carborundum universal ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

ECONOMIC OVERVIEW & COMPANY PERFORMANCE

Economic Overview

The financial year 2022-23 presented challenges worldwide including, economy, layoffs, war and environmental crisis. Barely had the pandemic receded, and the war in Ukraine broke out in February 2022. The prices of commodities, food, energy, and fertiliser rose sharply. As inflation rates accelerated, central banks responded with monetary policy tightening to contain inflation. Many developing countries faced severe economic stress as the combination of higher import prices, weaker currencies, the rising cost of living and a stronger dollar adversely impacted them.

During the second half of 2022, there was some relief for the governments and households. Commodity prices peaked and then declined. However, prices of some commodities remain well above their pre-pandemic levels. As 2023 rolled in, China opened up rather swiftly, reversing its Zero-COVID policy. The Eurozone economies could narrowly avoid a recession due to the unexpectedly warm winter in the region which otherwise would have dented households disposable income significantly due to significant increase in energy prices. As the inflation rate declined in the US, policy rates are set to rise more slowly and there are faint hopes of the US avoiding a recession altogether, barring any unexpected financial system stress.

The global economy grew by 3.4 per cent in Calender Year (CY) 2022 and is expected to grow at 2.8 per cent in CY 2023, before rising slowly and settling at 3.0 per cent - the lowest medium- term forecast in decades owing primarily due to the coordinated global monetary policy tightening coupled with the continuing geopolitical tensions. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 per cent in CY 2022 to 1.3 per cent in 2023. The slowdown is concentrated in advanced economies, especially the Euro area and the United Kingdom, where growth is expected to fall to 0.7 per cent and -0.4 per cent respectively in 2023 before rebounding to 1.8 and 2.0 per cent in 2024.

On the other hand, the Indian economy has strongly rebounded on the back of a sustained recovery in domestic demand, government impetus to infrastructure spending, and export growth, further spurred by global economy as well as the China Plus One sourcing strategy of many global players. India became the worlds fifth- largest economy, measured in current dollars. Though the economy was expected to grow at

7 per cent for the year ending March 2023, the growth is expected to close at about 6 per cent. The World Bank has revised its FY 2023-24 GDP forecast to 6.3 per cent from 6.6 per cent (December 2022). The annual rate of inflation is below 6 per cent and as per the World bank it is expected to average out at 5.2 per cent for the FY 2023-24

The export of goods and services in the first nine months of the financial year (April-December) was up by 16 per cent compared to the same period in 2021-22. The fundamentals of the Indian economy are sound as it enters its Amrit Kaal, the 25 year journey towards its centenary as a modern, independent nation. Policies pursued carefully and consciously have ensured that the recovery is robust and sustainable.

Company Performance

Revenues

During the year, the standalone revenues grew by 13 per cent and the consolidated revenues by 40 per cent driven by better performance across all the businesses. The Company began its financial year after the Russia-Ukraine war broke out in February 2022 which created more challenging situations like inflation, raw materials availability, supply chain disruptions, foreign currency rate fluctuations, higher cost of capital, geopolitical tensions, and expectation of a global recession. Economies across the world, including India, were facing inflationary pressure. Despite these challenges, the Companys performance yet again speaks about strong demand for its quality products/ solutions, manufacturing and research capabilities, and timely execution in domestic and overseas markets. There was no significant impact on Russian operations despite having to operate under very volatile and difficult situation. Seeing the challenges to sell more outside Russia, the Russian subsidiary focused more on serving the domestic market and increased the domestic share to ~59 per cent, which used to be ~41 per cent earlier. The Company anticipated the impact of the war on recent acquisitions in Europe and took precautionary measures in advance and throttled in implementation of its integration projects as planned. During the first half of the financial year, there were increase in COVID cases once again but thanks to widely held vaccination drives, the impact was minimised. The provision of oxygen concentrators, the establishment of quarantine facilities and rolling out of COVID care policy provided support to and improved confidence of the workforce. Towards the second half of the year, sustained recovery in domestic demand, government impetus to infrastructure spending, export growth, softening in commodity prices, easing in material shortages, production cutbacks by China due to environmental concerns and the China Plus One sourcing strategy of global players, led to strong rebound in business performance. Some segments also witnessed a higher share of exports with incremental growth coming from export customers wanting to de-risk their supply chains. All three businesses registered high double-digit growth in revenues. For Abrasives segment, the growth also included additional sales from Rhodius and Awuko. On one hand, the increase in inflation helped the Electrominerals business to clock better margins, but the Abrasives segment was impacted on other hand. The Ceramics business continued to perform better in terms of revenues and margins due to strong demand of value-added products, better realisation and a favourable product mix.

The subsidiaries also have shown significant growth over the last year. Among overseas subsidiaries, Volzhsky Abrasive Works, Russia, CUMI America, CUMI (Australia) Pty Limited (CAPL) and Foskor Zirconia (Pty) Limited, South Africa registered double digit growth. CUMI Middle East (CME), United Arab Emirates and CUMI Abrasives and Ceramics Company Limited, China (CACCL) have de-grown owing to the conscious decision to minimise operations considering the sustainable continuance in these regions with the current model of operations. The subsidiaries which were acquired during last FY also contributed to additional sales. On the other hand, domestic subsidiaries including Sterling Abrasives Limited, Net Access India Limited and PLUSS Advanced Technologies Limited (PLUSS) have also grown over last year. Southern Energy Development Corporation Limited (SEDCO) which was severely impacted by the gas price increase owing to the geopolitical crisis was able to grow only marginally and had to report a loss for the year.

The Abrasives segment registered growth of 59 per cent at a consolidated level which includes sales of Rs.6192 million from Rhodius and Awuko and at standalone level, sales grew in single digit despite external challenges. The Electrominerals segment grew 25 per cent at consolidated level and 13 per cent at standalone level on the back of high demand for minerals and supply shortages, supported by growth in volumes and realisation. Higher productivity and prudent cost control helped significant growth at standalone level. The Ceramics segment grew by 26 per cent at standalone level and 29 per cent at consolidated level. The demand outlook for key domestic core industries remained strong for ceramics and refractories. The demand for Technical Ceramics, driven by technology transformations in the Auto industry and the interest towards clean energy has driven growth.

The following table summarises the standalone and consolidated revenues - both segment and geography wise:

	(Rs. Million)
	2022-23		2021-22		Growth
	% share	Amount	% share	Amount	%
Standalone
Abrasives	45	11069	48	10516	5
Ceramics	34	8342	30	6612	26
Electrominerals	28	7020	28	6207	13
Eliminations	(7)	(1699)	(6)	(1419)	(20)
Total	100	24732	100	21916	13
India	74	18400	77	16773	10
Rest of the world	26	6332	23	5143	23
Total	100	24732	100	21916	13

 

				(Rs. Million)
	2022-23		2021 - 22		Growth
	% share	Amount	% share ,	Amount	%
Consolidated
Abrasives	44	20353	39	12830	59
Ceramics	22	10273	24	7980	29
Electrominerals	36	16338	40	13120	25
Power	1	259	1	245	6
IT services	1	585	1	453	29
Others	1	542	1	190	185
Eliminations	(5)	(2340)	(6)	(1922)	(22)
Total	100	46010	100	32896	40
India	44	20321	55	18232	11
Rest of the world	56	25689	45	14664	75
Total	100	46010	100	32896	40

The Companys consolidated revenues from India grew by 11 per cent and from rest of the world increased by 75 per cent cent mainly due to acquisition of new entities.

Manufacturing

The manufacturing team played a vital role in focused production planning and order execution to create a faster growth momentum. The core product segments continued to run at full capacity. Continued focus on Total Productive Maintenance (TPM) helped the Company improve the quality of its products, operate plants efficiently while reducing the overall cost of operations. Capital expenditure, across all geographies were directed at capacity expansions, facilities for new products, quality enhancement, line balancing and general infrastructure.

Earnings & Profitability

The Companys standalone financial results are summarised in the table below:

					Rs. Million)
	As % of Sales	2022-23	As % of Sales	2021-22	Increase %
Sales		24732		21916	13
Other Operating Income		367		236	55
Revenue from Operations		25099		22152	13
Other Income		319		420	24
Total Income		25418		22572	13
Expenses
Cost of material consumed	40	9991	41	8925	12
Purchase of stock in trade	3	718	3	736	(2)
Movement of Inventory	0	(27)	(2)	(346)	(92)

 

					(Rs. Million)
	As % of Sales	2022-23	As % of Sales	2021-22	Increase %
Employee benefits expense	10	2369	10	2149	10
Finance Cost	1	150	0	10	1400
Depreciation and amortisation	3	745	3	650	15
Power & Fuel	9	2295	10	2104	9
Other expenses	21	5110	22	4889	5
Total Expenses	86	21351	87	19117	12
Profit before tax and exceptional Item	16	4067	16	3455	18
Exceptional item	1	249	-	-	-
Profit before tax	17	4316	16	3455	25
Profit after tax	13	3309	12	2545	30
Total Comprehensive Income	13	3236	11	2517	29

Standalone profit before tax stood at Rs.4316 million as compared to Rs.3455 million during the previous year.

The Company uses a variety of raw materials for its products - Bonds, Cotton Yarn, Grains, Calcined Alumina, Tabular Alumina, Brown fused Alumina, White fused Alumina, Silicon Carbide, 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 continued to marginally improve during the year. Significant improvement in specific material and energy consumption was recorded across businesses. Also, approximately 1.5 MWp of solar systems were commissioned across the Company.

Power and fuel cost increased by 9 per cent from Rs.2104 million in the preceding year to Rs.2295 million during the current year.

Employee benefits expense increased from Rs.2149 million in the preceding year to Rs.2369 million during the current year.

Profit before finance cost, exceptional item and tax margin expanded in all segments except Abrasive segment due to increase in revenue, more favourable cost structures and better realisation in some segments. Abrasive segment includes the results of newly acquired entities and hence lower margins.

Finance costs were at Rs.150 million compared to Rs.10 million in the previous year. Total Comprehensive Income increased from Rs.2517 million to Rs.3236 million.

The consolidated profit before tax and exceptional item (before share of Associate & Joint ventures) entity-wise is represented below:

		(Rs. Million)
	2022-23	2021-22
CUMI Standalone	4067	3455
Subsidiaries including step down subsidiaries:
Indian
Net Access India Limited	45	33
Southern Energy Development Corporation Limited	(47)	92
Sterling Abrasives Limited	220	164
PLUSS Advanced Technologies Limited	(179)	(126)
Foreign
CUMI (Australia) Pty Limited	282	191
CUMI International Limited	103	247
Volzhsky Abrasive Works	2046	1381
Foskor Zirconia (Pty) Limited	104	76
CUMI America Inc.	174	3
CUMI Middle East FZE	(10)	1
CUMI Abrasives & Ceramics Company Limited	(47)	(15)
CUMI Europe s.r.o.	1	-
CUMI Awuko Abrasives GmbH	(457)	(196)
Rhodius Abrasives GmbH	(398)	(5)
Total of Subsidiaries	1837	1846
Inter Company Eliminations	(727)	(739)
Consolidated profit before tax and share of profit from Associate and Joint ventures	5177	4562
Consolidated profit after tax attributable to owners	4140	3334

On a consolidated basis, the profit before tax and exceptional item (before share of profit from Associate and Joint Ventures) increased to Rs.5177 million from Rs.4562 million. Profit after tax and non-controlling interests has increased to Rs.4140 million from Rs.3334 million. The performance of the subsidiaries is detailed separately in this Report.

Financial Position

An overview of the Companys financial position - on a standalone and consolidated basis is given below:

				(Rs. Million)
Financial position	Standalone			Consolidated
	31.03.2023	31.03.2022	% change	31.03.2023	31.03.2022	% change
Net Fixed assets (including goodwill and Right of use assets)	5322	4527	18	16142	10638	52
Investments - Non-current	10475	9685	8	1612	1378	17
Other Assets
- Inventories	3795	4002	(5)	8989	6909	30
- Trade receivables	3897	3309	18	6274	4848	29
- Cash and cash equivalents	99	158	(37)	3964	3475	14
- Other assets	796	1017	(22)	2263	5980	(62)
Total assets	24384	22698	7	39244	33228	18
Liabilities (Other than loans)	3279	3661	(10)	7458	6609	13
Net assets	21105	19037	11	31786	26619	19
Sources of funding:
Total equity attributable to owner	20065	17407	15	28206	23638	19
Non - Controlling interest	-	-	-	1279	859	49
Loan outstanding:
- Long term borrowings	-			429	78	451
- Short term borrowings (including current maturities of long time borrowings)	1040	1630	(36)	1872	2044	(8)
Total loans	1040	1630	(36)	2301	2122	8
	21105	19037	11	31786	26619	19
Loans (net of cash and cash equivalents)	941	1472	(36)	(1663)	(1353)	23

On a consolidated basis, the total equity attributable to owners as on 31^st March 2023 was Rs.28206 million. There was an increase (net of dividend) to the extent of Rs.4568 million. Non-controlling interest was at Rs.1279 million.

Liabilities (other than loans) was Rs.7458 million. The loans outstanding increased to Rs.2301 million from Rs.2122 million. Net fixed assets (including goodwill and Right of use assets) increased to Rs.16142 million during the current year from Rs.10638 million in the last year.

Cash Flow

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

			(Rs. Million)
Cash flow	Standalone		Consolidated
	2022-23	2021-22	2022-23	2021-22
Cash flow from Operations	4395	2821	5927	3771
Taxes paid	(955)	(840)	(1625)	(1326)
Cash flow from operating activities	3440	1981	4302	2445
Capital Expenditure (Net of disposal)	(1564)	(812)	(3006)	(1631)
Cash flow from other investing activities	(558)	(4672)	434	(2971)
Cash flow from investing activities	(2122)	(5484)	(2572)	(4602)
Cash flow from financing activities	(1377)	1113	(1334)	894
Net increase/(Decrease) in Cash & Cash equivalents	(59)	(2390)	396	(1263)
Net Cash and Cash equivalents at the beginning of the year	158	2548	3475	4783
Effect of exchange rate changes on the balances of cash and cash equivalents held in foreign currencies	-	-	93	(45)
Cash and Cash equivalents at the end of the year	99	158	3964	3475

On a standalone basis, net cash generation from operations was Rs.3440 million in FY 2022-23 compared to previous years Rs.1981 million. Net cash outflow on account of investing activities was Rs.2122 million majorly towards capital expenditure. Net cash outflow on account of financing activities was Rs.1377 million which is attributable primarily to repayment of borrowings. The net decrease in cash and cash equivalents was Rs.59 million against the net decrease of Rs.2390 million in FY 2021-22.

On a consolidated basis, net cash generation from operations was Rs.4302 million in FY 2022-23. Net cash outflow on account of investing activities was Rs.2572 million. Net cash outflow on account of financing activities was Rs.1334 million. The net increase in cash and cash equivalents was Rs.396 million against a net decrease of Rs.1263 million in FY 2021-22.

Key Financial Ratios (on a standalone basis)

Parameter	2022-23	2021-22	Favourable/ (Adverse) in %	Comments
R O C E (%)	21.2	18.2	17	Better returns & effective utilisation of capital employed
Debt Equity (times)	0.05	0.09	45	Due to repayment of current borrowings.
PBT (%) to Sales*	16.4	15.8	4	Increase due to better profitability.
Asset turnover (times)	1.8	1.5	21	Optimal utilisation.
Receivable turnover (days)	53	54	2	Effective control of Receivables
Inventory turnover (days)	58	58	-	At the same level
Interest Coverage Ratio (times)	33.0	422.5	(92)	This is due to the increase in Finance costs consequent to utilisation of borrowings during the current year.
Current Ratio (times)	2.0	1.6	24	Due to repayment of current borrowings.
Operating Profit Margin (%)*	15.2	13.9	9	Increased efficiency.
Net Profit Margin (%)	13.4	11.6	15	Better profitability due to product mix and market growth
Return on Net Worth (%)	17.7	15.5	14	Increase due to higher profits

*excluding exceptional income/expenses (Net)

SHARE CAPITAL

The paid-up equity share capital as on 31^st March 2023 was Rs.189.94 million. The capital increased during the year by Rs.0.08 million, consequent to allotment of shares upon exercise of Stock Options by employees under the Companys Employee Stock Option Plan 2016.

DIVIDEND

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.2/- per equity share of Rs.1/- each. It may be recalled that in February 2023, an interim dividend at the rate of Rs.1.50/- per equity share of Rs.1/- each was declared and paid in March 2023. This aggregates to a total dividend of Rs.3.50/- per equity share of Rs.1/- each for the year. The Companys Dividend Policy is available at https://www.cumi-murugappa.com/wp-content/uploads/2019/02/ dividend-distribution-policv.pdf. The dividend paid as well as being recommended for the year ended 31^st March 2023 is in line with this policy.

TRANSFER TO RESERVES

An amount of Rs.500 million has been transferred to the General Reserve of the Company as on 31^st March 2023.

PERFORMANCE OF BUSINESS SEGMENTS

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

Abrasives Business Profile

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

Rigid or Bonded Abrasives products grind, clean, scour, abrade or remove solid material through a rubbing action. Bonded Abrasives are made using Glass Bonds (vitrified), rubber bonds or Phenolic Resin Bonds. Coated Abrasives are basically hard synthetic minerals coated on to paper, fibre, cloth, or film and finally formed into different shapes, sizes and types according to application needs. Abrasive materials and Abrasive products are utilised in several end user industries such as Automobiles, Auto Ancillary, Metalworking, Building and Construction, woodworking, Railways, Aerospace and General Engineering.

This business has more than sixty years of experience in Abrasives manufacturing, application engineering and distribution. Strong Research & Development backed by application engineering and supported by multi generation channel partners are the strengths of this business. Over the years, it has built world class facilities with strong processes, which gives it a cutting edge.

In the FY 2022-23, the business invested in expanding its conversion facilities at Sriperumbudur for the Coated operations.

The competitive advantage of the business comes from its raw materials sourced from the Electrominerals business of the Company and from the best suppliers within India and across the world.

These inputs are then formulated, and the products are designed based on a deep understanding of the end-use applications that are exhibited by a very experienced team of application engineers across the globe.

Cost competitiveness is the overarching strategy for the business while ensuring that the 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 the globe provide strong market reach in India and over 55 markets globally.

Industry Scenario

The Indian market has been continuously witnessing a shift from manual grinding methods to mechanised processes, ushering in opportunities for new products in the Coated Abrasives segment. The Bonded Abrasives segment constitutes a key consumable in the Construction and Transportation industries, which has demonstrated high growth in the past decade due to rapid urbanisation and increase in disposable income.

The global Abrasives market got impacted heavily in Q1 and Q2 of FY 2022-23 due to heavy cost inflation after every economy and industry got affected because of Russia-Ukraine war. Europe and to a lesser extent US saw a heavy impact on Industrial production due to the inflationary conditions.

After a muted Q2, industrial activity in India increased in Q3 and positive trends were seen in Automotive sales - Passenger Vehicles (PV) and Tractors, compared to FY 2021-22. Cement production and Steel consumption both realised growth in Q3, after remaining subdued in previous months - positive signs for construction, infrastructure, and SMEs.

Entry of several Paint Manufacturers in the Abrasives segment relying on cheap imported products from China impacted CUMI as well as other India based manufacturers.

Likewise, the war in Ukraine and the resulting impact in Europe led to a slowdown in some sectors like Handicrafts and Hand tools which have high dependence on exports.

Sales Overview

The Abrasives business on a standalone basis recorded revenues of Rs.11069 million compared to Rs.10516 million in the previous year.

The first 2 quarters were focused on managing the cost pressure and ensuring selective price increases to manage the margins. The precision Abrasives business was able to register double-digit growth due to the demand from the Auto sector.

However, severe competition from cheap imported players led to muted demand in the standard range of products.

Business had initiated several projects in cost control pursuing new methodologies like design-to-value, Packaging cost improvements, Process efficiencies and Automation projects using Digital and IOT techniques.

The business continued to make steady progress in building distribution leadership, a key strategic pillar for the Companys growth. During the year, the business appointed new channel partners and expanded its dealer network across India. The Company continued with online digital marketing initiatives with the physical market promotion activities, commencing from Q4. Retail development activities, promotional "influencer" campaigns, end user-based email campaigns across geographies were conducted for better market penetration and several new digital initiatives were introduced which are expected to give a sustainable competitive advantage, better and faster connect with the end user communities. New products continued to be developed and introduced in the market meeting the needs of customers.

Manufacturing

The segment continued its focus on products made with high performance grains by working in co-ordination with the Electrominerals business. This helped to build a competitive advantage by developing and establishing a new range of products.

The focus on Coated Abrasives for FY 2022-23 was to complete the line balancing with respect to both upstream and downstream processes. Based on it, the conversion capacities and capabilities were enhanced. Coated business faced relentless pressure in terms of cost push, increased lead time for raw materials throughout the year. To negate the above, manufacturing lines were operated at higher productivity levels through line speed increase in the continuous process of jumbo making for selective run of the mill products. Major investments had been made in the backward integration process by enhancing the capabilities of cloth processing. To respond quickly to the market, a new pilot plant investment was done with the start of art facilities.

Bonded Abrasives adapted a different methodology known as QRM (Quick Response to Manufacturing ) for its Make-to-order line segments to reduce in factory lead time which enabled the business to serve the B2B markets at faster phase. This learning was horizontally deployed across all line segments in vitrified and organic abrasives products.

Focus on mass market for FY 2022-23 was taken differently in challenging the cycle time of manufacturing products by adapting the TPM 8 pillar approach and certain capacities added with the start of art facilities focusing more on cycle time reduction.

To Build on quality consistency, major investments made in Ball mill, double compaction presses, high-profile CNC machines, high-intensity mixers and ovens to match the global standards of the products the Company manufacture for both precision and channel business.

To strengthen our in-house manufacturing capabilities, a highly technological machine was designed and commissioned for Super Abrasives manufacturing across the entire manufacturing and conversion processes.

To accelerate the cost savings, major projects were identified and implemented for yield improvements, energy savings and consumables. As a part of the fuel cost push, few units transitioned to alternative fuels as well resulting in more effective kiln utilisation which supported negating the cost push.

The elements of industry 4.0 have been imbibed in the day-to-day operations to leverage the gains of IOT and data analytics. Several digital initiatives are being pursued to remain competitive. Similarly, to be the best in class in manufacturing of Abrasives, various LSS (Lean Six Sigma) projects were in place across all functions which supported the quality, variable cost reduction programs, understanding of the customer needs and aligning the process and products to suit their needs. Horizontal deployment of such steps is likely to further the competitive advantage in the changing landscape.

Benchmarked targets were taken across all units towards sustainability, like implementation of Roof top solar, transition from liquid fuel to gaseous fuels, waste reduction projects, RECD (Retrofit Emission Control Devices) for all our DG sets across units, revamping of effluent treatment plants for effectiveness in treatments, automated operations and improvement in manpower productivity.

Key Financial Summary						(Rs. in million)
Particulars	Standalone			Consolidated
	2022-23	2021-22	Change (%)	2022-23	2021-22	Change (%)
Revenue	11069	10516	5	20353	12830	59
Segment results (PBIT)	1512	1627	(7)	1047	1563	(33)
Capital employed	3697	3787	(2)	13503	11439	18
Share to total revenue of CUMI (%) (without eliminations)	45	48		44	39
Share to segment results (PBIT) of CUMI (%)	36	47		19	34

Ceramics Business Profile

The Ceramics business comprises of the Industrial Ceramics and the Refractories product groups.

Industrial Ceramics

Industrial Ceramics business offers advanced Ceramics in Alumina, Zirconia, Zirconia Toughened Alumina and Silicon Carbide products addressing wear and corrosion protection, electrical insulation, thermal protection and ballistic protection applications. The key user industries for Ceramics business are Power Generation and Distribution, Mining & Ore processing, Cement, Ferrous and Non-Ferrous Industries, Automotive, Battery, Glass, Paper, Food Grain handling, Petrochemicals and Ceramic Tiles.

The operations are carried out through manufacturing/service facilities located in India, Australia and the US. The subsidiaries in North America, Middle East and China also support this business in increasing market reach.

The Industrial Ceramics business based out of India is largely a global business and majority of the sales volumes are through exports. The Company is one of the major players in India, US, Australia and Europe along with presence in specific product groups in Japan and China.

The Industrial Ceramics business has three product groups - Wear Protection Materials, Equipment & Services, Precision Engineered Ceramics and Metallised Ceramics, for various industrial applications.

The business offers Wear Protection products & services to extend equipment life across a variety of industries such as Mining & Mineral Processing, Steel, Power, Cement and Bulk material handling. The business has expanded its product offerings and developed new applications across key industry segments like port handling and non-ferrous industries. A solutions-based approach to solve customer problems through on-site wear audits, superior design and simulation, on-site installation services, enhances equipment performance, productivity and life. Prototype remote monitoring system enabling the Company/its customers to forecast maintenance/ changeover of equipment is under testing.

The Company is a leader in the Australian market and has executed key projects in mining & port handling segments. The business expanded its customer base with robust growth in America, Europe, Middle East and Japan.

Precision Engineered Ceramics are used in emerging applications with a strong sustainability focus - such as Solid Oxide Fuel Cells, Hydrogen Electrolyzers and Electrical Mobility. A strong focus on Agile Product Development and Continuous Process Innovation have helped the division roll out New Products in collaboration with leading global customers in the US, Japan and India.

CUMI is a pioneer in India in the field of Metallised Ceramics and is today a strategic supplier for Global OEMs in the field of Power Distribution and also in Vacuum Electronics. With the objective of becoming a leader in Metallised Alumina Cylinders for Vacuum Interrupters, the business has been continuously enhancing capacities through new equipment and process innovations.

The business has also been entering adjacencies and transformational spaces in Advanced Ceramics & Materials. The new facility for Sintered Silicon Carbide established in FY 2021-22 is fully operational and serves applications in Chemical Industry, Defence and others.

New forming capabilities - Hydraulic press for near-net forming, Isostatic Press for larger diameter and longer parts, Ceramic 3D Printing capabilities - have been added during the year, to enable manufacturing of next generation of Ceramics for diverse applications.

Refractories

Super Refractories and Prodorite business addresses the Thermal and Corrosion protection across a wide range of Industries. Deep knowledge of materials, application engineering and the ability to engineer shapes to meet critical operational conditions add superior value to our customers and stakeholders.

The business has three product groups - Super Refractories, Anti-corrosive and Composites.

Super Refractories are advanced materials that can withstand extremely high temperatures in the range of 1850⁰C and harsh thermal/chemical environments making them the choice of materials for thermal protection of critical assets in applications such as metallurgy, glass, and chemical processing. Super Refractories are made from high purity raw materials such as alumina, zirconia, and silicon carbide.

Our strong knowledge of application engineering enables us to understand critical customer problems, this coupled with on-site thermal audits, design techniques involving Finite Element Analysis (FEA), Computational Fluid Dynamics (CFD) and Thermal imaging solves critical thermal problems for our customers.

The Company is a leading player in specialised fired refractory, both dense and insulation bricks, intricate shaped items, Monolithics and pre-cast pre-fired Refractories. The key user industries for Refractory business are Iron & Steel, Glass, Carbon black, Cement, Ceramics, Petrochemicals, Thermal power plants, Non-ferrous metallurgy, Foundry, Heat treatment furnaces etc.

Anti-corrosives

Prodorite branded Anti-corrosive material is used in highly acidic or basic environments. The Company is a major player in this industry, serving a wide range of Chemical process industries and other industries dealing with treatment of effluents. The Companys product range includes Acid resistant wall and floor tiles, Carbon bricks, Tiles, Anti-corrosive Lining, Epoxy and PU Flooring, Screeding, PU and Epoxy Coatings and Waterproof construction chemicals. The Companys Polymer Concrete Cells (Tanks) are also used in Copper and Zinc extraction units across the world.

The business uses a solution-based approach in helping our customers critical assets from harsh corrosive environments, using a combination of application engineering, on-site corrosion audit and design & simulation knowledge to engineering shapes that offer an optimum fit and performance.

Composites

Composites are primarily Glass or Carbon Fibre reinforced polymer products manufactured through vacuum infusion, pultrusion, filament winding, grating and hand lay-up methods. The product range includes large Chemical storage tanks, Chimneys, Flue Gas Desulphurisation (FGD) spray headers, Abrasion resistant Anti-corrosive pipes & Gratings, Windmill nacelle covers and nose cones, Automotive and Railway body panels, gratings, pallets, cable trays, flooring, chequered plates, roof sheets, chimney ladders, platforms, bridges, louvers, fencing etc.

In line with our long-term strategic objectives, we have built significant capabilities in Carbon Fiber Reinforced Composites (CFRP). They are ideal materials for applications such as drones due to their high strength-to-weight ratio, durability, and resistance to fatigue. During the year, the Company acquired certification of EN 9100-2018 (Equivalent to AS 9100D of the Society of Automotive Engineers (SAE) and the JISQ 9100 of the Japanese Aerospace Quality Group). The business added a new dust-free facility for manufacturing structural parts for drones, and aerospace applications.

Industry Scenario

Industrial Ceramics

A strong resurgence in the Mining and Mineral Processing Industry, especially in Australia, was seen in FY 2022-23 resulting in significant demand for Wear Protection Materials and Services. The outlook for Core segments like Steel, Cement, and Power Plants remained strong throughout the year.

Further, the Solid Oxide Fuel Cells and Hydrogen market remained buoyant during the year due to the increased focus on sustainability and policy-driven push by countries like US, Korea and India for Green Hydrogen. This has resulted in the Engineered Ceramics vertical doing very well during the year. The other key Industries that Engineered Ceramics caters to - mobility, both Electric and ICE based - remained very strong during the year.

The Metallised Ceramics vertical supplies predominantly to the Power Distribution segment. With a capacity of 2.1 million cylinders per year, the division plans to strengthen its position as a leading global player, working closely with the global players.

Refractories

The demand for thermal protection of critical assets in core segments like steel, glass, chemical processing, carbon black, cement remained strong throughout the year, post pandemic.

The business executed large projects in glass, carbon black, steel, and heat treatment industries. Mega trends of urbanisation, infrastructure development and global rebalancing will drive the growth of refractory consumption.

However, the domestic market is experiencing considerable inorganic consolidation.

The business also made significant progress in the global market in line with our strategic intent to go global. We have expanded into key markets in Europe, the Americas and the Middle East.

The business will continue to differentiate ourselves from the competitors through superior value addition through application engineering and design.

Anti-Corrosive and Composites

The business saw a resurgence in demand in Chemical industries, especially for fertilizer plants due to increased production of specialty crop nutrients. The demand resulted in significant growth in acid resistant liners and carbon products. Besides the domestic market, we made significant gains in Middle East and African markets.

The description of the Mega trends as explained in the previous section will also drive demand for non-ferrous metals like copper and zinc, where the Companys Polymer Concrete Cells (PCC) are used in both electro-chemical refining and electro-winning processes. Sustainability and policy-driven intervention will also lead to increased recycling of metals and recovery of non-ferrous and noble metals from E-Waste, resulting in increased usage of the electro-winning process.

The business also made significant gains in the supply of structural parts in Fibre Reinforced Polymer (FRP) for windmill nacelle covers. Power generation through wind will continue to grow with the addition of about 19GW capacity over the next two to three years. There is a significant traction in the demand for offshore windmills.

Sales Overview

Revenues of the Ceramics business increased by 26 per cent on standalone basis from Rs.6612 million to Rs.8342 million on the back of good orders from repair and maintenance and higher offtake by customers for Metallised Cylinders and Solid Oxide Fuel Cells (SOFC). Selective price increases were taken for majority of the products to mitigate cost push.

Industrial Ceramics

Metallised Cylinders, Engineered Ceramics and Wear Materials business focused on robust growth servicing key customers, adding new market and customers catering to the changing demand patterns in an agile manner. Focused efforts were made in targeting newer markets and partnering with global customers to garner long-term sustainable business has helped in making forays into new geographies and applications. The Engineered Ceramics vertical registered strong growth driven by the SOFC, Hydrogen and Mobility segments, where focused efforts were taken to grow the volumes of existing products and develop new variants in an agile and collaborative manner. The Wear Ceramics vertical also registered strong growth, with all market segments - especially, Mining & Mineral Processing - doing very well.

Refractories

The Demand for refractories will continue to grow strongly in the domestic market in the core industries of Glass, Iron and Steel, Carbon black, Chemical processing, and Heat Treatment.

Sustainability will be a key driver in process changes in the user industries. The usage of alternate fuels like hydrogen in DRI plants, fast firing kilns in Ceramic industry, will reshape the usage of Refractories. An example of focusing on optimising ware to kiln furniture ratio in the ceramic industry for increasing the quality, efficiency and capacity of kilns will drive the demand for Low Thermal Mass Kiln Furniture systems, a key area where the business is developing strong capabilities.

Waste to energy and usage of alternate fuels like hydrogen will need high-purity Refractories to protect key process equipment. The business is developing products to address specific requirements of our key customers.

The business has grown significantly in export markets in key industries of Glass, Chemical processing and Heat treatment. With focused efforts in business development and agile customer engagement, business will continue to grow in exports and domestic markets.

Anti-Corrosive and Composites

Demand for Anti-Corrosive and Composite products will continue to grow strongly in the domestic market in the Chemical industries. The business made significant gains in Anti-Corrosive, FRP and Composites during the year. During the year, we developed a range of construction chemicals, and a monolithic acid-resistant coating to reduce usage of acid-proof bricks in select applications. Enhanced capabilities in CFRP also helped cater to new applications in the drone industry.

Demand for advanced composites will significantly increase due to the Indian Governments policy of "Atma Nirbhar Bharat". The business is developing capabilities in new forming techniques in composites.

Offshore windmill installations will drive the need for larger structural parts in FRP. Increased usage of electro-refining and electro-winning will drive the requirement for Polymer Concrete Cells. The business has a focused development platform in place to cater to changing needs of the customer and industry.

Manufacturing

Industrial Ceramics & Refractories

The focus of the business was to drive volume growth by debottlenecking capacities and adding key balancing equipment.

The Wear Ceramics vertical carried out a major redesign of the furnace loading pattern, to unlock additional capacities. The Engineered Ceramics vertical focused on adding a new state-of-the-art Hydraulic press with the capability of near-net forming to meet the growing demands of Structural Ceramics. The Metallised Ceramics vertical focused on converting some of the batch processes - like Glaze firing - to faster continuous processes, thereby increasing capacities significantly. In addition, several initiatives were driven on the shopfloor with the objective of reducing defects and improving efficiencies, which helped greatly in tiding over the cost increases of some of the input materials and utilities.

During the year, the business commissioned an energy efficient fiber lined high temperature kiln that increased the capacity of fired products by 1200 MT. Significant capability and improvement in efficiency precision grinding was built through commissioning of Wendt Indias dual carriage grinding machine for grinding of large refractory blocks for glass industry.

Plant 1 of Super Refractories was certified by CII for significant achievement in the practice of TPM.

The business also kicked off the practice of Quick Response Manufacturing to improve lead time, and asset turnover.

Key Financial Summary						(Rs. in million)
Particulars	Standalone			Consolidated
	2022-23	2021-22	Change (%)	2022-23	2021-22	Change (%)
Revenue	8342	6612	26	10274	7980	29
Segment results (PBIT)	2048	1315	56	2507	1593	57
Capital employed	4236	3666	16	5918	5029	18
Share to total revenue of CUMI (%) (without eliminations)	34	30		22	24
Share to segment results (PBIT) of CUMI (%)	49	38		46	34

Electrominerals Business Profile

The Minerals business of the Company spans India, Russia and South Africa with eight manufacturing facilities covering product groups - Fused Alumina (comprising Brown and its variants and White Fused Alumina), Silicon Carbide (crude, macro and fine), Monoclinic Zirconia, Calcia Stabilised Zirconia and Alumina Zirconia. The Company also manufactures a range of specialties like Semi Friable Alumina, Surface and thermally treated grains, Solgel derived Alumina called as Azure S, Specialty Alumina and Ceramic fine powders for niche markets. To enhance its operational competencies, the business operates its own Bauxite mines and a 12 MW Hydel power plant to insulate the operations from fluctuations in power tariffs.

The business continues to focus on aggressive growth in the domestic and export market while catering to the requirements from internal customers. With a diversified product portfolio, the Electrominerals business provides customers with application specific products and solutions, aimed at attaining improved product performance, value and profitability. For this, the business ensures speedy execution of projects, yield and efficiency improvement initiatives, enhanced asset utilisation and undertakes joint product development programs with customers. New initiatives of the business in the areas like special products for refractory application, competitive solgel alumina and monocrystalline alumina, etc., are well received by the customers. The business also spearheads its Research and Development through a Department of Scientific and Industrial Research (DSIR) approved research facility located at Kochi.

While the business focus on regular operations with sweating of assets, value creation through process modification and improved asset utilisation, it progressively builds its capabilities and infrastructure for catering to the new and emerging transformational areas of opportunities like Graphene, High Purity Silicon Carbide, Battery materials and related areas through tie-ups for technology and by commissioning pilot scale plants. The Graphene facility started functioning during the year and the products are being adapted/functionalised for selective applications. The trials for developing high purity SiC have given encouraging results.

Key user industries for this business are Abrasives, Refractories, Steel, Brake linings, Nuclear energy, Wooden Laminates, Friction composites, Diesel Particulate Filter, semi-conductor and others.

Industry Scenario

The year 2022-23 opened many opportunities for the business and the business also commenced its sustainability journey to become more responsible to the society in terms of bringing better environmental controls and carbon footprint reduction. During the year, the business has engaged with the Confederation of Indian Industry (CII) for carbon footprint measurement and reduction in line with the Companys policy. The business has also initiated a new project for generating green energy by tying up with a Solar Power producer for the installation and commissioning of a 1.8MVA project at its campus in Edappally.

The business has seen an ever-increasing demand for its minerals due to the revival of Auto, Construction and Steel sector. The focus of the Government in infrastructure spending and continued growth of Steel industry has pushed the demand for Abrasives and Refractory products in the domestic market. The ongoing war between Russia and Ukraine imposed certain challenges with some customers from Europe insisting on supply of non-Russian Originated materials. While there was consistent demand for applications like Diesel Particulate Filters (DPF) and Semi-Conductors, the business could not cater to them fully due to restrictions imposed on the usage of feed material available from Russian subsidiary.

The business could very well establish the new synthetic fusion-based materials in place of regular Brown Fused Alumina (BFA). The Okha facility in Gujarat continued producing various grades of bauxite materials using bauxites available locally.

Transformational products like Graphene and high purity Silicon Carbides are still evolving with testing & approval for selected applications and the business is confident of scaling up to a commercial level from next year.

Sales Overview

The Electrominerals business on a standalone basis recorded revenue of Rs.7020 million compared to Rs.6207 million in the previous year.

The growth in the domestic business can be attributed to the revival of domestic Abrasives and Refractory customers, who are the biggest consumers of Electrominerals. Business has effectively implemented price corrections to the customers across market segments, to ward off the competition from Chinese suppliers. The business has also maintained a stable performance of its regular business on account of the consistent and stable performance reported by the user industries like Construction, Automobile, and Steel segment during the year.

Global players looking to reduce sourcing dependence on China can present opportunities for Mineral business.

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

The Zirconia business at Foskor Zirconia also reported favorable results during the year.

Manufacturing

Manufacturing strategies focused mainly on improving throughput by efficient operations supported by loss reduction through TPM initiatives and value creation through grain treatments. Continued focus on innovation, TPM measures enabled the business to be competitive and efficient in bettering its performance. The focused Joint Development Programs in selected areas with customers brought faster scaling up and co-solutions.

During the year, the business has received significant awards like Kerala State Energy Conservation Award and Manufacturing Innovation award from Kerala Management Association.

The business has successfully enhanced fusion capacities, and this is expected to augment the volume of ABV range of materials. The business has already taken initiatives to increase its crushing and grinding capabilities for White Fused Alumina (WFA) and modernisation of the processing facility for BFA during the year. This would further enhance the material availability of WFA and BFA from Minerals business.

The year saw probably the highest volatility in the availability and price of critical raw materials: Alumina, Graphite Electrode and Raw Petroleum Coke (RPC) in international and domestic market.

Foskor Zirconia which is into production of Monoclinic Zirconia and Calcia Stabilised Zirconia has also revived its operation with increased demand from customers. The Silicon Carbide operations at VAW were at its full capacity.

The business has successfully produced Graphene from its new facility and established three variants for commercial applications. The production trial of High Purity Silicon Carbide has been conducted and the chemical and physical properties are being evaluated.

Key Financial Summary

						(Rs. in million)
Particulars	Standalone			Consolidated
	2022-23	2021-22	Change (%)	2022-23	2021-22	(Change (%)
Revenue	7020	6207	13	16338	13120	25
Segment results (PBIT)	985	612	61	2753	1942	42
Capital employed	2536	2152	18	9209	7037	31
Share to total revenue of CUMI (%) (without eliminations)	28	28		36	40
Share to segment results (PBIT) of CUMI (%)	23	18		51	42

FINANCE

During the year, the Company generated Rs.3440 million cash surplus from its operations on a standalone basis. All debts have been serviced on time. The Companys long-term borrowings as on 31^st March 2023 stands at nil while short-term borrowings was at Rs.1040 million. The capital expenditure program of Rs.1570 million and investments in subsidiaries of Rs.807 million were financed from internal accruals.

The Company continued to have a reasonable cash generation during the year, due to prudent capital expenditure and efficient working capital management. The debt at the consolidated level increased to Rs.2301 million. The cash and cash equivalent level (net of borrowings) at a consolidated level stands at Rs.1663 million.

The debt-equity ratio for the Company was 0.05 at standalone and 0.08 at consolidated level. The Companys Balance Sheet remains 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, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve a reduction in financing costs. The finance cost at a standalone level is at Rs.150 million compared to Rs.10 million last year. The Company earned Rs.1 million by investing surplus cash available for short term.

At a consolidated level, the finance cost increased to Rs.235 million from Rs.56 million. The increase in borrowings has resulted in higher finance costs. The capital expenditure program of Rs.3017 million was financed majorly out of internal accruals.

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 31^st March 2023 and the date of this Report.

INDIAN ACCOUNTING STANDARDS (IND AS) - IFRS CONVERGED STANDARDS

The Company, its Subsidiaries, Joint Ventures and its Associate in India adopted lnd AS with effect from 1^st April 2016 pursuant to the Companies (Indian Accounting Standard) Rules, 2015 notified by the Ministry of Corporate Affairs on 16^th February 2015.

INTERNAL CONTROL

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 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. A periodic 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 expenditures 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. A Periodical review of capital expenditure with reference to benefits forecasted is done. Physical verification of assets is also periodically undertaken.

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.

During the year, the Board with the recommendation of the Audit Committee re-appointed M/s. Deloitte Touche Tohmatsu India LLP as Internal Auditors of the Company.

INTERNAL FINANCIAL CONTROLS

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(5)(e) 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 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 reviews Internal Financial Controls to ensure that they are adequate and are operating effectively.

HUMAN RESOURCES

This year, we have been strengthening the connection between the Human Resources function and the business. We have partnered with businesses to deliver on building capabilities for the future. At the beginning of the year, HR team across businesses spent time understanding and assessing the growth plans of businesses. All these dialogues and reflections translated into programmes to develop talent and capability across functions and levels. The objective has been to build human assets in a way that is relevant to the business and its growth charter. A clear example of this is the year-long induction of the largest batch of Graduate Engineering Trainees who were selected from campuses across India. These young graduates were then placed across Divisions in functions including Manufacturing, Quality, R&D and Sales.

Employee Safety and Health

Safety continues to be the key area of focus for the Company. Behaviour-based safety training both in-person as well as virtual were conducted to promote a culture of safe working across factories. Safety awareness sessions continued on a regular basis to bring in more awareness on safety. "Drive Zero" is an initiative to ensure Zero accidents and Zero Harm to people working in all the manufacturing sites and area offices of Abrasives. Eight Level approach was adopted to create a sense of ownership towards safety and to have a structured approach for building a safe work culture. Safety Excellence model rolled out and various activities are initiated in EMD plants like Theme based monthly audits and Role plays. Plants received safety awards from Kerala Government and National Safety council for the safety performance.

Capability Building

The learning and development function could cover a greater number of learning programmes with customised development interventions across levels and wider participant coverage.

CUMI SUPER STAR program, a specially designed programme for development of supervisory staff Phase-2 was launched to enable the Supervisors to manage their work effectively and in engaging with their teams to improve productivity through developmental inputs, frameworks and techniques. 99 supervisors underwent various functional capability building sessions on 7 Quality Control Tools, problem solving, Statistical Process Control, 4MCM, Lean principles and mistake proofing. This was followed up with 18 Action learning projects to implement the learning on the job. A 1-day experimental learning outbound program was also planned for all the 99 supervisors based on behavioural competencies like planning, time management, emotional intelligence, collaboration, communication and customer focus. A valedictory function was organised in which all the supervisors were certified to have successfully completed the program and top projects and participants were recognised and rewarded. Apart from this a Customised 2 day Supervisory Development program exclusively designed for 23 supervisors of EMD.

Based on the inputs from Graduate Engineer Trainee batches 2018 to 2021, a customised development calendar was released exclusively, and programs were conducted on topics like APQP, FMEA, LEAN, TPM and finance for Non-finance and session on Data analytics using excel and power BI.

YOLO, a customised intervention for the GET batch of 2022 was launched with a 1 one year development journey covering Campus to corporate workshop, POSH, Whistle blower, 5 lights QC tools, low cost automation, Industrial safety, design,basic machining, materials technology and Industrial safety. GETs also underwent finishing school at Murugappa polytechnic were learning on machines was covered.

CUMISEAD, a customised program for first time managers and individual contributors was rolled out in the month of February, with the objective of Enhancing self-awareness, improving interpersonal effectiveness and driving impactful results through systematic and structured behavioural tools and techniques. The intervention started with "Manager as Coach" workshop to help the reporting managers to coach participants throughout the 6 month learning journey. The program has a combination of classroom training, assignments, action learning projects and one to one coaching sessions. Currently, the first batch of 20 employees are undergoing this intervention and module -1 has been completed.

Customised business need based programs were conducted. 2 Batches of Data analytics using Power BI were conducted for Abrasives division covering 65 employees across different functions. The program was delivered in a blended mode with e-learning, classroom and action learning projects with multiple rounds of review to help the participants to use POWER BI Dashboards for analytics and decision-making in the internal monthly reviews. For Industrial ceramics division a customised business specific program on crucial conversations was conducted for 30 participants to provide inputs on high impact conversations skills, cross cultural sensitivity and handling difficult customers.

Training need-based programs were rolled out on functional topics like 8D problem solving, Cost Effective Automation,

6 Sigma, 7QC Tools, APQP & Design for Manufacturing, and Behavioral programs on interpersonal skills, emotional intelligence, negotiation skills, strategic planning and execution and design thinking for innovation. The program on emotional intelligence was delivered as a high impact program in partnership with PSG institute of Management.

Lean Six Sigma initiative was started in the year 2020 to eliminate variations in the existing process to improve process capability and competency of the personnel by using problemsolving statistical methods in Abrasives business. Continuing the journey of Lean Six Sigma, during FY 2022-23, 41 continuous improvement projects were executed across all functions. The projects were aimed at cost saving, revenue enhancement and internal efficiency improvement. Around 43 members from various functions were selected and coached in green belt DMAIC process. Promotional activities like ATOM (A Theme One Month) and gallery displays are done to ensure continuous refreshment of six sigma tools. Six sigma project teams participated in external competitions viz. CII, NITE, ISQ TOPS etc., and achieved 2 external awards.

Apart from this, "train the trainer" program was organised in which 30 internal experts within CUMI were identified and went through a workshop on training and facilitation skills. 34 leaders also underwent the Awareness session on "Prevention of Sexual Harassment".

The Catalyst, a voluntary, self-directed mentoring programme where employees directly sign up for dialogues with mentors, continued its role in people development. During the year, we have assigned mentors from catalyst to 18 Graduate Engineer Trainees.

Platform for Accelerated Career Experience (PACE) - the platform for cross-functional experiential learning continued to engage and provide employees with an opportunity to work on different projects of their choice. The year saw 14 new projects and the projects are in different stages of implementation.

Knowledge Management

Knowledge Management framework was introduced, and a pilot project was initiated in EMD for Knowledge Management. Various initiatives have been taken up among the retiring employees as well as the serving employees to capture the knowledge available in the organisation in a structured way. An IT platform is used to capture data, storage of data and for easy retrieval of the data.

Employee Engagement

Employee recognition through different platforms continued to recognise employees for their achievements. Employees who exhibited exceptional values during the year were recognised with "Shine Awards". Total of 90 nominations received and 11 employees won the award. They were facilitated along with their families during the award distribution ceremony.

In continuation to the Employee Engagement survey conducted in Q4 of FY 2021-22, Focused Group Discussion was conducted across divisions and action plan implementation were initiated based on the outcomes to improve the Engagement score.

The Employee Engagement Index was 69 per cent against the score of 60 per cent in 2018 (AON). The employees feel good that CUMI as an organisation has great reputation, they feel a sense of belonging among teams, feel proud of their work and enables them to demonstrate the Five Lights.

The predominant areas of improvement are compensation and benefits, performance-based differentiation in Incentives & Increments and more opportunities for fun at work.

Based on the survey outcomes, focus group discussions were conducted for all the employees and action plans were created to improve employee experience. Consolidation of inputs & implementation of Action plan was initiated from November 2022 & is in progress. Significant part of the actions have been completed and others are in progress and on schedule to be completed.

Every quarter, we recognise and reward employees of all functions on their projects that they have completed in the previous quarter (month/quarter) with regards to Cost Saving - variable/fixed, First Time Right, NPI establishment, Sales topper (region wise), Best Support to business, Best NPI/ NPD Launch and Process improvement projects. You made a difference is a quarterly recognition programme conducted in EMD to recognise the special contributions of employees.

Achievers Gallery was initiated to recognise employees for improvements, Kaizens, suggestions in PQCDSM. Circle wise the shop floor teams were evaluated by an apex cross-functional team and rated on 43 parameters.

To motivate and recognise the internal trainer and build more talent pool internally, the Company launched a monthly best trainer recognition programme at Hosur named CUMI Acharya. They were evaluated by the feedback ratings and number of training sessions they have conducted.

On Teachers day, the Company recognised 39 Internal Trainers across all functions as CUMI Acharyas and honored them for their contribution. "Across the Wave" initiative was launched in the month of December which is a leadership inspiration programme.

HR Excellence

CUMI Participated in the 13^th CII HR Excellence Assessment. The purpose was to have a deeper and closer objective assessment of our HR ecosystem and to identify opportunities for improvement and to have an outside in perspective. A team of Assessors with Senior HR professionals from across industries visited and conducted a detailed assessment of our HR systems and practices in December. They spent time at our factory locations and interacted with our colleagues from shopfloor to Board room. As an outcome of the assessment, CUMI is honored to receive the Significant Achievement in HR excellence certification from the Confederation of Indian Industry. The scores have improved from the last participation.

This recognition is evidence of a robust ecosystem and confirmation that we are on the right path to building a people- first future. The assessment report is a guiding note in our journey on excellence. Action plans based on the feedback report are being reviewed.

Employee Relations

Cordial relationships have been maintained with employees and unions despite the disruptions and volatile business conditions and the wage settlements have brought in greater flexibility in operations, adherence to TPM practices ensuring high standards of productivity. During the year, 3 factory units signed off wage settlement increasing productivity target and without loss of any manhours.

Talent Acquisition & Talent Management

Hiring of fresh talent and development of future leaders continued as a strategic focus area. The focus was to continue creating a talent pipeline in the middle management level by hiring Graduate Engineer trainees. The Company continued its onboarding of Graduate/Post-Graduate Engineer Trainees who have been undergoing a year long training program.

The quality of hiring has been enhanced by introducing Thomas Personal Profile Analysis (PPA). The capability of the HR team is constantly enhanced by undergoing training program on PPA and getting certified on the same. Lateral hires with greater emphasis on referrals, job boards and internal transfers lowered sourcing costs.

High Potential Talents who were identified as future leaders through multi-source feedbacks and assessments were enrolled for different development programmes. Employees who are identified as potential business leaders are undergoing a development programme through Indian Institute of Management, Ahmedabad (IIMA). They have completed the program and have been certified.

Employees who are identified as mid-level leaders were enrolled in CUMI Leadership Programme, a customised development programme designed and executed in collaboration with Great Lakes Institute of Management. They have completed the program and have been certified.

High Potential employees in junior-level management are being identified through a performance - potential matrix. The assessment will take 2-year performance data and a potential score from Thomas General Intelligence report. The exercise is completed and the critical talent have been identified. Individual Development Plans are being evolved in discussion with the respective employee and reporting manager.

Performance Management System (PMS)

In order to drive the performance-oriented culture, the goal setting process of 2022-2023 and the appraisal process of 2021-2022 were completed during July 2022. Based on the PARC review, the rewards were distributed among the qualifying employees. Rewards include recurring salary revision, promotional reward, salary correction for critical talent, one-time cash reward for exceptional contribution.

The incentive payout is also completed depending on the Balanced Score card (BSC). Some of the employees were considered for promotion/salary correction during January 2023 as a part of mid-year review process.

ACHIEVEMENTS AND AWARDS

Despite continuing to be a challenging year from an operational perspective, the Company continued to be a proud recipient of several awards and recognitions reiterating its commitment to excellence.

• MMA (Madras Management Association) Award for Managerial Excellence 2022.

• EMD was awarded the IEI Industry Excellence Award 2022.

• EMD has been recognised with GOLD Award for Energy Management and Conservation by Society of Energy Engineers & Managers (SEEM).

• EMD was awarded the Kerala State Energy Conservation Award 2022 in appreciation of the commendable achievements towards energy conservation and management in the category of Large-Scale Energy Consumers.

• Russian subsidiary, VAW awarded Best Managers and Organisations in 2021.

• Super Refractories won TPM Strong Commitment Award for Ranipet Factory.

• Abrasives won Gold medal in the 16^th CII Six Sigma National Competition.

• Abrasives was awarded Gold in CCQC 2022 award instituted by the Quality Circle Forum of India, Madurai Chapter for six sigma project.

• 5^th National Convention on Innovative QC Teams - NCIQCT - 2022 by Abrasives team.

• Won Bronze award in "QIT (Quality Improvement Teams) Convention"- October 2022 by NITE - National Institute. for Transformation and Excellence by Abrasive team.

• Achieved Special Award - Deming Trophy for best use of Statistical Tools by Abrasives team.

• 5^th SMED Competition by ABK AOTS, Chennai, participated and won RHODIUM AWARD by Abrasives team.

• EMD - Maniyar Team won the Gold Award in ABK AoTS Competition.

• EMD- Koratty MGP Team Won the Platinum Award in Quality Circle Competition NCIQCT.

• Three of our units won Safety Award this instituted by Government of Kerala and National Safety Council.

• AZ Team won the CII Kerala State Quality Circle Competition in November 2022.

The total staff on rolls of the Company (including Joint Ventures and Subsidiaries) as on 31^st March 2023 was 6015 with 3771 employees in India (previous year 5555 with 3674 employees in India).

PERFORMANCE OF SUBSIDIARIES

The Russian subsidiary recorded sales of RUB 8067 million against RUB 7293 million during the previous year. The profit after tax stood at RUB 1239 million against RUB 1100 million. Growth was driven by the SiC and Refractories business. Volumes remained encouraging throughout the year. Considering the challenges that arose because of the Russia-Ukraine war, particularly in logistics to sell outside Russia, the business explored the opportunities to sell more within the domestic market and increased its volume share in Russia from level of 40-45 per cent to 55-60 per cent. There had been no impact on the operations and the installed capacities were being utilised at the same level as it was before the war.

Also, collections were on time. On the logistics front, arrangements were made to Europe, India and other geographies through alternate routes. The products of VAW are not under any sanction nor is restricted. Neither VAW as an entity nor its directors or its employees are under any sanction.

Foskor Zirconia, South Africa, recorded a sales of ZAR 440 million compared to ZAR 354 million in the previous year with an uptick in demand for its products. The entity made a turnaround in its performance and profit after tax stood at ZAR 60 million against ZAR 15 million in the previous year. During the year, owing to a restructuring of the balance sheet mutually agreed between the shareholders of FZL as well as an improved financial performance, the Company saw a turnaround. The comment of the subsidiarys Auditors on the material uncertainty relating to going concern which was made in the previous year reports have been dispensed with and the Company is well on path for a sustainable growth in future.

In CUMI Australia, the business in Lined Equipment continued to be good on the back of an increase in demand for mineral processing. The Companys revenues grew from AUD 21.1 million to AUD 30.1 million registering the highest recorded revenues in the Company. Profit after tax was AUD 3.6 million against AUD 2.5 million last year.

Sterling Abrasives reported very good growth in revenues at Rs.1381 million compared to last years sales of Rs.1118 million. Profits after tax increased to Rs.165 million from Rs.121 million during the last year. Continuing higher Agri acreage owing to good monsoon conditions, higher reception for certain new products among end users as well as enhanced exports helped growth.

During the year, considering the sustainability of the business under the current operating model in China owing to increasing travel restrictions and other challenging business conditions, it was decided to minimise the operations in CUMI Abrasives and Ceramics Company Limited (CACCL), the subsidiary based in China. Post the conscious call of tapering down the operations, the market is being served directly from India.

The sales of CUMI America during the year improved significantly to USD 18 million as against USD 12 million last year, driven by an increase in sales of both Bonded Abrasives and Industrial Ceramics thereby improving profits. The profit after tax increased from USD 0.04 million to USD 2.16 million.

For CUMI Middle East, sales decreased from USD 2.2 million to USD 1.0 million. Loss for the year was at USD 0.13 million against a profit of USD 0.02 million during the previous year.

Southern Energy Development Corporation Limited (SEDCO), the gas-based power generation subsidiary recorded a sale of Rs.259 million as against Rs.245 million last year. The business made a loss after tax of Rs.44 million as compared to profit after tax of Rs.68 million during last year on account of the significant increase in gas prices and other generating & transmission charges.

Net Access India Limited, which provides IT facility management and other allied services grew from Rs.453 million to Rs.585 million. The profit grew from Rs.25 million to Rs.34 million.

CUMI International Limited, Cyprus recorded a revenue of USD 6.1 million representing mainly dividend income as against last years income of USD 5.9 million. During the year, the Company made an investment of USD 9.6 million in CIL to enable suitable funding to its subsidiaries.

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

Last financial year, the Company made a strategic investment of 72 per cent in the share capital of PLUSS Advanced Technologies Private Limited by purchasing a part of the existing stake held by its promoters as well as entire stake held by TATA Capital Fund and other investors and also made a direct investment in the Company. During the year, the Company increased its investment in the Company by 0.74 per cent by acquiring additional 3724 shares. PLUSS Advanced Technologies Limited recorded a revenue for the year Rs.542 million as against Rs.190 million for the previous year (Post-acquisition from October 2021) and loss after tax for the year was at Rs.137 million as against Rs.96 million for the previous year (Post-acquisition) under acquisition accounting. The losses for the current year were reduced from Rs.70 million to Rs.38 million on an actual basis.

CUMI Awuko Abrasives GmbH had acquired the main assets of Awuko Abrasives Wandmacher GmbH & Co. KG, a company under insolvency in Germany during the year 2021-22. The operations of the Company continued to be impacted by the volatile business conditions and the newly inducted Management is in the process of stablising the operations. Awuko recorded a revenue of EUR 9.4 million and loss after tax was at EUR 3.7 million.

Rhodius Abrasives GmbH - During the last financial year, CUMI International Limited incorporated an operating company in Germany to acquire the Abrasives business of Rhodius Group. The increasing prices of raw materials and energy prices in Europe and challenging business conditions owing to the continuing geopolitical crisis has impacted the operations of the newly acquired subsidiary. Rhodius recorded a revenue of EUR 64.5 million and loss after tax of EUR 3.6 million.

ENTERPRISE VALUE ADDITION

The Company has been able to continuously add value, the summary of which is given below:

					(Rs. in million)
Particulars	2022-23	2022-22	2020-21	2019-20	2018-19
Generation of Gross Value added (excludes exceptional items (net)	7201	6275	5153	5044	5072
Breakup on Application of Value added
Payment to Employees and Directors	2389	2169	1982	1979	1839
Payment to Shareholders (on payment basis)	665	569	284	757	520
Payment to Government	1050	899	638	709	946
Payment to Lender	-	-	-	-	-
Towards replacement and expansion	3097	2638	2249	1599	1768
	7201	6275	5153	5044	5072

- 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 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.

The Company also has developed a structured risk management policy encompassing the risk management objectives, principles, process, responsibility for implementation, maintenance of risk registers, review of risk movements, risk reporting framework etc. During the previous year, in collaboration with external advisors, the enterprise management framework was assessed for its maturity levels and due changes to the risk management policy and the manner of risk identification and categorisation were made. During the year, the Company has completed the automation of the upgraded enterprise risk management framework. The Risk Management Committee continued to review the risks and mitigation plan as per the adopted Charter and Risk Management Policy. During the year, dedicated focus on developing a cyber security framework for the Company was provided. The Company is in process of establishing an IT security framework commensurate with its size and operations and the next few years will be working on the implementation of the framework and its gradual extension to the global entities. Besides this, the review of geopolitical risks in the volatile global market conditions and periodic risk register review continued.

Risk management also 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 of 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 continues to make investments in the next level of Industry 4.0 in select modules. Industry 4.0 is the current trend of automation and data exchange in manufacturing technologies.

The requirements of power for the Company are majorly driven by the requirements of the Electrominerals business. The power requirement is partly met out of own generation from the Maniyar Hydroelectric plant. The entire production of power from Maniyar is utilised by the Electrominerals business. Apart from this, electricity is generated at the Companys subsidiary SEDCO and consumed at all its locations in Tamil Nadu. The rest of the requirement for electricity is managed by purchase from respective State Electricity Boards. Utilisation of power remains one of the key factors which can impact the profitability either favourably or adversely based on the changes in the power cost. As part of its strategy to build competitiveness, the Company continues to look for opportunities to add to its captive power generation. In Russia, the Silicon Carbide operations which also consumes large quantities of power sources it from local utility. In India, the Company is also exploring alternate power sources and towards this has commenced installation of clean energy sources such as solar for its captive consumption. Around 1.5 MWp capacity of solar power systems has been commissioned at various factory locations which has generated around 15,00,000 units of electricity from cleaner sources, equivalent to saving 17550 trees and reducing 606 Tons of CO₂ emissions. Also, a solar powered electric vehicle charging station has been installed at one of the factory location to encourage employees towards EV adoption. Also, the Companys subsidiary, SEDCO which was generating gas based electricity expanded its business model to service customers for solar based electricity, thus reducing the dependence on single source of energy.

The requirement of fuel is driven by the high-temperature processes in the Abrasives and Ceramics businesses. Any increase in the cost of fuel impacts profitability. Hence, the Company has put in place plans and implemented energy conservation measures to improve its competitiveness. Kindly refer Annexure D of the Directors for energy conservation measures undertaken.

The Company uses various raw materials such as Bauxite, Calcined Alumina, Zirconia sand, Raw Pet coke, Quartz and Graphite which have high price volatility. This is addressed through annual contracts to cover volatility due to price fluctuations and also mitigated through programs to identify alternative sources.

The Company deals with multiple currencies and is thus exposed to exchange risk on account of adverse currency movements. Foreign Exchange risk in foreign denominated loans, imports and exports is 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 a Company level, there is a natural hedging mechanism.

As a risk mitigation measure to address cyber security threats, the Company does quarterly penetration assessment testing for all internally and internet-facing applications. The security threat awareness is periodically published to create awareness among employees and stakeholders for handling the risk proactively. The security process is included as an important step in the IT policy of the Company. There is a considerable amount of work undertaken on scoping of information specific to the role defined to prevent any data or information leak, through continuous monitoring on the business-critical IT assets. Considering in some locations the hybrid mode of work has become the new normal, data security and protection against the risk of phishing, malware attacks was given priority. Awareness mailers were disseminated across to mitigate risk of such attacks and requisite infrastructure upgrade to support the remote working conditions in a secured manner was initiated.

As mentioned earlier, the Company is in the final stages of completing the establishment of a cybersecurity framework as a part of its IT Strategy. We have partnered with an external expertise to assist in developing this framework after undertaking maturity assessment for both IT and OT capabilities. The implementation of the framework will commence in the coming years.

The Companys input materials are not commoditised and does not warrant for 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 the 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 with separately in above paragraphs.

The risks associated with COVID-19 cannot be ignored as the pandemic still continues in an intermittent manner with the risk of another wave with the same or new variant still lingers. The priority for the Company continues to be the safety and health of all its employees and other stakeholders with minimal disruption to operations. To mitigate the risks related to any subsequent infection waves, if any, the Company is well prepared with its workforce of more than 95 per cent vaccinated with the first and second dose. Drives were conducted during the year for the booster shots of the vaccines which helped minimise the impact as and when different variants of the virus emerged.

Further, 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. The quarantine centers to handle any sudden spurt of infections at the Companys plant location remain to be activated any time. The Company also ensures that safety protocols and government guidelines are being strictly followed including monitoring the same vide its compliance management system.

Considering the declining trend of the COVID pandemic and with the situation almost normalising across the globe, the risks associated with the same reported until last year is not being specifically disclosed in this report. However, the Management is conscious of the emerging variants and continues to monitor the situation and take precautionary action. The risks across operations, human resources, IT, supply-chain etc., which were identified and the mitigation plans to address the risks continue to be on the risk radar of the Company.

BUSINESS OUTLOOK AND OPPORTUNITIES

Indias recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. Navigating the growth paradox amid an increasingly volatile global backdrop remains the key challenge. The Government of India has largely continued with its focus on driving capex by enhancing the gross budgetary support for Roadways, Railways, and Defense sectors. The budget had a strong focus on capex and infrastructure development as well as giving more money in the hands of the middle class and improving Agricultural income along with job creation through skill development for the weaker section.

This should all go well for the Company. CUMI has continued its focus on growth from core businesses, expansion through acquisitions, and working on emerging areas like clean energy, electric mobility, semi-conductors, and advanced manufacturing. The key strategies have been outlined in Performance of Business Segment section.

Even as Indias outlook remains bright, global economic prospects for the next year have been weighed down by the combination of a unique set of challenges expected to impart a few downside risks. Multi-decadal high inflation numbers have compelled central banks across the globe to tighten financial conditions. The impact of monetary tightening is beginning to show in slowing economic activity, especially in Advanced Economies. Besides this, adverse spillovers from the prolonged strains in supply chains and heightened uncertainty due to geopolitical conflict have further deteriorated the global outlook. Hence, global growth is expected to bottom out at 2.8 per cent in 2023 before rising modestly to 3.0 per cent in 2024. Global inflation is estimated to decrease, although more slowly than initially anticipated, from 8.7 per cent in 2022 to 7.0 per cent in 2023 and 4.9 per cent in 2024 (IMFs World Economic Outlook, April 2023).

Notwithstanding the same, the Company continues to explore and identify alternate and new opportunities for its various product segments across all its businesses in sectors including Clean energy, Semi-conductors, Defence, Digital, etc., to drive growth.