Carborundum Universal Ltd Management Discussions.

Your Directors have pleasure in presenting the 63rd Annual Report together with the Audited Financial Statements for the year ended 31st March 2017. The Management Discussion & Analysis Report which is required to be furnished as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as the Listing Regulations) has been included in the Directors Report so as to avoid duplication and overlap.


Economic Overview

Moderate global trade, subdued investment and heightened policy uncertainty marked another challenging year for the world economy. As per International Monetary Fund (IMF), the global growth was estimated to be at 3.1 per cent in 2016. The growth could have been better, had it not been for the anaemic performance in advanced economies. The year also witnessed events, defined by political shocks in advanced economies that impacted economies all over the world - first, the decision by the United Kingdom electorate in June 2016 to leave the European Union, followed by the United States Presidential election in November 2016. Both the events had ramifications well beyond their borders and will continue to have implications in 2017 and beyond. The picture in emerging markets and developing economies around the world remained diverse. The growth rate in China was one of the slowest in the last twenty six years. However, it was within the Governments target and a bit stronger than the expectations. Strong fiscal support and a booming property market were the main factors that drove Chinas economic growth in 2016. The Latin American countries, such as Argentina and Brazil, were in recession. Oil prices increased during the year, reflecting an agreement among major producers to trim supply. The Russian economy has responded well in the last two years to the dual shocks of collapsing oil prices and the continuation of Western sanctions. Activities in Russia were slightly better in 2016 owing to firming up of oil prices. With strong infrastructure and real estate investment in China as well as the expectation of fiscal easing in the United States, prices for base metals also strengthened during the year.

In India, against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, the passage of the constitutional amendment paving the way for implementing the transformational Goods and Services Tax (GST) and the action to demonetise the two highest denomination notes in the country. With respect to GST, we broadly know that it is going to be positive for the organised sector. However, it is expected to have teething troubles in the initial phase and the impact of the same on earnings is yet to be ascertained. Demonetisation had a short-term impact but is expected to provide long term benefits. The landslide victory of the ruling party of the Central Government in the assembly elections held during November 2016 provided visibility of political stability to the Indian economy. These developments cemented Indias reputation as one of the few bright spots in an otherwise grim global economy. India is not only amongst the worlds fastest growing major economies, underpinned by a stable macro-economy with declining inflation and improving fiscal and external balances, but also one of the few economies embarking on major structural reforms. As per Asian Development Bank, the growth in Indian economy for the year 2016 was at 7.1 per cent. This was below the 7.9 per cent growth in 2015, partly due to currency demonetisation. The Indian stock markets braced the odds of Brexit, Presidential elections in the United States election and the demonetisation.

Company Performance Revenues

During the year, the standalone business grew by nine per cent and the consolidated revenue also grew at the same rate driven by better performance of all the businesses. The following table summarises the standalone and consolidated revenues - both segment and geography wise:

Rs. million



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

Rs. million



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

Production consistency, higher throughput in special products, focused efforts in building businesses with global customers and favourable product mix with higher share of technical products provided the topline growth.

The Companys consolidated revenue from India increased by eight per cent and from rest of the world increased by ten per cent. At a consolidated level, Abrasives sales grew by ten per cent, Ceramics sales grew by sixteen per cent and the Electrominerals segment grew by three per cent.


The manufacturing team played a key role, helping the Company in the growth momentum through effective production planning and order execution. On an average, the plants in India operated at about seventy per cent capacity utilisation levels. Some product segments like Coated Abrasives and Metallized Ceramics ran at near full capacity. Continued implementation of Total Productive Maintenance (TPM) at shop floors lead to improvement in efficiency of machines and the entire production process. The Tiruvottiyur plant was awarded the JIPM Excellence Award at Kyoto, Japan in March 2017. With this, we have three major plants of the Company certified in TPM. The Industrial Ceramics plant at Hosur also successfully completed the CII TPM Health Check during January 2017 and is now ready for JIPM TPM excellence assessment.

Capital expenditure during the year across all geographies was majorly in the nature of capacity additions besides automation, quality enhancement, line balancing and general infrastructure. TPM initiatives and few manufacturing technology projects helped finding additional capacities in Coated products, which came in handy to cater to the increased demand from customers. The relocation projects from South African entities to India got commissioned in the fourth quarter of 2016-17. The Zirconia Bubble Fusion Plant and Alumina Fusion Plants - will result in the creation of one of the most advanced and integrated Electromineral complexes in the world. The new facilities will add about 25,000 tons of fused minerals generation. The Slide gate products facility was also commissioned successfully in Jabalpur. Earnings & Profitability

The Companys standalone Financial Results are summarised in the table below:

Rs. million

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

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

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

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

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

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

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

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

Rs. million

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

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

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

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

Financial Position

An overview of the Companys financial position is given below:

Rs. million

Financial position



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

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

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

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

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

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

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

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

Cash Flow

The Companys cash flow generation is healthy The following table summarises the Companys consolidated and standalone cash flows for the current and previous years:

Rs. million

Cash flow



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

On a standalone basis, net cash generation from operations was Rs.1769 million in FY 2016-17 compared to previous years Rs.1119 million. Better cash generation came from efficient working capital management with respect to receivables and inventories. Days Sales Outstanding (DSO) reduced and Inventory Turns increased compared to the previous year.

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

On a consolidated basis, net cash generation from operations was Rs.2953 million in FY 2016-17. Net cash outflow on account of investing activities was 813 million. Net cash outflow on account of financing activities was Rs.2071 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs.69 million against an increase of Rs.195 million in FY 2015-16.


The paid up equity share capital as on 31st March 2017 was Rs.188.66 million. The capital increased during the year by Rs.0.28 million, consequent to allotment of shares upon exercise of Stock Options by employees under the Companys ESOP Scheme, 2007.


Considering the past dividend payout ratio and the current years operating Profit, the Board has considered it appropriate to recommend a final dividend of Rs.0.75 per equity share of Rs.1/- each. It may be recalled that in February 2017, an interim dividend at the rate of Rs.1/- per equity share of Rs.1/- each was declared and paid. This aggregates to a total dividend of Rs.1.75/- per equity share of Rs.1/- each for the year, which is higher than the previous year. During the year, the Board has adopted a Dividend Policy which is available at policies.html. The dividend paid as well as being recommended for the year ended 31st March 2017 is in line with this policy.


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


The business profile, market developments and current year performance are elaborated in the following sections:


Business Profile

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

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

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

In order to match all international standards and to compete globally, the division sources its raw materials both from the Electrominerals division and from best suppliers across the world. These cost-effective manufacturing techniques and quality control systems form the core of the divisions objectives - best products and customer satisfaction at affordable prices.

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

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

Industry scenario

The global Abrasives market is segmented based on region. Asia Pacific represents the largest and the fastest growing market for the Abrasives industry and China is the largest producer of Abrasive materials and Abrasive products. The growing demand for various types of Abrasives from transportation, building & construction and other durable goods industries is expected to drive the Asia Pacific Abrasives market. Growth in the US - which holds the worlds second largest national market for Abrasives, is expected to deliver a moderate growth. The market is dominated by leading players operating across the globe.

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

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

Sales Overview

The Abrasives business stepped into 2016-17 against the backdrop of positive macro-economic factors considering perceived uptick in investment climate, ability of new Government to push structural reforms like fast track clearance for infra projects, GST rollout, energy related reforms etc.

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

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

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

Distribution leadership has been one of the strategic pillars for the Companys growth and the business has been making steady progress in this front. During the year, the business aggressively appointed new channel partners and expanded its dealer network both in India and abroad. Retail development and industrial storming initiatives were conducted for better market penetration.

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


Manufacturing supported the marketing initiatives well in terms of timely delivery, product performance and consistency

The key strategy over the years has been to increase the indigenous sourcing and lowering the gap between exports and imports to ensure sustainable profitability in the Abrasives business. Business continued to focus on pursuing dual strategy - firstly, of moving from traditional Brown to Semi-friables to gain significant competitive advantage; secondly, of offering superior Coated technical products with high performance Zirconia and Ceramic grains.

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

Todays successful organisations require a significant competitive advantage, hence it is utmost essential for companies to use winning strategies to survive and be successful. The Company has adopted TPM not only as a tool but also as its strategic initiative and this has given the Company a competitive edge today. TPM is an organisation-wide strategy to increase the effectiveness of production environments, especially through methods of increasing the effectiveness of equipment. The TPM journey which started in 2011 marked the beginning of an era of change. Sriperumbudur and Maraimalai Nagar plants were awarded Total Productive Maintenance (TPM) award for Excellence - Category "A" by Japan Institute of Plant Maintenance (JIPM) during 2014-15. In 2015-16, the Tiruvottiyur plant qualified for the JIPM audit after clearing the CII TPM Health check. This year, Tiruvottiyur plant was awarded the JIPM

Key Financial Summary

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

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

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

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

Aided by buoyancy in revenues and cost reduction projects and others initiatives, the business recorded an increase in standalone operating Profits before interest and taxes at Rs.1047 million from Rs.937 million last year. At a consolidated level, the Profits grew from 831 million last year to Rs.1133 million this year.

Rs. million




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

Ceramics Business Profile

The Ceramics business has three product groups viz. Industrial Ceramics, Super Refractories and Anti-corrosives.

Industrial Ceramics business offers Alumina and Zirconia products of technical ceramic grades addressing wear protection, electrical insulation, thermal protection and ballistic protection applications. The Super Refractories product group

supplies fired, monolithic, flow control products, POW Wellfiler and fibre as also Refractory design and installation services addressing the insulation and thermal resistance requirements of industries. The Refractory fibre, Refractory design and installation businesses are addressed through our joint ventures Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited. The Anti-corrosives product group offers acid resistant bricks, polymer concrete cells and various other products addressing the anti-corrosion requirements of industries.

The key user industries for Ceramics business are Power Generation and Transmission, Coal washeries, Grain handling, Sanitary tiles and Sanitary ware, Ballistic protection, Cement, Non-ferrous metals, Iron and Steel industries, Carbon black, Insulators, Furnace building, Glass, Petrochemicals and Construction.

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

The Industrial Ceramics business based out of India is largely a global business and majority of the sales volumes are through exports. The Refractory business in India is predominantly a local business.

The Company is one of the major players in India, Australia and Russia in specific product groups.

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

Industry scenario

There has been no material change in the Ceramics industry structure in India, which is catered to by a few major players.

Globally however, NTK Japan exited Metallized Cylinders business in 2015-16 and its manufacturing assets and customers database were acquired by the Companys Ceramics business. The Company is now the second largest producer in the world. In the Wear Ceramics space, there are six major players globally - the Company is one of the reputed players in the world. In the

Key Financial Summary

Engineering Ceramics, there are around five players globally with CUMI Ceramics being relatively smaller in size.

In Australia, CUMI is one of the major players in the Lined Equipment and Mineral processing industry. There are about a dozen players in the industry, most of whom market products imported from China and USA.

Refractory industry in India is a highly fragmented market with a market size of around Rs.60 billion. The Companys product profile caters to the top end temperature range applications.

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

Sales Overview

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

Metallized Cylinders and Wear Ceramics products business sustained the continued marketing efforts in targeting newer markets and partnering with global customers. This year the business could achieve breakthrough sales in Engineered Ceramics business with its highest ever sales. Business is working on strategic initiatives to maintain current share as also identifying to grow up the value chain in both structural and functional ceramic products.

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

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

Rs. million




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


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

The contract manufacturing for base level Ceramics started in 2014-15 continued successfully during the current year. Focus was given on improving efficiency through reduction in reclaim, improvement in grinding and lapping. Significant focus and efforts were given towards new product development in Wear Ceramics, resulting in introduction of value added Ceramic products. The business continued its pursuit in strengthening relationship and strategic co-operation with key OEMs. During the year, the business was able to qualify as partner with OEMs for the new products launched.

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

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

Electrominerals Business Profile

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

The business focusses on aggressive growth in the export market with suitable product portfolios and provides customers with application specific products, with an objective to attain improved product profitability. For this, the business ensures speedy execution of projects and enhanced asset utilisation.

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

Key user industries for this business are Abrasives, Refractories, Steel, Photovoltaic, Brake linings, Nuclear energy Wooden laminates, Friction composites, Semiconductor and others.

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

Industry Scenario

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

In the Silicon Carbide space, the installed capacity would be anywhere to the extent of 1.5 to 2 million tons with large portion of it being in China, VAW, Russia with a capacity of 0.08 million tons is the second largest single location capacity in the world.

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

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

Sales Overview

The Electrominerals business recorded revenues of 3396 million compared to last year standalone revenues of 3299 million.

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

In South Africa, the Fused Zirconia sales was flat. The Russian operations continued to fuse with full capacity utilisation. The entity also launched various grits with new fractions meeting industry requirements. During the year, the Russian business faced power shortage due to transformer shutdown for around two months, which affected the production volumes for the year by around 4000 tons.


The relocated facilities from South Africa were commissioned in Cochin, India in March 2017. The new Zirconia Bubble Fusion Plant and the two Alumina Fusion Plants will result in creation

of one of the most advanced and integrated Electromineral complexes in the world. The direct job creation from this project will primarily be in the technology and application side; it is also expected to create indirect jobs in the front and backend of the supply chain. The new facilities will add, at full capacity, about 25,000 tons of fused minerals generation.With the commissioning of these facilities, the Company has developed capabilities in manufacturing a wide range of Aluminas, Silicon Carbide, Zirconias, Engineered grains like Azure S, Microporous high temperature insulation mineral-Nebulox, microgrits and treated grains.

Product mix of special minerals improved compared to the previous year. However, the new developed grits had to pass through the long qualification cycle with new customers and product acceptance. With an aim to meet the applications and serve the user industry better, the business continues to modify, adapt and improve various production processes for ensuring improvement in recovery, minimising generation of by-products, achieving a higher throughput and generating grains with higher purity and better specifications.

Key Financial Summary

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

Maniyar experienced lowest ever rainfall and it significantly affected the power generation. The Electrominerals divisions profitability was impacted on account of that.

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

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

Rs. million




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


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

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

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

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

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, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The finance cost at a standalone level is at 88 million compared to 89 million last year. The Company availed export financing loans at low interest rate to bring down the overall borrowing cost. The Company also earned Rs.18 million by investing surplus cash available for short term.

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

With the Indian entity enjoying a significant natural hedge, a cautious approach was adopted to hedge the remaining exposures. The Company adopts prudent tax management policies.

There are no material changes and commitments, affecting the financial position of the Company which have occurred between 31st March 2017 and the date of this report.


The Company, its subsidiaries and joint ventures in India have adopted Ind AS with effect from 1st April 2016 pursuant to the Companies (Indian Accounting Standard) Rules, 2015 notified by Ministry of Corporate Affairs on 16th February 2015. The Company has completed the modification of accounting and reporting systems to facilitate the adoption of Ind AS. The implementation of Ind AS is a major change process effected since Q1 of the FY 2016-17 and the Company has presented the Ind AS transition impact on the standalone and consolidated financial results (refer Standalone note no. 48 and Consolidated note no. 43 respectively in the Financial Statements).


The Company has an Internal Control System commensurate with the size, scale and complexity of its operations. The controls have been designed and categorised based on the nature, type and the risk rating so as to effectively ensure the reliability of operations with adequate checks and balances.

The Internal Audit team evaluates the effectiveness and adequacy of internal controls, compliance with operating systems, policies and procedures of the Company and recommends improvements, if any. Significant audit observations and the corrective/preventive action taken or proposed to be taken by the process owners are presented to the Audit Committee. Annual review of adherence to the agreed action plan is carried out. The scope of Internal Audit is annually determined by the Audit Committee considering the inputs from the Statutory Auditor and the Management.

Capital and revenue expenditure are monitored and controlled with reference to approved budgets. Investment decisions are subject to detailed evaluation and formal approval according to schedule of authority in place. Periodical review of capital expenditure with reference to benefits forecasted is done. Physical verification of assets is also periodically undertaken.

The Company, during the year carried out an intensive vulnerability assessment, security configuration review, targeted threat assessment, internal penetration testing and application security review for its network and all IT assets as a risk mitigation measure from security breach perspective. The findings were deliberated and the priorities drawn out including promoting information security awareness amongst the employees, strengthening network security posture, installing security incidence & event management platform, carrying out proactive vulnerability assessment & penetration testing and enhancing Information Security Policies & Procedures across various business units.

The Audit Committee reviews the overall functioning of Internal Audit on a periodical basis. The Committee also discusses with the Auditors periodically on their views on the Financial Statements including the financial reporting system, compliance with accounting policies & procedures, adequacy and effectiveness of the Internal Control Systems in the Company.


Internal Control is a process, effected by an entitys Board of Directors, Management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance - as defined by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission (appointed by SEC USA).

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

a) orderly and efficient conduct of its business, including adherence to companys 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 of reliable financial information

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

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

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

iii. General IT Controls to ensure appropriate functioning of IT applications and systems built by the Company to enable accurate and timely processing of financial data are - User Access rights management and Logical access; Change management controls; Password policies and practices; 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 evaluates Internal Financial Controls to ensure that they are adequate and operating effectively.


The Companys focus on the key organizational asset - its employees remains top priority. The Company continues to focus on hiring right candidates, looking at the employees entire life cycle, ensure timely interventions that help build a long lasting and fruitful career for them. With this in mind, the Company has initiated several positive changes in its Human Resource practices during the year.

Helping Employees Build Their Career

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

Capability Development

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

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

As the Companys workforce continue to become younger, the training methods were revamped to appeal to Millennials. The Companys Graduate Engineer Trainee (GET) batch of 2016-17, were part of a blended learning initiative called YOLO (You Only Learn Once), to manage their transition into a workplace in a systematic and effective manner. This is a year-long intervention consisting of a combination of behavioral and basic work related technical skills.

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

Propelling Performance

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

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


The Company has been embracing technology with fervour and during 2016-17, it has launched several initiatives in employer branding through social media such as Facebook, Twitter, Glassdoor, Flock and LinkedIn Teams have been formed to update information on these applications with a response mechanism relevant to the audience. Efforts towards this initiative have started to yield positive results - recruitment has received a boost and potential and new hires now hold the Companys brand amongst the best employers.

The Companys HR website has also been revamped to appeal to the younger workforce. It has been made more user-friendly in layout and usage. A mobile app was also introduced for ease of access by the employees.

Employee Relations

Across all the plants of the Company, cordial employee relations were maintained through proactive grievance handling mechanisms, total employee involvement and engagement with employees in various developmental initiatives. Programs were organized to look beyond the employees and reach out to their families to offer career counselling sessions for the children and organise plant visits. The strength of the familys bond with the Company has shown up in engagements scores as well.

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

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

The Company works closely with the communities neighbouring the manufacturing plants and provides them need based support. The different business units have undertaken activities such as educating about road safety, child rights, parenting, blood donation and career guidance for youngsters in the communities. Business units have also embarked upon training women on social entrepreneurship, extending support to senior citizens and making donations to schools to build infrastructure. For more details, please refer the Corporate Social Responsibility section of this Report.

Safety and Health

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

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


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

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

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

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

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


Volzhsky Abrasive Works, Russia operated its Silicon Carbide plant to near capacity. However, sales dropped since the previous year from RUB 4284 million to RUB 4267 million due to lower volumes in Silicon Carbide business owing to transformer breakdown impacting about two months fusion process. Abrasives and Refractories sales grew compared to last year owing to introduction of new products and expanding target markets. On the profitability front, the entity registered a drop in profitability (after tax) from RUB 686 million to RUB 585 million.

Foskor Zirconia, South Africa recorded a sales of Rand 191 million compared to Rand 192 million last year. The entitys profit after tax dropped from 12 million ZAR to a loss of 5 million ZAR. The adverse movement in re-statement of forex on receivables, payables led to the loss.

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

Sterling Abrasives had a sales of Rs.712 million, compared to the last years sales of Rs.669 million. Profit after tax increased from Rs.52 million to Rs.66 million. The user industry for this company is primarily the agro industry.

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

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

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

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

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

CUMI International Limited, Cyprus recorded a revenue of USD 5.5 million representing mainly dividend income as against last years income of USD 3.3 million.

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

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


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

Rs. million

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

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

- Payment to Government is Current tax + Dividend distribution tax

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

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


The Company has constituted a Risk Management Committee aligned with the requirements of the Companies Act, 2013 and Listing Regulations. The details of the Committee and its terms of reference are set out in the Corporate Governance Report forming part of this Report.

The Company has a robust business risk management process to identify, evaluate and mitigate risks impacting business including those which may threaten the existence of the Company. This framework seeks to create transparency, minimise adverse impact on the business objectives and enhance the Companys competitive advantage. This also defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risk trends, exposure and potential impact analysis at a Company level as also separately for the business segments. Risk management forms an integral part of the Companys Business Plan.

The Company operates across various technology platforms and product verticals built over the years. Relative advantages and disadvantages of such technologies are studied and advances are tracked. Any new technology may impact the performance of the Company in the long run. The Company seeks to address these technology gaps through continuous benchmarking the existing manufacturing processes with developments in the industry and in this connection has made arrangements with technical research institutions and technology consultants. The Company has been making investments in the next level of Manufacturing 4.0 in select modules. Manufacturing 4.0 is the current trend of automation and data exchange in manufacturing technologies.

Sub-par utilisation of capacities may lead to inadequate leverage benefits. The Company is ramping up its marketing efforts towards successful product establishment and market acceptance of its products, exploring development of alternate products and establishing a range of applications.

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

Considering that Electrominerals products are produced by way of fusion process which consumes lot of electricity, power cost remains one of the key lever which can favourably or adversely affect our profitability based on the changes in the electricity cost. Apart from pricing, in some locations, availability of power becomes a constraint. Getting access to captive power and creating facilities for captive power generation continues to be

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

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

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

Foreign Exchange risk on foreign denominated loans, imports and exports are mitigated by adopting a country-based Forex policy, periodic monitoring and use of hedging instruments. Efforts are being taken to manage both exports and imports to ensure that at Company level, there is a natural hedging mechanism.

This year, the senior leadership received expert advisory on risk management from a reputed leading consultant, wherein the effectiveness of the Companys internal control framework in addressing risks and accomplishing its goals & objectives were evaluated; policies, procedures and control assessments in response to identified risks were reviewed; Risk dashboard was designed to track key risk indicators.

The Companys input materials are not commoditised and does not warrant any specific hedging to be undertaken. With respect to output materials, adverse impact of changes in commodity prices on user industries could impact the sales which are mitigated by development of alternate products, establishing new range of applications etc. as detailed above. The other mitigation measures for dealing with increase in fuel costs, non-availability of raw materials etc. have been dealt separately in the above paragraphs.


According to the World Economic Outlook of the IMF global economic activity is picking up with a long awaited cyclical recovery in investment, manufacturing and trade. World growth is expected to rise from 3.1 per cent in 2016 to 3.5 per cent in 2017. Stronger activity and expectations of a more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs in early 2016. Higher commodity prices have provided some relief to commodity exporters and reduced deflationary pressures. Financial markets are buoyant and expect continued policy support in China besides fiscal expansion and deregulation in the United States. If confidence and market sentiments remain strong, short-term growth could be expected.

However, there is a wide dispersion of possible outcomes around the projections given the uncertainty surrounding the policy stance of the new United States administration and its global ramifications. Inward-looking protectionist policies threaten global economic integration and the co-operative global economic order, which have served the world economy well, especially emerging market and developing economies. Geopolitical risks and a range of other non-economic factors continue to weigh on the outlook in various regions-civil war and domestic conflict in parts of the Middle East and Africa, the tragic plight of refugees and migrants in neighbouring countries and in Europe, acts of terror worldwide and the protracted effects of a drought in eastern and southern Africa. If these factors intensify, they would deepen the hardship in directly affected countries. Increased geopolitical tensions and terrorism could also take a large toll on global market sentiment and economic confidence. Coming to the Indian economy, last year it delivered a respectable growth despite global headwinds and internal monetary & fiscal policy changes. Corporate earnings for the third quarter astonished everybody on the upside, showing no significant slowdown from the Governments demonetisation. The reading sharply contrasted the picture painted by high- frequency indicators, which had pointed to muted activity due to a shortage of hard currency, sparking concerns that the growth figures do not reflect reality in Indias economy and could be revised downwards. Meanwhile, data for the fourth quarter was positive; industrial production rebounded in January and the PMIs rose in February On the political front, the Government gained major victories in a number of state elections, including the countrys most populous state Uttar Pradesh. The result reflected support to Prime Ministers economic reform agenda and showed that his popularity remained strong despite the bold demonetisation programme. The victory would pave the way for newer reforms in the coming year. As per Asian Development Bank, Indias economic growth is projected to pick up to 7.4% in 2017, primarily on higher consumption. The growth would be abetted by improved investor confidence, lower food prices and better policy reforms.

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

Strong demand drivers such as higher productivity, shortening replacement cycle, changing consumer preferences with increasing aspiration to shift to premium products and higher per capita income, Governments thrust on affordable housing and continued pursuit of ‘Make in India initiative is expected to favourably impact the Companys businesses.

Auto ancillary sector holds a lot of promise given the fact that the penetration of automobiles in India is the lowest amongst worlds top 10 auto markets. Moreover, India is also being looked upon as manufacturing hub for low end or small cars by the OEMs. These cars would be manufactured in India and exported around in South East Asian, Middle Eastern, African and Latin American nations. Indian auto ancillary enjoys substantial competitive advantage due to the availability of qualified professionals at reasonable cost and quality conscious supply chain. Growth in automobiles and auto ancillary industry would open up opportunities for high performance Minerals and Abrasives business.

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

Globally the marketing and manufacturing entities are spread across Middle East, Europe, China, Russia and North America. The demand for the Companys products would be favourably spurred by industrialisation activity, rising per capita incomes and consumer spending, enhanced manufacturing activities and increase in investments. Boost in construction & manufacturing sectors and per capita incomes would result in bolstering demand for industrial consumables products, for which the Company would stand to be a major beneficiary.


The Company has not accepted any deposits from the public falling within the ambit of Section 73 of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014 and no amount of principal or interest was outstanding as on the Balance Sheet date.


The particulars of loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 are given below:

Rs. million

Sl. No Description As on 31.03.2016 Additions Deletions As on 31.03.2017
1. Loans given by the Company - - - -
2. Corporate guarantee given by the Company 2609.93 29.18 948.03 1691.08
3. Investments made by the Company 2446.36 34.00 2480.36


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

In line with its stated policy, all Related Party transactions are placed before the Audit Committee for review and approval. Prior approval of the Committee is obtained on a quarterly basis for transactions which are of foreseen and repetitive nature. Omnibus approvals in respect of transactions which are not routine or which cannot be foreseen or envisaged are also obtained as provided under the applicable laws. The list of Related Parties is reviewed and updated periodically as per the prevailing regulatory conditions.

The details of transactions proposed to be entered into with Related Parties are placed before the Audit Committee for approval on an annual basis before the commencement of the financial year. Thereafter, a statement containing the nature and value of the transactions entered into by the Company with Related Parties is presented by the Chief Financial Officer for quarterly review by the Committee. Further, revised estimates or changes, if any to the proposed transactions for the remaining period are also placed for approval of the Committee on a quarterly basis. Besides, the Related Party transactions entered during the year are also reviewed by the Board on an annual basis.

All transactions with Related Parties entered during the financial year were in the ordinary course of business and on an arms length basis. There are no materially significant related party transactions made by the Company with its Promoters, Directors, Key Managerial Personnel or their relatives which may have a potential conflict with the interest of the Company at large. There are no contracts or arrangements entered into with Related Parties during the year to be disclosed under Sections 188(1) and 134(h) of the Companies Act, 2013 in form AOC-2.

The Companys policy on dealing with Related Parties as approved by the Board is available on the Companys website at the following link html. None of the Directors and KMPs had any pecuniary relationship or transaction with the Company other than those relating to remuneration in their capacity as Directors/ Executives and corporate action entitlements in their capacity as shareholders of the Company.


The Murugappa Group is known for its tradition of philanthropy and community service. The Groups philosophy is to reach out to the community by establishing service oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The Company being a constituent of the Group has been upholding this tradition by earmarking a part of its income for carrying out its social responsibilities.

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

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

In addition, the Company has also been contributing to the cause of health and education by making grants to AMM Foundation, an autonomous charitable trust, engaged in philanthropic activities in the field of education and healthcare since 1953. During the year, the Companys focus areas for these grants were contributions to AMM Vellayan Chettiar Higher Secondary School, Tiruvottiyur - which has been making a difference in the field of education for the past 50 years. The school runs with the vision - To provide Quality Education with good virtues, for the under privileged and marginalized communities around Tiruvottiyur. During 2016-17, the Company also undertook AMM Murugappa Chettiar Centenary scholarships for eligible under privileged college students across Tamil Nadu. Besides the above, the Company also actively pursued local community assistance programmes in and around its plant and office locations.

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

The Companys CSR policy is available on the Companys website at the following link

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


The Companys ethical and responsible behaviour complements its corporate culture. Being a public listed company, the Company recognises that its accountability is not limited only to its shareholders from a financial perspective but also to the larger society in which it operates. During the year, consequent to the requirements of reporting of its business responsibility initiatives becoming mandatory under the Listing Regulations, the Company formulated a consolidated Policy on Business Responsibility which lays down the broad principles guiding the Company in delivering its various responsibilities to its stakeholders. The Policy is intended to ensure that the Company adopts responsible business practices in the interest of the social set up and the environment so that it contributes beyond financial and operational performance. A copy of the Policy is available at and the Business Responsibility Report for the year ended 31st March 2017 in terms of Regulation 34 of the Listing Regulations is annexed to this report as Annexure B.


Board of Directors and Key Managerial Personnel

The Board of the Company comprises eleven Directors of which majority (eight) are independent. As at 31st March 2017, the Board comprised nine Directors. During the year, Mr. M A M Arunachalam, was appointed as an Additional Director and he holds office till the date of ensuing Annual General Meeting. The Company has received a notice from a shareholder proposing his candidature as Director in the ensuing Annual General Meeting.

Mr. M Lakshminarayan and Mr. Shobhan M Thakore, Independent Directors who were appointed for a term of three years at the 60th Annual General Meeting held on 1st August 2014 would be retiring on 31st July 2017. In view of their proposed retirement, basis the recommendation of the Nomination and Remuneration Committee, the Board reviewed its composition. Mr. P S Raghavan and Mr. Sujjain S Talwar were appointed as Additional Directors at the meeting held on 9th May 2017. Further, considering that Mr. Raghavan and Mr. Sujjain Talwar satisfy the independence criteria prescribed in applicable regulations, the Board has also recommended their appointment as Independent Directors of the Company for a term of 5 years commencing from 9th May 2017 to the shareholders. Following the changes in the Board composition, the constitution of the various Committees of the Board were also reviewed and revised.

Further, the Nomination and Remuneration Committee at its meeting held on 9th May 2017 also considered extending the services of Mr. K Srinivasan whose term as Managing Director of the Company would be expiring on 22nd November 2017. Based on the Committees recommendation and subject to the approval of the shareholders, the Board has re-appointed Mr. K Srinivasan as the Managing Director of the Company for a further period of two years from 23rd November 2017 till 22nd November 2019.

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

Suitable proposals regarding the above changes in the Board composition have been included in the Notice convening the 63rd Annual General Meeting for consideration and approval by the shareholders.

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

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

Board Meetings

During the year, five Board Meetings were held, the details of which are given in the Corporate Governance Report.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its various Committees as per the evaluation framework adopted by the Board on the recommendation of the Nomination and Remuneration Committee. Structured assessment forms which were duly reviewed and revised during the course of the year were used in the overall Board evaluation comprising various aspects of the Boards functioning in terms of structure, its meetings, strategy, governance and other dynamics of its functioning besides the financial reporting process, internal controls and risk management. The evaluation of the Committees was based on their terms of reference fixed by the Board besides the dynamics of their functioning in terms of meeting frequency, effectiveness of contribution etc.

Separate questionnaires were used to evaluate the performance of individual Directors on parameters such as their level of engagement and contribution, objective judgement etc. The Managing Directors evaluation was based on leadership qualities, strategic planning, communication, engagement with the Board etc.

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

Policy on Appointment and Remuneration of Directors

Pursuant to Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee of the Board has formulated the criteria for Board nominations as well as the policy on remuneration for Directors and employees of the Company. The criteria for Board nominations lays down the qualification norms in terms of personal traits, experience, background and standards for independence besides the positive 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 the Board, Key Managerial Personnel and other employees of the Company. This Policy is guided by the principles and objectives enumerated in Section 178(4) of the Companies Act, 2013 and reflects the remuneration philosophy and principles of the Murugappa Group to ensure reasonableness and sufficiency of remuneration to attract, retain and motivate competent resources, a clear relationship of remuneration to performance and a balance between rewarding short and long-term performance of the Company. The policy lays down broad guidelines for payment of remuneration to Executive and Non-Executive Directors within the limits approved by the shareholders. The Remuneration Policy was reviewed by the Board during the year. Further details are available in the Corporate Governance Report.

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

Composition of Audit Committee The Audit Committee of the Board comprises only Independent Directors. Mr. T L Palani Kumar is the Chairman and the other members are Mr. M Lakshminarayan, Mr. Sanjay Jayavarthanavelu and Mrs. Bharati Rao. Mr. Sujjain S Talwar has been inducted into the Committee on 9th May 2017. During the year, five Audit Committee meetings were held, the details of which are provided in the Corporate Governance Report.

Statutory Auditors

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

In line with the requirements of the Companies Act, 2013, the Company is required to appoint new Auditor in the place of M/s. Deloitte Haskins & Sells. Based on the recommendation of the Audit Committee, the Board of Directors have recommended the appointment of M/s. Price Waterhouse Chartered Accountants LLP, (Reg. No.FRN 012754N/N500016) as the Statutory Auditors of the Company to hold office from the conclusion of this Annual General Meeting until the conclusion of the 68th Annual General Meeting of the shareholders of the Company at a remuneration of 38,66,000/- for the FY 2017-18, subject to annual ratification by the shareholders pursuant to applicable laws. A resolution seeking the approval of the shareholders for the appointment of Statutory Auditors is included in the Notice convening the ensuing Annual General Meeting.

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

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

The Report given by M/s. Deloitte Haskins & Sells on the Financial Statements of the Company for the year ended 31st March 2017 is provided in the financial section of the Annual Report. There are no qualifications, reservations, adverse remarks or disclaimers given by the Auditors in their report.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 and amendments thereof, the Company is required to maintain cost accounting records in respect of products of the Company covered under CETA categories like organic and inorganic chemicals, electrical or electronic machinery, steel, plastic and polymers, ores and mineral products, other machinery, base metals etc. Further, the cost 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 accounting records maintained by the Company under the said Rules for the FY 2016-17 on a remuneration of Rs.400,000/-. Further, the said firm has also been appointed by the Board to conduct the cost audit for the FY 2017-18 at the same remuneration.

The Companies Act, 2013 mandates that the remuneration payable to the Cost Auditor is ratified by the Members. Accordingly a resolution seeking the shareholders ratification of the remuneration payable to the Cost Auditor for the FY 2017-18 is included in the Notice convening the 63rd Annual General Meeting.

Secretarial Audit

M/s. R Sridharan & Associates, Practicing Company Secretaries, Chennai was appointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company for the FY 2016-17. The report of the Secretarial Auditor is annexed to and forms part of this Report (refer Annexure F). There are no qualifications, reservations, adverse remarks or disclaimers given by the Secretarial Auditor in the Report.

Compliance Management

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

Corporate Governance

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

CEO/CFO Certificate

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


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

• in the preparation of the annual accounts, for the financial year ended 31st March 2017, applicable accounting standards have been followed and no material departures have been made from the same;

• the accounting policies mentioned in Note 3 of the Notes to the Financial Statements have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit of the Company for that period;

• proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company for preventing and detecting fraud and other irregularities;

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

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

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


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


The information on energy conservation, technology absorption, expenditure incurred on Research & 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 is annexed to and forms part of this Report (refer Annexure C).


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


The information on employees and other details required to be disclosed under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed to and forms part of this Report (refer Annexure D).

During the year FY 2016-17, with the approval of the shareholders obtained through a Postal Ballot process, the Company introduced and implemented the Carborundum Universal Limited ESOP Plan 2016 (ESOP 2016) for grant of 37,72,000 Stock Options to eligible employees of the Company including any Managing Director and Whole-time Director as well as that of its subsidiaries. Under the earlier Companys ESOP Scheme 2007, no Option grants have been made since February 2012. The ESOP 2016 introduced in February 2017 currently governs the grant of Options to employees. The disclosures with respect to Options granted under the ESOP 2007 and ESOP 2016 are contained in the Corporate Governance section forming part of this Report. Further, the disclosures relating to Stock Options 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 has been provided on the Companys website and is available in the link Both the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014.


The Board gratefully acknowledges the co-operation received from various stakeholders of the Company viz., customers, investors, channel partners, suppliers, government authorities, banks and other business associates during the year. The Board also places on record its sincere appreciation of all the employees of the Company for their commitment and continued contribution to the Company.

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