew basketball court for the students to play. Owing to the COVID-19 situation the spendfor the school during the year was less than the previous years.

With respect to healthcare a grant to AMM foundation was made for establishing andoperating a mobile health van at Jhabera Uttarakhand in order to provide free primaryhealthcare at doorstep diagnosis of diseases if any through the mobile health labproviding treatment through free medicines and creating awareness on the importance ofhealthcare in the nearby communities. Further a grant to AMM Foundation was made forpurchase of Magnetic Resonance Imaging scanning equipment at Sir Ivan Stedford Hospital.Sir Ivan Stedford Hospital a multi-speciality hospital set up in 1966 located inAmbattur Chennai aims at providing quality medical care through latest technology tocater to the medical needs of the poor and needy sections of the society at an affordablecost.

MCRC is a non-governmental voluntary research organisation working on devices andtechnologies for rural application of eco-friendly technologies to combat pollution. MCRCis recognised by Department of Scientific and Industrial Research Government of India asa Scientific and Industrial Research Organisation to conduct research in various areas andis approved by the University of Madras Chennai to offer Ph.D. programmes in the areas ofEnergy Bioenergy and Biomass for rural development.

During the year a grant was made to Hosur Industrial Association towards constructionof building for a Skill Development Centre. Hosur Industrial Association was set up in theyear 1981 with an aim to protect and promote the interests of industrial establishmentslocated in and around Hosur. Considering the increasing unemployment due to lack ofrequisite skill and to bridge the gap between the skill requirement versus the actualskills available a Skill Development Centre is being built by HIA in Hosur to promoteeducation in the field of technical trades as well as commercial education like ERP useof computers etc. Since mid of March 2020 the novel Corona Virus pandemic 2019 (COVID-19)has posed an unparalleled and enormous challenge to the nation and world at large. Havingbeen declared a ‘pandemic' by the World Health Organisation it caused massivedisruption not only to business operations but also to normal life during most of the FY2020-21. Hence in order to support the efforts of the Governments (Centre & State) tocombat the ongoing crisis and also aid the Government to deal with emergency or distresssituation posed by COVID-19 the Company made a contribution of `20 million to the PMCares Fund in April 2020. During the times of need the Company's canteens at variousfactory locations functioned as community kitchens to serve the needy during thenationwide lockdown. At various locations where the Company is situated contributions tocombat or contain the spread of the disease were made mostly in the form of supplies andmaterials. Besides the above the Company also actively pursued local community assistanceprogrammes in and around its plant and office locations anchored by its employees. Owingto the lockdown situations and schools being closed the Company was unable to conduct itsother CSR related activities such as sessions on Child rights & parenting terracefarming for women importance of waste management & environment sanitation "TheAdolescent Girl Child Program" targeted at imparting education on Good Touch BadTouch and menstrual hygiene for adolescent girls of villages in and around Velloredistrict and other similar programmes.

The Company's CSR policy is available on the Company's website at the following link https://www.cumi-murugappa.com/policies-disclosure/.The Annual report on the CSR activities in the prescribed format is annexed hereto asAnnexure B and forms part of this Report. As at 31st March 2021 the CSR spendmade directly and through implementing agencies has been utilised in full and hence theCompany is in compliance with the provisions of Section 135 of the Act and the rulesreferred therein.

BUSINESS RESPONSIBIlITY REPORTING

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 https://www.cumi-murugappa.com/policies-disclosure/ and the BusinessResponsibility Report for the year ended 31st March 2021 in terms of Regulation34(2) of the Listing Regulations is annexed to this Report as Annexure C.

GOVERNANCE

Board of Directors and Key Managerial Personnel

As at 31st March 2021 the Board of the Company comprised seven Directors ofwhich majority (five) are independent.

During the year Mrs. Soundara Kumar was appointed as an Independent Director underSection 149 of the Companies Act 2013 at the 66th Annual General Meeting bythe shareholders for a term of five years commencing from 3rd August 2019.

Mr. M A M Arunachalam Non-Executive Director resigned from the Board with effect fromclosing hours of 2nd February 2021. The

Board placed on record its appreciation for the services rendered by Mr. M A MArunachalam during his tenure of office as a Director of the Company including as a memberof the Stakeholders Relationship Committee.

Mr. M M Murugappan retires by rotation at the forthcoming Annual General Meeting andbeing eligible has offered himself for re-appointment. A proposal for his re-appointmentis included in the Notice convening the 67th 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. In the opinion of the Board all the Directorsappointed/re-appointed during the year are persons with integrity expertise and possessrelevant experience in their respective fields.

All the Independent Directors of the Company have registered their names in theIndependent Directors Databank as required under the Companies Act 2013 and the Rulesreferred therein. The Independent Directors are also required to take up an onlineproficiency self-assessment test within two years from the date of inclusion of their namein the Independent Directors databank with an exemption provided to Directors fulfillingthe criteria prescribed under the Act and the Rules referred therein. While therequirement of completion of the online proficiency self-assessment test is exempt for fewof the Company's Independent Directors considering the two year time available from thedate of inclusion of the name in the databank the eligible Independent Directors wouldcomplete the assessment within the prescribed time. Considering the time available for theIndependent Directors to complete the online proficiency test the requirement for theBoard to provide its opinion on the experience of the Independent Directors with specificreference to proficiency ascertained from passing the online proficiency self-assessmenttest does not arise.

During the year the Board based on the recommendation of the Nomination andRemuneration Committee as well as the Audit Committee appointed Mr. P Padmanabhan as theChief Financial Officer with effect from 28th October 2020. As on date of thisreport Mr. N Ananthaseshan Managing Director Mr. P Padmanabhan Chief Financial Officerand Ms. Rekha SurendhiranCompany Secretary are the Key Managerial Personnel of theCompany as per Section 203 of the Companies Act 2013.

Board Meetings

During the year seven 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 a whole and the Non-IndependentDirectors was carried out by the Independent Directors at their separate meeting heldduring the year.

During the year the Board evaluation process transitioned to a paperless mode with theautomation of the process.

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-disclosure/.

Composition of Audit Committee

The Audit Committee of the Board comprises only Independent Directors. Mr. SanjayJayavarthanavelu is the Chairman and other members are Mr. Aroon Raman Mr. Sujjain STalwar and Mrs. Soundara Kumar.

During the year five Audit Committee meetings were held the details of which areprovided in the Corporate Governance Report.

Statutory Auditors

In line with the requirements of the Companies Act 2013 the Company with theapproval of the shareholders at the Annual General Meeting held on 31st July2017 appointed M/s. Price Waterhouse Chartered Accountants LLP (Reg. No. FRN012754N/N500016) (PwC) as the Statutory Auditors of the Company to hold office from theconclusion of 63rd Annual General Meeting until the conclusion of the 68thAnnual General Meeting subject to annual ratification by the shareholders at every AGM ifrequired under the relevant provisions of the Act at a remuneration to be decided by theBoard based on the recommendation of the Audit Committee. However as the Companies(Amendment) Act 2017 has dispensed with the requirement of annual ratification of theStatutory Auditor's appointment there is no requirement to seek an annual ratification oftheir appointment this year.

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 Chartered Accountants LLP on the FinancialStatements of the Company for the year ended 31st March 2021 is provided in thefinancial section of the Annual Report.

There are no qualifications reservations adverse remarks or disclaimers given by theAuditors in their report. During the year under review the Auditors have not reported anymatter under Section 143(12) of the Companies Act 2013 and hence there are no details tobe disclosed under Section 134(3)(ca) of the Act.

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 2020-21 on aremuneration of `450000/-. Further they have also been appointed by the Board toconduct the cost audit for the FY 2021-22 at the same remuneration.

The Companies Act 2013 mandates that the remuneration payable to the Cost Auditor isratified by the shareholders. Accordingly a resolution seeking the shareholders'ratification of the remuneration payable to the Cost Auditor for the FY 2021-22 isincluded in the Notice convening the 67th Annual 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 2020-21. 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.

In terms of Regulation 24A of the Listing Regulations there is no material unlistedsubsidiary incorporated in India. Material unlisted subsidiary for the purpose of thisRegulation is a subsidiary whose income/net worth exceeds 10 per cent of the consolidatedincome/net worth respectively of the Company and its Subsidiaries in the immediatelypreceding accounting year. Hence there is no requirement for a Secretarial audit to beconducted for any of the Company's Subsidiaries in India.

Compliance Management

The compliance management system KOMRISK tracks compliances across the variousfactories and offices of the Company. This tool has a comprehensive coverage of thevarious applicable laws including auto updation based on the regulatory changes from timeto time.

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. N Ananthaseshan Managing Director and Mr. P Padmanabhan Chief Financial Officerhas submitted a certificate to the Board on the integrity of the Financial Statements andother matters as required under Regulation 17(8) of the Listing Regulations.

DIRECTORS' RESPONSIBIlITY STATEMENT

Pursuant to the provisions contained in Section 134(3)(c) of the Companies Act 2013the Board to the best of its knowledge and belief and according to the information andexplanations obtained by it confirms that: in the preparation of the annual accounts forthe financial year ended 31st March 2021 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.

ANNUAl RETURN

The Annual Return in Form MGT-7 is available in www.cumi. murugappa.com.

SECRETARIAl STANDARDS

The Company is in compliance with the Secretarial Standards on Meetings of the Board ofDirectors (SS-1) and Secretarial Standards on General Meetings (SS-2).

ENERGY CONSERVATION TECHNOlOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO

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 D).

SIGNIFICANT AND MATERIAl ORDERS PASSED BY THE REGUlATORS OR COURTS

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.

PARTICUlARS OF EMPlOYEES

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 A).

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. No grants were made during the year under the ESOP Plan 2016. Thedisclosures with respect to Options granted under the ESOP 2007 and ESOP 2016 arecontained in the Corporate Governance 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 havebeen provided on the Company's website and is available in the link https://www.cumi-murugappa.com/policies-disclosure/.Both the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share BasedEmployee Benefits) Regulations 2014.

OTHER CONFIRMATIONS

No application under the Insolvency and Bankruptcy Code 2016 (IBC) was made on theCompany during the year. Further no proceeding under the IBC was initiated or is pendingas at 31st March 2021. There was no instance of onetime settlement with anyBank or Financial Institution.

ACKNOWlEDGEMENT

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
April 28 2021

Chairman

.