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Directors Report of Carborundum Universal Ltd.

Mar 31, 2015

Dear Members,

The Directors have pleasure in presenting the 61st Annual Report together with the Audited Financial Statements for the year ended 31st March 2015. The Management Discussion & Analysis Report, which is required to be furnished as per the Listing Agreement requirements of the stock exchanges, has been included in the Directors' Report so as to avoid duplication and overlap.

ECONOMIC OVERVIEW & COMPANY PERFORMANCE

Economic Overview

The year 2014 had been very eventful as far as India is concerned, with the first ever single party majority Government formed at the centre since 1984. This is likely to provide impetus and stability to the Indian economy which registered lower Gross Domestic Product (GDP) growth in the past few consecutive years due to policy paralysis. There have been some initiatives taken by the Government to accelerate growth which are yet to yield results. The halving of global oil prices since mid-2014 allowed the new Government to raise diesel and petrol fuel taxes and cut diesel prices by 20-25 per cent - a windfall gain for households as well as businesses and dampening inflationary pressures in the economy.

As per the new GDP data released by Central Statistics Office, the country grew 6.9 per cent in 2013-14. For 2014-15, the GDP growth rate is pegged at 7.4 per cent. The Finance Minister, while presenting the full budget, indicated GDP growth to accelerate between 8 and 8.5 per cent in the fiscal year starting April 2015.

The global economy is still struggling to gain momentum as many high income countries continue to grapple with legacies of the global financial crisis and emerging economies are less dynamic than in the past. Global growth in 2014 was a modest 3.4 per cent lower than initially expected, continuing the disappointing trend over the past several years. US Economy is well on its recovery path owing to good labour market and monetary policy, but in Europe the growth remains sluggish. China, meanwhile, is undergoing a carefully managed slowdown. The growth in other developing countries reflected weak external demand, domestic policy tightening, political uncertainties and supply-side constraints. Oil prices during this year significantly came down from its highs owing to demand shift towards Shale oil. Shale oil and gas is rapidly emerging as a significant and relatively low cost unconventional resource in the US. The American domestic energy revolution has contributed to a significant decline in petroleum imports and led to an improvement in America's balance of trade and its economic outlook. With high shale oil and gas reserves estimated across the world, there is potential for shale oil and gas production to spread globally over the next couple of decades and revolutionise global energy markets. The Russian economy witnessed unprecedented challenge owing to Ukraine- Russia political standoff and the lowering of crude oil price. This led to significant devaluation in Rouble.

On the financial side, the interest rate in India continued to be constant for most part of the year. Consumer Price Index (CPI) and Wholesale Price Index (WPI) continued to fall during the course of the year which prompted RBI to reduce the Repo rate by 50 basis points in the last quarter of 2014-15. Banks in line with RBI have started easing the interest rates. The Rupee continued to move in the range of 61-63 against the US dollar for most parts of the financial year. However, against Euro there was a sharp appreciation of the Rupee. Fiscal deficit target for 14-15 at 4.1 per cent of GDP is expected to be met as detailed by the Finance Minister in the budget.

Company Performance

Revenues

The standalone business grew at 2.1 per cent on the back of growth in Abrasives and Ceramics business. Electromineral business de-grew on account of lower Fused Alumina sales.

Capex postponement, moderate customer demand from user industries, competition from low price products, power rate hike and tight liquidity in trade resulted in weak demand.

The Company's consolidated revenue from India increased by 3.9 per cent and from rest of the world dropped by 11.2 per cent resulting in the worldwide revenues dropping by 3.6 per cent from last year levels.

At a consolidated level, the sales of Ceramics business grew by 2.3 per cent whereas that of Electrominerals segment dropped by 10.2 per cent owing to translation on account of weak Rouble. Abrasives sales at a consolidated level remained flat.

The standalone top line summary is as follows: Rs. million

31.03.2015 31.03.2014

Net Sales & Income from Contracts & Services

India 9268 9185

Rest of the World 2250 2091

11518 11276

Other operating revenue 169 210

Total operating revenue 11687 11486

The consolidated top line summary is as follows:

Rs. million

31.03.2015 31.03.2014

Net Sales & Income from Contracts & Services

India 10962 10548

Rest of the World 9225 10391

20187 20939

Other operating revenue 315 314

Total operating revenue 20502 21253

Manufacturing

Most of the plants in India operated at about 70 per cent capacity utilisation levels. The manufacturing team continued implementation of Total Productive Maintenance (TPM) at shop floors leading to improvement in efficiency of machines and the entire production process.

Notwithstanding lower fuel rates, the manufacturing cost went up owing to the hike in power cost in Russia and India and select raw material inputs. The cost pressures were contained by way of using alternate cost effective raw materials, improvement in raw material consumption and process improvements. Various value adding, cost cutting and productivity improvement projects were undertaken to minimise the impact on the operating profits despite lower plant utilisation.

Capital expenditure during the year across all geographies was in the nature of maintenance, automation, quality enhancement, line balancing and general infrastructure.

Earnings & Profitability

Aided by the growth in revenues, standalone earnings from operations before exceptional items, interest, depreciation and tax improved to Rs. 1490 million (previous year Rs. 1450 million).

Depreciation was higher at Rs. 588 million as a result of the continuing investments being made in various projects and changes in useful life of assets in line with Companies Act, 2013.

Profit before interest and tax margin expanded for Abrasives and Ceramics, but were lower for Electrominerals owing to lower topline and higher power costs.

Finance costs were lower at Rs. 87 million (previous year Rs. 129 million) owing to reduction in quantum of borrowings. Profit

before tax and exceptional income increased to Rs.1125 million (previous year Rs. 1024 million). With an exceptional income of Rs. 869 million, profit before tax for the year was at Rs. 1994 million. Profit after tax was Rs. 1483 million (previous year Rs. 728 million).

On a consolidated basis, profit before expectional item and tax was Rs. 1639 million (previous year Rs. 1543 million). Profit after tax and minority interest was Rs. 1326 million (previous year Rs.915 million).

Segmental profitability improved for Ceramics, however it dropped for Abrasives and Electrominerals. In Electrominerals, profits dropped due to one-time closure cost of Thukela Refractories Isithebe Pty Ltd., South Africa and the weakening of Rouble.

Information required to be provided in the Management Discussion and Analysis Report as per the Listing Agreement is detailed below:

Financial Position

On a standalone basis, shareholders funds as on 31st March 2015 was Rs. 8599 million. Additions for the year (net of dividends) was Rs. 1263 million.

Non-current liabilities was Rs. 970 million. Current liabilities decreased from Rs. 2114 million to Rs. 1887 million.

Non-current assets (including fixed assets, capital work-in-progress etc.) increased from Rs. 5764 million to Rs. 6629 million primarily on account of capital expenditure incurred during the year. Current assets were higher at ' 4826 million.

On a consolidated basis, shareholders funds as on 31st March 2015 was Rs. 10887 million. There was a decrease (net of dividends) to the extent of Rs. 173 million, mainly due to exchange effect majorly led by Rouble depreciation. Minority interest was Rs. 578 million.

Non-current liabilities was Rs.1110 million. Current liabilities was at Rs. 5675 million.

Non-current assets (including fixed assets, capital work-in-progress, etc.) decreased from Rs. 9784 million to Rs. 8786 million due to an adverse exchange movement. Current assets decreased to ' 9465 million.

Cash Flow

On a standalone basis, net cash generation from operations was Rs. 1056 million in FY 2014-15. Net cash outflow on account of investing activities was Rs. 532 million. Net cash outflow on account of financing activities was Rs. 574 million which is attributable primarily to repayment of borrowings and dividends paid. The net decrease in cash and cash equivalents was Rs. 50 million against an increase of Rs. 28 million in FY 2013-14.

On a consolidated basis, net cash generation from operations was Rs. 3258 million in FY 2014-15. Net cash outflow on account of investing activities was Rs. 70 million. Net cash outflow on account of financing activities was Rs. 1615 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs. 282 million against a decrease of Rs. 57 million in FY 2013-14.

SHARE CAPITAL

The paid up equity share capital as on 31st March 2015 is Rs. 188.18 million and increased during the year by Rs. 0.42 million, consequent to allotment of shares upon exercise of stock options by employees under the Company's ESOP Scheme, 2007.

DIVIDEND

Considering the past dividend payout ratio and the current year's operating profit, the Board has considered it appropriate to recommend a final dividend of Rs. 0.50 per equity share of Rs. 1 each. It may be recalled that in January 2015, an interim dividend at the rate of Rs. 0.75 per equity share of Rs. 1 each was declared and paid. This aggregates to a total dividend of Rs. 1.25 per equity share of Rs. 1 each for the year, which is the same as last year.

APPROPRIATIONS

The amounts available for appropriation and the recommended appropriations on a standalone basis are given below:

Rs. million

Available for appropriation

Profit after tax 1483.30

Balance brought forward 2290.17 from previous year

Total 3773.47

Recommended appropriation

Transfer to general reserve 500.00

Depreciation on transition to 20.30 Schedule II of Companies Act 2013

Rs. million

Available for appropriation

Dividend

* Interim 141.13

* Final (Proposed) 94.09

Dividend Tax

* Interim 1.39

* Final (Proposed) 10.56

Final Dividend (previous year)* 0.06

Balance carried forward 3006.21

Total 3773.47

* Represents dividend and dividend tax of Rs. 56454 on 96506 equity shares allotted under the ESOP Scheme 2007 to the employees, subsequent to the date of approval of the annual accounts by the Board and before the book closure date.

PERFORMANCE OF BUSINESS SEGMENTS

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

Abrasives

Business Profile

This business comprises the following major product groups viz. Bonded Abrasives, Coated Abrasives (including Non- Wovens), Super Abrasives, Metal working fluids and Power tools. The operations are carried out through thirteen manufacturing facilities located in India, Russia, China and Thailand. The marketing entities located in North America and Middle East support this business in getting an extended customer reach. Abrasives are used in a wide spectrum of industries, the key among them being automobile, engineering, fabrication, wood working, construction, home maintenance and infrastructure.

The Company caters to customers located in over fifty countries through its network of manufacturing facilities and marketing establishments. It is one of the major players in India and Russia.

Industry scenario

The global industry continues to be led by few players who have a complete portfolio of Abrasive products. There are also a large number of players specialising in specific categories of Abrasives.

The Indian Abrasives industry continues to be catered to by a few large players, numerous smaller players specialising in select products and imports from China catering to the low end of the market. Due to the soft market conditions in many advanced economies, India is becoming a focus market for major global players resulting in intense competition. The market is getting increasingly crowded by overseas competition and low cost imports from ASEAN countries.

In the domestic Russian market there are three major players. The Company is a major player in Vitrified Bonded Abrasives. Imports service a sizeable portion of the market.

The world Abrasives market which is currently valued at ~US $36 billion is estimated to reach $51 billion by 2019 according to Transparency Market Research. North America and Europe together accounts for 50-55 per cent of the Abrasives consumption followed by China with 17-20 per cent. The Indian Abrasives market size is estimated to be in the range of Rs. 60000 million plus.

There was no major change in the industry structure during the year.

Sales Overview

Abrasives business on a standalone basis recorded a growth in revenue from Rs. 6399 million to Rs. 6689 million, a growth of 4.5 per cent. The growth largely came from better performance in exports, improvement in the sales of select resinoid product categories in domestic market and focused efforts on branding. Introduction of high performance grains from the Company's captive Electrominerals facility also fuelled the growth.

In Bonded Abrasives, the sales of standard products remained flat. The mass market products which are mostly sold through channels were impacted due to liquidity issues. Consequently off-take from end user segments and trade channels were moderate. However on the back of value projects initiative, despite an unfavorable macro- economic environment, the non standard business delivered better performance. Sales in Power tools business which had a good run over the last few years, corrected in this year owing to tightening of credit limits to dealers with higher outstandings.

Coated products delivered a significant growth in this year on the back of better exports and launch of technical products. All the product categories, majorly sheets & rolls and technical goods had good sales. Non- Woven products also registered a growth over last year. In Non- Woven business, the focus during the year was on increased participation in the industrial segment and development of new products.

Continued marketing activities involving various partners helped CUMI Abrasives division to remain competitive in the market ahead of its peers.

In Russia, due to the geo political situation, sales of the Abrasives business dropped during the year. CUMI China recorded a drop in sales as well.

Wendt (India) and Sterling Abrasives recorded a good growth on the back of improvement in volumes from auto & auto ancillary business and agriculture business respectively.

Manufacturing

Manufacturing supported the marketing initiatives well in terms of timely delivery. Significant number of value projects, tailored to meet cost reduction through improvement in material efficiencies, energy cost reduction, labour productivity improvements and maintenance efficiencies were undertaken and completed during the year. As a result of these value projects and other cost control initiatives, the Abrasives business recorded an increase in profit on a standalone basis.

This year, the division achieved a significant milestone in Total Productive Maintenance (TPM) journey which commenced in 2012-13. In March 2015, the Sriperumbudur and Maraimalai Nagar plants of the Company were awarded the TPM Award for Excellence - Category "A" by Japan Institute of Plant Maintenance (JIPM). The implementation has been now extended to other Abrasives facilities. TPM initiatives have helped in enhancing equipment effectiveness, debottlenecking various constraints in the production process thus releasing additional capacity and reduction in lead time of production. The Coated business has significantly benefitted from this initiative resulting in growth in profit.

The marketing and technical functions of the division worked jointly on a detailed action plan, with focus on introduction of high-performance products using captive Electromineral division's specialty grains, to maintain competitive edge in the market place.

Key Financial Summary

Rs. million

Standalone Consolidated

Particulars 2014-15 2013-14 Change 2014-15 2013-14 Change

Total revenue 6689 6399 4.5% 8590 8599 (0.1%)

Segment results 679 594 14.3% 627 596 5.2% (PBIT)

Capital employed 3259 3624 (10.1%) 5496 6059 (9.3%)

Share to total 58% 57% - 43% 41% - revenue of CUMI

Share to segment 55% 48% - 29% 30% - results (PBIT) of CUMI

Ceramics

Business Profile

The Ceramics business has three product groups viz. Industrial Ceramics, Super Refractories and Anticorrosives. Industrial Ceramics business offers Alumina and Zirconia products of technical ceramic grades addressing wear protection, electrical insulation, thermal protection and ballistic protection applications. The Super Refractories product group supplies fired, monolithic, flow control products, POW wellfiller and fibre as also refractory design and installation services addressing the insulation and thermal resistance requirements of industries. The refractory fibre, refractory design and installation businesses are addressed through our joint ventures Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited. The Anti-corrosives product group offers acid resistant cements, polymer concrete cells and various other products addressing the anticorrosion requirements of industries.

The key user industries for Ceramics business are power generation and transmission, coal washeries, grain handling, sanitary tiles and sanitary ware, ballistic protection, cement, non-ferrous metals, iron and steel industries, carbon black, insulators, furnace building, glass, petrochemicals and construction.

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

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

Industry scenario

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

CUMI is a globally reputed and a leading player in certain market segments.

In Australia, CUMI is one of the major players in the lined equipment and mineral processing industry.

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

Sales overview

Revenues of the Ceramics business grew by 2.9 per cent, on a standalone basis from Rs. 3057 million to Rs.3146 million.

The Industrial Ceramics division had a reasonable growth on the back of significant increase in domestic business. The division was able to execute good orders for Wear Ceramics with resumption of some of the deferred projects in 2013-14, especially in the Power sector. The business in Lined Equipments from Australian market continued to be good, with increasing complexity of sizes and shapes. The Metz device supplies to international customers of fuel cells had a correction owing to shift in demand patterns. Off- take of Metallized cylinders from European customers were lower, however the broad basing of customers initiated in the past few years ensured higher sales of Metallized cylinders. Sales of Wear Ceramics in the US and European market were marginally lower than the expectation. In 2014, the Company inaugurated a production line for making new line of Engineered Ceramics parts.

Turnover of the Refractories business in India declined due to lower off-take of fired products. The order inflow from the projects segment, particularly iron and steel, dropped sharply. Sales of Anticorrosives registered a sharp drop due to delay in execution of project orders. Sales of refractory fibre by the Company's joint venture, registered a good growth amidst a tight market. The Refractory design and installation services business, which is also addressed through a joint venture, recorded growth in sales owing to recovery in project environment in Petrochemical industries from a low base last year.

In Russia, Nitride Bonded Silicon Carbide refractories registered a drop. This business is largely tender driven and is dependent on the non-ferrous industry.

Sales of Refractories in South African subsidiary were lower than last year as the expected order inflow from select customers were postponed. The capacity utilisation remained below optimum. In view of the increasing input costs and considering future viability, it was decided to wind down the operations in Thukela Refractories Isithebe Pty Ltd.

Manufacturing

Efforts on 5S and TPM contributed towards keeping the variable costs under control. The TPM initiative has nicely been entrenched in the division. Debottlenecking projects in metallized plant led to release of capacity in the existing facility. The robust systems that has been designed in the Ceramics division is being well recognised by customers and the audit scores are the testimony of the Company's consistent, timely and cost effective supplies. This year, the new building, which will house extrusion & injection moulding facility and other Ceramics products were capitalised. The initiatives for controlling costs provided savings in fixed costs including marketing expenses. The Refractories division commissioned the alternative fuel fired tunnel kiln, which is expected to give a cost saving.

As a result of the better sales, the Ceramics business recorded an increase in operating profit before interest and tax on a standalone basis and consolidated basis.

Key Financial Summary

million

Standalone Consolidated

Particulars 2014-15 2013-14 Change 2014-15 2013-14 Change

Total revenue 3146 3057 2.9% 4817 4707 2.3%

Segment results 363 346 4.8% 678 592 14.5% (PBIT)

Capital employed 2587 2542 1.8% 4002 3936 1.7%

Share to total 27% 27% - 24% 22% - revenue of CUMI

Share to segment 29% 28% - 32% 30% - results (PBIT) of CUMI

Electrominerals

Business Profile

The major product groups of this segment are Fused Alumina (comprising brown and white Alumina), Silicon Carbide, Fused Zirconia, Alumina Zirconia and Zircon mullite. The Company also manufactures a range of 'specialities' like semifriable, Azure-S and plasma powders for niche markets. The operations are carried out through seven manufacturing facilities located in India, Russia and South Africa. Key user industries for this business are abrasives, refractories, steel, photovoltaic, brake linings, nuclear energy, wooden laminates, semiconductor and others. The business also has captive bauxite mines, sand mines and a captive power plant.

Industry Scenario

The market structure in the global Electrominerals business remained largely unchanged and the Company continues to be one of the reputed players in Silicon Carbide and Fused Zirconia.

In Fused Alumina, the Company is largely a national player with customers based in India. Apart from the domestic players, imported products have a visible share in the market. Competitive imports become favorable or unfavorable depending on FTA agreements between countries, duty structures and exchange rates.

Sales Overview

The Electrominerals business recorded revenues of Rs. 2338 million, which was 2.9 per cent lower compared to last year standalone revenues of Rs. 2408 million. The sale in India dropped marginally owing to the lower Alumina sales. At a consolidated level the drop was higher at 10.2 per cent from Rs. 8099 million to Rs. 7275 million. The drop happened majorly on account of exchange translation into Indian Rupee.

In the Fused minerals operations in South Africa, which was acquired during the second quarter of FY 2012-13, capacity utilisation continued to be lower for most parts of the year coupled with insufficient off-take from key customers and production consistency issues. Considering the decision taken to wind down operations, the fusion plant operations of Thukela Refractories, were mothballed. The two furnaces meant for fusion will be relocated to Edapally plant in India.

The Bubble Zirconia sales in Foskor Zirconia were impacted owing to continued production related challenges. Hence, the Company has decided to shift the Bubble Zirconia facility from South Africa to Edapally, India and integrate the operation with Electromineral business in India. The Fused Zirconia sales tonnage however had a reasonable growth.

Notwithstanding the Ukraine crisis and oil price turmoil, the performance of Silicon Carbide division of VAW continued to be robust. The facility ran at full capacity for almost the entire year and turnover grew by 7 per cent. However on conversion of Rouble to Indian Rupee, the cross currency rates had an adverse effect. The Company has set up a marketing subsidiary, based out of Europe, to serve the European markets better.

Manufacturing

The Indian operations had to grapple with higher power cost owing to tariff increase from Kerala State Electricity Board from August 2014. The division explored successfully the option of sourcing power from open access which provided some savings. Maniyar generation was also lower by 15 per cent considering the previous year rainfall which was one of the best in recent years. Both raw material availability and price were optimised to get savings in cost and ensure future security to meet expansion needs. The recovery improved for certain grit sizes. Semifriable grains registered a sharp growth.

In Russia, the Silicon Carbide fusion facility registered highest fusion volumes ever. The Russian entity continued to flex its manufacturing process to generate more metallurgical products to serve its domestic market. The power rates in 2014-15 went up by about 8 per cent. The cost upsurge was negated to some effect by way of effective sourcing of raw materials.

In South Africa, the Bubble Zirconia continues to have issues pertaining to stabilisation of the manufacturing process and product establishment.

As a result of lower volumes and increase in power tariff coupled with lower captive power form Hydel facility, the Electrominerals business recorded a drop in operating profit before interest and tax on a standalone basis. However, at a consolidated basis, the profits grew by 1.6 per cent owing to better performance in VAW.

Key Financial Summary

Rs. million

Standalone Consolidated

Particulars 2014-15 2013-14 Change 2014-15 2013-14 Change

Total revenue 2338 2408 (2.9%) 7275 8099 (10.2%)

Segment results 203 286 (29.1%) 797 784 1.6% (PBIT)

Capital employed 1607 1518 5.9% 4291 5046 (15.0%)

Share to total 20% 21% - 36% 39% - revenue of CUMI

Share to segment 16% 23% - 37% 39% - results (PBIT) of CUMI

FINANCE

During the year, the Company generated Rs. 1056 million of cash surplus from its operations on a standalone basis.

All debts have been serviced on time. The Company's long term debt position as on 31st March 2015 stands at Rs. 512 million and total debt position stands at Rs. 835 million. The capital expenditure program of Rs. 405 million was financed largely from internal accruals.

CUMI standalone had an exceptional income of Rs. 869 million due to sale of non core immovable property. The proceeds were invested in its wholly owned subsidiary, CUMI International Limited (CIL) and utilised entirely for repayment of its loans. The standalone loan funds has come down from Rs. 1188 million to Rs. 835 million. The consolidated loan funds has come down from Rs. 4563 million to Rs. 3402 million. The consolidated capital expenditure was Rs. 796 million.

The credit ratings of the Company, 'A1 ' for short-term borrowings and 'AA Stable' for long-term borrowings, were reaffirmed by CRISIL. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The finance cost at a standalone level has come down from Rs. 129 million to Rs. 87 million. At a consolidated level, the interest costs has come down from Rs. 282 million to Rs. 253 million.

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.

The Company's debt equity ratio continues to be healthy and is the lowest in the last decade at 0.1 on a standalone basis and 0.3 on a consolidated basis.

There are no material changes and commitments, affecting the financial position of the Company which have occurred between 31st March 2015 and the date of this report.

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 the risk rating.

The Internal Audit team evaluates the effectiveness and adequacy of Internal Controls, compliance with operating systems, policies and procedures of the Company and recommends improvements, if any. Significant audit observations and the corrective/ preventive action taken or proposed to be taken by the process owners are presented to the Audit Committee. Annual review of the 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 Statutory Auditors and management.

Capital and revenue expenditure are monitored and controlled with reference to approved budgets. Investment decisions are subject to formal detailed evaluation and approval according to schedule of authority in place. Review of capital expenditure undertaken with reference to benefits forecasted is done. Physical verification of assets is 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 and the adequacy / effectiveness of the internal control systems in the Company.

ADEQUACY OF INTERNAL FINANCIAL CONTROLS

The adequacy of Internal Financial Controls existing in the Company to ensure orderly and efficient conduct of its business, including adherence to the Company's policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records and the timely preparation of reliable financial information 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;

* Implementation of sustainable solutions to Internal Audit observations;

The Audit Committee periodically evaluates Internal Financial Controls to ensure that they are adequate and operating effectively.

HUMAN RESOURCES

When the market demanded enormous flexibility owing to the unprecedented challenges, the HR strategy offered the much needed support to business by putting tactical plans into action that were characterised by a high degree of agility to keep the focus right on long term goals. HR plans were directed by the six strategic imperatives - Building Leadership Pipeline, Scaling Up Capability across the organisation, Propelling Performance, Enhancing People Productivity, Improving Safety and Performing Social Responsibility. In addtion, an exercise has been embarked on to renew the vision of the Company.

Building Leadership Pipeline

Following the exercise of identifying high potential employees, succession and progression plan for leadership roles were conducted. During the year, many cross-functional and cross- SBU experiences and responsibilities were assigned to employees based on their potential. This workplace experience was also part of the development plan for these employees. A number of next generation managers were moved into leadership roles as part of this process. Individual development plan and discussions were conducted for most of the other employees as well. In 2015, review of the high potentials will be done to keep the talent pool relevant. The progression and succession pipeline will be revisited based on this review. In line with the methodology for identifying high potentials, the same model with dimensions of judgement, drive and influence are being used in talent acquisition across the Company. This has integrated a number of people processes that are primarily designed to acquire and nurture talent.

Propelling Performance

The performance management process is being strengthened to improve accountability of managers by establishing a compelling horizontal and vertical alignment across functions. An intensive performance planning exercise followed by rigorous reviews and feedback sessions helped the businesses to achieve this. Compensation practices were improved by establishing merit matrices to create a culture of competitiveness and pay - for- performance. There was a good amount of work in linking performance to individual rewards across the business units. To reinforce desirable behaviors, internal teams have mulled over revamping reward and recognition programs for various employee categories which is set to launch during the next year.

People remain the key of all our actions and therefore our approach remains on creating an engaged and performing team fostered in a culture that respects emotional and rational priorities of people. We strengthened this philosophy through an employee engagement survey which was carried out across the Company and its subsidiaries in the month of April 2014. The survey has provided us with insights on leveraging managers and other critical drivers to improve employee engagement levels in the Company. This was followed by action planning for business units and more than 150 teams across the Company.

The thrust on physical as well as value productivity through Long Term Settlements has helped the organisation in achieving efficiencies that could influence the whole value chain. With the changing times, the Long Settlements are giving way to annual wage increases which have become a mutually beneficial approach. A revamped communication framework, compliances and utilisation of interactive methods returned the organisation with a harmonising industrial climate.

Improving Safety, Health and Environment

Safety, Health and Environment have seen major improvement in terms of reduced incidents and consequent reduction in loss of man-hours. There was a coordinated effort on rectifying behaviours and conditions to make this happen.

Business units continued to institute behaviour based safety practices with a common dashboard in place to measure the effectiveness of their actions. Training on safe work practices, right from the induction stage, has brought in a profound improvement in making the work environment a safe place. This was further substantiated when the Company scored a very high ranking on Safety in the employee engagement survey conducted in April 2014. A Safety Award by Department of Factories and Boilers, Government of Kerala on Electrominerals division was another recognition for our efforts towards making CUMI the best-in-class on Safety.

The Company continues its commitment to employment and empowerment of women through 'MITR' forum and other initiatives. During the year, the Company has formalised its policy on prevention of Sexual Harassment at workplace in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress any complaint regarding sexual harassment and the Committee did not receive any complaints during the year.

Performing Social Responsibility

The CUMI Centre for Skill Development in Hosur is continuing its successful journey of honing skills and helping lives. Plans to replicate the same in Cochin is in progress. Social responsibility remains a high priority for the Company specifically on the focus areas viz., education, health and well-being of neighbouring communities of our facilities. All these segments have seen contributions from the Company in terms of financial support as well as employee volunteering efforts. A detailed report on the CSR initiatives is provided in a separate section in this report.

Awards & Accolades

Along with the challenges, the year has brought us a series of recognition for our efforts on people processes, practices on innovation and quality systems. Teams from Abrasives (Sriperumbudur and Maraimalai Nagar) who won the TPM excellence award travelled to Kyoto, Japan in March 2015 and received the prestigious award from JIPM on behalf of the Company.

Electrominerals division was honored for Innovation Excellence by Kerala Management Association as a part of their Annual Management Excellence Awards. The Kakkanad unit won the first prize in CII 5S Excellence Award Competition under medium sector category in southern region held in December 2014.

The Industrial Ceramics Division was awarded with "ABK-AOT 5S Sustenance Award" post the 5S Sustenance Audit carried out by ABK - AOTS in January 2015. Safety awards were won by many units during the year.

Our employee engagement practices were awarded during the 11th Murugappa Group Best Practices Sharing Session. The total staff on rolls, of the Company (including joint ventures and subsidiaries) as on 31st March 2015 was 5020 with 3111 employees in India. (Previous year 4888 with 2883 employees in India)

PERFORMANCE OF SUBSIDIARIES

Volzhsky Abrasive Works, Russia recorded turnover growth over the previous year from RUB 3248 million to RUB 3464 million due to improvement in sales volumes of Silicon Carbide and higher realisation due to exports. The entity had the highest ever fusion volumes. The sales of Abrasives and Refractories however dropped owing to weak user market conditions and postponement of project orders. On the profitability front, despite hike in power rate, the entity registered an increase in profitability (after tax) on the back of price gain from exports arising due to weak Rouble from RUB 321nmillion to RUB 356 million.

Foskor Zirconia, South Africa recorded turnover of Rand 233 million compared to Rand 177 million last year. The entity incurred a loss of Rand 4 million at a profit after tax level versus last years loss of Rand 9 million. The Bubble Zirconia sales were impacted owing to continued production related challenges. Hence, the Company has decided to shift the Bubble Zirconia facility from South Africa to Edapally, India. The fused Zirconia sales tonnage however had a reasonable growth.

CUMI Australia had a better performance considering lower sales last year and also uptick in market demand for Lined Equipment. Turnover grew from AUD 13.2 million to AUD 16.1 million. Profit after tax improved from AUD 1.3 million to AUD 1.8 million.

With a turnover of Rs. 636 million, Sterling Abrasives registered a good growth compared to last year sales of Rs. 551 million. Profit after tax dropped from Rs. 61 million to Rs. 54 million on account of higher depreciation arising out of capacity expansion and the regulatory change in computation of the useful life of an asset. The user industry comprising majorly of agro polishing and manufacturing industry showed an improvement in demand.

CUMI Abrasives and Ceramics Company, the Chinese subsidiary had a turnover of CNY 31 million for the year, which was lower than the last year's level of CNY 41 million. The loss was CNY 15 million against a loss of CNY 10 million in the last financial year. Lower off-take from CUMI group companies pulled down the performance.

The turnover of CUMI America recorded a good growth (USD 4.4 million from USD 3.5 million), driven mainly by the increase in sales of both Bonded Abrasives and Industrial Ceramics. The losses were in the levels of USD 0.61 million as against loss levels of USD 0.5 million in FY 2013-14. Consequent to the consolidation of operations of CUMI Canada into CUMI America, CUMI Canada had no sales during the current year but incurred a loss of CAD 0.3 million (representing provision towards expected loss on disposal of land and building) which was lower than last year's loss of CAD 0.5 million.

For CUMI Middle East, turnover de-grew from USD 2.5 million to USD 2 million owing to lower Ceramics business (projects based). Profits for the year reduced to USD 0.15 million from USD 0.2 million.

In Cellaris Refractories India, the stabilisation process of the plant for manufacture of ceramic foam continued in FY 2014-15. Consequent to the acquisition of remaining shares in CRIL from Cellaris, Israel, this entity became a wholly owned subsidiary of the Company during the year. For administrative convenience, it is proposed to merge this subsidiary with the Company and necessary approvals in this regard are being sought.

Southern Energy Development Corporation Limited, the gas based power generation subsidiary, recorded turnover of Rs. 186 million from Rs. 154 million last year due to improved supply in gas from Oil and Natural Gas Corporation. Profits after tax grew from Rs. 4.5 million to Rs. 7.3 million.

Net Access India, which provides IT facilities management and other allied services increased turnover by 15 per cent and achieved a turnover of Rs. 252 million. Profits after tax grew from Rs. 12.5 million to Rs. 15.9 million.

Thukela Refractories Isithebe, South Africa, recorded a turnover of Rand 77.3 million as compared to Rand 87.3 million last year. The loss levels including the one time closure costs were higher at Rand 55.1 million compared to last years' loss of Rand 35.6 million. The reason for deciding to wind down its operations has been earlier stated in the Report.

CUMI International Limited, Cyprus recorded a turnover of USD 4.8 million representing mainly dividend income, as against last year income of USD 5.1 million. The reduction in dividend income was due to weakening of Rouble against US dollar.

During the year the Company has, through CUMI International Limited (CIL) set up a marketing subsidiary, CUMI Europe s.r.o, based out of Europe, to serve the European markets better with products and services of CUMI Group. The entity is the process of commencing its operations.

No company has ceased to be a subsidiary or joint venture or associate during the year 2014-15. Performance of joint ventures are given in note No. 42 of the standalone financials.

Consolidated financial statements (incorporating the financial results of the company, its subsidiaries and joint ventures) have been provided in the Annual Report. Other than the joint ventures, there are no associate companies within the meaning of Section 2(6) of the Companies Act, 2013. A statement containing the key financial highlights of each subsidiary, based on the financial statements prepared by them under applicable local regulations for their respective financial years, is also attached.

RISKS, CONCERNS AND THREATS

Pursuant to the requirement of Clause 49 of the Listing Agreement, and the Companies Act 2013, the Company has constituted a Risk Management Committee. The details of 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 Company's competitive advantage. This also defines the risk management approach across the enterprise at various levels including documentation and reporting. The framework has different risk models which help in identifying risk trends, exposure and potential impact analysis at a Company level as also separately for the business segments. Risk management forms an integral part of the Company's Business Plan.

The key business risks identified by the Company and its mitigation plans are as under:

Over the past few years the Company has acquired various technologies. Delay in successful conversion of the technology and application knowledge to profitable business model may lead to adverse impact on return on investments. Proper training of application team, collaborator's guidance, product validation at the user's end and leveraging the external expertise are some of the mitigating efforts the Company continues to pursue.

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 tracked. Any new technology may impact the performance of the Company in the long run. Such new technology in the related space as also in adjacencies is continuously tracked and monitored. The Company seeks to address these technology gaps through continuously benchmarking existing manufacturing processes with developments in the industry and in this connection has made arrangements with technical research institutions and technology consultants. The in-house research and development teams which have been strengthened over the earlier years are working on various state of the art projects.

The Company manufactures various products which results in exposure to numerous raw materials. Risks associated with raw material availability, threat of substitutes and supplier concentricity could impact the quality and timely delivery of finished products. The risks are mitigated to include alternative sources after thorough testing and evaluation.

Under utilisation of capacities may affect the performance of the Company going forward. The Company is ramping up its marketing efforts towards successful product establishment and market acceptance of the products, exploring development of alternate products and establishing a range of applications.

Considering Electromineral products are produced by way of fusion process which consumes lot of electricity, power cost remains one of the key lever which can favorably or adversely affect our profitability based on the rate changes. Our manufacturing facilities are located in diverse geographies with differing power rates adopted and driven by the local laws and policies. Apart from pricing, in some locations, availability of power becomes a constraint. In order to mitigate this threat, the Company continues to liaise with the local regulatory bodies and local government. The Company also constantly strives to bring about technological changes in its manufacturing processes which leads to lower power consumption. Getting access to captive power and creating facilities for captive power generation continues to be the vital strategy of CUMI, as can be exhibited from Maniyar and SEDCO.

Fuel cost increase is another area of concern. Petroleum based products are used, either as direct raw material or as fuel for the firing process. Any increase in the cost of fuel impacts the profitability adversely. Improvements in firing technologies are avenues which the Company continues to pursue for dealing with the challenges. This year, however the Company was favorably impacted owing to the global cool off in oil prices.

The Company deals with multiple currencies and is thus exposed to translation risk on account of adverse currency movement. In the year 2014-15, CUMI consolidated financials was adversely affected on account of the Rouble weakening. The Company has taken steps to maximise exports from VAW in Russia to gain on a weak Rouble. Further to de risk and ensure continued growth in Europe region, the Company has set up CUMI Europe, a 100 per cent subsidiary marketing entity in Prague, Czech Republic.

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

The Company's operations are spread across several countries. This exposes the Company to diversity in the policy approaches of governments in various countries as well as Geo political risks. In the last three years, the Company was exposed to three major country risks. First one, which impacted us significantly, was the scale back in subsidy to the photovoltaic industry in Europe in 2012-13. The second one, financial crisis in Cyprus in March 2013 alerted us but our timely actions protected us from any adverse effects. Lastly, the 2014 Ukraine crisis along with lower price of Crude oil led to weakening of Rouble which adversely impacted the consolidated Electromineral financials. The Company would be continuously scanning the environment to spot such trends early on, so that steps to mitigate the adverse effects can be initiated on time.

BUSINESS OUTLOOK AND OPPORTUNITIES

According to the World Economic Outlook - April 2015 of the International Monetary Fund (IMF), global growth is forecasted at 3.5 per cent in 2015, with uneven prospects across main countries and regions. Growth in emerging market economies is softening, reflecting an adjustment to diminished medium- term growth expectations and lower revenues from commodity exports, as well as country-specific factors. The outlook for advanced economies is showing signs of improvement, owing to the boost to disposable incomes from lower oil prices, continued support from accommodative monetary policy stances, and more moderate fiscal adjustment. The decline in oil prices could improve economic activity more than expected. Geo political tensions continue to pose threats and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks.

As per the Asian Development Outlook 2015, released on 1st April 2015, the initial phase of the new Government's effort to remove structural bottlenecks is lifting investor confidence. With the support of strong external demand, India is set to expand by 7.8 per cent in 2015 (ending 31st March 2016), a sharp uptick from 7.4 per cent growth recorded in FY 2014. This momentum is expected to build to 8.2 per cent growth in FY 2016, aided by the expected easing of monetary policy in 2015 and a pickup in capital expenditure.

A revival in domestic growth would result in kick starting several postponed projects in steel, power, glass, cement, insulation and general engineering industry which would help the Company to register a good growth. The Company expects a good growth in revenue in the backdrop of positive macroeconomic factors considering favourable investment climate, perceived ability of new Government to push structural reforms like fast track clearance for infrastructure projects, GST, energy related reforms, controlled fiscal deficit and normalising of current account deficit.

However, given the uncertain outlook, the Company will pursue growth with caution. Efforts will continue to be taken to control costs. Considering that the plants are running at lower utilisation levels and the fact that facilities have been expanded over the last years, the Company would invest majorly in maintenance capex. In addition the Company would be investing in relocation of assets from South Africa. With this approach, it is expected that the Company would deliver better results in the next year.

FIXED DEPOSITS

The Company has not accepted any deposits from the public falling within the ambit of section 73 of the Companies Act 2013 read with Companies (Acceptance of Deposit) Rules 2013 and no amount of principal or interest were outstanding as on the balance sheet date.

LOANS AND INVESTMENTS

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

Rs. million

Sl. Ason Ason No Description 01.04.2014 Addition Deletions 31.03.2015

1 Loans given 35.70 8.50 - 44.20 by the Company

2 Corporate 4431.81 563.31 1770.46 3224.66 Guarantee given by the Company

3 Investments 1306.20 1068.80 - 2375.00 made by the Company

Related Party Transactions

The Company as per the requirements of the Companies Act, 2013 and clause 49 of the Listing Agreement with stock exchanges, has formulated a Policy for dealing with Related Parties.

In line with its stated policy, all Related Party transactions are placed before the Audit Committee for review and approval. Prior omnibus approval of the Committee is obtained on a quarterly basis for transactions which are of foreseen and repetitive nature. The statement containing the nature and value of the transactions entered into during the quarter is presented at every meeting by the Chief Financial Officer for the review and approval of the Committee. Further, transactions proposed to be entered in subsequent quarter are also presented. Additionally the details of transactions proposed to be entered into with Related Parties on an annual basis are placed before the committee at the commencement of the financial year. Besides, the Related Party transactions entered during the year are also reviewed by the Board on an annual basis.

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

The Company's policy on dealing with Related Parties as approved by the Board has been uploaded and is available on the Company's website at the following link. http://www.cumi-murugappa.com/ policies.html. None of the Directors had any pecuniary relationship or transaction with the Company other than the remuneration received in their capacity as Non-Executive or Executive Director.

Corporate Social Responsibility

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

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

The Company has set up a CUMI Centre for Skill Development (CCSD) in year 2012 at Hosur, to build a skill bank of a technically competent and industry ready work force. The Centre provides specialised training based on National Council Vocational Training syllabus for the rural youth drawn from socially and economically backward sections of the society. The three year training is imparted with a stipendiary payment and free boarding facilities, thus enabling the enrolled students to earn while they learn. The job oriented skill training enhances their employability and aids in uplifting their socio economic status. The technically trained students can be employed by any industrial entity once they complete the training programme. It is proposed to expand this initiative to other plant locations in a phased manner.

In addition, the Company has also been contributing to the cause of health and education by making grants to AMM Foundation, an autonomous charitable trust, engaged in philanthropic activities in the field of education and healthcare since 1953. The Company also pursues local community assistance programmes in and around its plant and office locations.

With coming into effect of the CSR provisions in the Companies Act 2013, the Company has formulated a CSR policy which is available on the Company's website at the following link http://www.cumi-murugappa.com/policies.html.

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

GOVERNANCE

Board of Directors and Key Managerial Personnel

The Board of the Company comprises 8 Directors of which majority (6) are independent. During the year, Mrs. Bharati Rao, was appointed as an Additional Director on 1st November 2014 and she holds office till the date of the ensuing Annual General meeting. The Company is proposing to appoint her as an Independent Director under section 149 of the Companies Act, 2013 for a term of 4 years. Mrs. Rao has offered herself for this appointment.

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

Further, based on the recommendation of the Nomination & Remuneration Committee, the Board at its meeting held on 29th January 2015, has re-appointed Mr. K Srinivasan as the Managing

Director of the Company for the period 1st February 2015 to 22nd November 2017.

Approval of the members is being sought at the ensuing Annual General Meeting for the appointment/ re-appointment of the aforesaid Directors. The requisite details in connection with their respective appointments are contained in the Notice convening the meeting.

The Company has received declarations from all its Independent Directors confirming that they meet the criteria of independence prescribed both under the Companies Act, 2013 and clause 49 of the Listing Agreement.

Mr. K Srinivasan, Managing Director, Mr. Sridharan Rangarajan, Chief Financial Officer and Mrs. Rekha Surendhiran, Company Secretary are the Key Managerial Personnel of the Company as per section 203 of the Companies Act, 2013. There were no changes in the KMP during the year.

Board Meetings

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

Board Evaluation

During the year, as recommended by the Nomination and Remuneration Committee, an evaluation framework was adopted by the Board. Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its various Committees. Structured questionnaires were prepared, after taking into consideration the feedback of the Directors. The overall Board evaluation covered various aspects of the Board's functioning in terms of structure, governance, dynamics of functioning besides the financial reporting process, internal controls and risk management. The evaluation of the Committees were based on the terms of reference fixed by the Board.

Separate questionnaires were used to evaluate the performance of individual Directors on parameters such as level of engagement and contribution, objective judgement etc. The Chairman was also evaluated based on the key aspects of his role. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors at their separate meeting.

Policy on appointment and remuneration of Directors

Pursuant to section 178(3), the Nomination and Remuneration Committee of the Board of the Company has formulated the criteria for Board nominations as well as the policy on remuneration for Directors and employees of the Company.

The criteria for Board nominations lays down the qualification norms in terms of personal traits, experience, background and standards for independence besides the positive attributes required for a person to be inducted into the Board of CUMI. Criteria for induction into senior management positions have also been laid down.

The Remuneration policy provides the framework for remunerating the members of the Board, Key Managerial Personnel and other employees of the Company. This Policy is guided by the principles and objectives enumerated in Section 178(4) of the Companies Act, 2013 and reflects the remuneration philosophy and principles of the Murugappa Group to ensure reasonableness and sufficiency of remuneration to attract, retain and motivate competent resources, a clear relationship of remuneration to performance and a balance between rewarding short and long-term performance of the Company. The policy lays down broad guidelines for payment of remuneration to Executive and Non-Executive Directors within the limits approved by the shareholders. Further details are available in the Corporate Governance Report.

The Board Nomination criteria and Remuneration policy are available on the website of the Company at http://www.cumi- murugappa.com/policies.html.

Composition of Audit Committee

The Audit Committee of the Board of CUMI comprises only Independent Directors. Mr. T L Palani Kumar is the Chairman and the other members are Mr. M Lakshminarayan, Mr. Sanjay Jayavarthanavelu and Mrs. Bharati Rao, who was inducted during the year. During the year, five Audit Committee Meetings were held, the details of which are provided in the Corporate Governance Report.

Statutory Auditors

M/s. Deloitte, Haskins & Sells, Chartered Accountants, (FR No.008072S) Chennai were appointed as Auditors of the Company at the 60th Annual General Meeting to hold office upto the conclusion of the 62nd Annual General Meeting, subject to the annual ratification of the appointment by the members. The Auditors have confirmed their eligibility under section 141 of the Companies Act, 2013 and the Rules framed thereunder for the continuation of their term. Further, as required under clause 49 of the Listing Agreement, they have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India.

The Report given by the Auditors on the financial statements of the Company is provided in the financial section of the Annual Report. There are no qualifications, reservations, adverse remarks or disclaimers given by the Auditors in their report.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, your Company is required to maintain cost accounting records under category group 'Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radio element or isotopes, and Organic chemicals' in respect of Electrominerals for FY 2014-15, which is also required to be audited. Your Directors, on the recommendation of the Audit Committee, had appointed M/s. S Mahadevan & Co. (firm no.00007), Cost Accountants, Chennai to audit the cost accounting records maintained by the Company under the said Rules for the FY 2014-15 on a remuneration of Rs. 0.4 million p.a. Further, the said firm has also been appointed to conduct cost audit for the FY 2015-16 on the same remuneration in respect of the product categories applicable to the Company.

The Companies Act, 2013 mandates that the remuneration payable to the Cost Auditor is required to be ratified by the members and accordingly a resolution seeking the member's ratification of the remuneration payable to the Cost Auditors is included in the Notice convening the Annual General Meeting.

Secretarial Audit

M/s R Sridharan & Associates, Practicing Company Secretaries, Chennai was appointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company for the FY 2014-15. The report of the Secretarial Audit is annexed to and forms part of this Report (refer Annexure F). There are no qualifications, reservations, adverse remarks or disclaimers given by the Secretarial Auditor in the Report.

Compliance Management

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

Corporate Governance

As per clause 49(X)(A) of the listing agreement with the stock exchanges, a separate section on corporate governance including the certificate from the Statutory Auditors confirming compliance is annexed and forms an integral part of this Report.

CEO/CFO Certificate

The Managing Director and the Chief Financial Officer have submitted a certificate to the Board on the financial statements and other matters as required under clause 49(IX) of the listing agreement.

Directors' Responsibility Statement

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

* in the preparation of the annual accounts, for the financial year ended 31st March 2015, applicable accounting standards have been followed and no material departures have been made from the same;

* the accounting policies mentioned in Note 2 of the Notes to the financial statements have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

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

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

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

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

EXTRACT OF ANNUAL RETURN

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

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO

The information on energy conservation, technology absorption, expenditure incurred on research and development and forex earnings and outgo as required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is annexed to as Annexure B and forms part of this Report.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

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

PARTICULARS OF EMPLOYEES

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

Further, the information relating to employee stock options as per the applicable Regulations of the Securities and Exchange Board of India is also annexed and forms part of this Report (refer Annexure D).

ACKNOWLEDGEMENT

The Board gratefully acknowledges the cooperation received from various stakeholders of the Company viz., customers, investors, channel partners, suppliers, government authorities, banks and other business associates during the year.

The Board also places on record its sincere appreciation of all the employees of the Company for their commitment and continued contribution to the Company.

On behalf of the Board

1st May 2015 M M Murugappan Chennai Chairman


Mar 31, 2014

The Directors have pleasure in presenting their 60th Annual Report together with the audited financial statements for the year ended 31st March 2014. The Management Discussion & Analysis report which is required to be furnished as per the requirements of stock exchanges, has been included in the Directors'' Report so as to avoid duplication and overlap.

DIVIDEND

Considering the past dividend payout ratio and the current year''s profit, the Board has considered it appropriate to recommend a final dividend of Rs. 0.50 per equity share of Rs. 1 each. It may be recalled that an interim dividend at the rate of Rs. 0.75 per equity share of Rs. 1 each was paid in February 2014. This aggregates to a total dividend of Rs. 1.25 per equity share of Rs. 1 each for the year, which is same as last year.

APPROPRIATIONS

The amounts available for appropriation and the recommended appropriations on a standalone basis are given below:

(Rs. million)

Available for appropriation

Profit after tax 727.84

Balance brought forward from previous year 2075.94

Total 2803.76

Recommended appropriation

Transfer to general reserve 250.00

Dividend

- Interim 140.69

- Final (Proposed) 93.88

Dividend Tax

- Interim 23.03

- Final (Proposed) 5.99

Final Dividend (previous year)* 0.02

Balance carried forward 2290.17

Total 2803.76

* Represents dividend and dividend tax of Rs. 0.02 million on equity shares allotted under Company''s ESOP scheme 2007 to the employees, subsequent to the date of approval of annual accounts by the Board and before the book closure date.

FIXED DEPOSITS

The Company has not accepted any fixed deposit and as such no amount of principal and interest were outstanding as on the balance sheet date.

PERFORMANCE OF BUSINESS SEGMENTS

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

Business Profile

On a consolidated basis, this business comprises the following major product groups viz. Bonded Abrasives, Coated Abrasives (including non-wovens), Super Abrasives, Metal Working Fluids and Power Tools. The operations are carried out through thirteen manufacturing facilities located in India, Russia, China and Thailand. The marketing entities located in North America and Middle East support this business in getting an extended customer reach. Abrasives are used in a wide spectrum of industries, the key among them being Automobile, Engineering, Fabrication, Wood working, Construction, Home maintenance and Infrastructure.

The Company caters to customers located in over fifty countries through its network of manufacturing facilities and marketing establishments. It is one of the major players in India and Russia.

Industry Scenario

The global industry continues to be led by few players who have a complete portfolio of Abrasive products. There are also a large number of players specialising in specific categories of Abrasives.

The Indian Abrasives industry continues to be catered to by a few large players, numerous smaller players specialising in select products and imports from China catering to low end of the market. Due to the soft market conditions in many advanced economies, India is becoming a focus market for major global players resulting in intense competition.

In the domestic Russian market there are three major players. The Company is a major player in Vitrified Bonded Abrasives. Imports service a sizeable portion of the market.

There was no major change in the industry structure during the year.

Sales Overview

Abrasives business recorded a consolidated growth in revenue from Rs. 8093 million to Rs. 8599 million, a growth of 6.2 per cent. The growth largely came from better performance from India operations along with improvement in China and America operations. At a standalone level, the revenue grew from Rs. 6073 million to Rs. 6399 million largely on account of significant growth in exports by way of projects supply and targeting newer markets in SAARC and Europe regions.

In India, the domestic market continued to be moderate with no appreciable signs of improvement. Consequently, off-take from end user segments and trade channels were moderate. The mass market products which are mostly sold through channels were impacted due to liquidity issues. Most of the project orders were either shelved or postponed leading to longer shutdowns by user industries. The sales were also skewed towards an unfavourable product mix comprising higher share of economy products. However, the initiatives in the market place for building distribution through secondary sales initiatives and Elite Dealer program helped the business to perform better than last year. CUMI Retail initiatives along with other incentive schemes also helped in garnering higher sales.

In Bonded Abrasives, sales of standard products remained fat. However off - take of Coated Abrasives and Super Abrasives recorded good growth as a result of the retail initiatives and a slew of new product offerings. Sales of Non Woven Abrasives products to large institutional customers also mirrored the overall division''s growth. Sales of Super Abrasive and other products by Wendt India Limited (the Company''s joint venture) improved. Non standard business registered good volume growth despite a moderate business environment. Sales of Power Tools grew on the back of continued widening of product offering in the economy and premium ranges and entering into newer territories.

In Russia, sales in Abrasives business marginally dropped during the year. Russia mass manufacturing activity has shrunk over the years leading to continued reduction in size of the Abrasives market.

The operations in China, recorded a moderate growth. The new team has settled and efforts are getting channelized to ensure that significant share of market is built in China itself, apart from supplying to the requirement of other CUMI group companies.

Manufacturing

The creation of new capacities over the last couple of years and moderate growth in volume in this year resulted in the plants running at moderate levels of utilisation. The implementation of the TPM program, started in 2012-13, was extended to other facilities. The initiatives undertaken have helped to enhance overall equipment effectiveness yielding benefits in terms of enhanced on-time delivery. After embracing TPM in majority of the facilities, the Company is in the process of successful completion of audit by TPM club.

Value projects were successfully carried out to ensure comprehensive customer engagement. To ensure continuity to the new growth momentum found in coated products, select projects were executed through cross functional team, resulting in loss reduction and improvement in recovery.

The profitability came under pressure on account of exchange rate movement leading to costlier imports, adverse mix change and a tight user market not allowing any price increase to offset cost push.

As a result of the moderate revenue growth coupled with higher cost increases, the Abrasives business recorded a decline in profit before interest and tax on a consolidated basis and on a standalone basis.

Key Financial Summary

(Rs. million)

Consolidate Standalone

2013-14 2012-13 Change 2013-14 2012-13 Change

Total revenue 8599 8093 6.2% 6399 6073 5.4%

Segment results (PBIT) 596 836 (28.7%) 594 794 (25.2%)

Capital employed 6059 5393 12.3% 3624 3283 10.4%

Share to total revenue of CUMI 41% 42% - 57% 56% -

Share to Segment results (PBIT) of CUMI 30% 43% - 48% 61% -

Business Profile

As a consolidated entity, the Ceramics business has three product groups viz. Industrial Ceramics, Super Refractories and Anti-Corrosives. Industrial Ceramics business offers Alumina and Zirconia products of technical ceramic grades addressing wear protection, electrical insulation, thermal protection and ballistic protection applications.

The Super Refractories product group supplies fred, monolithic and fibre as also Refractory design and installation services addressing the insulation and thermal resistance requirements of industries. The Refractory fibre and Refractory design and installation businesses are addressed through Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited.

The Anti-Corrosives product group offers acid resistant cements, polymer concrete cells and various other products addressing the anti-corrosion requirements of industries.

The key user industries for Ceramics business are power generation and transmission, coal washeries, grain handling, sanitary tiles and sanitary ware, ballistic protection, cement, non ferrous metals, iron and steel industries, carbon black, insulators, furnace building, glass, petrochemicals and construction industries.

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

The Company is one of the major players in India, Australia and Russia in specific product groups. The Company caters to customers located in over thirty countries.

Industry scenario

There has been no material change in the Ceramics industry structure in India, which is catered to by a few major players. CUMI is a highly respected player in certain market segments.

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

The Refractory industry in Russia is a highly fragmented market with several players. The Company is a small player in the industry.

Sales Overview

Revenues of the Ceramics business dropped by 5.7 per cent, on a consolidated basis, mainly due to India and Australia business. Revenues for the year were Rs. 4707 million on a consolidated basis and Rs. 3057 million on a standalone basis.

In the Indian operations, weak economic activities in domestic market (more so in power generation) and deferment of projects impacted sales of wear resistant liners. Sales of metallised products and engineered ceramics were higher than last year''s levels. The efforts to establish new customer relationships and enter into new geographies, which were commenced last year, yielded good results. In Australia, sale of Ceramic products dropped by 19 per cent due to cut back of maintenance activities by key customers and postponement of new lining activities on the back of falling coal prices.

Turnover of the Refractories business in India declined due to lower off-take of fred products. The order inflow from the projects segment, particularly glass, dropped sharply. Sales of Anti-Corrosives registered a sharp drop due to delay in execution of project order. Sales of Refractory fibre by the Company''s joint venture, registered a good growth amidst a tight market. The Refractory design and installation services business, which is also addressed through a joint venture, recorded sharp drop in sales owing to project environment in Petrochemicals industries.

In Russia, Nitride Bonded Silicon Carbide Refractories registered a marginal growth. This business is largely tender driven and is dependent on the Non ferrous industry.

Sales of Refractories in South African subsidiary were lower than plan as the expected order inflow from a key customer did not materialise. The capacity utilisation continues to be below optimum and efforts are on to improve the operations.

Manufacturing

The Ceramics manufacturing team launched a series of economy grade tiles for price sensitive market. These tiles were used to compete against low cost competition. Due to sluggish demand in Wear Ceramics, kilns ran at very low levels of utilisation, which led to relatively higher levels of fuel consumption impacting profitability. Refractories plants which consumes significant amount of fuel for continuous running of kiln operations, explored alternate technology to accommodate low cost fuel.

The establishment of new technology products from Sheffield Refractories, Refractory makers in Europe, was on way, but slower than planned. It is expected that business will increase in the coming year.

As a result of the lower sales, the Ceramics business recorded a decline in operating profit before interest and tax on a consolidated basis and on a standalone basis.

Key Financial Summary

(Rs. million)

Consolidated Standalone

2013-14 2012-13 Change 2013-14 2012-13 Change

Total revenue 4707 4991 (5.7%) 3057 3265 (6.4%)

Segment results (PBIT) 592 793 (25.3%) 346 425 (18.6%)

Capital employed 3936 3738 5.3% 2542 2592 (1.9%)

Share to total revenue of CUMI 22% 26% - 27% 30% -

Share to Segment results (PBIT) of CUMI 30% 41% - 28% 33% -

Business Profile

As a consolidated entity, the major product groups of this business segment are fused Alumina (comprising brown and white Alumina), Silicon Carbide, Fused Zirconia, Alumina Zirconia and Zirconia Mullite. The Company also manufactures a range of ''specialities'' like Semifriable, Azure-S and plasma powders for niche markets. The operations are carried out through seven manufacturing facilities located in India, Russia and South Africa. Products are sold to customers located in over 40 countries. Key user industries for this business are Abrasives, Refractories and Steel. The business also has captive mines and a captive power plant.

Industry Scenario

The market structure in the global Electro minerals business remained largely unchanged with the Company continuing as one of the leading players in Silicon Carbide and Fused Zirconia.

In Fused Alumina, the Company is largely a national player with customers based in India. The Indian market continues to be catered by two players. Apart from the domestic players, imported products have a visible share in the market.

In the global Electro minerals business, the Company continues to retain its position as one of the reputed manufacturers of Silicon Carbide and Fused Zirconia.

Sales Overview

The Electro minerals business recorded revenues of Rs. 8099 million on a consolidated basis and Rs. 2408 million on a standalone basis. The increase in revenue was a result of improvement in volumes in both Russia, India and South African operations.

Last year, Electro minerals division registered lowest sales ever owing to collapse of photovoltaic market impacting Silicon Carbide sale and weak Refractory market coupled with higher input price impacting Zirconia sales. Things have improved this year from thereon. Russian operations delivered a good growth with repositioning operations from crystalline to metallurgic and capacity optimisation, leading to higher volumes. Zirconia volumes also came back from last year lows due to the normalising of input material prices and some recovery in Steel Refractory markets. The stabilisation of the new team, creation of new customer accounts and acquisition of lost customers facilitated the recovery.

The Indian operations which witnessed a marked drop in sales last year owing to slowdown in the photovoltaic industry, came back strongly this year. Sales of value added Alumina products and Ceramic grains have shown good growth. Price realisation across major product lines was higher than last year.

In the Fused Minerals operation in South Africa, which was acquired during the second quarter of 2012-13, the process of ramping up the operation continues. The capacity utilisation continues to be lower and efforts are on to improve the operations.

Manufacturing

In Russia, the Silicon Carbide fusion facility registered highest fusion volumes ever. The Russian entity continued to fix its manufacturing process to generate more metallurgical products instead of crystalline products to serve the Russia domestic market.

The profitability of the Indian operations improved significantly owing to an above average rainfall which led to higher power generation at the captive hydel power plant at Maniyar (Kerala, India). Lower capacity utilization of Silicon Carbide micro plant continued due to slowdown in the photovoltaic industry. The Company is taking every effort to de risk dependence on photovoltaic industry and increase the capacity utilisation of micro plant.

In South Africa, last year we commissioned new tilt furnace for the manufacture of bubble Zirconia. This year majority of the time was spent in stabilisation of the manufacturing process and product establishment. The facility which has been created to serve alternate user industries is expected to run at higher levels of utilization in the next year.

As a result of higher volumes, the Electro minerals business recorded an increase in operating profit before interest and tax on a consolidated basis and on a standalone basis.

Key Financial Summary

(Rs. million)

Consolidated Standalone

2013-14 2012-13 Change 2013-14 2012-13 Change

Total revenue 8099 6688 21.1% 2408 1966 22.5%

Segment results (PBIT) 784 234 235.0% 286 73 291.2%

Capital employed 5046 5335 (5.4%) 1518 1507 0.7%

Share to total revenue of CUMI 39% 34% - 21% 18% -

39% 12% - 23% 6% - Share to Segment results (PBIT) of CUMI

Finance

During the year, the Company generated Rs. 1261 million cash surplus from its operations on a consolidated basis.

All debts were serviced in time including repayment of long term external commercial borrowings and the redemption of its debentures issued to LIC. At a consolidated level, the Company''s total debt position excluding current maturities of loans, increased from Rs. 3578 million to Rs. 3924 million. The capital expenditure program was financed largely from internal accruals.

CUMI International Limited, which holds majority stake in overseas subsidiaries, infused fresh funds to support operations in China, America, Canada and South Africa.

The Company''s credit ratings, ''P1 '' for short- term borrowings and ''AA Stable'' for long- term borrowings was reaffrmed by CRISIL in 2014. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The finance cost at a standalone level has come down from Rs. 163.8 million to Rs. 129.4 million. The finance cost at a consolidated level has increased from Rs. 272.1 million to Rs. 281.8 million.

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. In the last year, the Company received in-house recognition for Research and Development facility which enabled the Company to get weighted tax deduction benefits for research and development expenses. This year we have added one more R&D facility.

The Company''s debt equity ratio continues to be healthy at 0.16 and is the lowest ever on a standalone basis and 0.41 on a consolidated basis.

Internal Control

CUMI has put in place a framework of internal controls to mitigate operational risks. The Internal audit team periodically evaluates the adequacy and effectiveness of these internal controls, recommends improvements and also reviews adherence to policies and corrective action taken to address any gaps.

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

The Audit Committee reviews the significant internal audit observations and overall functioning of the internal audit on a periodical basis.

Human Resources

Notwithstanding a challenging environment, the HR strategy and initiatives were designed to effectively partner the business in the achievement of its long term growth visions and ensure sustainability. HR activities during the year addressed six key imperatives - Building leadership pipeline, Scaling up capability across the organisation, Propelling performance, Enhancing people productivity, Improving safety, health and environment and Performing community initiatives.

Building Leadership Pipeline

The exercise of identifying high potential employees which begun last year was completed in 2013-14. The identified set of employees are now undergoing a structured development plan for a three year time frame, involving leadership and functional role changes to provide adequate developmental experiences and ensure a steady talent pipeline. A succession planning exercise was also completed for all key roles-both domestic and international, inclusive of retrials due in the next 2 years. Innovation capabilities across the organisation are being built up through structured developmental interventions. Scientific and process oriented talent acquisition processes have been deployed.

Scaling up capability across the organisation

A strategy exercise with all the leaders across the organisation was held in October 2013 which was facilitated by eminent researchers and academicians from Israel and America. The session focused on understanding cutting-edge technology and new mega trends in the Material Sciences business.

A series of competency development programs on the themes of Customer Centricity and Action Focus have been held across the organisation. The CUMI Centre for Skill Development in Hosur has gone from strength to strength and there are plans to replicate the same in Cochin and Chennai. Steps are on at present to develop a separate career path for specialists (technical and R&D professionals) to enhance the contributions of these roles. Another area of intervention is in building project management skills.

Propelling Performance

The performance management process is being strengthened to improve accountability of managers in completing performance planning and review process. In the coming year, compensation practices will be improved further by establishing merit matrices to create a culture of competitiveness, pay-for-performance and a measurable linkage between pay and job. A series of interventions on structural optimization of workforce has been carried out across business units to rationalise job grades and anomalies to increase efficiencies. This has led to greater clarity in roles and responsibilities resulting in stronger action focus.

Enhancing People Productivity

The recent Long Term Settlements (LTS) in our plants were designed to develop a productive work culture linking workers pay to desirable behaviours, improvements and enhanced productivity. Flexibility and cost- effectiveness were major features of all the recently signed LTS. Strong adherence to a communication framework in every SBU and unit-specific Union Management approaches have facilitated a climate of peaceful industrial relations with zero disruption to business. A shift to technology investment has also precluded the need to hire more workmen while embarking on new projects.

Improving Safety, Health and Environment

Safety & Health initiatives were a major thrust area with all business units implementing a behaviour-based safety management system that has significantly reduced risk of accidents. This data based management system studies accident investigation reports, hazard identification documents and reports of unsafe acts and conditions. Continuous training and constant supervision are the other ways in which occupational health and safety is constantly monitored. This was recently recognised by Confederation of Indian Industry (CII) which conferred an EHS award to our Refractories Unit in the south.

Performing Community Initiatives

Social Responsibility practices across business units have proceeded with full employee involvement as always. In the coming year a broad framework on social audit is planned across all units to better leverage our community initiatives.

The total staff on rolls of the Company (including joint ventures and subsidiaries) was 4888 with 2883 employees in India. Industrial relations remained cordial during the year under review.

Awards & Accolades

CUMI''s employment practices received recognition in international forums were awarded the ''Best Organizational Staff Development Initiative'' by World HRD Congress in June 2013 for work on the Career Development Programs in Abrasives. The "Best Programme for the Cause of Learning" award was also conferred on the Company for the development of CUMI Centre for Skill Development in Hosur. CUMI also swept the award contributions at the Murugappa Group''s 10th Best Practice Sharing session winning many quality and process awards. A team from Maniyar unit, had their contributions in the area of quality recognised by awards from CII, QCFI and participated in the International Quality Circle Convention held at Taipei. Volzhsky Abrasive Works, Russia recorded sales growth over the previous year from RUB 2950 million to RUB 3127 million due to improvement in volumes of Silicon Carbide sold. The entity recorded the highest fusion ever. The sales of Abrasives and Refractories however dropped owing to weak user market conditions and postponement of project orders. On the profitability front, despite hike in power rate, the entity registered increase in profitability from Profit After Ta x ( PAT ) of RUB 291 million to RUB 317 million.

Foskor Zirconia Limited, South Africa delivered a loss at a PAT level. However the losses were significantly lower than the last years'' level, despite higher depreciation and interest cost arising out of doubling of capacity. At an EBITDA level, the entity delivered a profit.

CUMI Australia Pty. Limited''s (CAPL) performances though have improved with every passing quarter, however on an annual basis, the sales and profits were lower than last year. The turnover of CAPL fell from AUD 16 million to AUD 13 million. Ceramic business has been adversely impacted in light of falling coal prices which seems to have bottomed out, but far lower from the peak levels. This led to reduction in most of the maintenance activities, leading to fall in spends in terms of setting up new lining for customers.

With a sales of Rs. 545 million, Sterling Abrasives Limited registered a marginal growth. The user industry comprising majorly of Agro polishing and Manufacturing industry had a moderate run over the year with no significant growth.

CUMI Abrasives and Ceramics Co. Limited, the Chinese subsidiary closed its fourth full year of operations clocking a turnover of CNY 36 million for the year ended 31st March 2014, a growth of 14 per cent over previous year. The loss continues to be in the levels of CNY 11 million. The capacity utilisation in the Chinese subsidiary has improved over the year. During the year, the Company shifted the focus to address the domestic market.

Consequent to the decision to consolidate the operations of CUMI Canada into CUMI America, the revenues of CUMI America recorded a steep growth (USD 3.6 million from USD 2.3 million), driven mainly by increase in sales of Industrial Ceramics. Sales of Bonded Abrasives also grew over the previous year. CUMI Canada sales to external customers dropped from last year levels. The consolidation exercise is planned to be completed during 2014-15.

For CUMI Middle East, the sales normalised in 2013-14 at USD 2.4 million from the significant highs it had registered in 2012-13 at USD 3.1 million on the back of project orders. The initiative to diversify the operations to focus on sales of new products is paying off since a sizable chunk of the sales has started coming from non Abrasives products.

In Cellaris Refractories India Limited, the plant for manufacture of Ceramic foam was commissioned during the last quarter of the year. The plant is expected to stabilise production and ramp up in 2014-15.

Southern Energy Development Corporation Limited, the gas based power generation subsidiary, recorded a turnover of Rs. 147 million, a drop of 24 per cent over previous year. The profitability was impacted due to lower gas supply from ONGC coupled with higher depreciation and interest cost arising out of capital expenditure under taken in 2012-13 towards replacement of old gensets.

Net Access India Limited, which provides IT facilities management and managed services, increased revenues by 11 per cent and achieved a turnover of Rs. 218 million. The Company became a member of NASSCOM during the year.

Thukela Refractories Isithebe Pty. Limited recorded a turnover of Rand 87.3 million with loss levels of Rand 35.6 million. The entity was acquired during second quarter of 2012-13. The process of ramping up the operations and adding newer customers is on and expected to continue in 2014-15.

CUMI International Limited, Cyprus recorded a total income of USD 5.1 million representing mainly from the dividend income. The financial crisis which came about in March 2013 was mitigated by way of an international bailout in return for Cyprus Government agreeing to close the country''s second-largest bank, the Cyprus Popular Bank imposing a one-time bank deposit levy on all uninsured deposits. CUMI International Limited was not impacted because of the crisis. The situation now has normalised.

Consolidated financial statements incorporating the financial results of the Company, its subsidiaries, joint ventures and associate has been provided in the Annual Report. A statement containing the key financial highlights of each subsidiary, based on the financial statements prepared by them under applicable local regulations for their respective financial years, is also attached.

RISKS, CONCERNS AND THREATS

Amongst the risks, the power cost is one of the key challenges. Our manufacturing facilities are located in diverse geographies with differing power rates adopted and driven by the local laws and policies. The Company at a consolidated level consumes more than 850 million units of electrical energy across its various manufacturing location. Any volatility or steep appreciation in this cost impacts profitability considerably. Apart from pricing, in some locations, availability of power becomes a constraint. This compels the Company to generate power through more expensive options. In order to mitigate this threat, the Company continues to liaise with the local regulatory bodies and local government. The Company also constantly strives to bring about technological changes in manufacturing process which leads to lower power consumption.

Fuel cost increase is another area of concern. Petroleum based products are used, either as direct raw material or as fuel for the fring process. Any increase in the cost of fuel impacts the profitability adversely. Improvements in fring technologies are avenues which the Company continues to pursue for dealing with the challenges.

The Company deals with multiple currencies and is thus exposed to foreign currency risk which may adversely affect income statement as also result in translation impact. This risk is mitigated by adopting a country based Forex policy, periodic monitoring and use of hedging instruments. Price volatility and availability of raw material continues to be other challenges. Apart from the underlying price fluctuation, in case of import dependent businesses, the currency fluctuation also impacts the total cost. Efforts are being taken to manage both exports and imports to ensure that at a Company level there is a natural hedging mechanism.

To the extent permitted by market dynamics, input cost viz. power, fuel and raw material increases are passed on to customers. Efforts are also continuously being taken to improve the consumption norms for input materials by continuous monitoring and efficiency improvement steps. Technology alternatives to address shortage of such items are also pursued to address the situation.

The Company''s operations are spread across several countries. This exposes the Company to diversity in the policy approaches of governments in various countries and Geo political Risk. In the last two years, the Company was exposed to three major country risks. First one, which impacted us significantly, was the scaleback in subsidy to the photovoltaic industry in Europe in 2012-13. The other two viz. financial crisis in Cyprus in March 2013 and the 2014 Ukraine crisis have not impacted us. The Company would be continuously scanning the environment to spot such trends early enough, so that steps to mitigate the adverse effects can be initiated in time.

Any new technology with reference to subtractive process and additive process may impact the performance of the Company in the long run. Such new technology in the related space as also in adjacencies is continuously tracked and monitored. The Company seeks to address these technology gaps through continuously benchmarking existing manufacturing processes with developments in the industry and arrangements with technical research institutions and technology consultants. The in-house research and development teams which have been strengthened in the earlier years are working on various state of the art projects.

According to the World Economic Outlook - April 2014 of the IMF, global economy is expected to improve in 2014-15, with much of the impetus for growth coming from advanced economies. The report forecasts global growth projected to strengthen from 3 per cent in 2013 to 3.6 per cent in 2014 to 3.9 per cent in 2015. In advanced economies, growth is expected to increase to about 2¼ per cent in 2014-15, an improvement of about 1 percentage point compared with 2013. Growth in emerging market and developing economies is expected to increase to 5.1 per cent in 2014 and to 5.4 per cent in 2015.

As per the Asian Development Outlook 2014, released on 1st April 2014, GDP of India is forecasted to rise to 5.5 per cent in 2014-15. The reports mention that GDP will improve due to performance of the Industry and Services. However, it will take some time for the Indian economy to reach its potential growth rate of 6%. The report mentions that the Cabinet Committee on Investment''s progress in resolving delays in several large infrastructure projects is likely to provide traction in raising investment. Though India has been seeing a muted growth over the last two years, the long term growth opportunities for the country continue to appear positive. India''s economic outlook for 2014-15 looks better than the last fscal year due to resurgence in exports, global economic revival and moderation in inflation. Currency depreciation is also expected to increase competitiveness and bolster external demand. However, the economy will not reach its potential until structural bottlenecks, that have impeded industry and investment are overcome. The new government''s economic program after elections, including its first budget due in July 2014, will be largely determined by the party that wins the elections.

A revival in domestic growth would result in kick starting several postponed projects in Steel, Power, Glass, Cement, Insulation and General Engineering industry which would help the Company to register a good growth. Considering the country''s facilities are majorly confined to RICSA (Russia, India, China, South Africa) countries, it gives the Company necessary positioning to leverage the benefits of any uptrend in these economies.

However, given the uncertain outlook, the Company will pursue growth with caution. Efforts will be taken to control costs. Considering that the plants are running at lower utilisation levels and the fact that facilities have been expanded over the last years, the Company would invest majorly in maintenance capex. With this approach, it is expected that the Company would deliver better results in the next year.

GOVERNANCE

Board of Directors

Mr. Shobhan M Thakore and Mr. Sanjay Jayavarthanavelu, Independent Directors under clause 49 of the listing agreement with stock exchanges, retire by rotation at the forthcoming Annual General Meeting under the provisions of the erstwhile Companies Act, 1956 and being eligible have offered themselves for appointment as Independent Directors under section 149 of the Companies Act, 2013 (the Act). Accordingly, approval of the members is being sought at the ensuing Annual General Meeting for their appointment as Independent Directors for a term of 3 years and 5 years respectively.

Mr. M Lakshminarayan and Mr. T L Palani Kumar, Independent Directors under Clause 49 of the listing agreement and whose office is liable to determination by retirement by rotation under the provisions of erstwhile Companies Act, 1956 are also proposed to be appointed at the forthcoming Annual General Meeting as Independent Directors under section 149 of the Act, for a term of 3 years and 5 years respectively.

Mr. Aroon Raman, who was appointed as an Additional Director on 30th October 2013, holds office till the forthcoming Annual General Meeting. Approval of the members is being sought for his appointment as an Independent Director under section 149 of the Act, for a term of 5 years.

Notices under section 160 of the Act, proposing the appointment of the above Directors along with the requisite deposit has been received by the Company from members.

During the year, Mr. Subodh Kumar Bhargava retired as Director and Mr. Sridhar Ganesh stepped down as Director. The Board places on record its appreciation for the contribution made by them during their tenure of office.

Auditors

M/s Deloitte Haskins & Sells, Chartered Accountants, (FR No.008072S) Chennai retire as Auditors at the forthcoming Annual General Meeting and being eligible have expressed their willingness to be reappointed. The Board, on the recommendation of the Audit Committee has proposed their appointment as Statutory Auditors to audit the standalone as well as consolidated financial statements of the Company for a period of 2 years. The Auditors have confirmed their eligibility for reappointment under Section 139 of the Companies Act, 2013 read with the Companies (Audit & Auditors) Rules 2014.

Corporate Governance

The report on Corporate Governance along with certificate on compliance with the Corporate Governance norms from the Statutory Auditors is annexed as required under the listing agreement with stock exchanges and forms part of this report. The Managing Director and the Chief Financial Officer have submitted a certificate to the Board on the financial statements and other matters as required under clause 49 V of the listing agreement.

Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

- in the preparation of the annual accounts for the financial year ended 31st March 2014 and the Balance Sheet as at that date ("financial statements") applicable accounting standards have been followed;

- appropriate accounting policies have been selected and applied consistently and such judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company as at the end of the financial year and of the profit of the Company for that period;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

- the annual accounts have been prepared on a going concern basis.

Corporate Social Responsibility

Apart from the initiatives undertaken by the Company on its own support to institutions engaged in philanthropic purposes in the fled of education, health-care and for scientific research was continued as in the past.

Information under Companies Act 1956

The particulars relating to energy conservation, technology, research and development, exports and employees'' remuneration as required under the Companies Act, 1956 are annexed to and forms part of this report.

Employee Stock Option Scheme

The information relating to Employee Stock Options as per the applicable regulations of the Securities and Exchange Board of India are annexed to and forms part of this report.

Acknowledgment

The Board places on record, its appreciation for the cooperation and support received from investors, customers, channel partners, suppliers, employees, government authorities, banks and other business associates.

On behalf of the Board

Chennai M M Murugappan

30th April 2014 Chairman


Mar 31, 2013

The Directors have pleasure in presenting their 59th Annual Report together with the audited financial statements for the year ended 31st March 2013. The management discussion & analysis report, which is required to be furnished as per the requirements of stock exchanges, has been included in the Directors'' Report so as to avoid duplication and overlap.

DIVIDEND AND APPROPRIATION OF PROFITS

The amounts available for appropriation and the recommended appropriations on a standalone basis are given below:

(Rs. Million)

Available for appropriation

Profit after tax 745.33

Balance brought forward from 1850.26 previous year

Total 2595.59

Transfer to general reserve 250.00 Dividend

- Interim 93.73

- Final (Proposed) 140.60

Dividend Tax

- Interim 15.21

- Final (Proposed) 20.09

Final Dividend (previous year)* 0.02

Balance carried forward 2075.94

Total 2595.59

* Final Dividend pertaining to financial year 2011- 12 (including dividend tax) paid on shares allotted subsequent to the date of approval of the annual accounts by the Board and before the book closure date pursuant to exercise of employee stock options.

Considering the lower profits and the muted outlook for the economy in the medium term, the Board has considered it appropriate to recommend a final dividend of Re.0.75 per equity share of Re.l each. It may be recalled that in February 2013, an interim dividend at the rate of Re.0.50 per equity share of Re. 1 each was declared and paid. This aggregates to a total dividend of Rs.1.25 per equity share of Re.l each for the year (as against Rs.2 for 2011-12).

SHARE CAPITAL

The paid up equity share capital increased during the year by Rs. 0.07 million, consequent to exercise of stock options by employees. At the last Annual General Meeting, the shareholders had approved constitution of a new ESOP scheme namely "CUMI Employee Stock Option Plan 2012" which envisaged providing ESOP benefits to employees by purchasing shares from the secondary market. SEBI had during the course of the year modified the regulations governing ESOP as a result of which the Company will be unable to proceed with the new ESOP scheme.

PERFORMANCE OF BUSINESS SEGMENTS

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

BUSINESS PROFILE

On a consolidated basis, this business comprises the following major product groups viz. bonded abrasives, coated abrasives (including non- wovens), super abrasives and power tools. The operations are carried out through thirteen manufacturing facilities located in India, Russia, China, Canada and Thailand. The marketing entities located in North America and Middle East support this business in getting an extended customer reach. Abrasives are used in a wide spectrum of industries, the key among them being automobile, engineering, fabrication, wood working, construction, home maintenance and infrastructure.

The Company caters to customers located in over fifty countries through its network of manufacturing facilities and marketing establishments. It is one of the major players in India and Russia.

INDUSTRY SCENARIO

The global industry continues to be led by few players who have a complete portfolio of abrasive products. There are also a large number of players specializing in specific categories of abrasives.

The Indian abrasives industry is catered to by a few large players and also numerous smaller players specializing in select products. Imports, particularly from China, enjoy a sizeable portion of the market. Due to the soft market conditions in many advanced economies, India is becoming a focus market for major global players resulting in intense competition.

In the domestic Russian market there are three major players. The Company is a major player in vitrified bonded abrasives. Imports service a sizeable portion of the market.

There was no major change in the industry structure during the year.

SALES OVERVIEW

Due to the subdued sentiments in the user industries and segments, the Abrasives business recorded a marginal decline in revenues on a consolidated basis but maintained turnover at about last year''s levels on a standalone basis. Revenues for the year were Rs.8092 million on a consolidated basis and Rs. 6073 million on a standalone basis.

In India, the recessionary trends which commenced during the first quarter of the year, turned more acute as the year progressed resulting in dampened market sentiment. Consequently off- take from end user segments and trade channels was weak. The products addressing the channel segment was impacted further by the tight credit position. This was further exacerbated by the slow progress of various infrastructure and industrial expansion projects. However the initiatives in the market place for creating brand visibility, market segmentation and enlarged customer reach, helped the business to ensure that there was no major adverse impact on revenues.

In bonded abrasives, sales of both standard products and custom built products remained flat. However off take of coated abrasives and super abrasives recorded good growth as a result of the retail initiatives and a slew of new products. Sale of non woven abrasives products to large institutional customers was firmly established. The facility has reached peak utilization as a result of the strong order inflow. Sales of super abrasive and other products by Wendt India Limited (the Company''s joint venture) declined.

During the year, sales of power tools continued to grow well despite the weak market momentum and the precarious power situation in Tamil Nadu. The product basket has been widened. It may be recalled that the Company had towards the end of last year entered into an arrangement with Metabowerke GmbH, Germany, for distribution of premium powertool products. The business focused efforts to put in place the required infrastructure in terms of warehousing, logistics, feet-on-street, building brand visibility and establishing customer connect for this new product category.

In Russia, performance of the abrasives business declined due to the decrease in off-take from the domestic market. The steady decline in mass manufacturing activity has lead to a gradual shrinkage in the abrasives requirement which has lead to tougher competition amongst various market players. Consequently there was a decline in sales volume. The business has however done well to shore up its market share in a shrinking market.

The operations in China, backed by a new management team recorded a growth of 33 per cent. The sales team has been rebuilt and focused efforts have been taken to address the requirements of original equipment suppliers, distributors and supplies to CUMI India.

MANUFACTURING

In India, one of the key initiatives of the year was on exhaustive implementation of the Total Productive Maintenance (TPM) program. Several abrasives facilities in India were brought under the TPM umbrella and the extent of coverage in each plant made good progress. The initiatives undertaken have helped to enhance overall equipment effectiveness yielding benefits in terms of enhanced on-time delivery. In the Chinese operations, manpower was rationalized and productivity has-been increased.

The business witnessed erosion in margins across all geographies in which it operates. Prices of key input materials increased significantly. Efforts were taken to renegotiate prices of inputs with various suppliers. The steep appreciation in US Dollar, which took the industry by surprise since the first quarter, further compounded the underlying raw material cost increases in respect of the Indian operations. The precarious power situation in Tamil Nadu, India impacted the operations of this business as a significant part of its manufacturing for India is being done in this State. Consequently operating profits was severely dented as a result of the overall cost push.

During the year, investments were done to increase capacity in certain mass market products and also certain categories of standard industrial products. This will help the business to address the increased market requirements for these products.

As a result of the lower revenues coupled with cost increases, the abrasives business recorded a decline in profit before interest and tax on a consolidated basis and on a standalone basis.

(Rs. Million)

Key financial summary Consolidated Standalone

2012-13 2011-12 Change 2012-13 2011-12 Change

External revenue 8,092 8,304 (3%) 6,073 6,092 (0.3%)

Operating profits before interest & 836 1,241 (33%) 794 1,034 (23%) tax (PBIT)

Capital employed 5,393 4,606 17% 3,283 2,963 11%

Contribution to total net external 42% 42% 56% 55% revenue of CUMI

Contribution to total segment operating PBIT of CUMI 43% 34% 61% 51%

BUSINESS PROFILE

As a consolidated entity, the ceramics business has three product groups viz. industrial ceramics, super refractories and anti corrosives. Industrial ceramics business offers alumina and zirconia products of technical ceramic grades addressing wear and corrosion protection, electrical insulation, thermal protection and ballistic protection applications.

The super refractories product group supplies fired and monolithic super refractories, refractory fibre and also refractory design and installation services addressing the insulation / thermal resistance requirements of industries. The refractory fibre and refractory design and installation businesses are addressed through Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited. The anti-corrosives product group offers acid resistant cements, polymer concrete cells and various other products addressing the anticorrosion requirements of industries.

The key user industries for ceramics business are power generation and transmission, coal washeries, grain handling, sanitary tiles and sanitary ware, ballistic protection, cement, non ferrous metals, iron and steel industries, carbon . black, insulators, furnace building, glass, petro- chemical and construction industries.

The operations are carried out through eleven manufacturing facilities located in India, Australia, South Africa and Russia. The subsidiaries in North America, Middle East, China and South Africa also support this business in getting an extended customer reach. CUMI Australia also provides installation cum service facilities.

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

The Company caters to customers located in over thirty countries.

INDUSTRY SCENARIO

There has been no material change in the ceramics industry structure in India, which is catered to by a few major players. CUMI is a highly respected player in certain market segments.

In Australia, CUMI Australia is one of the major players in the lined equipment and industrial ceramic tiles industry. There are about a dozen players in the industry, most of whom market products that are imported from China and USA.

The refractory industry in Russia is a highly fragmented market with several players. The Company is a small player in the industry.

There was no major change in the industry structure during the year.

SALES OVERVIEW

Revenues of the ceramics business grew by 9 per cent, on a consolidated basis primarily driven by the growth in industrial ceramics. Revenues (excluding captive sales) for the year were Rs. 4926 million on a consolidated basis and Rs. 3224 million on a standalone basis.

In the Indian operations, industrial ceramics recorded good growth primarily driven by the increased sales of ceramic lined equipment and grinding media. Sales of metallised products and engineered ceramics was maintained at about last year''s levels despite the lower off take from customers in the Indian and overseas markets. To counter the effects of the slowdown and as a de- risking approach, the business has started work on developing new customers. Over capacity and squeeze in margins aggravated the weak market trend. In Australia, sale of ceramic products increased by 12 per cent despite stiff competition.

Turnover of the refractories business in India declined due to lower off-take of fired products. The order inflow from the projects segment, particularly glass and ceramics industry, dropped sharply. Sales of anticorrosives registered good growth. This helped to partly offset the lower sales in the fired segment. Sales through channel partners helped to supplement the overall selling effort. Sales of refractory fibre by the Company''s joint venture, grew marginally despite the soft market conditions and the cost increases which hurt price competitiveness. The refractory design and installation services business, which is also addressed through a joint venture, recorded lower sales.

In Russia, nitride bonded silicon carbide refractories continued to perform well registering a good growth over the previous year. Given the encouraging response in the market, the manufacturing capacity has been expanded. Sales of refractories of the newly acquired South African subsidiary was lower than plan as the expected order inflow from a key customer did not materialize. However diligent marketing efforts have been undertaken to widen the customer portfolio and also increase the geographical spread of the customer base.

Sales of anti corrosion products also registered strong growth, particularly in the export markets. The efforts to establish new customer relationships and enter into new geographies, which were commenced last year, yielded good results.

MANUFACTURING

The Company has concluded a technology tie up with reputed refractory makers in Europe for manufacture of high end refractory solutions. The tie-up has helped the Company to widen its spectrum of product offerings and also address new end user segments which were hitherto untapped. Investment in capital equipment have been commenced to manufacture these new categories of refractories.

The new line for manufacture of fibre reinforced plastic (FRP) composites which was completed last year performed well and sales of these products has been very encouraging.

Additional investments in various machinery and equipment were made during the year addressing the needs for added capacity, enhancement in product configuration to meet customer expectation, line balancing, improvement in productivity and new products.

The industrial ceramics plant at Hosur, India and the super refractories plant at Ranipet, India have received the integrated management system certification during the year. TPM initiatives have been commenced in certain plants and would be taken forward during 201 3.

Last year, the Company had entered into a joint venture with an international partner for manufacture of ceramic foam based refractory products. Construction of the pilot plant in Kerala, India is progressing and is expected to be completed in 2013-14.

As a result of the operating cost increases, the ceramics business recorded a decline in operating profit before interest and tax on a consolidated basis and on a standalone basis.

(Rs. Million)

Key financial summary Consolidated Standalone

2012-13 2011-12 Change 2012-13 2011-12 Change

External revenue 4,926 4,503 9% 3,224 3,170 2%

Operating profits before interest & 793 899 (12%) 425 547 (22%) tax (PBIT)

Capital employed 3,738 3,589 4% 2592 2,495 4%

Contribution to total net external 25% 23% 30% 29% revenue of CUMI

Contribution to total segment 41% 25% 33% 27% operating PBIT of CUMI

BUSINESS PROFILE

As a consolidated entity, the major product groups of this business segment are fused alumina (comprising brown and white alumina), silicon carbide, fused zirconia, alumina zirconia and zirconia mullite. The company also manufactures a range of ''specialities'' like semifriable, Azure-S and plasma powders for niche markets. The operations are carried out through seven manufacturing facilities located in India, Russia and South Africa.

Products are sold to customers located in over 40 countries. Key user industries for this business are abrasives, refractories and steel. The business also has captive mines and a captive power plant.

INDUSTRY SCENARIO

In fused alumina, the company is largely a national player with customers based in India.

The Indian market continues to be catered by two players. Apart from the domestic players, imported products have a visible share in the market.

In the global electrominerals business, the Company continues to retain its position as one of the reputed manufacturers of silicon carbide and fused zirconia. The silicon carbide industry has been impacted by the adverse developments in the solar power industry in Europe which was emerging as a lucrative segment for this business.

This could see some of the smaller players making an exit. Barring the changes that are happening from the above developments, there was no major change in the industry structure.

SALES OVERVIEW

The electrominerals business recorded revenues (excluding captive supplies) of Rs.6151 million on a consolidated basis and Rs. 1503 million on a standalone basis. The decline in revenues was a result of the difficult market conditions and also the setback in the solar watering industry. Sluggishness in off-take was witnessed across all product segments.

Sales of silicon carbide by the Russian operations declined. While off-take from the domestic Russian markets improved, exports to the European and other markets declined. Revenues were also impacted by a shift in the product mix to low value products due to market conditions.

The Indian operations witnessed a marked drop in sales primarily on account of lower exports of silicon carbide products to the solar watering industry and also the slowdown in the key user industries which impacted sales of brown fused alumina and silicon carbide. The business managed to retain its major customers who still continued wafering operations, on the back of highly consistent quality, supported by aggressive pricing. Efforts to identify alternative end uses for speciality silicon carbide products as a longer term initiative are being continued. Sales of ceramic grains has shown good growth. Price realization across product lines was stable during the year under review, except for the silicon carbide products.

Sales of fused zirconia from the South African operations was adversely impacted. Off-take from European customers was sluggish as a result of the financial crisis in the European Union. Increase in production costs leading to higher prices diminished sales opportunities. The initiatives commenced last year to widen customer base and make an entry into new geographies started yielding results. New customer accounts were opened during the year as a result of these efforts.

In the fused minerals operation in South Africa, which was acquired during the second quarter of the year, the process of integrating the operations with the overall Company was taken up. The business has started receiving schedule orders from a key customer. Trial supplies have been made to a few new customers and these have shown promise of maturing into regular orders. Price realization for minerals was low in the served markets.

MANUFACTURING

In Russia, the silicon carbide fusion facilities and the crushing and grading operations were operated to meet the product mix requirements of the market. The Company was able to take advantage of its inherent flexibility in its manufacturing process, to tune production to generate more metallurgical products instead of crystalline products which helped it to mitigate the impact of the market downturn.

The profitability of the Indian operations were significantly impacted by the lower power generation at the captive hydel power plant at Maniyar (Kerala, India). Lower rainfall in Kerala adversely impacted power generation and consequently the profitability of this operation. The silicon carbide plant at Koratty received OHSAS certification. Work has been done on increasing operating efficiencies in logistics and procurement.

In South Africa, production levels of the plant at Foskor Zirconia were moderated to adjust to the sluggish off-take from customers and also to reduce inventory levels. Construction of the new tilt furnace for manufacture of bubble zirconia, which was commenced last year, has taken longer than originally planned. The plant has been commissioned towards the end of the year. In the newly acquired fused minerals unit, the production is being streamlined and as such production volume was low.

Operating margins of the business were impacted on account of increase in prices of key inputs like power and calcined alumina. The difficult market situation did not allow price increases to be passed on to customers.

As a result of lower price realization, steep increase in cost of power and also the adverse product mix in the silicon carbide business, the electrominerals business recorded a steep drop in operating profit before interest and tax on a consolidated basis and on a standalone basis.

FINANCE

During the year, the Company generated Rs. 1952 million of cash surplus from its operations on a consolidated basis.

All debts have been serviced in time including repayment of long term external commercial borrowings. The acquisition of Thukela Refractories, South Africa was financed, by way of a fresh long term foreign currency loan. The capital expenditure program was financed largely from internal accruals.

The Company continued to retain its strong credit ratings - ''PI '' for short-term borrowings and AA Stable'' for long-term borrowings - from CRISIL. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost.

With the Indian entity enjoying a significant natural hedge, a cautious approach was adopted to hedge the remaining exposures. The company engages healthy tax management practices. During the year, the Government renewed the recognition for the in-house Research and Development facility which enables the Company to get weighted tax deduction benefits for research and development expenses. Steps have been taken to get a similar recognition for one more R&D facility.

The Company''s long term debt equity ratio continues to be healthy at 0.19 on a standalone basis and 0.41 on a consolidated basis.

INTERNAL CONTROL

CUMI has put in place a framework of internal controls to mitigate operational risks. The internal audit team periodically evaluates the adequacy and effectiveness of these internal controls, recommends improvements and also reviews adherence to policies and corrective action taken to address any gaps.

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

The Audit Committee reviews the significant internal audit observations and overall functioning of the internal audit on a periodical basis.

HUMAN RESOURCES

In a year which witnessed challenging business conditions, CUMI''s human capital was a strong pillar of support in keeping the organization on an even keel. The company''s commitment to people development continued as before. HR activities during the year addressed six key imperatives - capability development, talent management, employee engagement, productivity & cost, safety & health and community initiatives.

CAPABILITY DEVELOPMENT

In order to increase the Company''s impact on a China centric world, an orientation programme on opportunities and challenges in a global scenario was completed for the senior management team using external experts from China. Our association with reputed Indian and International Universities / Institutes continued this year also. A few handpicked employees were trained in these universities/institutes to enhance global exposure. A core research & development team has also been set up to work on various focus projects.

TALENT MANAGEMENT

Based on the competency assessment findings, programmes were undertaken across the organization. A career development programme was launched with this objective, covering employees in the top two tiers focusing on customer centricity and action focus.

Processes to identify and nurture high potential employees for future leadership positions were initiated during the year. Based on a rigorous evaluation process, candidates identified will be undergoing focused and personalised development plans to equip them to take on leadership roles.

EMPLOYEE ENGAGEMENT

In order to foster employee engagement and create an exciting work place, several initiatives were carried out across all divisions. The focus was primarily on involvement, team work and motivation with elements of fun, knowledge and appreciation. From celebrating significant occasions, to communication meetings with senior leaders every quarter - employees and their families participated in a host of activities. The second round of the Employee Engagement Survey - ''Voice of CUMI'' is in progress and the results will help evaluate the effectiveness of employee engagement and welfare measures taken during the year.

PRODUCTIVITY & COST

Total Productive Maintenance activities led to a series of initiatives at the shop-floor level for the skill enhancement of operatives and team members across all business units of the company. The CUMI Centre for Skill Development, set up to improve the employability of unskilled youth has started functioning at Hosur. This institute will constitute a source of trained manpower to meet the company''s needs for a skilled workforce in future. Many useful suggestions received through Total Employee Involvement activities at the shop floor level for increasing operational efficiency and cost cutting were implemented. Relationship with the work force across all manufacturing units was generally harmonious.

HEALTH & SAFETY

In order to maintain a safe working environment, awareness sessions, training on usage of personal protective equipment and initiatives to identify and eliminate unsafe working conditions were a focus area at the unit level. These dedicated efforts have resulted in reduced occurrence of accidents. All locations strive constantly towards a Zero Accidents scenario. Initiatives on preventive health care for all employees backed by the online health monitoring system have been continued.

COMMUNITY INITIATIVES

Structured and need based community initiatives took place across the Company. The Company''s efforts to bring about a positive change in communities around its manufacturing units have started showing results especially at Hosur and Edapally in India, leading to enhanced goodwill with the neighboring community.

The total staff on rolls, of the Company (including joint ventures and subsidiaries) was 4849 with 2825 people in India.

AWARDS & ACCOLADES

CUMI''s employees excelled in different functions and have won awards and recognitions from different forums. "Managerial Excellence 2012" award of Madras Management Association under manufacturing category was won by Super Refractories team. Electro Minerals Division has won the ''Best Technology Innovation Award'' from Kerala Management Association. Maniyar Hydro- power project has won productivity award from Kerala Productivity Council. The Government of Kerala bestowed the Safety Award to the Edapally Plant-1. Sergey Kostrov, General Director, Volzhsky Abrasive Works, Russia was conferred the ''Best CEO'' Award.

PERFORMANCE OF SUBSIDIARIES *

Turnover of Volzhsky Abrasive Works, Russia recorded a decline over the previous year due to difficult market conditions. While sales of electrominerals and abrasives declined during the year, that of nitride bonded silicon carbide products gained good acceptance driving up the sales of the refractories business. Turnover for the year ended 31st December 2012 was RUB 3.2 billion.

In South Africa, revenue of Foskor Zirconia at ZAR 163 million witnessed a marked decrease as a result of the volatility in the price of Zirconia products coupled with lower off take from customers in Europe. Because of the impact of the fixed costs on lower revenues, the operation incurred a loss for the year.

CUMI Australia performed well recording double digit growth in sales. Turnover of AUD 16 million for the year was made possible by strong growth in sales of lined equipment and wear resistant liners. There was intense competition for standard products. Investments in additional sales people helped to increase customer contact and off-set the drop in sales from certain customer segments.

With a turnover of Rs.527 million, Sterling Abrasives recorded a growth of 9 per cent aided by good growth in export sales. The additional capacities built up in recent years helped the Company to cater to the increased requirements of the market.

CUMI Abrasives and Ceramics Co. Ltd., the Chinese subsidiary closed its third full year of operations clocking a turnover of CNY 34 million for the year ended December 2012, a growth of 33 per cent over previous year.

During the year it was decided to consolidate the operations of CUMI Canada into CUMI America. Consequently the revenues of CUMI America recorded a steep growth (USD 2.3 million), driven mainly by increase in sales of industrial ceramics. Sales of bonded abrasives grew moderately over the previous year. CUMI Canada recorded lower revenues at CAD 1.7 million. The consolidation exercise is planned to be completed during 201 3- 14.

CUMI Middle East has recorded a dramatic increase in turnover from USD 1.4 million to USD 3.3 million. The initiative to diversify the operations to focus on sales of new products helped the business to achieve this sales increase. This performance was achieved amidst tough competition and difficult market conditions through strong marketing efforts.

In Cellaris Refractories India Limited, construction of the pilot plant for manufacture of ceramic foam is progressing. The plant is expected to go into regular production during 2013-14.

Southern Energy Development Corporation Limited, the power generation subsidiary, recorded a turnover of Rs.212 million, an increase of 23 per cent over previous year. The Company undertook a major capital expenditure programme for replacement of its gensets.

Net Access India Limited, which provides IT facilities management and managed services, increased revenues by 23 per cent and achieved a turnover of Rs.198 million. The Company received ISO 9001:2008 certification. The Company received its first overseas assignment and successfully completed it during the year.

Thukela Refractories Isithebe Pty. Ltd., recorded a turnover of Rand 45 million largely driven by the refractories business during its 8 months of operation post acquisition.

CUMI International Limited, Cyprus recorded a total income of USD 5.3 million representing mainly dividend income for the year ended December 2012. In March 2013, the Cyprus Government had imposed restrictions in respect of cash out flows due to the crisis in the banking industry. The situation is expected to ease out during 2013-14.

Consolidated financial statements (incorporating the financial results of the company, its subsidiaries, joint ventures and associate) have been provided in the Annual Report. A statement containing the key financial highlights of each subsidiary, based on the financial statements prepared by them under applicable local regulations for their respective financial years, is also attached.

RISKS, CONCERNS AND THREATS

Price volatility and availability of raw material are challenges which have increased in magnitude in recent times. Similarly rising energy (power and fuel) cost is one of the key challenges which need to be continuously addressed. Apart from pricing, in some locations availability of power becomes a constraint, compelling the Company to generate power through more expensive options. To the extent permitted by market dynamics, input cost increases are passed on to customers. Further, longer term supply contracts, which provide some stability, are also concluded. Efforts are also continuously being taken to improve the consumption norms for input materials by close monitoring and efficiency improvement steps. Technology alternatives to address shortage of such items are also pursued to address the situation. Firing processes are also periodically upgraded by improving loading density and by kiln / oven modifications.

Since the Company operates in multiple geographies with cash inflows and outflows to different regions, risks arising from adverse currency movement is an ongoing challenge. This risk is sought to be mitigated by adopting a policy based approach, periodic monitoring and use of hedging instruments.

The Company also seeks to address possibilities of technology gaps through the technical teams continuously benchmarking existing manufacturing processes with developments in the industry and arrangements with technical research institutions and technology consultants. The in-house research and development teams are also being strengthened further with infusion of fresh talent with international exposure.

The Company''s operations are spread across several countries. This exposes the Company to diversity in the policy approaches of governments in various countries. Threats to business can also emerge from unexpected changes in policies, like the significant scale-back in incentives to the photovoltaic industry in Europe last year. The Company would be continuously scanning the environment to spot such trends early enough, so that steps to mitigate the adverse effects can be initiated in time.

BUSINESS OUTLOOK AND OPPORTUNITIES

According to the World Economic Outlook - April 2013 of the International Monetary Fund (IMF), global economy is expected to continue mending gradually. The report forecasts a real global GDP growth of 3.3 percent on an annual average basis in 2013, about the same as the 3.2 percent growth seen in 2012.

As per the Economic Survey of India published by the Government of India in February 2013, the economy is expected to grow in the range of 6.1 to 6.7 per cent in 2013-14. These projections assume a normal monsoon, further moderation in inflation as expected (to induce further relaxation of the tight monetary stance) and mild recovery of global growth as anticipated.

Though India has been seeing a marked slowdown since last year, the long term growth opportunities for the country continue to appear positive, considering various factors particularly demographics. But India continuing on a rapid growth path is not pre ordained. Besides several circumstances, it requires deft policymaking and a broad vision of the future. A revival in growth would see large investments coming into infrastructure which would stimulate various sectors such as steel, power, glass, general engineering, etc. Since the Company''s businesses directly or indirectly serve these sectors, when the upswing does return, the Company would benefit from the buoyancy. Further, most of the Company''s operations are located in countries belonging to the emerging economies block, which gives it the necessary positioning to leverage the benefits of any uptrend in these economies.

However, given the medium term outlook of a slower pace in the global economy, the Company will pursue growth with cautious optimism. Efforts will continue to be taken to improve operating efficiencies, address new market segments, explore new geographies, enhance customer intimacy and thereby pursue fuller utilization of available capacities. Investment opportunities in capex and technology will be evaluated judiciously and pursued. With this approach, it is expected that the Company would be able to deliver improved results in the coming year.

GOVERNANCE BOARD OF DIRECTORS

Mr. Subodh Kumar Bhargava and Mr. T L Palani Kumar retire by rotation at the forthcoming Annual General Meeting and are eligible for reappointment. Mr. Subodh Kumar Bhargava has expressed his desire not to seek re-election in line with past convention. The Board wishes to place on record its sincere appreciation for the contributions made by him to the Company during his tenure.

AUDITORS

M/s Deloitte, Haskins & Sells, Chartered Accountants, (FR No.008072S) Chennai retire as Auditors at the forthcoming Annual General Meeting and being eligible have expressed their willingness to be reappointed.

CORPORATE GOVERNANCE

The report on corporate governance along with a certificate from the Auditors is annexed as required by the listing agreement with stock exchanges. The Managing Director and the Chief Financial Officer have submitted a certificate to the Board regarding the financial statements and other matters as required under clause 49 V of the listing agreement.

DIRECTORS'' RESPONSIBILITY STATEMENT

Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that:

- in the preparation of the annual accounts for the financial year ended 31st March 2013 and the Balance Sheet as at that date ("financial statements") applicable accounting standards have been followed;

- appropriate accounting policies have been selected and applied consistently and such judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

- the annual accounts have been prepared on a going concern basis.

CORPORATE SOCIAL RESPONSIBILITY

Apart from the initiatives undertaken by the Company on its own (which is outlined in the human resources section), support to institutions engaged in philanthropic purposes in the field of education and health-care and also for scientific research was continued as in the past.

ENERGY CONSERVATION, TECHNOLOGY, ETC.

The particulars relating to energy conservation, technology, research and development, exports and employees'' remuneration as required under the Companies Act, 1956 and the information relating to employee stock options as per the applicable regulations of the Securities and Exchange Board of India are annexed to and forms part of this report.

ACKNOWLEDGEMENT

The Board places on record, its appreciation for the cooperation and support received from investors, customers, channel partners, suppliers, employees, government authorities, banks and other business associates.

On behalf of the Board

Chennai M M Murugappan

29th April 2013 Chairman


Mar 31, 2012

Company Performance

Revenues

Against the above economic background, the Company's worldwide revenues registered a strong growth of 24 per cent. While revenue from India increased by 1 9 per cent, that from rest of the world increased by 29 per cent.

The consolidated top line summary is as follows:

(Rs. Million)

31.3.2012 31.3.2011

Net Sales / Income from Contracts & Services

-India 10060 8448

- Rest of the World 9625 7468

19685 15916

Other Operating Revenue 265 159

Net Revenue from 19950 16075

Operations

The major business segments registered growth rates in excess of 20 per cent contributing additional revenue of around Rs. 4 Billion to the overall revenue pie. The increase in sales resulted from a combination of higher volume growth and improved price realisation.

The Indian operations got off to a good start registering a growth of 26 per cent during the first half of the year. As the year progressed, the growth momentum slowed down due to the macro economic developments in advanced economies, which restricted the overall growth for the year to 22 per cent.

The standalone top line summary is as follows:

(Rs. Million)

31.3.2012 31.3.2011

Net Sales / Income from Contracts & Services

-India 8617 7159

- Rest of the World 2435 1946

11052 9105

Other Operating Revenue 202 148

Net Revenue from 11254 9253 Operations

The Abrasives and Ceramics business registered a strong growth of 20 per cent and 30 per cent respectively. The performance of the Electrominerals business was sedate consequent to the lower sales of Brown Fused Alumina.

Manufacturing

Manufacturing teams played a key role, helping the Company in the growth momentum through effective production planning and order execution. Capacity additions, through line balancing and establishment of additional lines, came in handy to cater to the increased demand from customers. Several plants operated at peak capacities.

Cost of key inputs witnessed a steep increase resulting in increased cost pressures for the Indian, Russian and South African operations. Escalation in cost of fuel impacted profit margins in certain locations. Internal efficiency improvements were undertaken to offset the cost push.

The operations of the manufacturing locations in Tamil Nadu, India, came under pressure due to the precarious power scenario in the state and the regulatory constraints imposed on use of captive power sources.

Earnings

Aided by the strong growth in revenues, Earnings from operations before exceptional items, interest, tax, depreciation and amortization (EBITDA) on a consolidated basis, was Rs. 3895 million witnessing an increase of 36 per cent. Depreciation was higher by Rs. 65 million as a result of the continuing investments being made in various projects. Finance costs were lower by 8 per cent, despite tightening of the money markets, as a result of the healthy cash flows from operations.

Consolidated profit before tax was Rs. 3227 million recording an increase of 25 per cent. Profit after tax, minority interest and share of profit from associate was Rs. 21 93 million recording a growth of 28 per cent.

On a standalone basis, profit before exceptional items and tax was Rs. 1 744 million, recording a growth of 25 per cent. However after reckoning the exceptional items, the profit before tax for the year showed an increase of only 1 5 per cent since the exceptional items for the year of Rs. 1 50 million was lower than the sum of Rs. 245 million for the previous year.

During the year,theCompany progressed further on its strategy of divesting its non-core assets, by disposing its equity holding in Laserwords Private Limited. The Company also made further progress in the exercise of simplifying its holding structure in respect of its international operations, by transferring its investment in its Chinese subsidiary viz. CUMI Abrasives and Ceramics Company Ltd., to CUMI International Ltd., Cyprus. Consequently the Chinese company is now a wholly owned subsidiary of CUMI International Ltd., Cyprus. These resulted in a net amount of Rs. 139 million as exceptional item of profit.

Profit after tax increased by 1 8 per cent to Rs. 1467 million.

Financial Position

On a consolidated basis, shareholders fund as on 31st March 2012 was Rs. 9470 million. Addition for the year (net of dividends) was Rs. 2015 million. Minority interest increased from Rs. 594 million to Rs. 775 million.

Non-current liabilities showed a declinefrom Rs. 2961 million to Rs. 2569 million as on 31st March 2012, primarily on account of repayment of borrowings. Current liabilities increased from Rs. 3883 million to Rs.4837 million on account of higher operating levels.

Non-current assets (including fixed assets, capital work-in-progress, etc.) increased from Rs. 7099 million to Rs. 7825 million primarily on account of capital expenditure incurred during the year. Current assets increased from Rs. 7794 million to Rs. 9826 million on account of higher operating levels.

Cash Flow

On a consolidated basis, cash generation from operations was Rs. 2391 million in 2011-12. Net cash outflow on account of investing activities (mainly purchase of fixed assets) was Rs. 1012 million. Net cash outflow on account of financing activities was Rs. 865 million which is attributable primarily to borrowings and dividends paid. The net increase in cash and cash equivalents was Rs. 514 million.

Share Capital

Following the approval accorded at the Extraordinary General Meeting, the equity shares of Rs. 2 each of the Company were sub divided into equity shares of Re.l each in October 2011.

Further the paid up equity share capital increased during the year by Rs. 0.46 million, consequent to exercise of employee stock options.

Dividend and Appropriation of profits

The amounts available for appropriation and the recommended appropriations on a standalone basis are given below:

(Rs. Million)

Available for appropriation

Profit after tax 1466.71

Balance brought forward from 1841.17 previous year

Total 3307.88

Recommended appropriation

Transfer to debenture redemption 31.25 reserve

Transfer to general reserve 1000.00

Dividend

-Interim 187.37

- Final (Proposed) 187.40

Dividend Tax 51.49

Final Dividend (previous year)* 0.11

Balance carried forward 1850.26

Total 3307.88

Final Dividend pertaining to financial year 2010- 11 (including dividend tax) paid on shares allotted subsequent to the date of approval of the annual accounts by the Board and before the book closure date pursuant to exercise of employee stock options.

Considering the sharp increase in earnings for the year, the Board had in February 2012 declared and paid an interim dividend at the rate of Re.l per equity share of Re. 1 each. The Board is now pleased to recommend a final dividend of Re.l per equity share of Re.l each for the financial year 2011-12. This would make a total dividend of Rs.2 per equity share of Re.l each for the year (as against Rs.2.50 paid for 2010-11 on a Rs. 2 face value share).

Board of Directors

Mr. M M Murugappan and Mr. M Lakshminarayan retire by rotation at the forthcoming Annual General Meeting and being eligible have been proposed for reappointment.

Auditors

M/s Deloitte, Haskins & Sells, Chartered Accountants, (FR No.008072S) Chennai retire as Auditors at the forthcoming Annual General Meeting and being eligible have expressed their willingness to be reappointed.

Corporate Governance

The report on corporate governance along with a certificate from the Auditors is annexed as required by the listing agreement with stock exchanges. The Managing Director and the Chief Financial Officer have submitted a certificate to the Board regarding the financial statements and other matters as required under clause 49 V of the listing agreement.

Directors' Responsibility Statement

Pursuant to Section 21 7(2AA) of the Companies Act, 1 956, the Directors to the best of their knowledge and belief confirm that:

- in the preparation of the annual accounts for the financial year ended 31st March 2012 and the Balance Sheet as at that date ("financial statements") applicable accounting standards have been followed;

- appropriate accounting policies have been selected and applied consistently and such judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1 956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

- the annual accounts have been prepared on a going concern basis.

Corporate Social Responsibility

Support to philanthropic purposes in the field of education and health- care and also for scientific research was continued as in the past. Need- based support to the community neighboring the plants with focus on education, health and sports was continued. A total sum of Rs. 41 million has been spent on community development work in India and Russia.

Energy Conservation, Technology, etc.

The particulars relating to energy conservation, technology, research and development, exports and employees' remuneration as required under the Companies Act, 1 956 and the information relating to employee stock options as per the applicable regulations of the Securities and Exchange Board of India are annexed to and forms part of this report.

Acknowledgement

The Board places on record, its appreciation for the cooperation and support received from investors, customers, dealers, suppliers, employees, government authorities, banks and other business associates.

On behalf of the Board Chennai M M Murugappan

2nd May, 2012 Chairman


Mar 31, 2010

The Directors have pleasure in presenting their 56th Annual Report together with the audited financial statements for the year ended 31s1 March 2010. The Management Discussion & Analysis Report, which is required to be furnished as per the requirements of stock exchanges, has been included in the Directors Report so as to avoid duplication and overlap.

DIVIDEND AND APPROPRIATION OF PROFITS

The amount available for appropriation and the recommended appropriations are given below:

Rs. million Available for appropriation Profit after tax 580.13 Add: Balance brought forward from previous year 1602.08 Total 2182.21 Recommended appropriations Transfer to Debenture Redemption Reserve 31.25 Transfer to General Reserve 300.00 Dividend 186.71 Dividend Tax 23.96 Balance carried forward 1640.29 Total 2182.21

The Board is pleased to recommend a dividend of Rs.2 per equity share of Rs.2 each for the year 2009-10. Last year a dividend of Rs.2 per equity share was paid.

CUMI CONSOLIDATED PERFORMANCE OVERVIEW

The key financial indicators for the consolidated operations are given below:

Rs. million 31.03.2010 31.03.2009 Net sales (Inclusive of Joint Ventures) 12822 11930 Total net revenues* 13141 12258 Operating earnings before interest, 2429 1988 depreciation & tax (EBITDA)* Operating Profit before interest and tax* 2017 1637 Finance cost 308 329 Profit on sale of fixed assets 5 293 Profit before tax 1714 1601 Profit after tax 1017 1037 Earnings per share of Rs.2 each 10.90 11.11

excluding profit on sale of fixed assets

Consolidated sales recorded a growth of 7.5% aided by the strong performance of the Indian operations.

In Volzhsky Abrasive Works (VAW), sales at RUB 2.1 billion, was at last year levels for the twelve months period ended March 2010. Silicon carbide sales increased by 5% over the previous year, which helped to offset the drop in sales of abrasives and refractory products. The abrasives business showed a decline in sales primarily due to a steep downturn in the Russian economy. The favorable currency movements, lower prices of key inputs, focus on process efficiencies and continued high capacity utilization of the silicon carbide facilities helped the Company to increase profits by 31 % from RUB 212 million to RUB 279 million.

In CUMI Australia, sales of AUD 13.44 million were marginally higher by 2% over last year levels of AUD 13.14 million. This was achieved against intense competition from imports into Australia from overseas suppliers which resulted in stiff pricing pressures. While business from coal washeries continued to be the mainstay of the business, the Company expanded customer base by adding clients from other mining sectors. The overall performance was aided by regular supplies of ceramic tiles and value added products from Indian operations. While the operating performance continued to be very strong, there was a 5% drop in profits for the year due to higher employee cost.

In South Africa, Foskor Zirconia started the year on a very weak note. The plant was shut down for a period of three months in the first quarter due to high inventories in the plant coupled with downturn in the steel industry resulting in low off take for refractories. The strengthening of the South African currency (Rand) further eroded the competitiveness of the business. These resulted in the Company declaring an after tax loss of Rand 7 million in the first quarter. However concerted efforts were taken by the marketing teams to increase customer base, explore new geographies and diversify into other industry segments. Sales picked up from August 2009. The new initiatives helped the Company end the year with a turnover of Rand 133 million constituting a 7% increase over the previous year. As a result of the overall improvement in operating levels in the last three quarters, the Company ended the year with a marginal loss of Rand 0.6 million (compared to the first quarter loss of Rand 7 million).

The demerger of the Chinese joint venture into two separate entities, one for abrasives and the other for diamond / diamond tools business was completed in December 2009. Consequently the assets and liabilities of the Abrasives division were transferred to a wholly owned subsidiary viz. CUMI Abrasives and Ceramics Company Limited. However, the statutory approvals mainly covering VAT, Customs and Capital verification were not received till March 2010. Consequently, the consolidated results reflect the financials for the nine months period ending December 2009 only of the erstwhile Chinese joint venture. The consolidated results for the year includes a loss of Rs.63 million, arising out of the Chinese operations in the first nine months ending December 2009. Performance of the joint venture was impacted due to lower capacity utilization of the abrasives facilities and high overhead costs of the joint venture. With CUMI getting full control over the abrasives business, a concrete plan has been worked out for stepping up operating levels and leveraging the presence in China.

In the Middle East, CUMI Middle East did well and the CUMI branded products continued to gain wide acceptance. The Company has been building a good network of dealers and customers and revenues grew by 22% despite the difficult market conditions. CUMI America registered significantly lower sales during the current year at USD 0.6 million as compared to last year sales of USD 1.2 million due to tepid market conditions in the USA. Due to the lower turnover, the Company ended the year with an after tax loss of USD 0.12 million. At CUMI Canada, sales were lower at CAD 2.4 million compared to CAD 3.2 million last year. The Companys efforts to refocus on Ceramics product lines helped it to offset to some extent the lower sales resulting from the downturn in the housing market. The Company ended the year with a loss of CAD 0.8 million, compared to the previous year loss of CAD 1.1 million.

In India, Murugappa Morgan Thermal Ceramics Limited, the joint venture with the Morgan Crucible pic. (which is in fibre refractory business) improved sales by 13% over previous year. Ciria India Limited, which is also a joint venture with the Morgan Crucible Group, engaged in designing and installation of refractory systems, registered sales of Rs.333 million, about 3% lower than last year. Wendt India Limiteds consolidated performance grew by about 11%, with the Company focusing on supply of precision components along with the traditional superabrasive tooling business, for select customers. Sterling Abrasives continued to register good performance with a growth of 11% in sales by focusing on niche product lines. With tight

control on costs and focus on high margin products, the Company registered a 47% increase in net profits. Southern Energy Development Corporation Limited, the natural gas based power generation Company operated at near full capacity. The power generated by the Company helped the various manufacturing facilities of CUMI located in Tamil Nadu to mitigate the difficulties arising out of power cuts. Net Access India Private Limited which is in IT facilities management, increased revenues marginally by 4%. Net profits increased by 28% through cost reduction efforts. CUMI Fine Materials Limited, which was incorporated last year is yet to commence commercial activities.

A consolidated financial statement (incorporating the operations of the company, its subsidiaries, joint ventures and associate) has been provided in the Annual Report. The key financial highlights of each subsidiary for their respective financial years have also been given. In view of this, the annual reports of the subsidiary companies have not been annexed pursuant to the exemption accorded by the Ministry of Corporate Affairs vide letter no.47/184/2010-CL-lll dated 26,h March 2010. However, the annual accounts of the subsidiary companies and the related detailed information will be made available to the investors of the Company and its subsidiary companies seeking such information at any point of time. These annual accounts will also be kept for inspection by any investor, in the head office of the Company and that of its respective subsidiary companies.

GOVERNANCE

Board of Directors

Mr. Subodh Kumar Bhargava and Mr. T L Palani Kumar retire by rotation at the forthcoming Annual General Meeting and are eligible for reappointment.

Mr. A Vellayan stepped down from the Board in January 2010 consequent to his assuming wider responsibilities in the Murugappa Group.

Mr. Sanjay Jayavarthanavelu, Wholetime Director of Lakshmi Machine Works Ltd., Coimbatore has been inducted as an Additional Director. Mr. Sanjay Jayavarthanavelu brings with him two decades of rich experience in the engineering industry. He will vacate office as additional director at the forthcoming annual general meeting and his appointment by shareholders will be taken up at that meeting.

Auditors

M/s Deloitte, Haskins & Sells, Chartered Accountants, (FR No.008072S) Chennai retire as Auditors at the forthcoming Annual General Meeting and being eligible have expressed their willingness to be reappointed.

Corporate Governance

The report on corporate governance along with a certificate from the Auditors is annexed as required by the listing agreement with stock exchanges. The Managing Director and the Chief Financial Officer have submitted a certificate to the Board regarding the financial statements and other matters as required under clause 49 V of the listing agreement.

Corporate Social Responsibility

The Company contributed a sum of Rs.35 million for various philanthropic purposes in the field of education and health-care and also for scientific research.

As part of its commitment to society, the Company has been providing need based support to the community around the Companys plant locations, focusing on education and health.

Annexures

The directors responsibility statement under Section 217(2AA), the particulars relating to energy conservation, technology, research and development and exports as required under the Section 217(1)(e), the particulars of employees remuneration as required under Section 217(2A) of the Companies Act, 1956 and the information relating to employee stock options to be provided as per the applicable SEBI regulations are annexed to and forms part of this report.

ACKNOWLEDGEMENT

The Board places on record, its appreciation for the cooperation and support received from investors, customers, dealers, suppliers, employees, government authorities, banks and joint venture partners.

On behalf of the Board M M Murugappan

Chennai, 3rd May 2010 Chairman

 
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