Carborundum Universal Limited(CUMI) - Chairman's Message
Chairman of Murugappa Group

Dear Shareholders,

The year 2017-18 turned out to be a very good year for CUMI with revenue growth resuming double digit levels driven by better performance across all major segments. The global economy grew with a broad based momentum from continuing strong performance in the Euro region, Japan, China and the United States. With the world economy enjoying a synchronised recovery, the emerging and developing economies also grew at a notable pace. The growth in advanced economies is forecasted to continue in the near term and the growth in emerging market and developing economies is expected to rise as well. Indian economic growth is also projected to increase lifted by strong private consumption as well as the diminishing transitory effects of the changes in its tax regime.

CUMI, its subsidiaries and joint venture companies had a good year with consolidated revenues (after normalising for excise duty) increasing by twelve per cent over the previous year. The recommissioning of the relocated plants from overseas across various locations into India were completed successfully, ably aiding the growth in overall operations. With a firm focus on delivering operational efficiencies through Total Productive Maintenance (TPM) practices across all plants, not only did the production efficiency improve but also it enhanced the overall profitability duly supported by prudent cost management efforts. It gives me immense pleasure to share with you that while the Industrial Ceramics and Bonded Abrasives plants of the Company at Hosur, Tamilnadu were awarded the JIPM excellence award in TPM after a very rigorous evaluation this year, the plants in Sriperumbudur and Maraimalai Nagar, recipients of the excellence awards in the year 2014-15 were conferred consistent TPM commitment awards in due recognition of their sustainable practices. The capital expenditure programmes which were predominantly for relocation and maintenance were well executed. Prudent working capital management continued to keep the Company debt free and capital expenditure was met from internal accruals.

Abrasives

Abrasives, CUMI’s largest business segment recorded a nine per cent growth during the year riding on macro-economic factors like infrastructure development as well as its strengths of new products and expanding dealer & distribution network. Though the year commenced on a challenging note with the implementation of the Goods and Service Taxes creating some uncertainty in the distribution network, the business improved subsequently. The business maintained its competitive edge by increasing indigenous sourcing of input materials and bringing in better efficiencies through TPM practices across plants. With the Russian subsidiary, Volzskhy Abrasive Works introducing newer products and exploring newer territories, the Abrasives sales in Russia was also higher this year. Sterling Abrasives, the Indian subsidiary manufacturing specialist conventional Abrasives performed well. Wendt India, the joint venture company which addresses the Super Abrasives, Grinding machines & Precision components market also delivered better performance in terms of revenue and recorded a significant increase in its profitability due to changes in product mix. Performance of CUMI Abrasives and Ceramics Company, China which is now operating on a new business model post discontinuance of in-house manufacturing operations last year, stabilised during the year with its operational loss coming down significantly.

Ceramics

The Ceramics business did well during the year with the consolidated sales being eleven per cent higher than the previous year. The Metallized Cylinder Plant set up last year with equipment from NTK, Japan commenced production during the year and is expected to rapidly scale up. With continuing marketing efforts targeting newer markets and partnering with global customers, the Engineered Ceramics and Wear Ceramics segments also did very well. In-house raw materials used in the production of Engineering Ceramics and Metallized Ceramics gives this business division a competitive edge over the market. The Lined Equipment business at CUMI Australia continued to do well and CUMI America on the back of the benefits accruing from initiatives driven over the last few years has minimised its losses thus improving the consolidated performance. With investments in new technology for enhancing its product range for various user industries, in particular, Iron & Steel, the Refractories business is poised to grow well. The performance of the Company’s joint venture Murugappa Morgan Thermal Ceramics engaged in manufacture of Ceramic Fibre products remained flat owing to subdued market conditions.

Electrominerals

The Electrominerals business of CUMI which did not do very well last year rebounded well with an eighteen per cent growth in revenues. The new regulations in China benefited this segment thus increasing volumes both in domestic and international markets across product lines. Despite an increase in overall profitability, the business continues to be impacted by increasing input costs, mainly power resulting from continuing lower rainfall in Maniyar, India which houses the division’s hydel power plant as well as increase in mineral prices globally. Volzhsky Abrasives, Russia ran at near full capacity and though the volumes were higher than last year, the maintenance issues in the external power grid leading to power outages impacted performance. The lower sales of Fused Zirconia in South Africa and high input cost adversely impacted the consolidated sales which however was still higher than the previous year.

Southern Energy Development Corporation Limited, the gas based power generation subsidiary recorded good revenues though marginally less than the previous year consequent upon reduction in gas supply as compared to the previous year. It recorded a growth of over twenty one percent in profitability. Net Access, the subsidiary providing IT facilities management and allied services recorded a marginal growth in turnover and profitability in the midst of competitive market conditions and certain strategic projects not taking off as envisaged.

After due consideration of the performance for the year, future projects and the cash flow position of the Company, the Board has considered an enhanced dividend of Rs.2.25 per share for the year (29% more than the previous year) of which Re.1.00 per share has already been paid as interim dividend during the year.

Being a material science technology oriented organisation, research and development plays a crucial role in CUMI’s growth trajectory and is a significant driving force. During the year, the number of research centres recognised by the Department of Scientific and Industrial Research, Government of India increased from six to seven, each serving as Centers of Excellence, fueling the technology initiatives across the organisation. Over 45 IPRs were created across various divisions during the year. Dedicated knowledge sharing sessions and training sessions were organised across the Company to reinforce the commitment to be technologically progressive. An IPR manual was prepared and this serves as a ready reckoner to employees who are constantly seeking to innovate, for protection of their ideas.

Across CUMI operations, many technologists and scientists are working within and across divisions in a collaborative manner to enhance capabilities in the technologically advancing external environment.

The year 2017-18 continued to be a year of accolades and recognitions for CUMI. Besides being the recipient of the coveted TPM excellence awards across various business divisions, CUMI also received the prestigious Golden Peacock award in the engineering sector for Corporate Governance in due recognition of its governance practices. The Electrominerals division was conferred the HR excellence by the Confederation of Indian Industry (CII).

The CUMI Centre for Skill development (CCSD), the CSR initiative of CUMI addressing the training and development requirements of rural and underprivileged youth and honing their skills for future employment continued to function well. The year witnessed the graduation of the first and second batch of students who not only passed with flying colours but went on to be adjudged as winners in various regional and national level skill competitions.

Safety at the workplace continues to be top priority and receives highest attention from the Board. Besides periodic training and awareness sessions, dedicated safety training workshops were held for identification and elimination of unsafe working conditions. The Safety, Health and Environment risks are periodically monitored and the mitigation measures are reviewed considering its paramount significance on the operations.

While supporting the businesses in fulfilling their strategic intent and directions, the various teams at corporate office have been very agile in adapting to the dynamic regulatory scenario not only ensuring compliance but also in quickly aligning the processes and procedures to the revised regulatory norms.

The CUMI team across the world, under the able leadership of Mr. K Srinivasan, Managing Director and leaders across geographies pursues the core objective of engineering the future with excellence. During my interaction with them during visits, Iám most touched by their commitment and passion. It is indeed very gratifying to see them develop capabilities with conviction and confidence to address the future opportunities. Mr. R Rajagopalan after having served the Company for over 38 years retired as the Business Head of the Refractories division. We wish him well in his retirement. We welcome Mr. V G Rajendran who has taken over the helm of affairs of this division from Mr. Rajagopalan. I also wish to acknowledge Mr. Sridharan Rangarajan’s valuable contribution to the Company during his term as Chief Financial Officer (CFO) since 2011 before moving to the Group in January 2018, as its CFO.

CUMI’s Board of Directors continue to be a source of great inspiration and wise counsel to me. Their exercise of sound judgement while advising the team and me personally on the business as well as challenging us to greater levels of achievement is most commendable and Iàm thankful to them for being generous with their time and wisdom.

I take this opportunity to pay homage to Late Mr. M V Murugappan, former Chairman of the Company who passed away on 19th September 2017 at the age of 81. Mr. M V Murugappan had been longest serving Managing Director of the Company from 1979 to 2000 before he took over the Chairmanship. Under his leadership, CUMI not only grew as India’s leading manufacturer of Abrasives but his vision for technological leadership in the domain of materials led to several expansions including setting up of Industrial Ceramics division as well as investments in backward integration projects in hydro-electric and thermal energy, projects which were far ahead of times and continuing to give us a competitive edge even today.

The world around us is dynamically changing providing us ample opportunities to create technological solutions for the future and progress collectively in “Making Materials Matter”. Towards this, the encouragement and unstinted support we receive from each of our stakeholders be it customers, suppliers, vendors, bankers and of course you shareholders is indeed wonderful for which my colleagues and I are most grateful.

Murugappa Group Abrasives & Ceramics Manufacturers