Chairman of Murugappa Group

Dear Shareholders,

The year 2016-17 was a good year for CUMI amidst a struggling global economy which continues to face downside risks in terms of increased protectionism, heightened policy uncertainty and weaker potential growth. Global industrial growth is forecasted to strengthen in 2017 with a pickup in manufacturing and trade, favourable global financing conditions and stabilising commodity prices. The Indian economy, despite the sharp slowdown at the end of year owing to an unfavourable base effect and the demonetization, continues to be amongst the fastest growing economies in the world. The Goods and Services tax (GST) a significant reform in the indirect tax structure of the country to usher in a harmonised national market for goods and services is expected to have a favourable impact on the economy inspite of the implementation challenges.

CUMI’s consolidated revenue increased during the year by nine per cent owing to better performance across all divisions and also well supported by performances of its subsidiaries and joint ventures. The major strategic initiative in terms of relocation of plants from South Africa and China and their subsequent recommissioning in different parts of India were successfully completed during the year, the benefits of which are likely to accrue in the coming years. Relentless cost management efforts and efficiency drive aided in improving overall profitability. The continuous focus on implementation of the Total Productive Maintenance (TPM) practices across all our plants have improved the efficiency of the entire production process. During the year, CUMI’s oldest plant at Tiruvottiyur, India was awarded the JIPM excellence award in TPM and the Industrial Ceramics Plant at Hosur, India has successfully completed the CII TPM health check and is now geared up for the JIPM excellence assessment this year. Capital expenditure programmes were well executed as per plan and prudent working capital management has aided the Company becoming debt free during the year. At a consolidated level, the net debt position is very marginal which signifies the strength of its overall cash flow position.


In the backdrop of positive macro-economic factors in India like infrastructure development, energy related reforms coupled with conscious efforts like introduction of new products contributed to the better performance strengthening of its dealer & distribution network etc., Abrasives, CUMI’s largest operating business recorded a 10 per cent growth during the year. The indigenous sourcing of input materials continue to give this business segment a competitive edge in the market. Better efficiency across the value chain through TPM practices and strong partnership with distributors as well as customers have aided in improving margins. The up gradation of the bond production facility as well as launch of new products bettered the performance of the Russian subsidiary, Volzskhy Abrasive Works. The Indian subsidiary, Sterling Abrasives which manufactures specialist conventional Abrasives has performed well. Wendt India, the joint venture company which addresses the Super Abrasives, Grinding machines & Precision components had a good growth in both revenue and profitability. The discontinuance of in-house manufacturing operations in China have minimised losses and a new business model for its future operations has been well established.


The Ceramics business which had a tough previous year has done very well this year. Both at the standalone and consolidated levels, there has been a significant improvement in revenues as well as profitability. The year 2016-17 was also momentous for the division in that it has completed 25 years. The Metalized cylinder, Engineered Ceramics and Wear Ceramics segments continue to do very well. The repositioning of the equipment purchased from NTK, Japan has been completed at Hosur, India this year and is expected to commence commercial production soon. The Lined Equipment business at CUMI Australia continued to be good, thus improving the consolidated performance. The strategic initiatives undertaken in the previous years to turn around the business in the United States has started to yield results with a good growth in revenues. The Refractory business growth over the last year has also been good driven by growth in Fired Refractories and Anti-Corrosive segments. Efforts have been taken in the last two years in establishing niche applications for this segment which will drive the future growth. The Company’s joint venture Murugappa Morgan Thermal Ceramics engaged in manufacture of Ceramic Fibre products also did well to maintain its revenues and profitability.


The Electrominerals business of CUMI which did exceptionally well last year grew marginally this year by three per cent. The decline in Solar Photovoltaic business as well as the weak markets in China and Europe adversely impacted business performance. The increase in input cost as well as lower rainfall in Maniyar, India which houses the hydel power plant for meeting the power requirement of this division has affected the power generation resulting in increased power cost with an overall impact on its profitability. The business is in the final stages of obtaining requisite approvals for establishing an additional power plant at Keerithodu, India to meet its power requirements. The flat sales of Fused Zirconia in South Africa as well as the power shortage in Russia due to maintenance issues for more than two months impacted the production volumes and ultimately the consolidated sales. The Rouble volatility and resultant adverse movement in exchange continued to impact the profitability of the Russian operations at a consolidated level. Recently, CUMI also set up three fusion plants at Cochin, India - a Zirconia Bubble Fusion plant and two Alumina Fusion plants thus creating one of the most advanced and integrated electro-mineral complexes worldwide. This initiative is expected to add, at full capacity, 25,000 tonnes of fused minerals which will improve the future performance of this business.

Southern Energy Development Corporation Limited, the gas based power generation subsidiary recorded its highest ever revenue since its inception this year and its profitability grew by about 168%. Net Access, the IT arm of the Group grew by 33% in sales and about 45% in profits after tax.

The Board has prudently considered an enhanced dividend of Rs. 1.75 per share for the year of which Rs. 1.00 per share has already been paid as interim dividend during the year. The year 2016-17 was a year of many recognitions for CUMI. It is with great pride we share that CUMI is the recipient of the prestigious Golden Peacock awards in two categories - Corporate Ethics and Corporate Social Responsibility (CSR). The Electrominerals division was also conferred the national award for excellence in CSR by the National CSR Leadership Foundation. Both the Industrial Ceramics division as well as the Electrominerals division have won the Confederation of Indian Industries (CII) Industrial Innovation awards and have been placed in the list of Top 25 innovative organisations.

In the area of material sciences, CUMI pursued its research and development initiatives vigorously during the year including the setting up of a Centre of Excellence certified by the DSIR for research in technical ceramics for industrial and advanced applications at Hosur, India. With this, CUMI has six research centres recognized by the Department of Scientific and Industrial Research, Government of India. These recognitions and initiatives reinforce our commitment to remain socially responsible as well as relevant in all our endeavors. The CUMI Centre for Skill development (CCSD), the CSR initiative of CUMI in addressing the training and development requirements of rural and underprivileged youth and honing their skills for future employment in any industry progressed well. The safety record across all locations has been excellent. Safety training programmes, capability development programmes, employment engagement initiatives continued during the year with enhanced vigor.

It has been yet another good year from the compliance perspective and the team has done extremely well in adapting to the changing environment. CUMI, its subsidiaries and joint ventures in India have seamlessly migrated to the new Indian Accounting Standards and are gearing up for further changes in the future.

To remain relevant and purposeful has been the inherent strength of the CUMI team across the world. Under the able leadership of Mr. K Srinivasan, Managing Director who is well supported by the leadership across geographies, divisions and functions, teams exude vibrant energy and demonstrate a deep sincerity of purpose and commitment to be ahead of the curve in all facets of operations. I am thankful to the esteemed members of our Board who have been a great source of strength and support to the Company, its leadership and to me, personally, through their involvement, guidance and wise counsel. Mr. M Lakshminarayanan and Mr. Shoban Thakore will retire from the Board in July 2017. We wish them well. We welcome Mr. P S Raghavan and Mr. Sujjain S Talwar to the Board. Mr. Raghavan who has retired from the Indian Foreign Service has a wide global experience in external affairs. Mr. Talwar, a qualified solicitor has vast corporate legal experience. Their induction into the Board gives it a balanced composition with varied experience and expertise.

Our most sincere thanks to all our stakeholders, customers, suppliers, vendors, bankers and of course to all of you shareholders for your unstinted support to the Company in its continuous effort towards “Making Materials Matter”.

Murugappa Group Abrasives & Ceramics Manufacturers