Mar 31, 2019
Directors' Report
The Directors have the pleasure in presenting the 65th Annual Report together with the Audited Financial Statements for the year ended 31st March 2019. The Management Discussion &Â Analysis Report which is required to be furnished as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as the Listing Regulations) has been included in the Directors' Report so as to avoid duplication and overlap.
ECONOMIC OVERVIEW &Â COMPANY PERFORMANCE Economic Overview
According to International Monetary Fund (IMF), after a strong growth in 2017 and early 2018, the global economic activity slowed notably in the second half of the year 2018 owing to a confluence of factors affecting major economies. Global growth in 2018 was 3.6 per cent as against the earlier projected growth of 3.9 per cent, despite moderate performance in some major economic countries notably in Europe and Asia. The downward revision is a reflection of suppressed activity in early 2018 in few major advanced economies, effects of trade measures introduced, tighter financial conditions, geopolitical tensions and higher oil import bills. China's GDP growth slowed to 6.5 per cent year-on-year in the third quarter from 6.8 per cent in the first half of 2018, mainly due to weaker trade and investment. The trade sanctions imposed by US may bring in further challenges to China's economy. Growth in China is projected to be moderate at 6.5 per cent in 2018-19 and 6.2 per cent in 2019-20, according to the World Bank's new China economic update. In Latin America, growth is projected to recover over the next two years, from 1.1 per cent in 2018 to 2.0 per cent in 2019 and 2.5 per cent in 2020.
Global growth is now projected to slow from 3.6 per cent in 2018 to 3.3 per cent in 2019, before returning to 3.6 per cent in 2020. The reasons for the revision being the tariff increase enacted in US and China, new automobile fuel emission standard in Germany and sovereign financial risk concern in Italy.
Despite the slowdown in the global economy, India has emerged as one of the fastest growing economies in the world. As per World Bank's report, India's GDP growth is estimated to grow at the rate of
7.3 per cent for fiscal year 2018-19 as against 6.7 per cent in the year 2017-18. This is because the economic activity continues to recover with strong domestic demand. Investment continues to strengthen amidst the GST harmonisation and rebound of credit growth.
Indian economy is poised to pickup in 2019 benefitting from lower oil prices and slower pace of monetary tightening than that previously expected, as inflation pressure eases. The gaining momentum is attributable to evolving the Goods and Services Tax regime and the country opening up more to foreign investors. Numerous foreign companies are setting up their facilities in India on account of various government initiatives aiding the growth of foreign investments.
India can benefit by improving its integration with global markets. Enhancing foreign investments in various sectors through the automatic route and a meaningful reduction in bureaucratic oversight greatly increases access for foreign investors to the Indian market.
During the fourth quarter of the financial year 2019, there were liquidity constraints leading to slowdown in economy and market demand. This slowdown is expected to recover during the course of financial year 2020. The GDP growth in Indian economy is now estimated to grow at 7.3 per cent in 2020 and 7.5 per cent in 2021 as per latest IMF forecast.
Company Performance Revenues
During the year, the standalone revenues grew by 11 per cent and the consolidated revenues by 13 per cent driven by better performance across all the businesses.
The following table summarises the standalone and consolidated revenues - both segment and geography wise:
                                                                                         Rs, million
 |
2018-19 |
1 2017-18 1 |
Growth |
||
 |
% share 1 |
Amount |
% share 1 |
Amount |
% |
Standalone |
 |  | |||
Abrasives |
53 |
9209 |
55 |
8636 |
7 |
Ceramics |
28 |
4985 |
26 |
4056 |
23 |
Electrominerals |
26 |
4534 |
26 |
4107 |
10 |
Eliminations |
(7) |
(1209) |
(6) |
(1025) |
(18) |
Total |
100 |
17519 |
100 |
15774 |
11 |
India |
78 |
13657 |
77 |
12201 |
12 |
Rest of the world |
22 |
3862 |
23 |
3573 |
8 |
Total |
100 |
17519 |
100 |
15774 |
11 |
Consolidated |
 |  | |||
Abrasives |
42 |
11243 |
44 |
10363 |
8 |
Ceramics |
23 |
6044 |
21 |
5068 |
19 |
Electrominerals |
38 |
10186 |
38 |
8887 |
15 |
Power |
1 187 |
1 |
239 |
(22) |
|
IT Services |
2 |
451 |
2 |
401 |
12 |
Eliminations |
(6) |
(1555) |
(6) |
(1379) |
(13) |
Total |
100 |
26556 |
100 |
23579 |
13 |
India |
55 |
14534 |
55 |
13048 |
11 |
Rest of the world |
45 |
12022 |
45 |
10531 |
14 |
Total |
100 |
26556 |
100 |
23579 |
13 |
Strong demand across user industries, continued inflation of metal &Â commodity prices, introduction of new products, efficient distribution, quality products and focus on newer markets resulted in a better top line growth.
The Company's consolidated revenues from India increased by
11 per cent and from rest of the world increased by 14 per cent. At a consolidated level, Abrasives sales grew by 8 per cent, Ceramics sales grew by 19 per cent and Electrominerals sales grew by 15 per cent.
Manufacturing
The manufacturing team played a vital role in focussed production planning and order execution to create a faster growth momentum. The plants in India operated at about 75 per cent capacity utilisation levels. The product segments Coated Abrasives, Metalized Cylinders, Brown Fused Alumina, White Fused Grains, Industrial Ceramics and Fired Refractories continued to run at full capacity. Continued focus on Total Productive Maintenance (TPM) helped the Company to improve the quality of its products, operate the plant efficiently reducing the overall cost of operations. During the year, the Company's facility at Hosur has been awarded the Gold Certification in Manufacturing Excellence by Frost &Â Sullivan.
Capital expenditure during the year, across all geographies was majorly in the nature of quality enhancement, line balancing and general infrastructure.
Earnings &Â Profitability
The Company's standalone financial results are summarised in the table below:
                                                                                                                                                     Rs, million
 |
As a % of Gross |
2018-19 |
As a % of Gross Sales |
2017-18 |
Increase % |
 |
Sales |
 |  |  |  |
Gross Sales |
17519 |
15774 |
|||
Other Operating Income |
303 |
249 |
|||
Revenue from Operations |
17822 |
16023 |
|||
Other Income |
269 |
310 |
|||
Total Income |
18091 |
16333 |
|||
Expenses |
 |  | |||
Cost of material Consumed |
40 |
6990 |
37 |
5796 |
21 |
Purchase of stock in trade |
5 |
795 |
4 |
709 |
12 |
Movement of Inventory |
(2) |
(265) |
1 |
138 |
(292) |
Excise Duty on sale of goods |
- |
- |
2 |
0 6 2 |
(100) |
Employee benefits expense |
10 |
1821 |
11 |
1742 |
5 |
Finance Cost |
0 |
9 |
0 |
15 |
(40) |
Depreciation and amortisation |
4 |
754 |
5 |
739 |
2 |
Other expenses |
31 |
5508 |
31 |
4882 |
13 |
Total Expenses |
89 |
15612 |
91 |
14281 |
9 |
Profit before tax |
14 |
2479 |
13 |
2052 |
21 |
Profit after tax |
9 |
1661 |
9 |
1435 |
16 |
Total Comprehensive Income |
9 |
1628 |
9 |
1465 |
11 |
Aided by the growth in revenues, standalone profit before tax improved to Rs,2479 million from Rs,2052 million in the previous year.
The Company uses a variety of raw materials for its products - Bonds, Yarn, Grains, Calcined Alumina, Tabular Alumina, Mullite, Pet Coke, Bauxite, Zircon Sand amongst others. The sourcing is a prudent mix of indigenous and imported materials. Aided by judicious sourcing and optimising throughput in production, material consumption marginally improved during the year.
Other expenses increased from '4882 million in the preceding year to Rs,5508 million in the current year owing to volume growth, cost increases and investments in preparing the organisation for the expansion programmes being undertaken.
Power and fuel cost also increased during the current year. Captive power generation from the Company's Hydel power unit in Maniyar continued to be lower this year due to the heavy floods in Kerala. The power consumption was also higher in line with the higher volumes produced compared to the previous year.
Employee benefits expense increased by 5 per cent during the year, which is a combination of both increase in head count and salary. The overall employee cost was at 10 per cent of the revenues.
Profit before interest and tax margin expanded at all divisions on account of higher sales and better operating leverage.
Finance costs were at '9 million compared to Rs,15 million in the previous year. Profit after tax of Rs,1661 million was higher compared to that of the previous year Rs,1435 million. Total Comprehensive Income increased from Rs,1465 million to Rs,1628 million.
On a consolidated basis, the profit before tax (before share of profit from associate and joint ventures) increased from Rs,3070 million to Rs,3488 million. Profit after tax and non-controlling interests was Rs,2477 million (previous year Rs,2156 million).
The consolidated profit before tax (before share of profit from associate and joint ventures) entity-wise is represented below:
                                                                                                          Rs, million
 |
2018-19 |
2017-18 1 |
CUMI Standalone |
2479 |
2052 |
Subsidiaries including step down subsidiaries: |
 |  |
Indian |
 |  |
Net Access India Limited |
35 |
37 |
Southern Energy Development Corporation Limited |
24 |
71 |
Sterling Abrasives Limited |
133 |
134 |
Foreign |
||
CUMI (Australia) Pty Limited |
166 |
152 |
CUMI International Limited |
313 |
284 |
Volzhsky Abrasives Works |
1152 |
1187 |
Foskor Zirconia Pty Limited |
(212) |
(162) |
CUMI America Inc. |
(24) |
(33) |
CUMI Middle East FZE |
0 |
8 |
CUMI Abrasives &Â Ceramics Company Limited |
(17) |
(9) |
Thukela Refractories Isithebe Pty Limited |
- |
(0) |
CUMI Europe s.r.o. |
(1) |
(8) |
Total of Subsidiaries |
1569 |
1661 |
Inter Company Eliminations |
(560) |
(643) |
Consolidated Profit before tax |
3488 |
3070 |
Consolidated Profit after tax attributable to owners |
2477 |
2156 |
Â
Financial Position
An overview of the Company's financial position - on a standalone and consolidated basis is given below:
                                                                                                                                                                Rs, million
Financial position |
Standalone |
Consolidated | |
||||
 |
31.03.2019 |
1 31.03.2018 1 |
% change |
1 31.03.2019 |
1 31.03.2018 1 |
% change 1 |
Net Fixed assets (including goodwill) |
4178 |
4474 |
(7) |
7414 |
7659 |
(3) |
Investments - Non current |
2511 |
2569 |
(2) |
1304 |
1232 |
6 |
Other assets: |
 |  |  |  | ||
- Inventories |
3390 |
2604 |
30 |
5329 |
4380 |
22 |
- Trade receivables |
3305 |
3267 1 |
5139 |
4751 |
8 |
|
- Cash and cash equivalents |
1092 |
740 |
48 |
1921 |
1847 |
4 |
- Other assets |
782 |
705 1 1 |
1213 |
1116 |
9 |
|
Total assets |
15258 |
14359 |
6 |
22320 |
20985 |
6 |
Liabilities (Other than loans) |
2480 |
2644 |
(6) |
3588 |
3432 |
5 |
Net assets |
12778 |
11715 |
9 |
18732 |
17553 |
7 |
Sources of funding: |
 |  |  |  | ||
Total equity attributable to owner |
12769 |
11697 |
9 |
17241 |
15644 |
10 |
Non - Controlling interest |
 |  |
523 |
615 |
(15) |
|
Loan &Â outstanding: |
 |  |  |  | ||
- Long term borrowings |
3 |
11 (75) |
51 |
66 |
(23) |
|
- Payable within one year |
6 |
7 |
(14) |
49 |
46 |
7 |
- Short term borrowings |
- |
- |
- |
868 |
1182 |
(27) |
Total loans |
9 |
18 |
(50) |
968 |
1294 |
(25) |
 |
12778 |
11715 |
9 |
18732 |
17553 |
7 |
Loans (net of cash and cash equivalents) |
(1083) |
(722) |
50 |
(953) |
(553) |
72 |
Â
The performance of the subsidiaries is detailed separately in this Report. Segmental profitability improved across all segments owing to higher volume, selective price increase mitigating the cost push and efficient cost management.
On a consolidated basis, the total equity attributable to owners as on 31st March 2019 was Rs,17241 million. There was an increase (net of dividend) to the extent of Rs,1597 million. Non-controlling interest was at Rs,523 million.
Liabilities (other than loans) was Rs,3588 million. The loans outstanding reduced from Rs,1294 million to '968 million. Net fixed assets (including goodwill) decreased from '7659 million in the last year to '7414 million during the current year.
Cash Flow
The Company's cash flow generation is healthy. The following table summarises the CompanyRs,s consolidated and standalone cash flows for the current and previous year:
                                                                                                                                                                               Rs, million
Cash flow |
Standalone |
Consolidated | |
||
 |
2018-19 |
2017-18 |
2018-19 |
2017-18 1 |
Cash flow from Operations |
2037 |
2001 |
3218 |
3238 |
Taxes paid |
(820) |
(685) |
(1200) |
(1109) |
Cash flow from operating activities |
1217 |
1316 |
2018 |
2129 |
Capital Expenditure (Net of disposal) |
(511) |
(577) |
(949) |
(920) |
Cash flow from other investing activities |
236 |
290 |
150 |
172 |
Cash flow from investing activities |
(275) |
(287) |
(799) |
(748) |
Cash flow from financing activities |
(590) |
(356) |
(1091) |
(832) |
Net increase/(Decrease) in Cash &Â Cash equivalents |
352 |
673 |
128 |
9 4 5 |
Net Cash and Cash equivalents at the beginning of the year |
740 |
67 |
1847 |
1298 |
Effect of exchange rate changes on the balances of cash and cash equivalents held in foreign currencies |
- |
- |
(54) |
0 |
Cash and Cash equivalents at the end of the year |
1092 |
740 |
1921 |
1847 |
On a standalone basis, net cash generation from operations was Rs,1217 million in FY 2018-19 compared to previous year's Rs,1316 million. Net cash outflow on account of investing activities was Rs,275 million majorly towards addition of property, plant and equipment. Net cash outflow on account of financing activities was Rs,590 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs,352 million against Rs,673 million in FY 2017-18.
Key Financial Ratios (on a standalone basis) Â Â Â Rs, million
1 Parameter |
2018-19 |
2017-18 |
Favourable/(Adverse) 1 |
Return on Capital Employed (%) |
20.32% |
18.54% |
9.6% |
Debt Equity (times) |
0.001 |
0.002 |
50.0% |
PBT % to Sales |
14.15% |
13.23% |
7.0% |
Asset turnover (times) |
1.52 |
1.43 |
6.3% |
Receivable turnover (days) |
68 |
69 |
1.4% |
Inventory Turnover (days) |
62 |
57 |
80%. |
Interest Coverage Ratio (times) |
345.7 |
191.2 |
88% |
Current Ratio (times) |
3.72 |
3.02 |
23.2% |
Operating Profit Margin (%) - PBIT Margin (%) |
14.20% |
13.32% |
6.6% |
Net Profit Margin (%) |
9.48% |
9.25% |
2.5% |
Return on Net Worth (%) |
13.58% |
12.90% |
5.3% |
The change in Debt Equity ratio and Interest Coverage ratio is on account of repayment of loans by the Company as per schedule and consequential reduction in the interest. There were no other significant changes (i.e. change of 25% or more) in the key financial ratios during the year. The change in Return on Net Worth is on account of increased profits during the year.
On a consolidated basis, net cash generation from operations was Rs,2018 million in FY 2018-19. Net cash outflow on account of investing activities was '799 million. Net cash outflow on account of financing activities was Rs,1091 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs,128 million against Rs,549 million in FY 2017-18.
SHARE CAPITAL
The paid up equity share capital as on 31st March 2019 was Rs,189.15 million. The capital increased during the year by Rs,0.19 million, consequent to allotment of shares upon exercise of Stock Options by employees under the Company's Employee Stock Option Scheme 2007 and Employee Stock Option Plan 2016.
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,1.25/- per equity share of Rs,1/- each. It may be recalled that in February 2019, an interim dividend at the rate of Rs,1.50/per equity share of Rs,1/- each was declared and paid. This aggregates to a total dividend of Rs,2.75/- per equity share of Rs,1/- each for the year, which is higher than the previous year. The Company's Dividend Policy is available at https://www.cumi-murugappa.com/policies.html. The dividend paid as well as being recommended for the year ended 31st March 2019 is in line with this policy.
TRANSFER TO RESERVES
An amount of Rs,500 million has been transferred to the General Reserve of the Company as at 31st March 2019.
PERFORMANCE OF BUSINESS SEGMENTS
The business profile, market developments and current year performance are elaborated in the following sections:
Abrasives
Business Profile
This division is in the business of Engineering Surfaces. It manufactures and distributes rigid and flexible abrasives and adjacent products that are used in the generation of precision, functional or enduring surfaces. The key product segments are Bonded Abrasives, Coated Abrasives, Metal Working Fluid, Super Abrasives and allied products.
Rigid or Bonded Abrasives products grinds, cleans, scours, abrades or removes solid material by rubbing action or by impact. Bonded Abrasives are made using Glass Bonds (vitrified), Phenolic Resin Bonds. Coated Abrasives are basically hard synthetic minerals coated onto paper, fibre, cloth or film and finally formed into different shapes, sizes and types according to application needs. Abrasive materials and Abrasive products are utilised in several end user industries such as automobiles, auto ancillary, metalworking, wood working, railways, aerospace and general engineering.
This division has more than sixty years of experience in Abrasives manufacturing, application engineering and distribution. Strong Research &Â Development backed by application engineering and supported by third generation channel partners are the strengths of this division. Over the years, the division has built world class facilities with strong processes, which gives it a cutting edge.
The competitive advantage of the division comes from its raw materials sourced from the Electrominerals division and from the best suppliers across the world. These inputs are then formulated and the products are designed based on deep understanding of the end use applications.
Cost competitiveness is the overarching strategy for the division while ensuring that the supply requirements are met in full.
The business has ten manufacturing plants located across India, Russia and Thailand. The marketing entities in North America, Middle East, China and distributors across the globe provide strong market reach in India and over 55 markets globally.
Industry Scenario
The global Abrasives market is segmented based on region. Asia Pacific represents the largest and the fastest growing market for the Abrasives industry and China is the largest producer of Abrasive materials and Abrasive products. The growing demand for various types of Abrasives from industries like Transportation, Building &Â Construction and other durable goods industries is expected to drive the Asia Pacific Abrasives market. United States, which holds the world's second largest national market for Abrasives, is expected to deliver good growth. Europe represents another high potential market built around Transportation, Steel and Bearing industries. The market is dominated by leading players operating across the globe.
The Indian Abrasives market is dominated by few leading local manufacturers serving customers across diverse industries. Imports are predominantly restricted to low end segments (where price is a key factor) along with few international brands present in high end precision applications. The Indian domestic market has been witnessing a shift from manual grinding applications to mechanised polishing processes, ushering in opportunities for new products in the Coated Abrasives segment. The Bonded Abrasives segment constitutes a key consumable for the Construction and Transportation industries, which has demonstrated high growth in the past decade due to rapid urbanisation and increase in disposable income.
The unorganised market constitutes about thirty per cent of overall market. The implementation of Goods and Services Tax has brought about a uniform regime for all players to compete in the market evenly. In the domestic Russian market, there are three major players. The Company is one of the major players in Vitrified Bonded Abrasives.
Sales Overview
The focus for the Abrasives business during the year, was to grow topline at better than the market growth rate, facilitated by greater penetration in existing markets and entering new markets. Accordingly, the Abrasives business on a standalone basis recorded a growth in revenues (excluding excise duty) from Rs,8470 million to '9209 million. However, the business witnessed a drop in profitability on account of significant increase in the cost of key raw materials and fuel across the year.
The first half of the year saw the Abrasives business growing in double digits, in line with positive sentiments in the market, with key end user industries demonstrating favourable growth. The business could achieve planned levels of sales across most product groups and industries in the first half, supported by steady demand in the market. The second half of the year found the Abrasives division encountering challenging market conditions with a general slowdown of economic activities in the country. However, the business continued to be well supported by its dealer partners, who readily invested in the product segments and helped in secondary counter sales throughout the year.
The Coated business continued to register good growth in the conventional products in domestic market. The growth came about by way of launch of new products, focus on technical products, strong brand recall and dealers' confidence in this product segment as well as quality consistency of the products. The business has also responded to the growing market and demand by deciding to invest in a state-of-the-art Coated Abrasives manufacturing facility in Sriperumbudur, to complement the existing facility at the same site. The project is expected to help the Company maintain and further consolidate its market leadership in the domestic market, while strengthening its position in the international market.
The Bonded business realised significant gains over the course of the year, especially in the customised products segment. The business made inroads in emerging industrial clusters, engaging with SME customers and growing in multiple industry verticals. Sales was suitably assisted by continuous new product development and product establishment activities from the Technology department. In the Bonded Mass Market segment, business achieved significant growth in its traded portfolio.
Business has also made steady progress in building distribution leadership, a key strategic pillar for the Company's growth. During the year, the business aggressively appointed new channel partners and expanded its dealer network both in India and abroad. The business made a conscious effort in entering new and under-represented markets, with a special supply chain structure to service remote customers suitably. Retail development and industrial storming initiatives were conducted for better market penetration. New technical products were developed and introduced in the mass market after studying the needs of the customers.
The Abrasives sales in Russia realised higher growth this year on account of new products and deeper engagement with customers. Sterling Abrasives which primarily addresses agriculture related applications delivered a good growth during the year.
Manufacturing
Manufacturing provided an ideal support to the sales and marketing initiatives, surpassing benchmarks in capacity utilisation and consistency leading to better on time delivery and product performance.
The key strategy was to build a sustainable competitive advantage by developing and establishing a range of products, by leveraging the Company's access to superior electromineral grains from the Electrominerals division. As the markets witnessed an extremely volatile supply of raw materials, both in terms of delivery and price, the division benefitted greatly from the assurance of its internal sourcing of grains
Key Financial Summary    Rs, million
Particulars |
 |
Standalone |
 |  |
Consolidated |
 |
 |
2018-19 |
2017-18 |
Change (%) |
2018-19 |
2017-18 |
Change (%) |
Revenue (excluding excise duty) |
9209 |
8470 |
9 |
11243 |
10184 |
10 |
Segment results (PBIT) |
1297 |
1225 |
6 |
1401 |
1325 |
6 |
Capital employed |
3441 |
3354 |
3 |
5182 |
5025 |
3 |
Share to total revenue of CUMI (%) (without eliminations) |
53 |
55 |
 |
42 |
44 |
 |
Share to segment results (PBIT) of CUMI (%) |
52 |
59 |
 |
39 |
42 |
 |
Â
- the key raw material. Business continued to focus on introducing new products - moving from traditional Brown to Semi-friable to gain significant competitive advantage and offering superior Coated technical products with hi performance Zirconia and Ceramic grains. Conscious efforts were taken to increase indigenous sourcing and lowering the gap between exports &Â imports to de-risk and improve profitability.
In order to cater to increasing demand for coated products, business has invested in expansion of its Coated Abrasives manufacturing capacity by kick starting the establishment of an additional maker line in Sriperumbudur, as earlier stated. The project, which is scheduled to be completed in FY 2020, will be equipped with state-of-the-art IOT enabled process monitoring and improvement features.
The Company's adoption of TPM has transcended from an improvement tool to a working philosophy today, resulting in an immense competitive edge in the market. The TPM journey, which started in 2011, as an organisation-wide strategy to increase the effectiveness of production environment, has now evolved as a fundamental value creation practice, positively impacting customer experiences.
In the mass market thin wheel product category, the business introduced new high-performance products, developed through "Design Thinking Methodology", utilising the reorganised production capacities. During the year, the Bonded Precision Abrasives business was engaged in productivity improvement projects with customers with continued slew of new product launches.
The division has placed special focus on adopting elements of Industry 4.0 in its day to day operations, to leverage the gains of IOT and data analytics. Considering the changing landscape of manufacturing technologies, the division would continue its effort to build capabilities in newer fields and technologies.
In FY 2018 -19, the Abrasives business experienced significant cost push from escalating prices of key raw materials and fuel, due to several macro-economic trends. The business recorded standalone operating profits before interest and taxes at Rs,1297 million from Rs,1225 million last year. At a consolidated level, the profits grew from Rs,1325 million last year to Rs,1401 million this year. The business also ensured robust cash generation by focussing on better collections and inventory management.
Ceramics Business Profile Industrial Ceramics
The Ceramics business has three product groups viz., Industrial Ceramics, Super Refractories and Anti-corrosives.
Industrial Ceramics business offers Alumina, Zirconia and Silicon Carbide products of technical ceramic grades addressing Wear and Corrosion protection, Electrical insulation, Thermal protection and Ballistic protection applications. 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 manufacturing/service facilities located in India, Australia and US. The subsidiaries in North America, Middle East and China also support this business in getting an extended customer reach.
The Industrial Ceramics business based out of India is largely a global business and majority of the sales volumes are through exports.
The Company is one of the major players in India, Australia and Europe and in specific product groups in Japan and China.
Super Refractories
Refractory is a material that retains its shape and chemical identity when subjected to high temperatures upto 2000 degrees Celsius and is used in applications that require extreme resistance to heat, such as furnace linings.
The Company is a market leader in complex shaped high temperature Application Refractories, Cements, and Monolithic castables (Refractory in powder form).
The key user industries for Refractory business are Iron &Â Steel, Secondary steel, Glass melting, Cement kilns, Carbon Black reactors, Rocket launch pads, Ceramic industry, Petrochemical industry, Thermal Power plants, Non-ferrous melting, Foundry, Heat Treatment furnaces etc.
Anti-corrosives (Prodorite)
Prodorite branded Anti-corrosive material is used at highly acidic or basic environment, at any pH range between 1 to 12. The Company is a major player in this industry, serving all kinds of Chemical industries and other industries involving effluent treatments. The Company's product ranges from Acid resistant wall, Brick, Carbon bricks, Tiles, Lining, Flooring, Screeding, Coating, Piping, Sealants, and Water proof construction chemicals. Also,the Company's Poly concrete cells are used in Copper and Zinc extraction across the world.
Composites
Composites are primarily Glass Fibre reinforced polymer products manufactured through Vacuum infusion, Pultrusion, Filament winding,
Grating and hand lay-up methods. The product range includes large Chemical storage tanks, Chimneys, Flue gas desulphurisation (FGD) spray headers, Abrasion resistant Anti-corrosive pipes, Anti-corrosive Pipes and Pipe fittings, Windmill nacelle cover, Automotive and Railway parts, Gratings, Pallets, Cable trays, Flooring, Chequered plates, Roof sheets, Chimney ladders, Platforms, Bridges, Louvers, Fencing etc.
The operations are carried out through manufacturing/service facilities located in India (Ranipet, Serkadu &Â Jabalpur) and Russia.
Industry Scenario
In the Wear Ceramics space, there are six major players globally - the Company is one of the reputed players in the world. In the Engineering Ceramics, there are around five players globally with the Company being relatively smaller and steadily growing in size. The Company is the only manufacturer of Metallized Cylinder in India and caters to leading customers both in India and abroad.
In the Wear Ceramics industry structure in India, which is catered to by a few major players, newer application areas like dredging and dispersion of pigments in paints are opening up new opportunities for CUMI.
In Australia, the Company is one of the major players in the Lined Equipment and Mineral processing industry. While there are about a dozen players in the industry, the Company's products are superior in quality and consistency continuing to dominate and grow its presence.
Further, the Company is expanding into US and Japan becoming the preferred supplier of Wear Resistant products to some of the leading customers in these countries.
In the Engineered Ceramics sector, the Company supplies spark plug bodies to the Automobile sector and has developed Ceramic based oxygen sensors to cater to Bharath IV emission norms.
In the Metallized Cylinders segment, the new facility at Hosur is fully operational. With a total installed capacity of 1.7 million cylinders per annum, the Company is now the second largest producer of Metallized Cylinders in the world and is fully geared up to meet the increasing market demand globally.
With respect to Refractories, merger and acquisition of the distressed assets by major players in the Iron &Â Steel industry has boosted the sector in India. Major projects and upgrading to the latest technology have helped this business to gain significant orders. Automotive sector growth led to major demand in Carbon black industry which triggered capacity increase by all the Carbon black manufacturers. Few tyre manufacturers are investing in carbon black reactors as a backward integration. Agricultural sector growth has triggered fertiliser demand and capacity. Major OEMs have the Company's Refractories brand in their approved product list which has helped in growth of Refractories and Anti-corrosive product sales volume growth.
The Company's composite market is growing on account of varied factors encompassing new construction/revamping of existing sites of customers installed with Composite products to improve building, plant and machinery life cycle. The Windmill industry has regained its momentum and Abrasion resistant composite pipes used in Power plant Flue gas desulphurisation, Lime, Slurry, and Mineral conveyance application have also gained good growth.
Sales Overview
Revenues (excluding excise duty) of the Ceramics business grew by 24 per cent on standalone basis from '4013 million to '4985 million.
Metallized Cylinders and Wear Ceramics business continued the marketing efforts in targeting newer markets and partnering with global customers. Selective price increases were taken for majority of the products to mitigate cost push. Significant efforts in converting conventional wear resistant materials to Ceramic Wear Resistant Materials was done in repair and maintenance segment of domestic sector in Steel, Mineral Handling and Cement Industry. The business established entry into Japanese markets through qualifications at OEM's for supply of Ceramic lined bends. New products with backing materials were developed for addressing high impact applications. The business participated in Industry specific expos like Ceramitec, Powergen, Japan Fine Ceramics Expo, Hannover Messe, Fuel Cell Expo etc., to increase visibility, business development and for keeping abreast with the changing technology.
The Refractory, Prodorite and Composite business delivered 25% growth during this year. The division's sales were driven by good project orders, entry into annual rate contracts from Windmill, Steel and Cement players. This business is likely to benefit from the commodity up cycle and expansion of capacity in user industry.
Key Financial Summary                                                                Rs, million
Particulars |
Standalone |
Consolidated | |
||||
 |
2018-19 |
2017-18 |
Change (%) |
2018-19 |
2017-18 |
Change(%) 1 |
Revenue (excluding excise duty) |
4985 |
4013 |
24 |
6044 |
5025 |
20 |
Segment results (PBIT) |
817 |
542 |
51 |
1082 |
759 |
43 |
Capital employed |
3149 |
2984 |
6 |
4050 |
3902 |
4 |
Share to total revenue of CUMI (%) (without eliminations) |
28 |
26 |
23 |
22 |
||
Share to segment results (PBIT) of CUMI (%) |
33 |
26 |
30 |
24 |
Manufacturing
The new Metallized Cylinder manufacturing line with assets from NTK, Japan was fully operational during the year. The total combined capacity of Metallized Cylinder now is 1.7 million numbers. Approval for new cylinders has been obtained from global customers after rigorous testing spanning over many months. Commercial supplies of cylinders from NTK line to key customers - both domestic and exports has commenced during the year. The contract manufacturing for base level Ceramics which started in 2014-15 continued successfully during the current year.
The Industrial Ceramics Division received Gold rating for Manufacturing Excellence awarded by Frost &Â Sullivan.
The Industrial Ceramics division started its TPM journey in 2014-15 and with sustained and intense efforts, cleared TPM Health Check by CII TPM Club of India during January 2017. The division cleared the JIPM second stage assessment during November 2017 for TPM Excellence level I award, a key milestone in Company's quest for excellence. The division finally received the coveted Category A TPM Excellence award in March 2018 from JIPM. The division is now preparing for achieving JIPM TPM Consistency Award.
Continuing its quest for manufacturing excellence, the rolled throughput yield has been on a continuous upward trajectory since 2015-16. Overall Equipment Effectiveness parameter also registered a new high during the year. The division could implement multi-cavity mould for near net shape moulding and commissioned Ceramic Injection Moulding line. In-house raw material was produced for Engineering Ceramics and Metallized Ceramics product enabling a better grip on the quality and the timely availability.
The division successfully commissioned a pilot plant for Tape Casting and Sputtering Facility for manufacturing substrates and sensors used in various applications such as Space and Electronics.
Further, a New Spray Drier with Rotary Nozzle was commissioned for obtaining superior powder quality for Metallized Ceramics.
The business in last three years has made efforts in new technology and has registered a number of IPs. New products were launched in Alloy industry chemcast refractories, Composite refractory bricks for high temperature abrasion resistant for Coke ovens, Pressed refractory for Tin bath glass furnace, Abrasion resistant Anti-corrosive products and Construction chemicals.
Electrominerals Business Profile
The major product groups of this segment are Fused Alumina (comprising Brown and White Alumina), Silicon Carbide (crude, macro and fine), Alumina Zirconia, Fused Zirconia, Zirconia Bubble and
Mullite. The Company also manufactures a range of 'specialities' like Semi Friable, Treated grains, Azures and fine powders for niche markets. The operations are carried out through eight manufacturing facilities located in India, Russia and South Africa. To enhance its operational competencies, the business operates its own bauxite &Â sand mines and
12 MW Hydel power plant to insulate it from the fluctuations in power tariffs.
The business focusses on aggressive growth in the domestic and export market while catering to the requirements from internal customers. With a diversified product portfolio, the Electrominerals business provides customers with application specific products and solutions, aimed at attaining an improved product profitability and value. For this, the business ensures speedy execution of projects, enhanced asset utilisation and also undertakes joint product development programmes with the customers.
The backbone of new product development and speciality business is a dedicated and focussed R&D team and a DSIR approved R&D facility. The team anchors the new product development driving IPR creations across the Company. The business continues to pursue its focus on new and emerging areas of opportunities like battery and related areas through tie ups for technology and commissioning pilot scale plants.
Key user industries for this business are Abrasives, Refractories, Steel, Brake linings, Nuclear energy, Wooden Laminates, Friction composites, Diesel Particulate Filter, Semiconductor and others.
Industry Scenario
The domestic market has seen a revival of demand from the Refractory and Abrasives industry for all products. The initiatives taken by China on environmental regulations and pollution controls continued during the year. The restrictions imposed in fusion operations at plants without adequate pollution control devices has affected the availability of materials from China. The Company with its focus on supplying quality products with superior environment friendly production processes, emerged more competitive in the transformed market.
The global Fused Alumina markets continue to bank on capacities in China, which house the largest fusion facilities and raw material resources, some of which could be adversely impacted due to new environment regulations. The Company is largely a local player with customers based in India. Apart from the domestic players, imported products have a visible share in the Indian market. Market has seen volatility on many occasions in the price and availability of Calcined alumina, the key raw material for White Fused Alumina, as alumina refinery operations were affected in Brazil and Australia during the year. The business could narrow down the impact of Alumina price variations due to long term contracts with domestic Alumina suppliers.
In Silicon Carbide, China plays the lead role in production and supply in the world. The shift demand for green Silicon Carbide production due to a lower off take by photovoltaic customers has resulted in augmenting SiC black availability in China. VAW, Russia with a capacity of 0.08 million tons is one of the largest single location capacities in the world.
In the Fused Zirconia space, the global capacity could be approximately
0.07 million tons. China would occupy around 25 per cent of the global market. The Company with a capacity of 0.01 million tons is a significant player globally.
The Company continues to retain its position as one of the reputed manufacturers of Silicon Carbide and Fused Zirconia.
Sales Overview
The Electrominerals business on a standalone basis recorded revenues (excluding excise duty) of '4534 million compared to '4055 million in the previous year.
The Fused Aluminium Oxide business of the Company registered a moderate growth with both volume and prices going up in the domestic and international market in line with demand pull from the user industries - Abrasives and Refractories.
The fine powder business was affected due to the lower demand for diesel vehicles in Europe, which has resulted in a lower off take of Silicon Carbide fine powders by Diesel Particulate Filter customers. The demand from semiconductor applications was stable. The demand for micro powders has helped the business grow.
The Russian subsidiary ran at near full capacity. The volumes were higher in the current year over the last year.
Manufacturing
Manufacturing strategies focussed mainly on improving efficiencies through TPM initiatives and value creation through grain treatments. Continued focus on innovation and TPM measures enabled the business to be competitive and efficient in control of cost as an underlining measure to attain the targeted production volumes. The focussed Joint Development Programmes in selected areas with customers brought faster scaling up and solutions to pain areas.
The uncertainties on Zircon sand availability and price affected the Zirconia Bubble operations. The business has taken a conscious decision to convert this facility into White Fused Alumina production, wherein there is more clarity on material availability and market demand.
The business was successful in establishing its new synthetic Alumina variant ABV+ as a replacement for ABV. This helped the business in augmenting the production and sales volume of Alumina from the new facilities, while satisfying the additional demand from internal Abrasives.
The year saw highest volatility in the availability and price of critical raw materials like Zircon Sand, Bauxite, Alumina and Electrode in international and domestic market. While the Electrode price has started showing signs of cooling down, environmental restrictions on mining in India and world over continue to pose challenges in the availability of Alumina and Bauxite. To counter the shortage of Alumina, the business is exploring possibility of bulk sourcing Alumina from international sources.
Foskor Zirconia which is into production of Monoclinic Zirconia was also affected due to volatile input pricing. With the prices of electrode coming down, the business sees opportunities in Fusion Zirconia and variants.
The business has tied up with Indian Space Research Organisation (ISRO) for battery technology and has initiated a joint project with IIT Patna for developing Ceramic membranes. The business is also setting up a pilot scale facility for production of Graphene, Carbon nano tubes and Graphite.
The Russian plant ran at full capacity in the current year without any production disruptions. Input costs were kept at market competitive levels by way of prudent sourcing strategies. The business continued in its journey of introducing various grit sizes in the market. Toughening environmental regulations in China is estimated to augur well for the business going forward by way of price increase of Crystalline and Metallurgic product ranges.
Key Financial Summary
                                                                                                                                                                                    Rs, million
Particulars |
Standalone |
Consolidated | |
||||
 |
2018-19 |
2017-18 |
Change (%) |
2018-19 |
2017-18 |
Change(%) 1 |
Revenue (excluding excise duty) |
4534 |
4055 |
12 |
10185 |
8834 |
15 |
Segment results (PBIT) |
444 |
325 |
37 |
1279 |
1269 1 |
|
Capital employed |
2893 |
2396 |
21 |
6062 |
5632 |
8 |
Share to total revenue of CUMI (%) (without eliminations) |
26 |
26 |
38 |
38 |
||
Share to segment results (PBIT) of CUMI (%) |
18 |
16 |
36 |
40 |
FINANCE
During the year, the Company generated Rs,1217 million cash surplus from its operations on a standalone basis.
All debts have been serviced on time. The Company's long and short term borrowings (other than financial lease of '9 million) as on 31st March 2019 stands Nil. The capital expenditure program of Rs,511 million was financed from internal accruals.
The Company continued to have a healthy cash generation during the year, due to prudent capital expenditure and efficient working capital management. The surplus has been parked in liquid schemes of mutual funds. The Company continues to be debt free despite capacities being created over the years. On similar lines, the debt at a consolidated level has come down by 25 per cent compared to the previous year from Rs,1294 million to '967 million. The cash and cash equivalent level (net of borrowings) at a consolidated level stands at '953 million.
The debt equity ratio for the Company is almost Nil at a standalone level and 0.06 at a consolidated level. The Company's Balance Sheet remains robust and it augurs well for the Company to venture into its next phase of growth.
The credit ratings of the Company, 'A1+' for short-term borrowings and 'AA+Stable' for long-term borrowings were re-affirmed by CRISIL. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The Finance Cost at a standalone level is at '9 million compared to Rs,15 million last year. The Company earned Rs,34 million by investing surplus cash available for short term.
At a consolidated level, the interest cost has come down from Rs,86 million to Rs,85 million. The repayment of loans has helped in bringing down the finance cost. The capital expenditure program of '949 million was financed majorly out of internal accruals.
With the Indian entity enjoying a significant natural hedge, a cautious approach was adopted to hedge the remaining exposures. The Company adopts prudent tax management policies.
There are no material changes and commitments, affecting the financial position of the Company which have occurred between 31st March 2019 and the date of this report.
INDIAN ACCOUNTING STANDARDS (IND AS) - IFRS CONVERGED STANDARDS
The Company, its subsidiaries, joint ventures and associate in India adopted lnd AS with effect from 1st April 2016 pursuant to the Companies (Indian Accounting Standard) Rules, 2015 notified by Ministry of Corporate Affairs on 16th February 2015.
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 so as to effectively ensure the reliability of operations with adequate checks and balances.
The Internal Audit team evaluates the effectiveness and adequacy of internal controls, compliance with operating systems, policies and procedures of the Company and recommends improvements, if any. Significant audit observations and the corrective/preventive action taken or proposed to be taken by the process owners are presented to the Audit Committee. Periodic review of adherence to the agreed action plan is carried out. The scope of Internal Audit is annually determined by the Audit Committee considering the inputs from the Statutory Auditor and the Management.
Capital and revenue expenditures are monitored and controlled with reference to approved budgets. Investment decisions are subject to detailed evaluation and formal approval according to schedule of authority in place. Periodical review of capital expenditure with reference to benefits forecasted is done. Physical verification of assets is also periodically undertaken.
The Audit Committee reviews the overall functioning of Internal Audit on a periodical basis. The Committee also discusses with the Auditors periodically on their views on the financial statements including the financial reporting system, compliance with accounting policies &Â procedures, adequacy and effectiveness of the Internal Control Systems in the Company.
INTERNAL FINANCIAL CONTROLS
Internal Control is a process, effected by an entity's Board of Directors, Management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance - as defined by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission (appointed by SEC USA).
As per Section 134 of the Companies Act, 2013, the term 'Internal Financial Controls' (IFC) means the policies and procedures adopted by the Company for ensuring:
(a) Â Â Â orderly and efficient conduct of its business, including adherence to company's policies,
(b) Â Â Â safeguarding of its assets,
(c) Â Â Â prevention and detection of frauds and errors,
(d) Â Â Â accuracy and completeness of the accounting records, and
(e) Â Â Â timely preparation of reliable financial information.
The three key components of IFC followed by the Company are:
i. Â Â Â Entity Level controls (ELC) that the Management relies on to establish the appropriate "tone at top" relative to financial reporting are - Code of Conduct, Enforcement of Delegation of Authority, Hiring and Retention practices, Whistle blower mechanism and other approved policies and procedures.
ii. Â Â Â Process Level controls (PLC), to ensure that processes are predictable, stable and consistently operating at the targeted level of performance, with only a normal variation are classified into Manual or IT - Dependent or Automated Controls. They are also classified as Preventive or Detective.
iii. Â Â Â General IT Controls to ensure appropriate functioning of IT applications and systems built by the Company to enable accurate and timely processing of financial data are - User Access rights management and Logical access; Change management controls; Password policies and practices; Patch management and License management; Backup and Recovery of data.
The adequacy of Internal Financial Controls is ensured by:
- Documentation of the risks and controls associated with the major processes;
- Â Â Â Validation and classification of existing controls to mitigate risks;
- Â Â Â Identification of improvements and upgrades to the controls;
- Â Â Â Improving the effectiveness of controls on residuary risks through data analytics;
- Â Â Â Performing testing of controls by the independent Internal Audit;
- Â Â Â Implementation of sustainable solutions to Audit observations.
The Audit Committee periodically reviews Internal Financial Controls to ensure that they are adequate and operating effectively.
HUMAN RESOURCES
The Company's HR Management goes beyond the set boundaries of compensation, performance reviews and development. It encompasses multiple factors such as the external environmental changes impacting business, risks that could arise from political, cost or legal angles, the employee's entire work-life cycle, business continuity etc. and then ensure timely interventions that build long-lasting capabilities to sustain and grow. With this goal in mind, the year 2018-19 saw several interventions in the HR space.
Employee Engagement
Employee engagement feedback from the survey completed in 2017-18 were analysed and published last year, seeing an upswing from the previous survey done 3 years ago. The organisation score increased overall by 9% and all SBUs had a positive increase as well. Besides publication of the results so that all employees are aware of the scores, Focus Group Discussions were also held to probe on low scoring areas and invite employees to contribute their ideas and concerns.
As an actionable in Employee Engagement, a Rewards and Recognition portal was launched during the year and popularised amongst employees. The portal has many different categories, a clear nomination process that brings greater transparency and award points that are recorded instantaneously and also enables employee to choose the award of his/her choice. The awards are also published on the portal and awardees felicitated, creating a buzz online.
Innovation
CUMind - a customised Innovation framework, based on the Design Thinking methodology was launched in 2017-18. During the year, a customised innovation HUB has been inaugurated as a physical space at the Sriperumbudur facility. Built out of recycled shipping containers, this unique space is being used for design thinking workshops, brainstorming sessions etc. and has many creative tool kits and other paraphernalia to aid the innovation process. Fifteen DOT workshops have been conducted to seed the design thinking methodology across cross-functional teams and specific functions. Six projects have been taken up post these workshops on development of breakthrough products, process and improvements.
Capability Building
A mentoring initiative was launched across CUMI titled Catalyst. This program aims at building a strong base of mentors across the organisation who are accessible on demand by the lower and middle levels of management. The mentorship covers a wide scope from personal development to career transitions. Mentors who have volunteered for this initiative underwent a workshop training on the basics of Mentoring from an external facilitator. This is a flexible self-directed program and employees can directly sign up to be mentored by any of the 29 mentor-volunteers, for any duration of time, without the intervention by HR.
The graduates of the CLP program completed last year, have progressed on their career road map as envisioned in their original Individual Development Plans and will be a good leadership pipeline for the future. Six Sigma training has been rolled out across Industrial Ceramics and the Abrasives SBUs to improve and strengthen process capabilities and efficiencies. 41employees have achieved Green Belt status and teams formed from this group have taken up business critical projects to be completed in 2019-20.
Learning &Â Development
Continuing the 5 Pillar approach to training that was launched last year, a variety of learning and development programs took place over the year. These five pillars are categorized as - needs based on the PMS system, training to manage a specific business requirement, execution excellence, skill-based training and innovation. The yearly training calendar has progressed as per plan with 85% completion and 2567 man days of training imparted.
Sales training has been a key focus area in the past year. The topics spanned sales funnel management, customer centricity and negotiation skills. The past year has also seen the launch of the SHAPE (Sales HR for Abrasives Performance and Engagement), a development initiative for the Abrasives Sales team. SHAPE aims to help sales teams become more nimble, efficient and flexible in their approach to customer needs, capability development and increased engagement. To begin with,
11 key competencies have been identified for the sales teams and defined along with proficiency levels grade and role-wise. In the coming year, these competencies will be assessed through a customised online tool and individual development plans will be framed.
'Super Appu' workshops have continued as per plan for the supervisory staff at the plants with 80 enrolments, of which 62 are now eligible for the final phase in 2019 based on attendance requirements. YOLO workshops for Management and Graduate Trainees were conducted as usual. Two senior leaders from the Company, who were selected for the Murugappa Leadership Program (MLP) at the Group level in association with IIM (A), have successfully completed course and graduated with flying colours.
The Four Disciplines of Execution by Franklin Covey which was launched to improve sales process at the Abrasives Marketing in 2017-18, has crossed several milestones now. The XPS index is at 3.2 and the tracking of lead indicators has brought greater robustness and discipline in all sales processes such as meeting customers, reporting, trouble shooting etc. E-learning has seen the use of Thors training on a large scale by the technical workforce across the organisation and the use of Globe smart (an online learning portal that offers cultural information to aid business etiquettes across different countries) by the Exports teams.
Talent Acquisition
Recruiting efforts have been focussed on strengthening R&D and innovation functions with the hiring of Ph.Ds across all the divisions. These specialists in material sciences will be working on projects and new product developments, towards new IP registrations including patents.
Career and Performance
The Career Progression Framework continues to be actively endorsed to employees as a means of enriching their career through cross-functional roles and a variety of work experiences. This has encouraged more employees to apply for transfers and movements across the organisation. Promotion assessments in line with this framework, are also conducted during appraisals so that both the role holder and the job are assessed on their suitability, to the worklevel in the hierarchy. The five qualitative assessment parameters continue to be used as a measure of providing insight to all AGMs and above on their People leadership, Execution Excellence, Process Excellence, Customer Centricity and Innovation.
Employee Relations
Long Term Settlement with employees have been completed at the Hosur Bonded Abrasives unit, Eastern Abrasives unit in Kolkata and Plant - II of the Electrominerals Unit at Edapally, Kerala. Cordial relationships have been maintained with employees and unions and the settlements have all brought in great flexibility in operations and high standards of productivity, involving TPM implementation as well.
Reimagining HR
Recognising that the Company has a large population of millennials now, which will increase in the coming years, their career aspirations and needs have been captured through surveys to better understand and manage this segment of the employee population. The HR team is also undertaking an exercise on "Reimagining HR" to develop a road map and strategic framework on HR for the years 2019 and 2020 that will tailor many key HR processes to suit the changing generation and work needs of the future. As a part of this, five key focus areas have been identified, namely - HR Structure &Â Effectiveness, Capability building for organisation, Performance Management, Employee Relations and Safe working environment.
Strategy
To build a greater strategic orientation to manage in the ever-changing business landscape, a workshop was organised for the Leadership team on the "Play to Win" framework. Using this framework, the team went on to formulate the business plans for CUMI 2025.
Safety and Health
The implementation of TPM methodologies has helped build better safety orientation and robust safety practices. Near-misses are closely monitored and reviewed at all units, with action taken to ensure the incident does not repeat. A Safety Excellence Model is being introduced this year at Group Level.
In the previous year, the Electrominerals Division has also received a Safety award from the Government of Kerala for excellence in Safety Practices.
ACHIEVEMENTS AND AWARDS
The year 2018-19 continued to be a year of recognition for the Company in varied fields.
As stated earlier, the Industrial Ceramics division, Hosur received the Gold Certificate of Merit in Manufacturing Excellence instituted by Frost &Â Sullivan. The Company's commitment to provide transparent and detailed disclosures in its Annual Report was felicitated by conferment of the Silver Shield under Category VIII - Manufacturing by the Institute of Chartered Accountants of India Awards for Excellence in Financial Reporting for the year 2017-18. The Company's non-woven product received the Golden Peacock Award for Innovative product for the year 2018 instituted by the Institute of Directors. The Company also received an award for Most Innovative Learning &Â Development practices from the Indian Society of Training and Development (ISTD) in the Private Sector category.
The Electrominerals division has been recognised as "Best Employer Brand" of Kerala State by the World HRD Congress. The Company's Maniyar Hydel power plant received the Shresta Suraksha Puraskar for safety performance by the National Safety Council. The Company's initiative to create a booklet on CUMI's CSR activities along with their impact on communities and stakeholders received the Bronze award for Best CSR Publication from the Association of Business Communicators of India (ABCI).
The Company also stood first overall in the Pride of Murugappa Awards instituted by the Murugappa Group with the maximum number of winners across the 11 award categories viz., Finance, New Product Development, Maintenance &Â Tooling, Manufacturing &Â Services, Supply Chain Management, Marketing &Â Communications and Environment, Health, Safety. In the Murugappa Group Shine awards that celebrates role models of the Spirit of the Murugappa Group - 5 Lights, CUMI employees received awards in the Quality, Passion and Responsibility categories.
The total staff on rolls of the Company (including joint ventures and subsidiaries) as on 31st March 2019 was 5144 with 3407 employees in India (previous year 5074 with 3285 employees in India).
PERFORMANCE OF SUBSIDIARIES
Volzhsky Abrasive Works, Russia operated its Silicon Carbide plant to near capacity. Sales increased from RUB 5095 million to RUB 5860 million due to higher volumes in Silicon Carbide and uninterrupted production. Abrasives and Refractories sales grew compared to last year owing to introduction of new products and expanding target markets. On the profitability front, the entity registered a growth in profitability (after tax) from RUB 814 million to RUB 829 million.
Foskor Zirconia, South Africa recorded a sales of ZAR 215 million compared to ZAR 155 million last year. The entity's loss has increased from 33 million ZAR to a loss of 49 million ZAR. The adverse movement arose due to significant high input cost and lower sales volumes. Despite the increase in revenues, the loss level increased owing to high fixed costs. Considering that its liabilities have exceeded its assets, the subsidiary's Auditors' have in their report made an observation on material uncertainty relating to going concern. Hence, the Auditors of the Company have reproduced the same in their consolidated Audit Report without modifying their opinion. Considering the challenging business conditions in South Africa, the Board of Foskor Zirconia Pty Limited is reviewing the business for initiating suitable measures in due course.
In CUMI Australia, the business in Lined Equipment continued to be good. Sales grew from AUD 18.1 million to AUD 20.8 million. Profit after tax grew from AUD 2.1 million to AUD 2.3 million.
Sterling Abrasives had a sales of '901 million, compared to the last year's sales of Rs,803 million. Profit after tax increased from '91 million to '94 million. The user industry for this company is primarily the agro industry.
CUMI Abrasives and Ceramics Company, the Chinese subsidiary had a sales of CNY 21 million for the year, which is almost same at last year's level. The loss was CNY 1.7 million compared to loss of CNY 0.9 million last year mainly attributed by sale of aged inventories and the necessity to move to an alternate location.
The sales of CUMI America recorded a good growth of USD 9.3 million from USD 7.5 million driven mainly by the increase in sales of both Bonded Abrasives and Industrial Ceramics thereby reducing the loss levels. The loss was at USD 0.3 million in the current year as against USD 0.5 million loss in the previous year.
For CUMI Middle East, sales dropped from USD 3.2 million to USD 1.7 million. Profit for the year was at USD 0.002 million against a profit of USD 0.12 million during the previous year.
Southern Energy Development Corporation Limited (SEDCO), the gas based power generation subsidiary, recorded a sale of Rs,187 million as against Rs,239 million last year. The drop in revenue was due to adverse cyclone impact in the southern part of Tamil Nadu, because of which the production was disrupted for 3 months. Consequentially, profit after tax also dropped from Rs,51 million to Rs,19 million.
Net Access India, which provides IT facilities management and other allied services increased its sales from '401 million to '451 million. Profit after tax was at Rs,26.7 million for the year 2018-19, almost flat at last year's level of Rs,27.3 million owing to delay in project assignments.
CUMI International Limited, Cyprus recorded a revenue of USD 5.04 million representing mainly dividend income as against last year's income of USD 5.1 million.
CUMI Europe s.r.o, based out of Europe which is not in operation made a loss of CZK 0.2 million.
Performance of Associate and Joint Ventures are given in note no. 6A and 6B respectively of the consolidated financials. Consolidated
Financial Statements (incorporating the financial results of the Company, its subsidiaries and associate/joint ventures) have been provided in the Annual Report. Other than the associate/joint ventures referred in the Annual Report, there are no associate/joint venture companies within the meaning of Section 2(6) of the Companies Act, 2013. A statement containing the key financial highlights of each subsidiary, based on the financial statements prepared by them under applicable local regulations is also provided in the Annual Report.
ENTERPRISE VALUE ADDITION
The Company has been able to constantly add value, the summary of which is given below:
Particulars |
2018 - 19 |
2017 - 18 |
2016 - 17 |
2015 - 16 |
2014 - 15 |
Generation of Gross Value added |
5072 |
4550 |
3959 |
3789 |
3071 |
(Excludes exceptional income) |
 |  | |||
Breakup on Application of Value added |
 |  | |||
Payment to employees and directors |
1838 |
1760 |
1549 |
1429 |
1309 |
Payment to shareholders (on payment basis) |
520 |
330 |
189 |
377 |
235 |
Payment to Government |
946 |
732 |
543 |
564 |
374 |
Payment to Lender |
0 |
0 |
33 |
64 |
49 |
Towards replacement and expansion |
1768 |
1728 |
1645 |
1355 |
1104 |
 |
5072 |
4550 |
3959 |
3789 |
3071 |
- Â Â Â Gross value added is Revenue Less Expenditure (excluding depreciation + expenditure on employees &Â directors service + Long term interest)
- Â Â Â Payment to Government is Current tax+ Dividend distribution tax
- Â Â Â Towards replacement and expansion is Retained earnings + Depreciation + Deferred tax
RISKS, CONCERNS AND THREATS
The Company has constituted a Risk Management Committee aligned with the requirements of the Companies Act, 2013 and Listing Regulations. The details of the Committee and its terms of reference are set out in the Corporate Governance Report forming part of this Report.
The Company has a robust business risk management process to identify, evaluate and mitigate risks impacting business including those which may threaten the existence of the Company. This framework seeks to create transparency, minimise adverse impact on the business objectives and enhance the 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. The Company also has developed a structured risk management policy encompassing the risk management objectives, principles, process, responsibility for implementation, maintenance of risk registers, risk reporting framework etc. Risk management also forms an integral part of the Company's Business Plan.
The Company operates across various technology platforms and product verticals built over the years. Relative advantages and disadvantages of such technologies are studied and advances are tracked. Any new technology may impact the performance of the Company in the long run. The Company seeks to address these technology gaps through continuous benchmarking of the existing manufacturing processes with developments in the industry and in this connection has made arrangements with technical research institutions and technology consultants. The Company has been making investments in the next level of Industry 4.0 in select modules. Industry 4.0 is the current trend of automation and data exchange in manufacturing technologies.
The dependence on power and fuel is very high in the Company. On an average, the Company consumes nearly 210 million units of electricity in a year. This is partly met out of own generation from Maniyar plant. The entire production of power from Maniyar is utilised by the Electrominerals division. Apart from this, electricity is generated at our subsidiary company SEDCO and consumed at our locations. The rest of the requirement of electricity is managed by purchase from State Electricity Boards. Utilisation of power remains one of the key factors which can impact the profitability either favourably or adversely based on the changes in the power cost. Another major challenge is the non-availability of power in certain areas where the businesses have been setup. As a strategy, the Company looks for opportunities to create captive power generation plants mainly to mitigate the challenges. The Company also explores ways to procure power from open access at a competitive rate.
The cost increase and availability of fuel is another area of concern. On an average the Company consumes 1630 million litres of various fuels, mainly High Speed Diesel/Superior Kerosene Oil. Any increase in the cost of fuel impacts the profitability in an adverse manner since the petroleum products are extensively used for our firing process across locations. The Company is also pursuing projects and process re-engineering to reduce the risks involved in fuel pricing.
The Company uses various raw materials like Bauxite, Calcined Alumina, Zirconia sand, Raw Pet coke and Quartz, which has high price volatility. Any price increase will have significant adverse impact on the profitability of the business. Therefore the Company enters into annual contracts to cover volatality due to price fluctuations and also looks for alternative sources to mitigate the adverse effects of the price volatility.
The Company deals with multiple currencies and is thus exposed to exchange risk on account of adverse currency movements. Foreign Exchange risk in foreign denominated loans, imports and exports are mitigated by adopting a country-based forex policy, periodic monitoring and use of hedging instruments. Efforts are being taken to manage both exports and imports to ensure that at Company level, there is a natural hedging mechanism.
As a risk mitigation measure to address cyber security threat and in continuation of the IT security review plan, during the year, the Company included log management and vulnerability assessment with Security Information and Event Management (SIEM), a continuous monitoring process, to identify any surge/incident at the network and application systems. The security threat awareness is published and promoted periodically to create awareness among stakeholders on handling the risk proactively. The security process is included as an important step in the IT strategy of the Company. There is considerable amount of work undertaken on scoping of information specific to the role defined to prevent any data or information leak.
The Company's input materials are not commoditised and does not warrant for any specific hedging to be undertaken. With respect to output materials, adverse impact of changes in commodity prices on user industries could impact the sales which are mitigated by development of alternate products, establishing new range of applications etc. as detailed above. The other mitigation measures for dealing with increase in fuel costs, non-availability of raw materials etc. have been dealt separately in above paragraphs.
BUSINESS OUTLOOK AND OPPORTUNITIES
India's GDP growth was estimated to grow at the rate of 7.3 per cent for fiscal year 2018-19 as against 6.7 per cent in the previous year 2017-18. As per IMF forecast, the GDP growth in Indian economy is now estimated to grow at 7.3 per cent in 2020 and 7.5 per cent in 2021.
According to CII report, there are seven key drivers for India's economic growth in 2019-20, including GST, Insolvency and Bankruptcy Code, ease of doing business, agriculture, credit flow, oil price and infrastructure. The report also pointed out that India should continue to guard against the risks of higher oil prices by increasing domestic oil production, providing a special window for oil marketing companies to procure oil and stepping up diplomacy with the US to continue to secure purchase from Iran.
There is greater momentum for infrastructure CAPEX projects - Sagarmala Project, Bharatmala Project, Setu Bharatam Project, Gujarat - Gorakhpur Gas Pipeline, could create significant opportunities for the Company.
In Automobiles and Auto ancillary industry, analysts believe that the demand outlook for the sector will remain positive in 2019 due to healthy sales momentum in rural areas and pick-up in economic activity. In addition, the Government's efforts to improve farmers' incomes will increase the demand for tractors and two-wheelers. Commercial vehicles will witness a sustained increase in demand due to the Government's thrust on infrastructure activities.
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 Deposits) Rules, 2014 and no amount of principal or interest was 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
Description |
As on 31.03.2018 |
Movement (Net of Deletions) |
As on 31.03.2019 |
Loans given by the Company |
â |
â |
- |
Corporate guarantee given by the Company |
1726.64 |
58.34* |
1784.98 |
Investments made by the Company |
2568.57 |
(57.11)** |
2511.46 |
*Due to Exchange difference **On account of fair valuation
Current Investments: Investment in mutual funds as on 31.03.2019 was '935.65 million.
RELATED PARTY TRANSACTIONS
The Company as per the requirements of the Companies Act, 2013 and Regulation 23 of the Listing Regulations has a Policy for dealing with Related Parties.
In line with its stated policy, all Related Party transactions are placed before the Audit Committee for review and approval. Prior approval of the Committee is obtained on a quarterly basis for transactions which are of foreseen and repetitive nature. Omnibus approvals in respect of transactions cannot be foreseen or envisaged are also obtained as permitted under the applicable laws. The list of Related Parties is reviewed and updated periodically as per the prevailing regulatory conditions.
The details of transactions proposed to be entered into with Related Parties are placed before the Audit Committee for approval on an annual basis before the commencement of the financial year. Thereafter, a statement containing the nature and value of the transactions entered into by the Company with Related Parties is presented for quarterly review by the Committee. Further, revised estimates or changes, if any to the proposed transactions for the remaining period are also placed for approval of the Committee on a quarterly basis. Besides, the Related Party transactions entered during the year are also reviewed by the Board on an annual basis.
All transactions with Related Parties entered during the financial year were in the ordinary course of business and on an arm's length basis and hence not requiring particulars to be entered in the Form AOC-2. Further, all transactions entered into with Related Parties during the year even at arms' length basis in the ordinary course did not exceed the thresholds prescribed under the Companies (Meetings of Board and its Powers) Rules, 2014 or Listing Regulations or the Company's Policy in this regard and hence no disclosure was required to be made in Form AOC-2. Accordingly, 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.
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.
The Company's policy on dealing with Related Parties as approved by the Board is available on the Company's website in the following link https://www.cumi-murugappa.com/policies.html. During the year, in line with the regulatory changes in the Listing Regulations, the policy on dealing with Related Parties was amended and approved by the Board. None of the Directors and KMPs had any pecuniary relationship or transaction with the Company other than those relating to remuneration in their capacity as Directors/Executives and corporate action entitlements in their capacity as shareholders of the Company.
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 in line with its stated CSR policy.
The Company set up the CUMI Centre for Skill Development (CCSD) in the year 2012 at Hosur, to build a skill bank of a technically competent and industry ready work force from the less privileged sections of the society. During the FY 2015-16, the Company replicated this model in Edapally, Cochin. CCSD provides specialised training based on National Council on Vocational Training syllabus for the rural youth drawn from socially and underprivileged sections of the society. Three year training is imparted with a stipendiary payment and free boarding facilities, thus enabling the enrolled students to earn while they learn. The job oriented skill training enhances their employability and aids in uplifting their socioeconomic status. The technically trained students can be employed by any industrial entity once they complete the training programme. The Company continues to harness the potential of CCSD centres so far established. During the year, 120 students from the CCSD, Hosur and Kochi passed with flying colours and graduated from the
Centre. The Company takes pride in informing that few students have earned accolades at national/regional level for their par excellence performance in academic and technical areas. During the year, as part of its geographical expansion plans, the Company alongwith its joint venture - Murugappa Morgan Thermal Ceramics Limited has replicated this model in Ranipet, Tamil Nadu.
In addition to the CCSD, the Company has also been contributing to the cause of health and education by making grants to AMM Foundation. Further, during the year, grants were also made to Shri A M M Murugappa Chettiar Research Foundation (MCRC) for research in rural development.
AMM Foundation, an autonomous charitable trust, is engaged in philanthropic activities in the field of education and healthcare since 1953. The Company's focus areas for grants to implementing agencies continued to be in the education and health sector. The grant to AMM Foundation for the education sector was through contributions to Vellayan Chettiar Higher Secondary School, Tiruvottiyur (VCHSS) -which has been making a difference in the field of education for the past 50 years. The school runs with the vision - To provide Quality Education with good virtues, for the under privileged and marginalised communities around Tiruvottiyur. In addition to participating in the running expenditure of the school, the Company has also provided the students of the VCHSS a playground (football ground) developed with adequate facilities for excelling in sports.
With respect to healthcare, a grant to AMM foundation was made for establishing and operating a mobile health van at Uttarakhand in order to provide free primary healthcare at doorstep, diagnosis of diseases, if any through the mobile health lab, providing treatment through free medicines and creating awareness on the importance of healthcare in the nearby communities.
MCRC is a non-Governmental voluntary research organisation working on devices and technologies for rural application of eco-friendly technologies to combat pollution. MCRC is recognised by Department of Scientific and Industrial Research, Government of India as a Scientific and Industrial Research Organisation to conduct research in various areas and is approved by University of Madras, Chennai to offer Ph.D. programmes in the areas of Energy, Bioenergy and Biomass for rural development. During the year, a grant was made to MCRC for research and development on novel applications of medical textiles in rural India from natural sources. The thematic focus area of the project encompasses eradicating hunger, poverty and malnutrition, promoting preventive health care and ensuring environmental sustainability, ecological balance, protection of flora and fauna, conservation of natural resources and maintaining quality of soil, air and water.
The Company has a Hydel power plant in Maniyar, Kerala to meet the electricity requirements of its many facilities in Kerala. However, the incessant rains and resultant floods in Kerala during August 2018 caused disruption in the operations of the Hydel power plant. The Company contributed an amount of Rs,15 million to the Kerala Chief Minister's Distress Relief Fund to aid the rescue and rehabilitation efforts of the State. The Electrominerals team in Kerala was at the forefront of relief efforts, opening up the plant/its canteens for relief camps, collecting and distributing material to flood affected communities and aiding rescue efforts in heavily flooded areas. The energetic employees of the Company regardless of the personal suffering they were undergoing during the floods, quickly formed rescue teams and assisted in rehabilitation activities.
Similarly, when the operations of the gas based power plant in Nallur (operated by our subsidiary Southern Energy Development Corporation Limited) was also severely impacted due to the Gaja cyclone, the employees actively involved themselves in the revival and rehabilitation support to the neighbouring community.
Besides the above, the Company also actively pursued local community assistance programmes in and around its plant and office locations anchored by its employees. The Super Refractories division undertook a project titled "The Adolescent Girl Child Program" targeted at imparting education on Good Touch, Bad Touch, and menstrual hygiene for adolescent girls of villages in and around Vellore district. Till date, over 30 government schools and over 3000 students have participated in these programs conducted jointly with a facilitator from an NGO and Government Child Welfare Department. The Company's CSR policy is available on the Company's website at the following link https://www.cumi-murugappa.com/policies.html. The Annual report on the CSR activities in the prescribed format is annexed hereto as Annexure B and forms part of this Report.
BUSINESS RESPONSIBILITY REPORTING
The Company's ethical and responsible behaviour complements its corporate culture. Being a public listed company, the Company recognises that its accountability is not limited only to its shareholders from a financial perspective but also to the larger society in which it operates. During 2016-17, consequent to the mandatory reporting of its business responsibility initiatives under the Listing Regulations, the Company had formulated a consolidated Policy on Business Responsibility which lays down the broad principles guiding the Company in delivering its various responsibilities to its stakeholders. The Policy is intended to ensure that the Company adopts responsible business practices in the interest of the social set up and the environment so that it contributes beyond financial and operational performance. A copy of the Policy is available at https://www.cumi-murugappa.com/policies.html and the Business Responsibility Report for the year ended 31st March 2019 in terms of Regulation 34 of the Listing Regulations is annexed to this Report as Annexure C.
GOVERNANCE Board of Directors and Key Managerial Personnel
As at 31st March 2019, the Board of the Company comprised nine Directors of which majority (six) are independent. There were no changes in the Board composition during the year.
Mr. T L Palani Kumar, Mr. Sanjay Jayavarthanavelu and Mr. Aroon Raman who were appointed as Independent Directors at the Annual General Meeting (AGM) held on 1st August 2014 for a period of 5 years from the AGM date will hold office till close of business hours on 31st July 2019. Further, Mrs. Bharati Rao who was appointed as an
Independent director at the AGM held on 3rd August 2015 for a period of 4 years from the AGM date will hold office till close of business hours on 2nd August 2019. Mr. Palani Kumar and Mrs. Bharati Rao are not seeking re-appointment.
Considering their age and past tenure of association with the Company, Mr. Sanjay Jayavarthanavelu and Mr. Aroon Raman are eligible to seek re-appointment as Independent Directors of the Company and have expressed their willingness to seek re-appointment for a further term of five years subject to the approval of the shareholders vide special resolution at the ensuing Annual General Meeting. Further, considering that Mr. Sanjay Jayavarthanavelu and Mr. Aroon Raman satisfy the independence criteria laid down under the Act and the Listing Regulations, the Board has recommended their re-appointment as Independent Directors of the Company for a second term of 5 years commencing from the date of AGM to the shareholders. Notice in this regard under Section 160 has been received from a Member.
Mr. K Srinivasan was re-appointed as the Managing Director by the shareholders at the Annual General Meeting held on 31st July 2017 for a period of two years from 23rd November 2017 and would be retiring from the services of the Company with effect from close of business on 22nd November 2019. The Nomination and Remuneration Committee at its meeting held on 26th April 2019 recommended the appointment of Mr. N Ananthaseshan as an Additional Director and Managing Director (Designate) of the Company with effect from 26th April 2019 to succeed Mr. K Srinivasan as the Managing Director upon his retirement for 3 years commencing from 23rd November 2019. The Board based on the Committee's recommendation has appointed Mr. N Ananthaseshan as an Additional Director. He is also appointed as the Managing Director (Designate) with effect from 26th April 2019 subject to the approval of the shareholders. Mr. Ananthaseshan will hold office as an Additional Director only upto the date of the ensuing AGM and a resolution seeking his appointment as a Director is also placed for approval of the shareholders in addition to the proposal seeking approval for his appointment as Managing Director. A notice in this regard u/s 160 has been received from a Member.
Mr. M M Murugappan, retires by rotation at the forthcoming Annual General Meeting and being eligible has offered himself for re-appointment. A proposal for his re-appointment is included in the Notice convening the 65th Annual General Meeting for consideration and approval by the shareholders.
The Company has received declarations from all its Independent Directors confirming that they meet the criteria of independence prescribed both under the Companies Act, 2013 and the Listing Regulations.
During the year, the Board based on the recommendation of the Nomination and Remuneration Committee as well as the Audit Committee, appointed Mr. Jagannathan Chakravarthi Narasimhan as the Chief Financial Officer with effect from 3rd August 2018.
Mr. K Srinivasan, Managing Director, Mr. Jagannathan Chakravarthi Narasimhan, Chief Financial Officer and Ms. Rekha Surendhiran, Company Secretary are the Key Managerial Personnel of the Company as per Section 203 of the Companies Act, 2013.
Board Meetings
During the year, six Board Meetings were held, the details of which are given in the Corporate Governance Report.
Board Evaluation
Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its various Committees as per the evaluation framework adopted by the Board on the recommendation of the Nomination and Remuneration Committee. Structured assessment forms were used in the overall Board evaluation comprising various aspects of the Board's functioning in terms of structure, its meetings, strategy, governance and other dynamics of its functioning besides the financial reporting process, internal controls and risk management. The evaluation of the Committees was based on their terms of reference fixed by the Board besides the dynamics of their functioning in terms of meeting frequency, effectiveness of contribution etc.
Separate questionnaires were used to evaluate the performance of individual Directors on parameters such as their level of engagement and contribution, objective judgement etc. The Managing Director's evaluation was based on leadership qualities, strategic planning, communication, engagement with the Board etc.
The Chairman was also evaluated based on the key aspects of his role. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman, the Board as whole and the Non-Independent Directors was carried out by the Independent Directors at their separate meeting held during the year.
Policy on Appointment and Remuneration of Directors
Pursuant to Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee of the Board has formulated the criteria for Board nominations as well as the policy on remuneration for Directors and employees of the Company.
The criteria for Board nominations lays down the qualification norms in terms of personal traits, experience, background and standards for independence besides the positive attributes required for a person to be inducted into the Board of the Company. Criteria for induction into Senior Management positions have also been laid down.
The Remuneration policy provides the framework for remunerating the members of the Board, Key Managerial Personnel and other employees of the Company. This Policy is guided by the principles and objectives enumerated in Section 178(4) of the Companies Act, 2013 and reflects the remuneration philosophy and principles of the Murugappa Group to ensure reasonableness and sufficiency of remuneration to attract, retain and motivate competent resources, a clear relationship of remuneration to performance and a balance between rewarding short and long-term performance of the Company. The policy lays down broad guidelines for payment of remuneration to Executive and Non-Executive Directors within the limits approved by the shareholders. During the year, the Remuneration policy was reviewed in line with the Listing Regulations by the Board. Further details are available in the Corporate Governance Report.
The Board Nomination criteria and the Remuneration policy are available on the website of the Company at https://www.cumi-murugappa. com/policies.html.
Composition of Audit Committee
The Audit Committee of the Board comprises only Independent Directors. Mr. T L Palani Kumar is the Chairman and other members are Mr. Sanjay Jayavarthanavelu, Mrs. Bharati Rao and Mr. Sujjain S Talwar. During the year, five Audit Committee meetings were held, the details of which are provided in the Corporate Governance Report.
Statutory Auditors
In line with the requirements of the Companies Act, 2013, the Company with the approval of the shareholders at the Annual General Meeting held on 31st July 2017 appointed M/s. Price Waterhouse Chartered Accountants LLP (Reg. No. FRN 012754N/N500016) (PwC) as the Statutory Auditors of the Company to hold office from the conclusion of 63rd Annual General Meeting until the conclusion of the 68th Annual General Meeting subject to annual ratification by the shareholders at every AGM, if required under the relevant provisions of the Act at a remuneration to be decided by the Board based on the recommendation of the Audit Committee.
At the AGM held on 3rd August 2018, the Statutory Auditor's appointment at a remuneration of '42 lakhs plus out of pocket expenses in connection with the audit and applicable taxes was ratified by the shareholders for the FY 2018-19. However, as the Companies (Amendment) Act, 2017 has dispensed with the requirement of annual ratification of the Statutory Auditor's appointment, there is no requirement to seek an annual ratification of their appointment this year.
As required under Regulation 33 of the Listing Regulations, the Auditors have 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 M/s. Price Waterhouse Chartered Accountants LLP on the Financial Statements of the Company for the year ended 31st March 2019 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. During the year under review, the Auditors have not reported any matter under Section 143(12) of the Companies Act, 2013 and hence there are no details to be disclosed under Section 134(3)(ca) of the Act.
Cost Auditors
Pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 and amendments thereof, the Company is required to maintain cost accounting records in respect of products of the Company covered under CETA categories like Organic and Inorganic chemicals, Electrical or Electronic machinery,
Steel, Plastic and Polymers, Ores and Mineral products, other Machinery, Base Metals etc. Further, the cost accounting records maintained by the Company are required to be audited.
The Board, on the recommendation of the Audit Committee, had appointed M/s. S Mahadevan &Â Co. (firm no. 000007), Cost Accountants, Chennai to audit the cost accounting records maintained by the Company under the said Rules for the FY 2018-19 on a remuneration of '400,000/-. Further, the said firm has also been appointed by the Board to conduct the cost audit for the FY 2019-20 on a revised remuneration of '4,50,000/-.
The Companies Act, 2013 mandates that the remuneration payable to the Cost Auditor is ratified by the shareholders. Accordingly, a resolution seeking the shareholders' ratification of the remuneration payable to the Cost Auditor for the FY 2019-20 is included in the Notice convening the 65th Annual General Meeting.
Secretarial Audit
M/s. R Sridharan &Â Associates, Practising Company Secretaries, Chennai was appointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company for the FY 2018-19. The report of the Secretarial Auditor is annexed to and forms part of this Report (refer Annexure F). There are no qualifications, reservations, adverse remarks or disclaimers given by the Secretarial Auditor in the Report.
In terms of Regulation 24A of the Listing Regulations, there is no material unlisted subsidiary incorporated in India. Material unlisted subsidiary for the purpose of this Regulation is a subsidiary whose income/net worth exceeds 10% of the consolidated income/net worth respectively of the Company and its subsidiaries in the immediately preceding accounting year. Hence, there is no requirement for a Secretarial audit to be conducted for any of the Company's subsidiaries in India.
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 periodically updated based on the regulatory changes.
Corporate Governance
In terms of Regulation 34(3) read with Schedule V of the Listing Regulations, a separate section on Corporate Governance including the certificate from a Practising Company Secretary confirming compliance is annexed to and forms an integral part of this Report.
CEO/CFO Certificate
Mr. K Srinivasan, Managing Director and Mr. Jagannathan Chakravarthi Narasimhan, Chief Financial Officer have submitted a certificate to the Board on the integrity of the Financial Statements and other matters as required under Regulation 17(8) of the Listing Regulations.
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 confirms that:
- Â Â Â in the preparation of the annual accounts, for the financial year ended 31st March 2019, applicable accounting standards have been followed and no material departures have been made from the same;
- Â Â Â the accounting policies mentioned in Note 3 of the Notes to the Financial Statements have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;
- Â Â Â 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;
- Â Â Â the annual accounts have been prepared on a going concern basis;
- Â Â Â 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;
- Â Â Â 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) and a web link of the Annual Return in Form MGT-7 is provided in www.cumi. murugappa.com.
SECRETARIAL STANDARDS
The Company is in compliance with the Secretarial Standards on Meetings of the Board of Directors (SS-1) and Secretarial Standards on General Meetings (SS- 2).
ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS &Â OUTGO
The information on Energy Conservation, Technology Absorption, Expenditure incurred on Research &Â Development and forex earnings/ outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is annexed to and forms part of this Report (refer Annexure D).
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 and its future operations.
PARTICULARS OF EMPLOYEES
The information on employees and other details required to be disclosed under Rule 5 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 is annexed to and forms part of this Report (refer Annexure A).
Under the Company's Employee Stock Option Scheme 2007, no Option grants have been made since February 2012. The Employee Stock Option Plan 2016 (ESOP 2016) was implemented in February 2017 with the approval of the shareholders and currently governs the grant of Options to employees. During the year 2018-19, a grant of 156,750 options was made to eligible employees. The disclosures with respect to Options granted under the ESOP 2007 and ESOP 2016 are contained in the Corporate Governance Report. Further, the disclosures relating to Stock Options as per Securities and Exchange Board of India (Share based Employees Benefits) Regulations, 2014 read with the circular issued by SEBI on 16th June 2015 has been provided on the Company's website and is available in the link https://www.cumi-murugappa.com/policies.html. Both the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014.
ACKNOWLEDGEMENT
The Board gratefully acknowledges the co-operation received from various stakeholders of the Company viz., customers, investors, channel partners, suppliers, government authorities, banks and other business associates during the year. The Board also places on record its sincere appreciation of all the employees of the Company for their commitment and continued contribution to the Company.
                                                               On behalf of the Board
Chennai                                                    m M Murugappan
April 26, 2019 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Chairman
Â
Mar 31, 2018
The Directors have the pleasure in presenting the 64th Annual Report together with the Audited Financial Statements for the year ended 31st March 2018. The Management Discussion & Analysis Report which is required to be furnished as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as the Listing Regulations) has been included in the Directorsâ Report so as to avoid duplication and overlap.
ECONOMIC OVERVIEW & COMPANY PERFORMANCE
Economic Overview
The global economic growth strengthened in 2017 led by investment recovery, rebound in manufacturing & trade and an upswing in commodity prices. The momentum was driven by continued strong growth in emerging Asia, resurgence in European economy, tax cuts in the United States and improved spending in advanced economies. Stock market boom, bitcoin bubble, higher trade indices, low fear factor, rising Eurozone GDP and protectionist measures by certain developed economies defined the year 2017.
As per International Monetary Fund, the global economy grew at 3.8 per cent. The growth was broad-based and almost 75 per cent of the countries registered a growth. Even more important was the fact that some of the countries that had high unemployment, such as many in the Euro area participated in the growth surge and experienced strong employment growth. Wage growth however remained tepid in advanced economies despite falling unemployment rates. A lower wage growth led to controlled inflation which had a positive impact on the financial markets.
Some of the larger emerging market economies, such as Argentina, Brazil and Russia came out of recession. China managed to maintain its rate of expansion, dispelling fears over a potential sharp slowdown as it continues to mature after decades of rapid growth. Metal and fuel prices were supported by stronger momentum in global demand as well as supply constraints in the energy sector, including hurricane-related stoppages in the United States, financial disruptions in Venezuela and security problems in the regions of Iraq. Equity valuations for major capital markets continued their ascent to register record highs as central banks maintained accommodative monetary policy amidst a moderate inflation. An improved economic outlook and an increased risk appetite boosted asset prices and suppressed volatility.
In India, the pace of key structural initiatives continued in 2017-18. The Real Estate (Regulation and Development) Act, 2016 provisions came into effect from 1st May 2017. The Goods and Services Tax (GST) regime came into effect from 1st July 2017. As per Asian Development Bank, Indiaâs GDP growth in FY 2017 was at 6.6% compared to 7.1% in FY 2016. The reduction in growth was driven by lingering effects of demonetisation which impacted the informal sector in the first half of FY 2016-17 and the teething issues related to implementation of the GST which hampered operations of small and medium-sized enterprises and exporters for major part of the year. Despite these short-term costs, the benefits of reforms coupled with Governmentâs steps to improve the ease of doing business and kick starting capital investments by way of infrastructure development projects are likely to bolster growth in the current year and future. The signs of pick up in the economy can be witnessed from the improvement in indicators of industrial production and automobile sales in later part of the year 2017. The biggest challenges for 2018 would be rising oil prices, increasing inflationary pressures, tighter financial conditions and higher fiscal deficit. The key to this conundrum lies in the revival of consumer demand and private investment.
Company Performance Revenues
During the year, the standalone business grew by 5 per cent and the consolidated revenues by 7 per cent driven by better performance of all the businesses. The growth is not comparable to previous yearâs growth since in the year 2016-17, excise duty was included in revenue for the full year, whereas for the FY 2017-18 excise duty is included only for the first quarter period. On a comparable basis without considering excise duty, standalone and consolidated sales both grew by 12 per cent.
The following table summarises the standalone and consolidated revenues - both segment and geography wise:
Rs. million
2017-18 |
2016-17 |
Growth |
|||
% share |
Amount |
% share |
Amount |
% |
|
Standalone |
|||||
Abrasives |
55 |
8636 |
57 |
8592 |
1 |
Ceramics |
26 |
4056 |
26 |
3899 |
4 |
Electrominerals |
26 |
4107 |
23 |
3396 |
21 |
Eliminations |
(6) |
(1025) |
(6) |
(918) |
12 |
Total |
100 |
15774 |
100 |
14969 |
5 |
India |
77 |
12201 |
79 |
11832 |
3 |
Rest of the world |
23 |
3573 |
21 |
3136 |
14 |
Total |
100 |
15774 |
100 |
14969 |
5 |
Consolidated |
|||||
Abrasives |
44 |
10363 |
46 |
10163 |
2 |
Ceramics |
21 |
5068 |
21 |
4724 |
7 |
Electrominerals |
38 |
8887 |
35 |
7694 |
16 |
Power |
1 |
239 |
1 |
265 |
(10) |
IT Services |
2 |
401 |
2 |
394 |
2 |
Eliminations |
(6) |
(1379) |
(6) |
(1241) |
11 |
Total |
100 |
23579 |
100 |
21999 |
7 |
India |
55 |
13048 |
58 |
12669 |
3 |
Rest of the world |
45 |
10531 |
42 |
9330 |
13 |
Total |
100 |
23579 |
100 |
21999 |
7 |
Demand expansion from user industries, inflation of metal and commodity prices, introduction of new products and focus on newer markets resulted in a better top line growth.
The Companyâs consolidated revenues from India increased by 3 per cent and from rest of the world increased by 13 per cent. At a consolidated level, Abrasives sales grew by 2 per cent, Ceramics sales grew by 7 per cent and the Electrominerals segment grew by 16 per cent.
As detailed earlier, the growth over previous year is not comparable considering the change in inclusion of excise duty in revenues.
On a comparable basis, the Companyâs consolidated revenues from India increased by 11 per cent and from rest of the world increased by 13 per cent. At a consolidated level, Abrasives sales grew by 9 per cent, Ceramics sales grew by 11 per cent and the Electrominerals segment grew by 18 per cent.
Manufacturing
The manufacturing team played a key role, helping the Company in the growth momentum through effective production planning and order execution. The plants in India operated at about 70 per cent capacity utilisation levels. Some product segments like Coated Abrasives continued to run at near full capacity. Continuing implementation of Total Productive Maintenance (TPM) at shop floors lead to improvement in efficiency of machines and the entire production process. Two plants of the Company at Hosur were awarded TPM excellence award and the Plants at Sriperumbudur and Maraimalai Nagar were conferred the higher level TPM consistency Award by Japan Institute of Plant Maintenance (JIPM).
Capital expenditure during the year across all geographies was majorly in the nature of quality enhancement, line balancing and general infrastructure.
Earnings & Profitability
The Companyâs standalone financial results are summarised in the table below:
Rs. million
As a % of Gross Sales |
2017-18 |
As a % of Gross Sales |
2016-17 |
Increase % |
||
Gross Sales |
15774 |
14969 |
|
|||
Other Operating Income |
249 |
229 |
|
|||
Revenue from Operations |
16023 |
15198 |
|
|||
Other Income |
310 |
343 |
|
|||
Total Income |
16333 |
15541 |
|
|||
Expenses |
|
|
||||
Cost of material Consumed |
37 |
5796 |
34 |
5121 |
13 |
|
Purchase of stock in trade |
4 |
709 |
5 |
818 |
(13) |
|
Movement of Inventory |
1 |
138 |
0 |
12 |
1050 |
|
Excise Duty on sale of goods |
2 |
260 |
8 |
1141 |
(77) |
|
Employee benefits expense |
11 |
1742 |
10 |
1533 |
14 |
|
Finance Cost |
0 |
15 |
1 |
88 |
(83) |
|
Depreciation and amortisation |
5 |
739 |
4 |
669 |
10 |
|
Other expenses |
31 |
4882 |
30 |
4452 |
10 |
|
Total Expenses |
91 |
14281 |
92 |
13834 |
3 |
|
Profit before tax |
13 |
2052 |
11 |
1707 |
20 |
|
Profit after tax |
9 |
1435 |
8 |
1218 |
18 |
|
Total Comprehensive Income |
9 |
1465 |
8 |
1138 |
29 |
|
Aided by the growth in revenues, standalone profit before tax improved to Rs.2052 million from Rs.1707 million in the previous year.
The Company uses a variety of raw materials for its products - Bonds, Yarn, Grains, Calcined Alumina, Tabular Alumina, Mullite, Pet Coke, Bauxite, Zircon Sand amongst others. The sourcing is a prudent mix of indigenous and imported materials. Aided by judicious sourcing and optimising throughput in production, material consumption improved during the year.
Other expenses increased from Rs.4452 million in preceding year to Rs.4882 million in the current year. The increase reflects the volume growth, cost increases and investment in preparing the organisation for the expansion programmes being undertaken.
Power and fuel cost also increased during the current year. Captive power generation from the Companyâs Hydel power unit in Maniyar continued to be lower this year due to inadequate rainfall. The power consumption was also higher in line with the higher volumes produced compared to the previous year. Employee benefits expense increased by 14 per cent during the year, which is a combination of both increase in head count and salary.
The overall employee cost was at 11 per cent of the revenues. The revenues of last year had excise duty for the entire year where as the revenues for this year had excise duty for the first three months on account of implementation of GST with effect from 1st July 2017. Hence the employee cost as a percentage of the revenues is not directly comparable.
Profit before interest and tax margin expanded at all the divisions owing to higher sales and better operating leverage.
Finance costs were at Rs.15 million compared to Rs.88 million in the previous year. Profit after tax of Rs.1435 million was higher compared to that of the previous year Rs.1218 million. Total Comprehensive Income increased from Rs.1138 million to Rs.1465 million.
The consolidated profit before tax (before share of profit from associates and joint ventures) entity-wise is represented below:
Rs. million
2017-18 |
2016-17 |
|
CUMI Standalone |
2052 |
1707 |
Subsidiaries including step down subsidiaries: |
||
Indian |
||
Net Access India Limited |
37 |
35 |
Southern Energy Development Corporation Limited |
71 |
90 |
Sterling Abrasives Limited |
134 |
101 |
Foreign |
||
CUMI (Australia) Pty Limited |
152 |
143 |
CUMI International Limited |
284 |
240 |
Volzhsky Abrasives Works |
1187 |
784 |
Foskor Zirconia Pty Limited |
(162) |
(19) |
CUMI America Inc. |
(33) |
(98) |
CUMI Middle East FZE |
8 |
5 |
CUMI Abrasives & Ceramics Company Limited |
(9) |
1 |
Thukela Refractories Isithebe Pty Limited |
(0) |
(2) |
CUMI Europe s.r.o. (8) 1 |
||
Total of Subsidiaries |
1661 |
1281 |
Inter Company Eliminations |
(643) |
(560) |
Consolidated Profit before tax |
3070 |
2428 |
Consolidated Profit after tax attributable to owners |
2156 |
1749 |
On a consolidated basis, the profit before tax (before share of profit from associates and joint ventures) increased from Rs.2428 million to Rs.3070 million. Profit after tax and non-controlling interests was Rs.2156 million (previous year Rs.1749 million).
The performance of the subsidiaries is detailed separately in this Report. Segmental profitability improved across all segments owing to higher volume, selective price increase mitigating the cost push and efficient cost management.
Financial Position
An overview of the Companyâs financial position - on a Standalone and Consolidated basis is given below:
Rs. million
Financial position |
Standalone |
Consolidated |
||||
31.03.2018 |
31.03.2017 |
% change |
31.03.2018 |
31.03.2017 |
% change |
|
Net Fixed assets (including goodwill) |
4474 |
4595 |
(3) |
7659 |
7774 |
(1) |
Investments - Non current |
2569 |
2541 |
1 |
1232 |
1195 |
3 |
Other assets: |
||||||
- Inventories |
2604 |
2268 |
15 |
4380 |
3867 |
13 |
- Trade receivables |
3267 |
2563 |
27 |
4751 |
3806 |
25 |
- Cash and cash equivalents |
740 |
67 |
1004 |
1847 |
1298 |
42 |
- Other assets |
705 |
939 |
(25) |
1116 |
1282 |
(13) |
Total assets |
14359 |
12973 |
11 |
20985 |
19222 |
9 |
Liabilities (Other than loans) |
2644 |
2397 |
10 |
3432 |
3178 |
8 |
Net assets |
11715 |
10576 |
11 |
17553 |
16044 |
9 |
Sources of funding: |
||||||
Total equity attributable to owner |
11697 |
10550 |
11 |
15644 |
13828 |
13 |
Non - Controlling interest |
615 |
657 |
(6) |
|||
Loan outstanding: |
||||||
- Long term borrowings |
11 |
18 |
(40) |
66 |
67 |
(1) |
- Payable within one year |
7 |
8 |
(9) |
46 |
68 |
(33) |
- Short term borrowings |
- |
- |
1182 |
1424 |
(17) |
|
Total loans |
18 |
26 |
(31) |
1294 |
1559 |
(17) |
11715 |
10576 |
11 |
17553 |
16044 |
9 |
|
Loans (net of cash and cash equivalents) |
(722) |
(41) |
1659 |
(553) |
261 |
(311) |
On a consolidated basis, the total equity attributable to owners as on 31st March 2018 was Rs.15644 million. There was an increase (net of dividend) to the extent of Rs.1816 million. Non-controlling interest was at Rs.615 million.
Liabilities (other than loans) was Rs.3432 million. The loan outstandings reduced from Rs.1559 million to Rs.1294 million. Net fixed assets (including goodwill) decreased from Rs.7774 million in the last year to Rs.7659 million during the current FY 2017-18.
Cash Flow
The Companyâs cash flow generation is healthy. The following table summarises the Companyâs consolidated and standalone cash flows for the current and previous years:
Rs. million
Cash flow |
Standalone |
Consolidated |
||
2017-18 |
2016-17 |
2017-18 |
2016-17 |
|
Cash flow from Operations |
2001 |
2284 |
3238 |
3741 |
Taxes paid |
(685) |
(515) |
(1109) |
(788) |
Cash flow from operating activities |
1316 |
1769 |
2129 |
2953 |
Capital Expenditure (Net of disposal) |
(577) |
(750) |
(920) |
(1061) |
Cash flow from other investing activities |
290 |
293 |
172 |
248 |
Cash flow from investing activities |
(287) |
(457) |
(748) |
(813) |
Cash flow from financing activities |
(356) |
(1329) |
(832) |
(2071) |
Net Increase/(Decrease) in Cash & Cash equivalents |
673 |
(17) |
549 |
69 |
Net Cash and Cash equivalents at the beginning of the year |
67 |
84 |
1298 |
1136 |
Effect of exchange rate changes on the balances of cash and cash equivalents held in foreign currencies |
- |
- |
0 |
93 |
Cash and Cash equivalents at the end of the year |
740 |
67 |
1847 |
1298 |
On a standalone basis, net cash generation from operations was Rs.1316 million in FY 2017-18 compared to previous yearâs Rs.1769 million.
Net cash outflow on account of investing activities was Rs.287 million majorly towards addition of property, plant and equipment. Net cash outflow on account of financing activities was Rs.356 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs.673 million against a decrease of Rs.17 million in FY 2016-17.
On a consolidated basis, net cash generation from operations was Rs.2129 million in FY 2017-18. Net cash outflow on account of investing activities was Rs.748 million. Net cash outflow on account of financing activities was Rs.832 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs.549 million against an increase of Rs.69 million in FY 2016-17.
SHARE CAPITAL
The paid up equity share capital as on 31st March 2018 was Rs.188.96 million. The capital increased during the year by Rs.0.30 million, consequent to allotment of shares upon exercise of Stock Options by employees under the Companyâs Employee Stock Option Scheme, 2007 and Employee Stock Option Plan 2016.
DIVIDEND
Considering the past dividend payout ratio and the current yearâs operating profit, the Board has considered it appropriate to recommend a final dividend of Rs.1.25/-per equity share of Rs.1/- each. It may be recalled that in February 2018, an interim dividend at the rate of Rs.1/- per equity share of Rs.1/- each was declared and paid. This aggregates to a total dividend of Rs.2.25/- per equity share of Rs.1/- each for the year, which is higher than the previous year. The Companyâs Dividend Policy is available at https://www.cumi-murugappa.com/policies.html. The dividend paid as well as being recommended for the year ended 31st March 2018 is in line with this policy.
TRANSFER TO RESERVES
An amount of Rs.500 million has been transferred to the General Reserve of the Company as at 31st March 2018.
PERFORMANCE OF BUSINESS SEGMENTS
The business profile, market developments and current year performance are elaborated in the following sections:
Abrasives
Business Profile
The business is into manufacture and sales of Abrasives. The key product segments are Bonded Abrasives, Coated Abrasives, Super Abrasives and allied products.
An Abrasive is a substance which grinds, cleans, scours, abrades or removes solid material by rubbing action or by impact. Abrasives are mineral like materials available in different shapes, sizes and types according to need. Abrasive materials and Abrasive products are utilised in several end user industries such as manufacture of Machinery, Electrical & Electronic equipment, Transportation and Metal fabrication among others.
The division has more than sixty years of experience in Abrasives manufacturing. The techno-commercial knowledge of the team and their wealth of experience has been the strength of the division in manufacturing world class products.
In order to match all international standards and to compete globally, the division sources its raw materials both from the Electrominerals division and from best suppliers across the world. These cost-effective manufacturing techniques and quality control systems form the core of the divisionâs objectives - best products and customer satisfaction at affordable prices.
The business is driven by a combination of manufacturing and marketing entities. There are ten manufacturing plants located in India, Russia and Thailand. The marketing entities in North America, Middle East, China and distributors across the globe enables the divisions to reach across geographies.
The Company caters to customers located around 55 plus countries through its network of manufacturing facilities and marketing establishments.
Industry Scenario
The global Abrasives market is segmented based on region. Asia Pacific represents the largest and the fastest growing market for the Abrasives industry and China is the largest producer of Abrasive materials and Abrasive products. The growing demand for various types of Abrasives from Transportation, Building & Construction and other durable goods industries is expected to drive the Asia Pacific Abrasives market. Growth in the United States - which holds the worldâs second largest national market for Abrasives, is expected to deliver good growth. The market is dominated by leading players operating across the globe.
In India, the Abrasives industry is catered to few leading players serving major portion of the Indian market. Imports are predominantly in the high and low end Abrasives. The Bonded Abrasives and the Coated Abrasives are important segments in the Indian scenario and contribute maximum in terms of revenues to this industry. The unorganised market is to the extent of thirty per cent of overall market. The implementation of Goods and Services Tax brought about an uniform regime for all players to compete in the market evenly. In the domestic Russian market, there are three major players. The Company is one of the major players in Vitrified Bonded Abrasives.
Sales Overview
The focus for the Abrasives business was to grow topline at better than the market growth rate with significantly better profitability. Accordingly, the Abrasives business on a standalone basis recorded a growth in revenues (without excise duty) from Rs.7866 million to Rs.8470 million with improvement in margins.
The year started with the announcement of the implementation of Goods and Service Tax. The business faced a challenging first quarter owing to significant reduction in order incoming from dealers consequent to migration to the new tax regime. The business subsequently improved. Restocking resumed and in the subsequent quarters, the order book improved significantly.
The Coated business continued to register good growth in the conventional products in domestic market. The growth came about by way of launch of new products, focus on technical products, strong brand recall and dealersâ readiness to invest in this product segment as well as quality consistency of the products. Coated Abrasives division is now at a stage where the market is growing and the demand for its products are good. These are largely driven by the consistent quality and availability. Both these attributes are direct outcomes of the TPM processes implemented and practised in the facilities at Maraimalai Nagar and Sriperumbudur which received the prestigious JIPM award for TPM consistency this year. The business during the year launched breakthrough products in this category. With the capacity running full, this would be expanded in the coming years.
Distribution leadership has been one of the strategic pillars for the Companyâs growth and the business has been making steady progress on this front. During the year, the business aggressively appointed new channel partners and expanded its dealer network both in India and abroad. Retail development and industrial storming initiatives were conducted for better market penetration. Introduction of newer industrial products were pursued during the year which were sold through industrial distribution chain.
The Abrasives sales in Russia was higher this year owing to introduction of new products and targeting newer territories. Sterling Abrasives which addresses the agriculture related applications delivered a good growth during the year.
Manufacturing
Manufacturing supported the marketing initiatives well in terms of timely delivery, product performance and consistency.
The key strategy over the years has been to increase the indigenous sourcing and lowering the gap between exports and imports to ensure sustainable profitability in the Abrasives business. Business continued to focus on pursuing dual strategy - firstly, of moving from traditional Brown to Semi-friables to gain significant competitive advantage; secondly, of offering superior Coated technical products with high performance Zirconia and Ceramic grains.
In order to cater to increased demand for Coated products, the division pursued contract manufacturing and as detailed above, the capacity would be augmented during this year.
The Company has adopted TPM not only as a tool but also as its strategic initiative and this has given it a competitive edge today. TPM is an organisation-wide strategy to increase the effectiveness of production environment, especially through methods of increasing the effectiveness of equipment. The TPM journey, which started in 2011 marked the beginning of an era of change. The Bonded Abrasives Plant in Hosur was conferred the JIPM award for TPM excellence in Category A this year.
In the mass market Thin wheel product category, the business has reorganised the production capacities across various plants to optimise production capacity, capability and market proximity. The Non-standard business was engaged in productivity improvement for customers with continued slew of new product launches.
The division worked on various research and development opportunities in the field of precision grinding, 3D printing, light metal grinding etc.
Considering the changing landscape of manufacturing technologies, the division would continue in its effort to build capabilities in newer fields and technologies.
CUMI Abrasives and Ceramics Company, China, which is now operational on a trading model has stabilised with the new business model.
Aided by buoyancy in revenues, cost reduction projects and others initiatives, the Abrasives business recorded an increase in standalone operating profits before interest and taxes at Rs.1225 million from Rs.1047 million last year. At a consolidated level, the profits grew from Rs.1133 million last year to Rs.1325 million this year.
Key Financial Summary Rs. million
Particulars |
Standalone |
Consolidated |
||||
2017-18 |
2016-17 |
Change (%) |
2017-18 |
2016-17 |
Change (%) |
|
Revenue (excluding excise duty) |
8470 |
7866 |
8 |
10184 |
9379 |
9 |
Segment results (PBIT) |
1225 |
1047 |
17 |
1325 |
1133 |
17 |
Capital employed |
3354 |
3122 |
7 |
5025 |
4629 |
9 |
Share to total revenue of CUMI (%) |
55 |
57 |
44 |
45 |
||
(without eliminations) |
||||||
Share to segment results (PBIT) of CUMI (%) |
59 |
58 |
42 |
43 |
Ceramics
Business Profile
The Ceramics business has three product groups viz., Industrial Ceramics, Super Refractories and Anti-corrosives.
Industrial Ceramics business offers Alumina and Zirconia products of technical ceramic grades addressing Wear protection, Electrical insulation, Thermal protection and Ballistic protection applications. The Super Refractories product group supplies Fired, Monolithic, Flow control products, POW Wellfiler and fibre as also Refractory design and installation services addressing the insulation and thermal resistance requirements of industries. The Refractory fibre, Refractory design and installation businesses are addressed through our joint ventures Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited. The Anti-corrosives product group offers Acid resistant bricks, Polymer concrete cells and various other products addressing the anti-corrosion requirements of industries.
The key user industries for Ceramics business are Power Generation and Transmission, Coal washeries, Grain handling, Sanitary tiles and Sanitary ware, Ballistic protection, Cement, Non-ferrous metals, Iron and Steel industries, Carbon black, Insulators, Furnace building, Glass, Petrochemicals and Construction.
The operations are carried out through ten manufacturing/service facilities located in India, Australia and Russia. The subsidiaries in North America, Middle East and China also support this business in getting an extended customer reach.
The Industrial Ceramics business based out of India is largely a global business and majority of the sales volumes are through exports. The Refractory business in India is predominantly a local business.
The Company is one of the major players in India, Australia and Russia in specific product groups.
Industry Scenario
There has been no significant change in the Ceramics industry structure in India, which is catered to by a few major players.
With the acquisition of manufacturing assets and customer database of NTK, Japan in FY 2015-16, the Company is now the second largest producer of Metallized Cylinders in the world. In the Wear Ceramics space, there are six major players globally - the Company is one of the reputed players in the world. In the Engineering Ceramics, there are around five players globally with the Company being relatively smaller in size.
In Australia, CUMI is one of the major players in the Lined Equipment and Mineral processing industry. There are about a dozen players in the industry, most of whom market products imported from China and USA.
Refractory industry in India is a highly fragmented market with a market size of around Rs.60 billion. The Companyâs product profile caters to the top end temperature range applications.
The Refractory industry in Russia is a highly fragmented market and Volzhsky Abrasives Works (VAW) caters primarily to the Aluminium industry in Russia.
Sales Overview
Revenues (excluding excise duty) of the Ceramics business grew by 9 per cent on a standalone basis from Rs.3688 million to Rs.4013 million.
Metallized Cylinders and Wear Ceramics products business continued the marketing efforts in targeting newer markets and partnering with global customers. Selective price increases were taken for majority of the products to mitigate cost push. Significant efforts in repair and maintenance of domestic Wear ceramics led to ceramic conversion of key equipment by customers in Steel and Cement Industry. The business established entry into Japanese markets through qualifications at OEMâs for supply of Ceramic lined bends. New products with backing materials were developed for addressing high impact applications. The business participated in Industry specific expos like Ceramitec, Powergen, Japan Fine Ceramics Expo, Hannover Messe, Fuel Cell Expo etc., to increase visibility, business development and for keeping abreast with the changing technology.
The Refractory business delivered good growth compared to the previous year. The divisionâs sales were driven by growth in Fired Refractories and Anti-corrosive segments. The business bagged Annual rate contracts from Steel and Cement players. This business is likely to benefit from the commodity upcycle and expansion of capacity in user industry viz., Steel, Cement, Carbon Black, Glass etc. In Russia, Nitride Bonded Silicon Carbide Refractories, registered growth in revenues.
Key Financial Summary
Rs. million
Particulars |
Standalone |
Consolidated |
||||
2017-18 |
2016-17 |
Change(%) |
2017-18 |
2016-17 |
Change (%) |
|
Revenue (excluding excise duty) |
4013 |
3688 |
9 |
5025 |
4514 |
11 |
Segment results (PBIT) |
542 |
509 |
6 |
759 |
704 |
8 |
Capital employed |
2984 |
2820 |
6 |
3902 |
3694 |
6 |
Share to total revenue of CUMI (%) |
26 |
27 |
22 |
22 |
||
(without eliminations) |
||||||
Share to segment results (PBIT) of CUMI (%) |
26 |
28 |
24 |
27 |
Manufacturing
The new Metallized Cylinder manufacturing line with assets from NTK, Japan was commissioned and the production commenced during the year. The total combined capacity of Metallized Cylinder now is 1.72 million numbers. Approval for new cylinders has been obtained from global customers after rigorous testing spanning over many months. The contract manufacturing for base level Ceramics which started in 2014-15 continued successfully during the current year. Third production line was established during the year enabling the business to cater to higher volume requirements from the customer.
The Industrial Ceramics division started its TPM journey in 2014-15 and with sustained and intense efforts, cleared TPM Health Check by CII TPM Club of India during January 2017. The division cleared the JIPM second stage assessment during November 2017 for TPM Excellence level I award, a key milestone in Companyâs quest for excellence. The division finally received the coveted Category A TPM Excellence award in March 2018 from JIPM.
Continuing its quest for manufacturing excellence, the rolled throughput yield has been on a continuous upward trajectory since 2015-16. Operation Equipment Effectiveness parameter also registered a new high during the year. The division could implement multi-cavity mould for near net shape moulding and commissioned Ceramic Injection Moulding line. In-house raw material was produced for Engineering Ceramics and Metallized Ceramics product enabling a better grip on the quality and the timely availability.
The Refractory business in last three years has invested in new technology mainly for Iron & Steel and Foundry industries. The business has also invested in consumable (flow control) products mainly for mini Steel industry and the products are taking its shape and developments on these product range have been proved with customers. These product lines are of standard regular consumables off the shelf. With strengthened dealer network, constant revenues has been planned during the coming year.
Electrominerals
Business Profile
The major product groups of this segment are Fused Alumina (comprising Brown and White Alumina), Silicon Carbide (crude, macro and fine), Fused Zirconia, Alumina Zirconia, Pearl Zirconia and Zircon Mullite. The Company also manufactures a range of âspecialitiesâ like Semi Friable, Azure-S and fine powders for niche markets. The operations are carried out through eight manufacturing facilities located in India, Russia and South Africa.
The business focusses on aggressive growth in the export market with suitable product portfolios and provides customers with application specific products, with an objective to attain improved product profitability. For this, the business ensures speedy execution of projects and enhanced asset utilisation.
The business intends to continue its focus on special products through internal capability building and strategic partnerships in the market place to promote its products in different parts of the world.
Key user industries for this business are Abrasives, Refractories, Steel, Photovoltaic, Brake linings, Nuclear energy, Wooden laminates, Friction composites, Diesel Particulate Filter Semiconductor and others.
The business has captive bauxite mines, sand mines and a captive power plant.
Industry Scenario
The focus on improving the ecosystem by initiating environmental regulations and pollution controls in China has brought about a paradigm shift in the industry. China has catapulted itself from a low cost producer of materials to a responsible supplier of quality products and an environmental compliant country. The other players including the Company, who were always into supplying quality products with superior environment friendly production processes, emerged more competitive in the transformed market. This new scenario has led to an inflationary situation.
The Fused Alumina installed capacity globally continued to be around 2 million tons with major capacities being in China, some of which could possibly be shut due to new environment regulations. The Company is largely a local player with customers based in India. Apart from the domestic players, imported products have a visible share in the Indian market. Competitive imports become favourable or unfavourable depending on Free Trade Agreements between countries, duty structures, country specific developments and exchange rates.
In the Silicon Carbide space, the installed capacity would be anywhere to the extent of 1.5 million to 2 million tons with large portion of it being in China. Here as well it can be estimated that some amount of capacities could be shut due to the current situation prevailing in China.
VAW, Russia with a capacity of 0.08 million tons is the one of the largest single location capacities in the world.
In the Fused Zirconia space, the global capacity could be approximately 0.07 million tons. China would occupy around 25 per cent of the global market. The Company with a capacity of 0.01 million tons is a significant player globally.
The Company continues to retain its position as one of the reputed manufacturers of Silicon Carbide and Fused Zirconia.
Sales Overview
The Electrominerals business recorded revenues of Rs.4055 million compared to last year standalone revenues of Rs.3191 million.
The year 2017 was beneficial to the Company owing to stricter pollution controls and new environmental regulations in China. The fused aluminum oxide business of the Company capitalised this opportunity and increased its volume and prices in the domestic and international markets across product lines.
The fine powder business of Silicon Carbide at Kakkanad, Kerala has seen renewed heights with one of the worldâs largest manufacturer of Diesel Particulate Filter approving the fine powder for their requirement. The business registered good growth from a low base for this product category.
With the Automobile, Steel and Glass business starting to do better in 2017, the demand from Abrasives and Refractory customers were higher during the year.
The Russian subsidiary ran at near full capacity. The volumes were higher in the current year considering last year, the business registered lower production on account of transformer shutdown. The business being a significant net exporter in foreign currency, is mitigated from the risk of rouble currency fluctuations.
Manufacturing
The business focused on manufacturing strategies like outsourcing of activities for augmenting volumes with minimum investment, protection of intellectual properties through appropriate process and product patents, spear heading innovation and TPM measures to be competitive and efficient in control of cost as an underlining measure to attain the targeted production volumes.
The relocated Alumina facility from South Africa scaled up and delivered the products as per the market requirements. The modernised Alumina plant with efficient furnace system gave the business the advantage of producing high end variants of Alumina. This also helped the business in augmenting the production and sales volume of Alumina beyond what was contemplated at the start of the year.
The raw material sourcing team had to grapple up with multiple challenges. Zircon Sand, Bauxite, Alumina and Electrode prices were facing turmoil in the international and domestic market. While the electrode price increase has affected the business, the long term contract for Alumina supply and own source of bauxite has insulated the business from the raw material price fluctuations for Fused Alumina business.
The shortage of availability and hike in raw material prices - Zircon sand and Electrode affected the scaling up of operations of relocated Zirconia Bubble facility, situated in India. The South African subsidiary, Foskor Zirconia which is into production of Monoclinic Zirconia was also affected due to volatile input pricing. A process modification in Zirconia processing is expected to give the bubble processing a cost advantage and an opportunity to use low end/local raw materials. A rationalisation in the price of electrode is expected in China and the business would be sourcing maximum requirement from these suppliers.
The Indian policy makers and regulators also enacted and introduced policies and regulations restricting usage of materials, mining activities and imposing stricter norms for environmental compliance. In this respect, the business faced challenges in sourcing raw materials like Petroleum Coke, Quartz and Bauxite. The business successfully identified alternate sources of suppliers and carried out efficiency improvements in production to tide over the situation.
New adjacencies were explored in the areas of Carbon and related businesses.
The Russian plant ran at full capacity in the current year without any production disruptions. Input costs were kept at market competitive levels by way of prudent sourcing strategies. The business continued in its journey of introducing various grit sizes in the market. Toughening of environmental regulations in China is estimated to augur well for the business going forward by way of price increase of Crystalline and Metallurgic product ranges.
The profit before interest and tax increased from Rs.909 million to Rs.1269 million on a consolidated basis.
Key Financial Summary Rs. million
Particulars |
Standalone |
Consolidated |
||||
2017-18 |
2016-17 |
Change (%) |
2017-18 |
2016-17 |
Change (%) |
|
Revenue (excluding excise duty) |
4055 |
3191 |
27 |
8834 |
7489 |
18 |
Segment results (PBIT) |
325 |
212 |
54 |
1269 |
909 |
40 |
Capital employed |
2396 |
2488 |
(4) |
5632 |
5514 |
2 |
Share to total revenue of CUMI (%) (without eliminations) |
26 |
23 |
38 |
36 |
||
Share to segment results (PBIT) of CUMI (%) |
16 |
12 |
40 |
35 |
FINANCE
During the year, the Company generated Rs.1316 million of cash surplus from its operations on a standalone basis.
All debts have been serviced on time. The Companyâs long and short term borrowings (other than financial lease of Rs.18.1 million) as on 31st March 2018 stands Nil. The capital expenditure program of Rs.577 million was financed from internal accruals.
The Company continued to have healthy cash generation in the year, due to prudent capital expenditure and efficient working capital management. The surplus has been parked in liquid mutual funds. The Company continues to be debt free despite capacities being created over the years. On similar lines, the debt at a consolidated level has come down by 17 per cent compared to the previous year from Rs.1559 million to Rs.1294 million. Borrowings net of cash and cash equivalent level at a consolidated level stands at Rs.(553) million i.e Company has surplus cash.
The debt equity ratio for the Company, is almost nil at a standalone level and 0.08 at a consolidated level. The Companyâs Balance Sheet remains robust and it augurs well for the Company to venture into its next phase of growth.
The credit ratings of the Company, âA1 â for short-term borrowings and âAA Stableâ for long-term borrowings were re-affirmed by CRISIL. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The Finance Cost at a standalone level is at Rs.15 million compared to Rs.88 million last year. The Company earned Rs.6 million by investing surplus cash available for short term.
At a consolidated level, the interest cost has come down from Rs.181 million to Rs.86 million. The repayment of loans has helped in bringing down the finance cost. The capital expenditure program of Rs.920 million was financed from internal accruals.
With the Indian entity enjoying a significant natural hedge, a cautious approach was adopted to hedge the remaining exposures. The Company adopts prudent tax management policies.
There are no material changes and commitments, affecting the financial position of the Company which have occurred between 31st March 2018 and the date of this report.
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 Deposits) Rules, 2014 and no amount of principal or interest was 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
Description |
As on 31.03.2017 |
Movement (Net of Deletions) |
As on 31.03.2018 |
Loans given by the Company |
- |
- |
- |
Corporate guarantee given by the Company |
1691.08 |
35.56* |
1726.64 |
Investments made by the Company |
2541.16 |
27.41** |
2568.57 |
*Due to Exchange difference
**On account of fair valuation
Current Investments - investment in mutual funds as on 31.03.2018 was Rs.544.79 million.
RELATED PARTY TRANSACTIONS
The Company as per the requirements of the Companies Act, 2013 and Regulation 23 of the Listing Regulations has a Policy for dealing with Related Parties.
In line with its stated policy, all Related Party transactions are placed before the Audit Committee for review and approval. Prior approval of the Committee is obtained on a quarterly basis for transactions which are of foreseen and repetitive nature. Omnibus approvals in respect of transactions which are not routine or which cannot be foreseen or envisaged are also obtained as permitted under the applicable laws. The list of Related Parties is reviewed and updated periodically as per the prevailing regulatory conditions.
The details of transactions proposed to be entered into with Related Parties are placed before the Audit Committee for approval on an annual basis before the commencement of the financial year. Thereafter, a statement containing the nature and value of the transactions entered into by the Company with Related Parties is presented for quarterly review by the Committee. Further, revised estimates or changes, if any to the proposed transactions for the remaining period are also placed for approval of the Committee on a quarterly basis. Besides, the Related Party transactions entered during the year are also reviewed by the Board on an annual basis.
All transactions with Related Parties entered during the financial year were in the ordinary course of business and on an armâs 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 Companyâs policy on dealing with Related Parties as approved by the Board is available on the Companyâs website at the following link https://www.cumi-murugappa.com/policies.html. None of the Directors and KMPs had any pecuniary relationship or transaction with the Company other than those relating to remuneration in their capacity as Directors/Executives and corporate action entitlements in their capacity as shareholders of the Company.
CORPORATE SOCIAL RESPONSIBILITY
The Murugappa Group is known for its tradition of philanthropy and community service. The Groupâs philosophy is to reach out to the community by establishing service oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The Company being a constituent of the Group has been upholding this tradition by earmarking a part of its income for carrying out its social responsibilities.
The Company continues to engage in Corporate Social Responsibility (CSR) activities directly as well as through implementation agencies.
The Company set up the CUMI Centre for Skill Development (CCSD) in year 2012 at Hosur, to build a skill bank of a technically competent and industry ready work force from the less privileged sections of the Society. During the FY 2015-16, the Company replicated this model in Edapally, Cochin. CCSD provides specialised training based on National Council on Vocational Training syllabus for the rural youth drawn from socially and underprivileged sections of the society. Three year training is imparted with a stipendiary payment and free boarding facilities, thus enabling the enrolled students to earn while they learn. The job oriented skill training enhances their employability and aids in uplifting their socioeconomic status. The technically trained students can be employed by any industrial entity once they complete the training programme. The Company continues to harness the potential of CCSD centres so far established. During the year, 64 students from the CCSD, Hosur passed with flying colours and graduated from the Centre. The Company takes pride in informing that few students have earned accolades at national/ regional level for their par excellence performance in academic and technical areas.
In addition to the CCSD, the Company has also been contributing to the cause of health and education by making grants to AMM Foundation, an autonomous charitable trust, engaged in philanthropic activities in the field of education and healthcare since 1953. During the year, the Companyâs focus areas for these grants were in the education sector through contributions to Vellayan Chettiar Higher Secondary School, Tiruvottiyur (VCHSS) - which has been making a difference in the field of education for the past 50 years. The school runs with the vision - To provide Quality Education with good virtues, for the under privileged and marginalised communities around Tiruvottiyur. With an objective to provide the students of the VCHSS adequate facilities for excelling in sports, the Company through the agency undertook a project during the year for development of playground (football ground) in addition to meeting the running expenditure of the school. Besides the above, the Company also actively pursued local community assistance programmes in and around its plant and office locations anchored by its employees. The Companyâs CSR policy is available on the Companyâs website at the following link https://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.
BUSINESS RESPONSIBILITY REPORTING
The Companyâs ethical and responsible behaviour complements its corporate culture. Being a public listed company, the Company recognises that its accountability is not limited only to its shareholders from a financial perspective but also to the larger society in which it operates. During 2016-17, consequent to the mandatory reporting of its business responsibility initiatives under the Listing Regulations, the Company had formulated a consolidated Policy on Business Responsibility which lays down the broad principles guiding the Company in delivering its various responsibilities to its stakeholders. The Policy is intended to ensure that the Company adopts responsible business practices in the interest of the social set up and the environment so that it contributes beyond financial and operational performance. A copy of the Policy is available at https://www.cumi-murugappa.com/policies.html and the Business Responsibility Report for the year ended 31st March 2018 in terms of Regulation 34 of the Listing Regulations is annexed to this report as Annexure B.
GOVERNANCE
Board of Directors and Key Managerial Personnel
As at 31st March 2018, the Board of the Company comprised nine Directors of which majority (six) are independent. During the year, Mr. P S Raghavan and Mr. Sujjain S Talwar were appointed as Additional Directors and their appointment as Independent Directors of the Company for a term of 5 years effective 9th May 2017 was approved by the shareholders at the 63rd Annual General Meeting held on 31st July 2017.
Mr. M Lakshminarayan and Mr. Shobhan M Thakore, Independent Directors who were appointed for a term of three years at the 60th Annual General Meeting held on 1st August 2014 retired on 31st July 2017. The Board places on record its appreciation for the services rendered by Mr. Lakshminarayan and Mr. Shobhan Thakore during their tenor as Directors of the Company including as members of the various Committees of the Board.
Following the changes in the Board composition, the constitution of the various Committees of the Board were also reviewed and revised during the year, the details of which are provided in the Corporate Governance Report.
Further, the shareholders at the last Annual General Meeting held on 31st July 2017 approved the re-appointment of Mr. K Srinivasan for a further period of two years from 23rd November 2017 till 22nd November 2019.
Mr. M A M Arunachalam, retires by rotation at the forthcoming Annual General Meeting and being eligible has offered himself for re-appointment. A proposal for his re-appointment is included in the Notice convening the 64th Annual General Meeting for consideration and approval by the shareholders.
The Company has received declarations from all its Independent Directors confirming that they meet the criteria of independence prescribed both under the Companies Act, 2013 and the Listing Regulations.
Mr. K Srinivasan, Managing Director and Ms. Rekha Surendhiran, Company Secretary continue to be the Key Managerial Personnel of the Company as per Section 203 of the Companies Act, 2013. During the year, Mr. Sridharan Rangarajan stepped down from his position as Chief Financial Officer of the Company effective the closing hours of 17th January 2018 on account of his elevation as President & Group - CFO of the Murugappa Group. The position of the Chief Financial Officer is vacant since then and the Company having identified suitable candidate(s) is in the process of filling up the vacancy.
Board Meetings
During the year, six Board Meetings were held, the details of which are given in the Corporate Governance Report.
Board Evaluation
Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its various Committees as per the evaluation framework adopted by the Board on the recommendation of the Nomination and Remuneration Committee. Structured assessment forms were used in the overall Board evaluation comprising various aspects of the Boardâs functioning in terms of structure, its meetings, strategy, governance and other dynamics of its functioning besides the financial reporting process, internal controls and risk management. The evaluation of the Committees was based on their terms of reference fixed by the Board besides the dynamics of their functioning in terms of meeting frequency, effectiveness of contribution etc.
Separate questionnaires were used to evaluate the performance of individual Directors on parameters such as their level of engagement and contribution, objective judgement etc. The Managing Directorâs evaluation was based on leadership qualities, strategic planning, communication, engagement with the Board etc.
The Chairman was also evaluated based on the key aspects of his role. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman, the Board as whole and the Non-Independent Directors was carried out by the Independent Directors at their separate meeting held during the year.
Policy on Appointment and Remuneration of Directors
Pursuant to Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee of the Board has formulated the criteria for Board nominations as well as the policy on remuneration for Directors and employees of the Company.
The criteria for Board nominations lays down the qualification norms in terms of personal traits, experience, background and standards for independence besides the positive attributes required for a person to be inducted into the Board of the Company. Criteria for induction into Senior Management positions have also been laid down.
The Remuneration policy provides the framework for remunerating the members of the Board, Key Managerial Personnel and other employees of the Company. This Policy is guided by the principles and objectives enumerated in Section 178(4) of the Companies Act, 2013 and reflects the remuneration philosophy and principles of the Murugappa Group to ensure reasonableness and sufficiency of remuneration to attract, retain and motivate competent resources, a clear relationship of remuneration to performance and a balance between rewarding short and long-term performance of the Company. The policy lays down broad guidelines for payment of remuneration to Executive and Non-Executive Directors within the limits approved by the shareholders. Further details are available in the Corporate Governance Report.
The Board Nomination criteria and the Remuneration policy are available on the website of the Company at https://www.cumi-murugappa. com/policies.html.
Composition of Audit Committee
The Audit Committee of the Board comprises only Independent Directors. Mr. T L Palani Kumar is the Chairman and other members are Mr. Sanjay Jayavarthanavelu, Mrs. Bharati Rao and Mr. Sujjain S Talwar who was inducted into the Committee on 9th May 2017 in view of the retirement of Mr. M Lakshminarayan on 31st July 2017. During the year, five Audit Committee meetings were held, the details of which are provided in the Corporate Governance Report.
Statutory Auditors
During the year, the office of M/s. Deloitte Haskins & Sells, Chartered Accountants, (FR No. 008072S) Chennai as the Statutory Auditors of the Company expired at the conclusion of the 63rd Annual General Meeting (AGM) held on 31st July 2017. The Board places on record its appreciation for the services rendered by M/s Deloitte Haskins & Sells during their long tenor as Auditors of the Company.
In line with the requirements of the Companies Act, 2013, the Company with the approval of the shareholders at the Annual General Meeting held on 31st July 2017 appointed M/s. Price Waterhouse Chartered Accountants LLP, (Reg. No. FRN 012754N/N500016) (PWC) as the Statutory Auditors of the Company to hold office from the conclusion of 63rd Annual General Meeting until the conclusion of the 68th Annual General Meeting at a remuneration of Rs.38,66,000/- for the FY 2017-18 subject to annual ratification by the shareholders at every AGM, if required under the relevant provisions of the Act at a remuneration decided by the Board based on the recommendation of the Audit Committee. The Companies (Amendment) Act, 2017 has dispensed with the requirement of annual ratification of the Statutory Auditorâs appointment. However, as on the date of this report, the said provision has not yet been notified. In case the above is not notified prior to the date of the Annual General Meeting, then the proposal seeking approval of the shareholders for ratification of the Auditorâs appointment would be placed at the 64th AGM. The Board at its meeting held on 4th May 2018, based on the recommendation of the Audit Committee, has determined the remuneration of the Statutory Auditors as Rs.42,00,000/- for the FY 2018-19 (excluding out of pocket expenses incurred by them in connection with the Audit and applicable taxes).
As required under Regulation 33 of the Listing Regulations, the Auditors have 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 M/s. Price Waterhouse Chartered Accountants LLP on the Financial Statements of the Company for the year ended 31st March 2018 is provided in the financial section of the Annual Report. There are no qualifications, reservations, adverse remarks or disclaimers given by the Auditors in their report.
Cost Auditors
Pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 and amendments thereof, the Company is required to maintain cost accounting records in respect of products of the Company covered under CETA categories like Organic and Inorganic chemicals, Electrical or Electronic machinery, Steel, Plastic and Polymers, Ores and Mineral products, other Machinery, Base Metals etc. Further, the cost accounting records maintained by the Company are required to be audited.
The Board, on the recommendation of the Audit Committee, had appointed M/s. S Mahadevan & Co. (firm no. 000007), Cost Accountants, Chennai to audit the cost accounting records maintained by the Company under the said Rules for the FY 2017-18 on a remuneration of Rs.400,000/-. Further, the said firm has also been appointed by the Board to conduct the cost audit for the FY 2018-19 at the same remuneration. The Companies Act, 2013 mandates that the remuneration payable to the Cost Auditor is ratified by the Members. Accordingly a resolution seeking the shareholderâs ratification of the remuneration payable to the Cost Auditor for the FY 2018-19 is included in the Notice convening the 64th Annual General Meeting.
Secretarial Audit
M/s. R Sridharan & Associates, Practising Company Secretaries, Chennai was appointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company for the FY 2017-18. The report of the Secretarial Auditor is annexed to and forms part of this Report (refer Annexure F). There are no qualifications, reservations, adverse remarks or disclaimers given by the Secretarial Auditor in the Report.
Compliance Management
The Companyâs in house compliance management system tracks compliances across the various factories and offices of the Company. This tool has a comprehensive coverage of the various applicable laws and is periodically updated based on the regulatory changes.
Corporate Governance
In terms of Regulation 34(3) read with Schedule V of the Listing Regulations, a separate section on Corporate Governance including the certificate from a Practising Company Secretary confirming compliance is annexed to and forms an integral part of this Report.
CEO/CFO Certificate
Mr. K Srinivasan, Managing Director has submitted a certificate to the Board on the integrity of the Financial Statements and other matters as required under Regulation 17(8) of the Listing Regulations.
DIRECTORSâ 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 2018, applicable accounting standards have been followed and no material departures have been made from the same;
- the accounting policies mentioned in Note 3 of the Notes to the Financial Statements have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;
- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company for preventing and detecting fraud and other irregularities;
- the annual accounts have been prepared on a going concern basis;
- that internal financial controls to be followed by the Company have been laid down and that such internal financial controls are adequate and operating effectively;
- proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.
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).
SECRETARIAL STANDARDS
The Company is in compliance with the Secretarial Standard on Meetings of the Board of Directors (SS-1) and Secretarial Standard on General Meetings (SS-2).
ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO
The information on energy conservation, technology absorption, expenditure incurred on Research & Development and forex earnings/ outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is annexed to and forms part of this Report (refer Annexure C).
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 and its future operations.
PARTICULARS OF EMPLOYEES
The information on employees and other details required to be disclosed under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed to and forms part of this Report (refer Annexure D).
Under the Companyâs Employee Stock Option Scheme 2007, no Option grants have been made since February 2012. The Employee Stock Option Plan 2016 (ESOP 2016) was implemented in February 2017 with the approval of the shareholders and currently governs the grant of Options to employees. During the year 2017-18, a grant of 70,214 options was made to eligible employees. The disclosures with respect to Options granted under the ESOP 2007 and ESOP 2016 are contained in the Corporate Governance Report. Further, the disclosures relating to Stock Options as per Securities and Exchange Board of India (Share based Employees Benefits) Regulations, 2014 read with the circular issued by SEBI on 16th June 2015 has been provided on the Companyâs website and is available in the link https://www.cumi-murugappa.com/policies.html. Both the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014.
ACKNOWLEDGEMENT
The Board gratefully acknowledges the co-operation received from various stakeholders of the Company viz., customers, investors, channel partners, suppliers, government authorities, banks and other business associates during the year. The Board also places on record its sincere appreciation of all the employees of the Company for their commitment and continued contribution to the Company.
On behalf of the Board
Chennai M M Murugappan
May 4, 2018 Chairman
Mar 31, 2017
Directorsâ Report
The Directors have pleasure in presenting the 63rd Annual Report together with the Audited Financial Statements for the year ended 31st March 2017. The Management Discussion & Analysis Report which is required to be furnished as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as the Listing Regulations) has been included in the Directorsâ Report so as to avoid duplication and overlap.
ECONOMIC OVERVIEW & COMPANY PERFORMANCE
Economic Overview
Moderate global trade, subdued investment and heightened policy uncertainty marked another challenging year for the world economy. As per International Monetary Fund (IMF), the global growth was estimated to be at 3.1 per cent in 2016. The growth could have been better, had it not been for the anaemic performance in advanced economies. The year also witnessed events, defined by political shocks in advanced economies that impacted economies all over the world - first, the decision by the United Kingdom electorate in June 2016 to leave the European Union, followed by the United States Presidential election in November 2016. Both the events had ramifications well beyond their borders and will continue to have implications in 2017 and beyond. The picture in emerging markets and developing economies around the world remained diverse. The growth rate in China was one of the slowest in the last twenty six years. However, it was within the Governmentâs target and a bit stronger than the expectations. Strong fiscal support and a booming property market were the main factors that drove Chinaâs economic growth in 2016. The Latin American countries, such as Argentina and Brazil, were in recession. Oil prices increased during the year, reflecting an agreement among major producers to trim supply The Russian economy has responded well in the last two years to the dual shocks of collapsing oil prices and the continuation of Western sanctions. Activities in Russia were slightly better in 2016 owing to firming up of oil prices. With strong infrastructure and real estate investment in China as well as the expectation of fiscal easing in the United States, prices for base metals also strengthened during the year.
In India, against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, the passage of the constitutional amendment paving the way for implementing the transformational Goods and Services Tax (GST) and the action to demonetize the two highest denomination notes in the country. With respect to GST, we broadly know that it is going to be positive for the organized sector. However, it is expected to have teething troubles in the initial phase and the impact of the same on earnings is yet to be ascertained. Demonetization had a short-term impact but is expected to provide long term benefits. The landslide victory of the ruling party of the Central Government in the assembly elections held during November 2016 provided visibility of political stability to the Indian economy. These developments cemented Indiaâs reputation as one of the few bright spots in an otherwise grim global economy. India is not only amongst the worldâs fastest growing major economies, underpinned by a stable macro-economy with declining inflation and improving fiscal and external balances, but also one of the few economies embarking on major structural reforms. As per Asian Development Bank, the growth in Indian economy for the year 2016 was at 7.1 per cent. This was below the 7.9 per cent growth in 2015, partly due to currency demonetization. The Indian stock markets braced the odds of Brexit, Presidential elections in the United States election and the demonetization.
Company Performance
Revenues
During the year, the standalone business grew by nine per cent and the consolidated revenue also grew at the same rate driven by better performance of all the businesses. The following table summarizes the standalone and consolidated revenues - both segment and geography wise:
Rs, million
2016-17 |
2015-16 |
Growth |
|||
% share |
Amount |
% share Amount |
% |
||
Standalone |
|||||
Abrasives |
57% |
8592 |
57% |
7844 |
10% |
Ceramics |
26% |
3899 |
25% |
3383 |
15% |
Electrominerals |
23% |
3396 |
24% |
3299 |
3% |
Eliminations |
-6% |
(918) |
-6% |
(767) |
20% |
Total |
100% |
14969 |
100% |
13759 |
9% |
India |
79% |
11833 |
80% |
11035 |
7% |
Rest of the world |
21% |
3136 |
20% |
2724 |
15% |
Total |
100% |
14969 |
100% |
13759 |
9% |
2016-17 |
2015-16 |
Growth |
|||
% share |
Amount |
% share Amount |
% |
||
Consolidated |
|||||
Abrasives |
46% |
10163 |
46% |
9217 |
10% |
Ceramics |
21% |
4724 |
20% |
4085 |
16% |
Electrominerals |
35% |
7694 |
37% |
7486 |
3% |
Power |
1% |
265 |
1% |
219 |
21% |
IT Services |
2% |
394 |
1% |
296 |
33% |
Eliminations |
-6% |
(1241) |
-5% |
(1059) |
17% |
Total |
100% |
21999 |
100% |
20244 |
9% |
India |
58% |
12669 |
58% |
11732 |
8% |
Rest of the world |
42% |
9330 |
42% |
8512 |
10% |
Total |
100% |
21999 |
100% |
20244 |
9% |
Production consistency, higher throughput in special products, focused efforts in building businesses with global customers and favourable product mix with higher share of technical products provided the topline growth.
The Companyâs consolidated revenue from India increased by eight per cent and from rest of the world increased by ten per cent. At a consolidated level, Abrasives sales grew by ten per cent, Ceramics sales grew by sixteen per cent and the Electro minerals segment grew by three per cent.
Manufacturing
The manufacturing team played a key role, helping the Company in the growth momentum through effective production planning and order execution. On an average, the plants in India operated at about seventy per cent capacity utilization levels. Some product segments like Coated Abrasives and Metalized Ceramics ran at near full capacity. Continued implementation of Total Productive Maintenance (TPM) at shop floors lead to improvement in efficiency of machines and the entire production process. The Tiruvottiyur plant was awarded the JIPM Excellence Award at Kyoto, Japan in March 2017. With this, we have three major plants of the Company certified in TPM. The Industrial Ceramics plant at Hosur also successfully completed the CII TPM Health Check during January 2017 and is now ready for JIPM TPM excellence assessment.
As a % of Gross Sales |
2016-17 |
As a % of Gross Sales |
2015-16 |
Increase % |
|
Gross Sales |
14969 |
13759 |
9% |
||
Other Operating Income |
229 |
183 |
25% |
||
Revenue from Operations |
15198 |
13942 |
9% |
||
Other Income |
343 |
399 |
-14% |
||
Total Income |
15541 |
14341 |
8% |
||
Expenses |
|||||
Cost of material Consumed |
34% |
5121 |
36% |
4886 |
5% |
Purchase of stock in trade |
5% |
818 |
6% |
761 |
7% |
Movement of Inventory |
0% |
12 |
-1% |
(70) |
-117% |
Excise duty on sale of goods |
8% |
1141 |
7% |
1023 |
11% |
Employee benefits expense |
10% |
1533 |
10% |
1413 |
8% |
Finance Cost |
1% |
88 |
1% |
89 |
-2% |
Depreciation and Amortization |
4% |
669 |
5% |
621 |
8% |
Other expenses |
30% |
4453 |
29% |
3942 |
13% |
Total Expenses |
92% |
13834 |
92% |
12666 |
9% |
Profit before Tax |
11% |
1707 |
12% |
1675 |
2% |
Profit after Tax |
8% |
1218 |
8% |
1164 |
5% |
Total Comprehensive Income |
8% |
1138 |
9% |
1197 |
-5% |
Capital expenditure during the year across all geographies was majorly in the nature of capacity additions besides automation, quality enhancement, line balancing and general infrastructure. TPM initiatives and few manufacturing technology projects helped finding additional capacities in Coated products, which came in handy to cater to the increased demand from customers. The relocation projects from South African entities to India got commissioned in the fourth quarter of 2016-17. The Zirconia Bubble Fusion Plant and Alumina Fusion Plants - will result in the creation of one of the most advanced and integrated Electro mineral complexes in the world. The new facilities will add about 25,000 tons of fused minerals generation. The Slide gate products facility was also commissioned successfully in Jabalpur. Earnings & Profitability
The Companyâs standalone Financial Results are summarized in the table below:
Rs, million
Aided by the growth in revenues, standalone Profit before tax improved to Rs,1707 million from Rs,1675 million in the previous year.
The Company uses a variety of raw materials for its products - Bonds, Yarn, Grains, Calcined Alumina, Tabular Alumina, Mullite, Pet Coke, Bauxite, Zircon Sand amongst others. The sourcing is a prudent mix of indigenous and imported materials. Aided by judicious sourcing and optimizing throughput in production, material consumption improved during the year.
Other expenses increased from Rs,3942 million in preceding year to Rs,4453 million in the current year. The increase reflects the volume growth, cost increases and investment in preparing the organization for the expansion programmes being undertaken. Power and fuel cost also increased during the current year. Captive power generation from the Companyâs Hydel power unit in Maniyar was lower due to inadequate rainfall. The power consumption was also higher in line with the higher volumes produced compared to the previous year. Rates for fuel inched up after bottoming out in the last year.
Employee benefits expense increased by eight per cent during the year, which is a combination of both increase in head count and salary. The overall employee cost was maintained at ten per cent of the revenues.
Profit before interest and tax margin expanded for Abrasives and Ceramics owing to higher sales and better operating leverage. The margins for Electro mineral business were lower owing to power cost increase on account of below average rainfall impacting the Hydel power generation.
Finance costs were at ''88 million compared to ''89 million in the previous year. Profit after tax of ''1218 million was higher compared to that of the previous year ''1164 million. Total comprehensive income decreased from ''1197 million to ''1138 million.
The consolidated Profit before tax (before share of Profit from associates and joint ventures) entity-wise is represented below:
Rs, million
2016-17 |
2015-16 |
|
CUMI Standalone |
1707 |
1675 |
Subsidiaries including step down subsidiaries: |
||
Indian |
||
Net Access India Limited |
35 |
25 |
Southern Energy Development Corporation Limited |
90 |
30 |
Sterling Abrasives Limited |
101 |
79 |
Foreign |
||
CUMI (Australia) Pty Limited |
143 |
123 |
CUMI International Limited |
240 |
(222) |
Volzhsky Abrasives Works |
784 |
897 |
Foskor Zirconia Pty Limited |
(19) |
90 |
CUMI America Inc |
(98) |
(69) |
CUMI Middle East FZE |
5 |
(10) |
CUMI Abrasives & Ceramics Company Limited |
1 |
(206) |
Thukela Refractories Isithebe Pty Limited |
(2) |
(68) |
CUMI Europe s.r.o |
1 |
(10) |
Total of Subsidiaries |
1281 |
659 |
Inter-Company Eliminations & Consolidation adjustments |
(560) |
(123) |
Consolidated Profit before Tax |
2428 |
2211 |
Consolidated Profit after Tax attributable to owners |
1749 |
1441 |
Consolidated Total Comprehensive Income attributable to owners |
2142 |
1263 |
On a consolidated basis, the Profit before tax (before share of Profit from associates and joint ventures) increased from Rs,2211 million to Rs,2428 million. Profit after tax and Non-controlling interests was Rs,1749 million (previous year Rs,1441 million). The performance of the subsidiaries is detailed separately in this Report.
Total comprehensive income increased from Rs,1263 million to Rs,2142 million.
Segmental profitability improved for Abrasives and Ceramics; however, it dropped in Electro minerals on account of lower volumes, adverse exchange movement in Russian operations and increase in power costs in India.
On a standalone basis, the total equity as on 31st March 2017 was Rs,10550 million. Additions for the year (net of dividend) was Rs,966 million.
Financial Position
An overview of the Companyâs financial position is given below: '' million
Financial position |
Standalone |
Consolidated |
||||||
31.03.2017 |
31.03.2016 |
01.04.2015 |
% change |
31.03.2017 |
31.03.2016 |
01.04.2015 |
% change |
|
Net Fixed assets |
4595 |
4435 |
4156 |
4% |
7774 |
7437 |
7729 |
5% |
(including goodwill) |
||||||||
Investments-Non current |
2541 |
2561 |
2319 |
-1% |
1195 |
1293 |
1181 |
-8% |
Other assets: |
||||||||
- Inventories |
2268 |
2252 |
2085 |
1% |
3867 |
3704 |
3742 |
4% |
- Trade receivables |
2563 |
2532 |
2231 |
1% |
3806 |
3675 |
3439 |
4% |
- Cash and cash equiv. |
67 |
84 |
56 |
-21% |
1298 |
1136 |
965 |
14% |
- Others |
939 |
839 |
659 |
12% |
1282 |
1432 |
1073 |
-10% |
Total assets |
12973 |
12704 |
11506 |
2% |
19222 |
18676 |
18128 |
3% |
Liabilities |
2397 |
2029 |
1912 |
18% |
3178 |
2934 |
3142 |
8% |
(Other than loans) |
||||||||
Net assets |
10576 |
10675 |
9594 |
-1% |
16044 |
15743 |
14987 |
2% |
Sources of funding: |
||||||||
Total equity attributable to |
10550 |
9584 |
8758 |
10% |
13828 |
11923 |
11006 |
16% |
owner |
||||||||
Non-Controlling interest |
657 |
622 |
578 |
6% |
||||
Loan outstanding: |
||||||||
- Long term borrowings |
18 |
259 |
512 |
-93% |
67 |
362 |
567 |
-82% |
- Payable within one year |
8 |
506 |
7 |
-98% |
68 |
566 |
635 |
-88% |
- Short term borrowings |
- |
326 |
317 |
-100% |
1424 |
2270 |
2202 |
-37% |
Total loans |
26 |
1091 |
836 |
-98% |
1559 |
3199 |
3403 |
-51% |
10576 |
10675 |
9594 |
-1% |
16044 |
15743 |
14987 |
2% |
|
Loans (net of cash and |
(41) |
1007 |
780 |
-104% |
261 |
2063 |
2438 |
-87% |
cash equivalents) |
Liabilities (other than loans) increased from Rs,2029 million in last year to Rs,2397 million during 2016-17. The Loan outstanding reduced significantly from Rs,1091 million to Rs,26 million.
Other assets increased from Rs,5708 million to Rs,5837 million.
Net fixed assets (including goodwill) increased from Rs,4435 million to Rs,4595 million. The major capex pursued and commissioned during the year were relocated projects viz., Bubble Zirconia plant and Fused Alumina plants, Thin Wheel expansion with consolidation of Chinese entity machineries into India, debottlenecking in Coated operations and routine maintenance & improvement capex.
On a consolidated basis, the total equity attributable to owners as on 31st March 2017 was Rs,13828 million. There was an increase (net of dividend) to the extent of Rs,1905 million. Non-controlling interest was at Rs,657 million.
Liabilities (other than loans) was Rs,3178 million. The Loan outstanding reduced significantly from Rs,3199 million to Rs,1559 million.
Net fixed assets (including goodwill) increased from Rs,7437 million in the last year to Rs,7774 million during the FY 2016-17. Capital Expenditure at a consolidated level during the year was at Rs,1268 million. Other assets increased from Rs,9947 million to Rs,10253 million.
On a standalone basis, net cash generation from operations was Rs,1769 million in FY 2016-17 compared to previous yearâs Rs,1119 million. Better cash generation came from efficient working capital management with respect to receivables and inventories. Days Sales Outstanding (DSO) reduced and Inventory Turns increased compared to the previous year.
Cash Flow
The Companyâs cash flow generation is healthy. The following table summarizes the Companyâs consolidated and standalone cash flows for the current and previous years:
Rs, million
Cash flow |
Standalone |
Consolidated |
||
2016-17 |
2015-16 |
2016-17 |
2015-16 |
|
Cash flow from Operations |
2284 |
1633 |
3741 |
2615 |
Taxes paid |
(515) |
(514) |
(788) |
(837) |
Cash flow from operating activities |
1769 |
1119 |
2953 |
1778 |
Capital Expenditure (Net of disposal) |
(750) |
(1028) |
(1061) |
(843) |
Cash flow from other investing activities |
293 |
144 |
248 |
116 |
Cash flow from investing activities |
(457) |
(885) |
(813) |
(727) |
Cash flow from financing activities |
(1329) |
(206) |
(2071) |
(856) |
Net Increase/(Decrease) in Cash & Cash equivalents |
(17) |
29 |
69 |
195 |
Net Cash and Cash equivalents at the beginning of the year |
84 |
56 |
1136 |
965 |
Effect of exchange rate changes on the balances of cash and cash equivalents held in foreign currencies |
93 |
(24) |
||
Cash and Cash equivalents at the end of the year |
67 |
84 |
1298 |
1136 |
Net cash outflow on account of investing activities was Rs,457 million majorly towards addition of property, plant and equipment. Net cash outflow on account of financing activities was Rs,1329 million which is attributable primarily to repayment of borrowings and dividends paid. The net decrease in cash and cash equivalents was Rs,17 million against an increase of Rs,29 million in FY 2015-16.
On a consolidated basis, net cash generation from operations was Rs,2953 million in FY 2016-17. Net cash outflow on account of investing activities was Rs,813 million. Net cash outflow on account of financing activities was Rs,2071 million which is attributable primarily to repayment of borrowings and dividends paid. The net increase in cash and cash equivalents was Rs,69 million against an increase of Rs,195 million in FY 2015-16.
SHARE CAPITAL
The paid up equity share capital as on 31st March 2017 was Rs,188.66 million. The capital increased during the year by Rs,0.28 million, consequent to allotment of shares upon exercise of Stock Options by employees under the Companyâs ESOP Scheme, 2007.
DIVIDEND
Considering the past dividend payout ratio and the current yearâs operating Profit, the Board has considered it appropriate to recommend a final dividend of Rs,0.75 per equity share of Rs,1/- each. It may be recalled that in February 2017, an interim dividend at the rate of Rs,1/- per equity share of Rs,1/- each was declared and paid. This aggregates to a total dividend of Rs,1.75/per equity share of Rs,1/- each for the year, which is higher than the previous year. During the year, the Board has adopted a Dividend Policy which is available at https://www.cumi-murugappa.com/ policies.html. The dividend paid as well as being recommended for the year ended 31st March 2017 is in line with this policy.
TRANSFER TO RESERVES
An amount of Rs,500 million has been transferred to the General Reserve of the Company as at 31st March 2017.
PERFORMANCE OF BUSINESS SEGMENTS
The business profile, market developments and current year performance are elaborated in the following sections:
Abrasives
Business Profile
The business is into manufacture and sales of Abrasives. The key product segments are Bonded Abrasives, Coated Abrasives, Super Abrasives and allied products.
An Abrasive is a substance which grinds, cleans, scours, abrades or removes solid material by rubbing action or by impact. Abrasives are mineral like materials available in different shapes, sizes and types according to need. Abrasive materials and Abrasive products are utilised in several end user industries such as manufacture of Machinery, Electrical & Electronic equipment, Transportation and Metal fabrication among others.
The division has more than sixty years of experience in Abrasives manufacturing. The techno-commercial knowledge of the team and their wealth of experience has been the strength of the division in manufacturing world class products.
In order to match all international standards and to compete globally, the division sources its raw materials both from the Electro minerals division and from best suppliers across the world. These cost-effective manufacturing techniques and quality control systems form the core of the divisionâs objectives - best products and customer satisfaction at affordable prices.
The business is driven by a combination of manufacturing and marketing entities. There are ten manufacturing plants located in India, Russia and Thailand. The marketing entities in North America, Middle East, China and distributors across the globe enable the division to reach out across geographies.
The Company caters to customers located around fifty five countries through its network of manufacturing facilities and marketing establishments.
Industry scenario
The global Abrasives market is segmented based on region. Asia Pacific represents the largest and the fastest growing market for the Abrasives industry and China is the largest producer of Abrasive materials and Abrasive products. The growing demand for various types of Abrasives from transportation, building & construction and other durable goods industries is expected to drive the Asia Pacific Abrasives market. Growth in the US - which holds the worldâs second largest national market for Abrasives, is expected to deliver a moderate growth. The market is dominated by leading players operating across the globe.
In India, the Abrasives industry is catered by few leading players serving major portion of the Indian market. Imports are predominantly in the high and low end Abrasives. The Bonded Abrasives and the Coated Abrasives are important segments in the Indian scenario and contribute maximum in terms of revenue to this industry.
In the domestic Russian market, there are three major players. The Company is one of the major players in Vitrified Bonded Abrasives.
Sales Overview
The Abrasives business stepped into 2016-17 against the backdrop of positive macro-economic factors considering perceived uptick in investment climate, ability of new Government to push structural reforms like fast track clearance for infra projects, GST rollout, energy related reforms etc.
The focus for the Abrasives business was to grow top line at better than the market growth rate with significantly better profitability. Accordingly, the Abrasives business on a standalone basis recorded a growth in revenue from ''7844 million to ''8592 million with improvement in margins.
The Coated business registered good growth in the conventional products in domestic market. The growth came about by way of launch of new products, focus on technical products, strong brand recall and dealersâ readiness to invest in this product segment and quality consistency of the products. Coated Abrasives division is now at a stage where the market is growing and the demands for its products are good. These are largely driven by the consistent quality and availability. Both these attributes are direct outcomes of the TPM processes implemented and practiced in the facilities at Maraimalai Nagar and Sriperumbudur.
The Non-standard business was engaged on productivity improvement for customers with a slew of new product launches. The Company forayed into showcasing itself as a technology expert and create value for customers through conducting seminars to enhance the knowledge level of its customers. Metal working fluid also delivered good growth riding on the back of portfolio enlargement with focus on machining.
Distribution leadership has been one of the strategic pillars for the Companyâs growth and the business has been making steady progress in this front. During the year, the business aggressively appointed new channel partners and expanded its dealer network both in India and abroad. Retail development and industrial storming initiatives were conducted for better market penetration.
The Abrasives sales in Russia increased this year owing to introduction of new products and targeting newer territories. Wendt India which addresses the Super Abrasives & Grinding machines market had a marginal growth in its revenues. Sterling Abrasives which addresses the agriculture related applications delivered a good growth during the year.
Manufacturing
Manufacturing supported the marketing initiatives well in terms of timely delivery, product performance and consistency
The key strategy over the years has been to increase the indigenous sourcing and lowering the gap between exports and imports to ensure sustainable profitability in the Abrasives business. Business continued to focus on pursuing dual strategy
- firstly, of moving from traditional Brown to Semi-friable to gain significant competitive advantage; secondly, of offering superior Coated technical products with high performance Zirconia and Ceramic grains.
In order to cater to increased demand for Coated products, the division pursued capacity expansion projects in Maraimalai Nagar to ensure feed with higher width across all product ranges in cloth and paper to Sriperumbudur Coated facility.
Today''s successful organizations require a significant competitive advantage, hence it is utmost essential for companies to use winning strategies to survive and be successful. The Company has adopted TPM not only as a tool but also as its strategic initiative and this has given the Company a competitive edge today. TPM is an organization-wide strategy to increase the effectiveness of production environments, especially through methods of increasing the effectiveness of equipment. The TPM journey which started in 2011 marked the beginning of an era of change. Sriperumbudur and Maraimalai Nagar plants were awarded Total Productive Maintenance (TPM) award for Excellence - Category âAâ by Japan Institute of Plant Maintenance (JIPM) during 2014-15. In 2015-16, the Tiruvottiyur plant qualified for the JIPM audit after clearing the CII TPM Health check. This year, Tiruvottiyur plant was awarded the JIPM
Excellence Award for Excellence - Category âAâ. In the years to come, other Abrasives plants - Hosur and Uttarkhand will strive towards achieving TPM certification.
In its TPM pursuit, the Company has taken Total Effectiveness as a prime focus, which includes Productivity, Quality, Cost, Delivery, Safety, Environment, Health and Morale. Today, we have reached higher levels of Overall Equipment Effectiveness (OEE), On Time Delivery, reduction in energy consumption; Defect Phenomena Elimination, Breakdown elimination by significant percentage; Productivity improvement by substantial quantum - the Company continues its journey towards World Class Manufacturing Management Standards.
The entity in Russia completed the up-gradation of bond production facility in vitrified Abrasives area. New products like high-porosity Bonded Abrasives were introduced to the local markets during the year.
As a part of the restructuring initiatives in China, the manufacturing operations have been discontinued and a new business model for the future business operations has been set up. This will pave the way for future growth in China.
Aided by buoyancy in revenues and cost reduction projects and others initiatives, the business recorded an increase in standalone operating Profits before interest and taxes at Rs,1047 million from Rs,937 million last year. At a consolidated level, the Profits grew from Rs,831 million last year to Rs,1133 million this year.
Key Financial Summary
Rs, million
Particulars |
Standalone |
Consolidated |
||||
2016-17 |
2015-16 |
Change |
2016-17 |
2015-16 |
Change |
|
Total revenue |
8592 |
7844 |
10% |
10163 |
9217 |
10% |
Segment results (PBIT) |
1047 |
937 |
12% |
1133 |
831 |
36% |
Capital employed |
3122 |
3301 |
-5% |
4629 |
4720 |
-2% |
Share to total revenue of CUMI |
57% |
57% |
- |
46% |
46% |
- |
Share to segment results (PBIT) of CUMI |
58% |
53% |
- |
43% |
34% |
- |
Ceramics Business Profile
The Ceramics business has three product groups viz. Industrial Ceramics, Super Refractories and Anti-corrosives.
Industrial Ceramics business offers Alumina and Zirconia products of technical ceramic grades addressing wear protection, electrical insulation, thermal protection and ballistic protection applications. The Super Refractories product group supplies fired, monolithic, flow control products, POW Wellfiler and fibre as also Refractory design and installation services addressing the insulation and thermal resistance requirements of industries. The Refractory fibre, Refractory design and installation businesses are addressed through our joint ventures Murugappa Morgan Thermal Ceramics Limited and Ciria India Limited. The Anti-corrosives product group offers acid resistant bricks, polymer concrete cells and various other products addressing the anti-corrosion requirements of industries.
The key user industries for Ceramics business are Power Generation and Transmission, Coal washeries, Grain handling, Sanitary tiles and Sanitary ware, Ballistic protection, Cement, Non-ferrous metals, Iron and Steel industries, Carbon black, Insulators, Furnace building, Glass, Petrochemicals and Construction.
The operations are carried out through ten manufacturing/ service facilities located in India, Australia and Russia. The subsidiaries in North America, Middle East and China also support this business in getting an extended customer reach.
The Industrial Ceramics business based out of India is largely a global business and majority of the sales volumes are through exports. The Refractory business in India is predominantly a local business.
The Company is one of the major players in India, Australia and Russia in specific product groups.
Industrial Ceramics division celebrated its silver jubilee in November 2016. The division over the years has been able to carve a niche for itself in the business of high Alumina Ceramics. The division has grown exponentially over the past years and is now strategically placed to step into the next level of growth journey.
Industry scenario
There has been no material change in the Ceramics industry structure in India, which is catered to by a few major players.
Globally however, NTK Japan exited Metallized Cylinders business in 2015-16 and its manufacturing assets and customers database were acquired by the Companyâs Ceramics business. The Company is now the second largest producer in the world. In the Wear Ceramics space, there are six major players globally - the Company is one of the reputed players in the world. In the
Key Financial Summary
Rs, million
Particulars |
Standalone |
Consolidated |
||||
2016-17 |
2015-16 |
Change |
2016-17 |
2015-16 |
Change |
|
Total revenue |
3899 |
3383 |
15% |
4724 |
4085 |
16% |
Segment results (PBIT) |
509 |
398 |
28% |
704 |
501 |
41% |
Capital employed |
2820 |
2754 |
2% |
3694 |
3558 |
4% |
Share to total revenue of CUMI |
26% |
25% |
- |
21% |
20% |
- |
Share to segment results (PBIT) of CUMI |
28% |
23% |
- |
27% |
21% |
- |
Engineering Ceramics, there are around five players globally with CUMI Ceramics being relatively smaller in size.
In Australia, CUMI is one of the major players in the Lined Equipment and Mineral processing industry. There are about a dozen players in the industry, most of whom market products imported from China and USA.
Refractory industry in India is a highly fragmented market with a market size of around Rs,60 billion. The Companyâs product profile caters to the top end temperature range applications.
The Refractory industry in Russia is a highly fragmented market and Volzhsky Abrasives Works (VAW) caters primarily to the aluminum industry in Russia.
Sales Overview
Revenues of the Ceramics business grew by 15 per cent on a standalone basis from ''3383 million to ''3899 million.
Metallized Cylinders and Wear Ceramics products business sustained the continued marketing efforts in targeting newer markets and partnering with global customers. This year the business could achieve breakthrough sales in Engineered Ceramics business with its highest ever sales. Business is working on strategic initiatives to maintain current share as also identifying to grow up the value chain in both structural and functional ceramic products.
The Refractory business delivered good growth compared to last year. The divisionâs sales were driven by growth in Fired Refractoriness and Anti-corrosive segments. New products like Tap Hole Clay and Slide gate faced delays in customer acceptance and sales of these products are expected to pick up significantly during 2017-18.
In Russia, Nitride Bonded Silicon Carbide Refractoriness, registered growth on revenues.
Manufacturing
The Industrial Ceramics division accomplished important business milestones during the year. A new state-of-the-art Research and Development facility (DSIR approved Lab) was inaugurated during the second quarter of the year with advanced characterization and research facilities. The new Metalized Cylinder manufacturing line with assets from NTK, Japan was set up and the commissioning is likely to commence during early 2017-18.
The contract manufacturing for base level Ceramics started in 2014-15 continued successfully during the current year. Focus was given on improving efficiency through reduction in reclaim, improvement in grinding and lapping. Significant focus and efforts were given towards new product development in Wear Ceramics, resulting in introduction of value added Ceramic products. The business continued its pursuit in strengthening relationship and strategic co-operation with key OEMs. During the year, the business was able to qualify as partner with OEMâs for the new products launched.
The division started its TPM journey in 2014-15 and with sustained and intense efforts, cleared TPM Health Check by CII TPM Club of India during January 2017.
The Refractory business in last three years has invested in new technology mainly for Iron & Steel and Foundry industries. The business has also invested in consumable (flow control) products mainly for mini Steel industry and this investment is expected to provide growth opportunities from the year 2017-18.
Electro minerals
Business Profile
The major product groups of this segment are Fused Alumina (comprising Brown and White Alumina), Silicon Carbide (crude, macro and fine), Fused Zirconia, Alumina Zirconia, Pearl Zirconia and Zircon Mullite. The Company also manufactures a range of âspecialtiesâ like Semi Friable, Azure-S and fine powders for niche markets. The operations are carried out through eight manufacturing facilities located in India, Russia and South Africa.
The business focusses on aggressive growth in the export market with suitable product portfolios and provides customers with application specific products, with an objective to attain improved product profitability. For this, the business ensures speedy execution of projects and enhanced asset utilization.
The business intends to continue its focus on special products through internal capability building and strategic partnerships in the market place to promote its products in different parts of the world.
Key user industries for this business are Abrasives, Refractoriness, Steel, Photovoltaic, Brake linings, Nuclear energy, Wooden laminates, Friction composites, Semiconductor and others.
The business has captive bauxite mines, sand mines and a captive power plant.
Industry Scenario
The Fused Alumina installed capacity globally is around 2 million tons with major capacities being in China. The Company is largely a local player with customers based in India. Apart from the domestic players, imported products have a visible share in the Indian market. Competitive imports become favorable or unfavorable depending on Free Trade Agreements between countries, duty structures and exchange rates.
In the Silicon Carbide space, the installed capacity would be anywhere to the extent of 1.5 to 2 million tons with large portion of it being in China, VAW, Russia with a capacity of 0.08 million tons is the second largest single location capacity in the world.
In the Fused Zirconia space, the global capacity could be approximately 0.07 million tons. China would occupy around twenty five percent of the global market. The Company with a capacity of 0.01 million tons is the third in the world.
The Company continues to retain its position as one of the reputed manufacturers of Silicon Carbide and Fused Zirconia.
Sales Overview
The Electro minerals business recorded revenues of Rs,3396 million compared to last year standalone revenues of Rs,3299 million.
The year 2016 was a year of challenges for the exports of Electro mineral business. The Solar Photovoltaic business which supported the business in the first half of the year 2016-17 was almost nil during second half coupled with weak market in China & Europe that affected the sale of value added products.
In South Africa, the Fused Zirconia sales was flat. The Russian operations continued to fuse with full capacity utilisation. The entity also launched various grits with new fractions meeting industry requirements. During the year, the Russian business faced power shortage due to transformer shutdown for around two months, which affected the production volumes for the year by around 4000 tons.
Manufacturing
The relocated facilities from South Africa were commissioned in Cochin, India in March 2017. The new Zirconia Bubble Fusion Plant and the two Alumina Fusion Plants will result in creation of one of the most advanced and integrated Electromineral complexes in the world. The direct job creation from this project will primarily be in the technology and application side; it is also expected to create indirect jobs in the front and backend of the supply chain. The new facilities will add, at full capacity, about
25,000 tons of fused minerals generation.With the commissioning of these facilities, the Company has developed capabilities in manufacturing a wide range of Aluminas, Silicon Carbide, Zirconias, Engineered grains like Azure S, Microporous high temperature insulation mineral-Nebulox, microgrits and treated grains.
Product mix of special minerals improved compared to the previous year. However, the new developed grits had to pass through the long qualification cycle with new customers and product acceptance. With an aim to meet the applications and serve the user industry better, the business continues to modify, adapt and improve various production processes for ensuring improvement in recovery, minimising generation of by-products, achieving a higher throughput and generating grains with higher purity and better specifications.
The joint project with Abrasives team for developing high performance grits yielded substantial dividends leading to development of cutting edge Abrasive products.
Maniyar experienced lowest ever rainfall and it significantly affected the power generation. The Electrominerals divisionâs profitability was impacted on account of that.
The existing Maniyar Hydel project serves only twenty five per cent of the divisionâs power requirement. This would make highly imperative for the Minerals business to establish an additional power project as the power demand for the business would be going up from current level due to the ramp up of the facilities commissioned. The Company has announced to set up a 21 MW captive Hydel power project in Keerithode and is in the process of getting final Governmental approvals.
The Profit before interest and tax dropped from Rs,1270 million to Rs,909 million on a consolidated basis owing to lower volumes arising out of power outage in Russian operations and adverse movement in exchange re-statement of receivables and payables. The results were further impacted by the lower power generation at Maniyar.
Key Financial Summary
Rs,million
Particulars |
Standalone |
Consolidated |
||||
2016-17 |
2015-16 |
Change |
2016-17 |
2015-16 |
Change |
|
Total revenue |
3396 |
3299 |
3% |
7694 |
7486 |
3% |
Segment results (PBIT) |
212 |
334 |
-37% |
909 |
1270 |
-28% |
Capital employed |
2488 |
2400 |
4% |
5514 |
5026 |
10% |
Share to total revenue of CUMI |
23% |
24% |
- |
35% |
37% |
- |
Share to segment results (PBIT) of CUMI |
12% |
19% |
- |
35% |
52% |
- |
FINANCE
During the year, the Company generated Rs,1769 million of cash surplus from its operations on a standalone basis.
All debts have been serviced on time. The Companyâs long and short term borrowings (other than financial lease of Rs,26 million) as on 31st March 2017 stands Nil. The capital expenditure program of Rs,774 million was financed from internal accruals.
This year, owing to healthy cash generation which has occurred due to prudent capital expenditure and efficient working capital management, the Company was able to pay back all the bank borrowings at the standalone level. This is a landmark achievement for the Company and it has become debt free, since the Company embarked on its growth phase. On similar lines, the debt at a consolidated level has come down by fifty per cent compared to the previous year from Rs,3199 million to Rs,1559 million. Borrowings net of cash and cash equivalent level at a consolidated level stands at Rs,261 million.
The debt equity ratio for the Company, now is at its best - nil at a standalone level and 0.11 at a consolidated level. The Companyâs balance sheet is robust and it augurs well for the Company to venture into its next phase of growth.
The credit ratings of the Company, ''A1 â for short-term borrowings and ''AA Stableâ for long-term borrowings were re-affirmed by CRISIL. Over the years, the Company has been resorting to a prudent mix of rupee and foreign currency borrowings to finance its operations and achieve reduction in financing cost. The finance cost at a standalone level is at ''88 million compared to ''89 million last year. The Company availed export financing loans at low interest rate to bring down the overall borrowing cost. The Company also earned ''18 million by investing surplus cash available for short term.
At a consolidated level, the interest cost has come down from ''229 million to ''181 million. The repayment of loans helped in bringing down the finance cost.
With the Indian entity enjoying a significant natural hedge, a cautious approach was adopted to hedge the remaining exposures. The Company adopts prudent tax management policies.
There are no material changes and commitments, affecting the financial position of the Company which have occurred between 31st March 2017 and the date of this report.
INDIAN ACCOUNTING STANDARDS (IND AS) -IFRS CONVERGED STANDARDS
The Company, its subsidiaries and joint ventures in India have adopted Ind AS with effect from 1st April 2016 pursuant to the Companies (Indian Accounting Standard) Rules, 2015 notified by Ministry of Corporate Affairs on 16th February 2015. The Company has completed the modification of accounting and reporting systems to facilitate the adoption of Ind AS. The implementation of Ind AS is a major change process effected since Q1 of the FY 2016-17 and the Company has presented the Ind AS transition impact on the standalone and consolidated financial results (refer Standalone note no. 48 and Consolidated note no. 43 respectively in the Financial Statements).
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 categorized based on the nature, type and the risk rating so as to effectively ensure the reliability of operations with adequate checks and balances.
The Internal Audit team evaluates the effectiveness and adequacy of internal controls, compliance with operating systems, policies and procedures of the Company and recommends improvements, if any. Significant audit observations and the corrective/preventive action taken or proposed to be taken by the process owners are presented to the Audit Committee. Annual review of adherence to the agreed action plan is carried out. The scope of Internal Audit is annually determined by the Audit Committee considering the inputs from the Statutory Auditor and the Management.
Capital and revenue expenditure are monitored and controlled with reference to approved budgets. Investment decisions are subject to detailed evaluation and formal approval according to schedule of authority in place. Periodical review of capital expenditure with reference to benefits forecasted is done. Physical verification of assets is also periodically undertaken.
The Company, during the year carried out an intensive vulnerability assessment, security configuration review, targeted threat assessment, internal penetration testing and application security review for its network and all IT assets as a risk mitigation measure from security breach perspective. The findings were deliberated and the priorities drawn out including promoting information security awareness amongst the employees, strengthening network security posture, installing security incidence & event management platform, carrying out proactive vulnerability assessment & penetration testing and enhancing Information Security Policies & Procedures across various business units.
The Audit Committee reviews the overall functioning of Internal Audit on a periodical basis. The Committee also discusses with the Auditors periodically on their views on the Financial Statements including the financial reporting system, compliance with accounting policies & procedures, adequacy and effectiveness of the Internal Control Systems in the Company
INTERNAL FINANCIAL CONTROLS
Internal Control is a process, effected by an entityâs Board of Directors, Management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance - as defined by the Committee of Sponsoring Organizations (COSO) of the Tread way Commission (appointed by SEC USA).
As per Section 134 of the Companies Act, 2013, the term âInternal Financial Controlsâ (IFC) means the policies and procedures adopted by the Company for ensuring:
a) orderly and efficient conduct of its business, including adherence to companyâs policies,
b) safeguarding of its assets,
c) prevention and detection of frauds and errors,
d) accuracy and completeness of the accounting records, and
e) timely preparation of reliable financial information
The three key components of IFC followed by the Company are:
i. Entity Level controls (ELC) that the management relies on to establish the appropriate "tone at top" relative to financial reporting are - Code of Conduct, Enforcement of Delegation of Authority, Hiring and Retention practices, Whistle blower mechanism and other approved policies and procedures.
ii. Process Level controls (PLC), to ensure that processes are predictable, stable and consistently operating at the targeted level of performance, with only a normal variation are classified into Manual or IT - Dependent Manual or Automated Controls. They are also classified as Preventive or Detective.
iii. General IT Controls to ensure appropriate functioning of IT applications and systems built by the Company to enable accurate and timely processing of financial data are - User Access rights management and Logical access; Change management controls; Password policies and practices; Patch management and License management; Backup and Recovery of data.
The adequacy of Internal Financial Controls is ensured by:
- Documentation of the risks and controls associated with the major processes;
- Validation and classification of existing controls to mitigate risks;
- Identification of improvements and upgrades to the controls;
- Improving the effectiveness of controls on residuary risks through data analytics;
- Performing testing of controls by the independent Internal Audit;
- Implementation of sustainable solutions to Audit observations.
The Audit Committee periodically evaluates Internal Financial Controls to ensure that they are adequate and operating effectively.
HUMAN RESOURCES
The Companyâs focus on the key organizational asset - its employees remains top priority. The Company continues to focus on hiring right candidates, looking at the employeeâs entire life cycle, ensure timely interventions that help build a long lasting and fruitful career for them. With this in mind, the Company has initiated several positive changes in its Human Resource practices during the year.
Helping Employees Build Their Career
The Employee Engagement survey results over the last few years have indicated communication clarity on career prospects for employees as an improvement area. The leadership team ideated on this aspect and a career progression framework was launched during the year. Employees were explained about the various modes of progression within the organization with the help of case studies. Further, the process of communication to employees on the opportunities that are available across the length and breadth of the organization and the myriad possibilities of learning from a variety of roles and experiences, that would help hone the leadership skills was institutionalized. The annual appraisal cycle has also been aligned with this framework.
Capability Development
The efforts taken over the past years has ensured that a pipeline of ready talent is available for key leadership roles has culminated in identification of High-Potential employees across all Strategic Business Units including subsidiaries. This group of High Potential leaders has been drawn from all departments and locations, from the middle management. The process of identification involved manager assessment, psychometric self-profiling and peer review. These identified High Potential employees will be made to go through rigorous Leadership Program during the coming year.
One of the key efforts taken during the year was promoting an Innovation Culture. The senior leadership was trained on 3-Box methodology of Innovation and subsequently the learning was cascaded down to the rest of the employees. The objective of the program was in building creative confidence, helping people question, challenging the status quo, looking deep inside the work that was being done daily and finding new ways to solve problems. Business projects based on this innovative thinking methodology have been drawn up for the year 2017-18. To aid the process, Design Thinking was introduced to the Leadership team to focus their energies on an empathetic customer-centric mode for Innovation; which could uncover newer markets for both the Company and its customers.
As the Companyâs workforce continue to become younger, the training methods were revamped to appeal to Millennials. The Companyâs Graduate Engineer Trainee (GET) batch of 2016-17, were part of a blended learning initiative called YOLO (You Only Learn Once), to manage their transition into a workplace in a systematic and effective manner. This is a year-long intervention consisting of a combination of behavioral and basic work related technical skills.
This year a select set of young managers from the Company have successfully completed the Young Leadership Program at the Group level.
Propelling Performance
In the ongoing quest to have better dialogue and feedback about performance, the mid-year appraisal was emphasized in 2016-17 to stay on track towards goals for the year. In-house training programs were conducted for managers on crucial performance conversations, particularly on the methods of performance improvement planning.
All the business divisions of the Company now have DSIR approved R&D departments, staffed with a mix of young and well experienced talent, including a few doctorates with international experience. Their performance evaluation parameters were defined to encourage industry-institute collaborations and research paper publications.
Digitization
The Company has been embracing technology with fervour and during 2016-17, it has launched several initiatives in employer branding through social media such as Face book, Twitter, Glass door, Flock and LinkedIn Teams have been formed to update information on these applications with a response mechanism relevant to the audience. Efforts towards this initiative have started to yield positive results - recruitment has received a boost and potential and new hires now hold the Companyâs brand amongst the best employers.
The Companyâs HR website has also been revamped to appeal to the younger workforce. It has been made more user-friendly in layout and usage. A mobile app was also introduced for ease of access by the employees.
Employee Relations
Across all the plants of the Company, cordial employee relations were maintained through proactive grievance handling mechanisms, total employee involvement and engagement with employees in various developmental initiatives. Programs were organized to look beyond the employees and reach out to their families to offer career counseling sessions for the children and organize plant visits. The strength of the familyâs bond with the Company has shown up in engagements scores as well.
The Company continues its commitment to employ and empower women through various initiatives including establishing and implementing extended maternity leave policies and friendly work place policies. The Company also has a policy on prevention of Sexual Harassment at workplace in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress any complaint regarding sexual harassment and the ICC did not receive any complaint during the year.
Sustainable Community Building is a guiding philosophy of the Murugappa Group. The CUMI Centre for Skill Development at Hosur and Edapally continued to play a significant role in honing the skills of its students from the less privileged community in support of their eventual employment.
The Company works closely with the communities neighboring the manufacturing plants and provides them need based support. The different business units have undertaken activities such as educating about road safety, child rights, parenting, blood donation and career guidance for youngsters in the communities. Business units have also embarked upon training women on social entrepreneurship, extending support to senior citizens and making donations to schools to build infrastructure. For more details, please refer the Corporate Social Responsibility section of this Report.
Safety and Health
As part of the TPM efforts, many improvements have been introduced to inculcate safe habits like safety patrolling, identifying and removing unsafe conditions, identifying near-misses and eliminating them, training to maintain awareness among the operating teams etc. As a next step, conduct of behavioral safety analysis and providing training to employees on behavioral safety through Safety Kiosks is being planned. Some of the plants have also embarked on initiatives such as ergonomic studies to reduce fatigue in the shop floor.
Mandatory periodic health check-ups and a sophisticated online health monitoring system to monitor the health status of all employees on a real-time basis were rolled out. The health centreâs are equipped with facilities to handle on-site emergencies.
ACHIEVEMENTS AND AWARDS
The year 2016-17 continued to be a year of recognition for the Company in varied fields.
A new state-of-the-art Research & Development centre at the Industrial Ceramics division in Hosur was inaugurated in August 2016. This centre like the many other R&D centers across business units has been recognized by the Department of Scientific and Industrial Research.
The Industrial Ceramics division celebrated its Silver Jubilee in November 2016 and as detailed earlier, the Electro minerals division set up a first of its kind composite Electro minerals facility during March 2017.
On the awards front, the Company received the Golden Peacock award in the categories of Corporate Ethics and Corporate Social Responsibility for the year 2016. The Electro minerals division was conferred a National Award for Excellence in CSR by National CSR Leadership Foundation, for its many CSR initiatives. The Industrial Ceramics and Electro minerals divisions also won the CII Industrial Innovation Award for 2016 and have been included in the list of âTop 25 innovative organizationsâ.
The total staff on rolls of the Company (including joint ventures and subsidiaries) as on 31st March 2017 was 5203 with 3427 employees in India (previous year 5066 with 3225 employees in India).
PERFORMANCE OF SUBSIDIARIES
Volzhsky Abrasive Works, Russia operated its Silicon Carbide plant to near capacity. However, sales dropped since the previous year from RUB 4284 million to RUB 4267 million due to lower volumes in Silicon Carbide business owing to transformer breakdown impacting about two months fusion process. Abrasives and Refractoriness sales grew compared to last year owing to introduction of new products and expanding target markets. On the profitability front, the entity registered a drop in profitability (after tax) from RUB 686 million to RUB 585 million.
Foskor Zirconia, South Africa recorded a sales of Rand 191 million compared to Rand 192 million last year. The entityâs profit after tax dropped from 12 million ZAR to a loss of 5 million ZAR. The adverse movement in re-statement of forex on receivables, payables led to the loss.
In CUMI Australia, the business in Lined Equipment continued to be good. Sales grew from AUD 16.2 million to AUD 16.3 million. Profit after tax grew from AUD 1.8 million to AUD 2 million.
Sterling Abrasives had a sales of Rs,712 million, compared to the last yearâs sales of Rs,669 million. Profit after tax increased from Rs,52 million to Rs,66 million. The user industry for this company is primarily the agro industry.
CUMI Abrasives and Ceramics Company, the Chinese subsidiary had a sales of CNY 22 million for the year, which was lower than the last yearâs level of CNY 27 million. The subsidiary has sold its land and buildings and its manufacturing assets during the year and the business model has been transitioned to a trading model. The profit after tax was CNY 0.06 million (owing to gains on sale of land and buildings) compared to loss of CNY 20 million last year.
The sales of CUMI America recorded a good growth (USD 6.2 million from USD 5.1 million), driven mainly by the increase in sales of both Bonded Abrasives and Industrial Ceramics. The loss was at 1.5 million USD in the current year as against the 1 million USD loss in the last year.
For CUMI Middle East, sales grew from USD 1.8 million to USD 2.3 million. Profits for the year were at USD 0.07 million against a loss USD 0.16 million.
Southern Energy Development Corporation Limited (SEDCO), the gas based power generation subsidiary, recorded a sales of Rs,265 million as against Rs,219 million last year due to improved supply in gas from Oil and Natural Gas Corporation. Profit after tax grew from Rs,23 million to Rs,62 million.
Net Access India, which provides IT facilities management and other allied services increased its sales from Rs,296 million to Rs,394 million. Profit after tax grew from Rs,16.6 million to Rs,24.1 million.
CUMI International Limited, Cyprus recorded a revenue of USD 5.5 million representing mainly dividend income as against last yearâs income of USD 3.3 million.
CUMI Europe s.r.o, based out of Europe made a profit of CZK 0.5 million.
Performance of associates and joint ventures are given in note no. 6A and 6B respectively of the consolidated financials. Consolidated Financial Statements (incorporating the financial results of the Company, its subsidiaries and associates/joint ventures) have been provided in the Annual Report. Other than the associates/joint ventures referred in the Annual Report, there are no associate/joint venture companies within the meaning of Section 2(6) of the Companies Act, 2013. A statement containing the key financial highlights of each subsidiary, based on the financial statements prepared by them under applicable local regulations for their respective financial years, is also provided in the Annual Report.
RISKS, CONCERNS AND THREATS
ENTERPRISE VALUE ADDITION
The Company has been able to constantly add value and the summary of value addition is given below in the table: Rs, million
Particulars |
2016-17 |
2015-16 |
2014-15 |
2013-14 |
2012-13 |
Generation of Gross Value added |
3959 |
3789 |
3071 |
2829 |
2766 |
(Excludes exceptional income) |
|||||
Breakup on Application of Value added |
|||||
Payment to Employees and Directors |
1549 |
1429 |
1309 |
1270 |
1133 |
Payment to Shareholders (on payment basis) |
189 |
377 |
235 |
281 |
281 |
Payment to Government |
543 |
564 |
374 |
349 |
309 |
Payment to Lenders |
33 |
64 |
49 |
44 |
85 |
Towards replacement and expansion |
1645 |
1355 |
1104 |
885 |
958 |
3959 |
3789 |
3071 |
2829 |
2766 |
- Gross Value Added is Revenue less Expenditure (excluding depreciation, expenditure on employee & directors service, Long term interest)
- Payment to Government is Current tax Dividend distribution tax
- Replacement and expansion is Retained earning Depreciation Deferred tax
Payment to Employees and Directors grew at a CAGR of 8% over the last 5 years. Payment to Government grew at 15% CAGR over the similar period. The Company had been constantly investing towards replacement and expansion expenditure at a CAGR of 14% to ensure fulfilment of market demand.
The Company has constituted a Risk Management Committee aligned with the requirements of the Companies Act, 2013 and Listing Regulations. The details of the Committee and its terms of reference are set out in the Corporate Governance Report forming part of this Report.
The Company has a robust business risk management process to identify, evaluate and mitigate risks impacting business including those which may threaten the existence of the Company. This framework seeks to create transparency, minimise adverse impact on the business objectives and enhance the Companyâs 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 Companyâs Business Plan.
The Company operates across various technology platforms and product verticals built over the years. Relative advantages and disadvantages of such technologies are studied and advances are tracked. Any new technology may impact the performance of the Company in the long run. The Company seeks to address these technology gaps through continuous benchmarking the existing manufacturing processes with developments in the industry and in this connection has made arrangements with technical research institutions and technology consultants. The Company has been making investments in the next level of Manufacturing 4.0 in select modules. Manufacturing 4.0 is the current trend of automation and data exchange in manufacturing technologies.
Sub-par utilization of capacities may lead to inadequate leverage benefits. The Company is ramping up its marketing efforts towards successful product establishment and market acceptance of its products, exploring development of alternate products and establishing a range of applications.
This year, the Company has commissioned projects relocated from South Africa to India. The products produced in these relocated facilities would have to be quality compliant, exhibit product consistency, gain customer acceptance and be compliant to user industry requirements. Any delay in successful production or acceptance of the product, will impact timely capacity utilization of these projects.
Considering that Electro minerals 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 changes in the electricity cost. Apart from pricing, in some locations, availability of power becomes a constraint. Getting access to captive power and creating facilities for captive power generation continues to be a vital strategy of CUMI, as can be exhibited from Maniyar, SEDCO and the proposed setting up of a project at Keerithode.
Fuel cost increase is another area of concern. Petroleum based products are used, either as direct raw material or as fuel for the firing process. This year the fuel costs increased after two successive years of decrease. Any increase in the cost of fuel impacts the profitability adversely. Improvements in firing technologies are avenues which the Company continues to pursue for dealing with the challenges. The Company is also pursuing projects to reduce the risk exposed on variability of fuel prices.
The Company deals with multiple currencies and is thus exposed to translation risk on account of adverse currency movements. After two continued years of rouble depreciation, the year 2016-17 witnessed an appreciation.
Foreign Exchange risk on foreign denominated loans, imports and exports are mitigated by adopting a country-based Forex policy, periodic monitoring and use of hedging instruments. Efforts are being taken to manage both exports and imports to ensure that at Company level, there is a natural hedging mechanism.
This year, the senior leadership received expert advisory on risk management from a reputed leading consultant, wherein the effectiveness of the Companyâs internal control framework in addressing risks and accomplishing its goals & objectives were evaluated; policies, procedures and control assessments in response to identified risks were reviewed; Risk dashboard was designed to track key risk indicators.
The Companyâs input materials are not commoditized and does not warrant any specific hedging to be undertaken. With respect to output materials, adverse impact of changes in commodity prices on user industries could impact the sales which are mitigated by development of alternate products, establishing new range of applications etc. as detailed above. The other mitigation measures for dealing with increase in fuel costs, non-availability of raw materials etc. have been dealt separately in the above paragraphs.
BUSINESS OUTLOOK AND OPPORTUNITIES
According to the World Economic Outlook of the IMF global economic activity is picking up with a long awaited cyclical recovery in investment, manufacturing and trade. World growth is expected to rise from 3.1 per cent in 2016 to 3.5 per cent in 2017. Stronger activity and expectations of a more robust global demand, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs in early 2016. Higher commodity prices have provided some relief to commodity exporters and reduced deflationary pressures. Financial markets are buoyant and expect continued policy support in China besides fiscal expansion and deregulation in the United States. If confidence and market sentiments remain strong, short-term growth could be expected.
However, there is a wide dispersion of possible outcomes around the projections given the uncertainty surrounding the policy stance of the new United States administration and its global ramifications. Inward-looking protectionist policies threaten global economic integration and the co-operative global economic order, which have served the world economy well, especially emerging market and developing economies. Geopolitical risks and a range of other non-economic factors continue to weigh on the outlook in various regions-civil war and domestic conflict in parts of the Middle East and Africa, the tragic plight of refugees and migrants in neighboring countries and in Europe, acts of terror worldwide and the protracted effects of a drought in eastern and southern Africa. If these factors intensify they would deepen the hardship in directly affected countries. Increased geopolitical tensions and terrorism could also take a large toll on global market sentiment and economic confidence. Coming to the Indian economy, last year it delivered a respectable growth despite global headwinds and internal monetary & fiscal policy changes. Corporate earnings for the third quarter astonished everybody on the upside, showing no significant slowdown from the Governmentâs demonetization. The reading sharply contrasted the picture painted by high-frequency indicators, which had pointed to muted activity due to a shortage of hard currency, sparking concerns that the growth figures do not reflect reality in Indiaâs economy and could be revised downwards. Meanwhile, data for the fourth quarter was positive; industrial production rebounded in January and the PMIs rose in February On the political front, the Government gained major victories in a number of state elections, including the countryâs most populous state Uttar Pradesh. The result reflected support to Prime Ministerâs economic reform agenda and showed that his popularity remained strong despite the bold demonetization programme. The victory would pave the way for newer reforms in the coming year. As per Asian Development Bank, Indiaâs economic growth is projected to pick up to 7.4% in 2017, primarily on higher consumption. The growth would be abetted by improved investor confidence, lower food prices and better policy reforms.
FY 2017-18 is likely to be driven by the Government spending especially in the infrastructure sector. The promise of infrastructure sector would not be limited to FY 2017-18 but the investments are expected over a couple of years. The Government is investing in building roads, bridges, highways, airports, waterways etc. offering ample of opportunities for the private players. Rapid urbanization and resultant growth in infrastructure, construction and auto industry would be the key market driver for Indian Abrasives and Ceramics consumption.
Strong demand drivers such as higher productivity, shortening replacement cycle, changing consumer preferences with increasing aspiration to shift to premium products and higher per capita income, Governmentâs thrust on affordable housing and continued pursuit of âMake in Indiaâ initiative is expected to favorably impact the Companyâs businesses.
Auto ancillary sector holds a lot of promise given the fact that the penetration of automobiles in India is the lowest amongst worldâs top 10 auto markets. Moreover, India is also being looked upon as manufacturing hub for low end or small cars by the OEMs. These cars would be manufactured in India and exported around in South East Asian, Middle Eastern, African and Latin American nations. Indian auto ancillary enjoys substantial competitive advantage due to the availability of qualified professionals at reasonable cost and quality conscious supply chain. Growth in automobiles and auto ancillary industry would open up opportunities for high performance Minerals and Abrasives business.
Ushering in of GST will bring about the shift from unorganized to the organized sector as the former is expected to lose their price competitiveness. Abrasives sector has a reasonable share of the unorganized segment. The share shift from customers towards organized players can be anticipated.
Globally, the marketing and manufacturing entities are spread across Middle East, Europe, China, Russia and North America. The demand for the Companyâs products would be favorably spurred by industrialization activity, rising per capita incomes and consumer spending, enhanced manufacturing activities and increase in investments. Boost in construction & manufacturing sectors and per capita incomes would result in bolstering demand for industrial consumables products, for which the Company would stand to be a major beneficiary.
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 Deposits) Rules, 2014 and no amount of principal or interest was 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. No |
Description |
As on 31.03.2016 |
Additions |
Deletions |
As on 31.03.2017 |
1. Loans given by - - -the Company |
- |
||||
2. |
Corporate guarantee given by the Company |
2609.93 |
29.18 |
948.03 |
1691.08 |
3. |
Investments made by the Company |
2446.36 |
34.00 |
2480.36 |
RELATED PARTY TRANSACTIONS
The Company as per the requirements of the Companies Act, 2013 and Regulation 23 of the Listing Regulations has a Policy for dealing with Related Parties.
In line with its stated policy, all Related Party transactions are placed before the Audit Committee for review and approval. Prior approval of the Committee is obtained on a quarterly basis for transactions which are of foreseen and repetitive nature. Omnibus approvals in respect of transactions which are not routine or which cannot be foreseen or envisaged are also obtained as provided under the applicable laws. The list of Related Parties is reviewed and updated periodically as per the prevailing regulatory conditions.
The details of transactions proposed to be entered into with Related Parties are placed before the Audit Committee for approval on an annual basis before the commencement of the financial year. Thereafter, a statement containing the nature and value of the transactions entered into by the Company with Related Parties is presented by the Chief Financial Officer for quarterly review by the Committee. Further, revised estimates or changes, if any to the proposed transactions for the remaining period are also placed for approval of the Committee on a quarterly basis. Besides, the Related Party transactions entered during the year are also reviewed by the Board on an annual basis.
All transactions with Related Parties entered during the financial year were in the ordinary course of business and on an armâs 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 Companyâs policy on dealing with Related Parties as approved by the Board is available on the Companyâs website at the following link https://www.cumi-murugappa.com/policies. html. None of the Directors and KMPs had any pecuniary relationship or transaction with the Company other than those relating to remuneration in their capacity as Directors/ Executives and corporate action entitlements in their capacity as shareholders of the Company.
CORPORATE SOCIAL RESPONSIBILITY
The Murugappa Group is known for its tradition of philanthropy and community service. The Groupâs philosophy is to reach out to the community by establishing service oriented philanthropic institutions in the field of education and healthcare as the core focus areas. The Company being a constituent of the Group has been upholding this tradition by earmarking a part of its income for carrying out its social responsibilities.
The Company continues to engage in Corporate Social Responsibility (CSR) activities directly as well as through implementation agencies.
The Company set up the CUMI Centre for Skill Development (CCSD) in year 2012 at Hosur, to build a skill bank of a technically competent and industry ready work force from the less privileged sections of the Society During the FY 2015-16, the Company replicated this model in Edapally, Cochin. CCSD provides specialized training based on National Council Vocational Training syllabus for the rural youth drawn from socially and underprivileged sections of the society. Three year training is imparted with a stipendiary payment and free boarding facilities, thus enabling the enrolled students to earn while they learn. The job oriented skill training enhances their employability and aids in uplifting their socioeconomic status. The technically trained students can be employed by any industrial entity once they complete the training programme. The Company continues to harness the potential of CCSD centres so far established.
In addition, the Company has also been contributing to the cause of health and education by making grants to AMM Foundation, an autonomous charitable trust, engaged in philanthropic activities in the field of education and healthcare since 1953. During the year, the Companyâs focus areas for these grants were contributions to AMM Vellayan Chettiar Higher Secondary School, Tiruvottiyur - which has been making a difference in the field of education for the past 50 years. The school runs with the vision - To provide Quality Education with good virtues, for the under privileged and marginalized communities around Tiruvottiyur. During 2016-17, the Company also undertook AMM Murugappa Chettiar Centenary scholarships for eligible under privileged college students across Tamil Nadu. Besides the above, the Company also actively pursued local community assistance programmes in and around its plant and office locations.
The Company is headquartered in Chennai and has three of its Abrasives plants operating in and around Chennai. Despite being affected by the Vardah cyclone in December 2016, the Company in the quintessential CUMI-way helped the community and rescue workers through supply of food packets and other necessaries. The Green development programmes of the Company are being pursued with more rigour post the destruction of a large number of trees in our plants.
The Companyâs CSR policy is available on the Companyâs website at the following link https://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.
BUSINESS RESPONSIBILITY REPORTING
The Companyâs ethical and responsible behavior complements its corporate culture. Being a public listed company, the Company recognizes that its accountability is not limited only to its shareholders from a financial perspective but also to the larger society in which it operates. During the year, consequent to the requirements of reporting of its business responsibility initiatives becoming mandatory under the Listing Regulations, the Company formulated a consolidated Policy on Business Responsibility which lays down the broad principles guiding the Company in delivering its various responsibilities to its stakeholders. The Policy is intended to ensure that the Company adopts responsible business practices in the interest of the social set up and the environment so that it contributes beyond financial and operational performance. A copy of the Policy is available at https://www.cumi-murugappa.com/policies.html and the Business Responsibility Report for the year ended 31st March 2017 in terms of Regulation 34 of the Listing Regulations is annexed to this report as Annexure B.
GOVERNANCE
Board of Directors and Key Managerial Personnel
The Board of the Company comprises eleven Directors of which majority (eight) are independent. As at 31st March 2017, the Board comprised nine Directors. During the year, Mr. M A M Arunachalam, was appointed as an Additional Director and he holds office till the date of ensuing Annual General Meeting. The Company has received a notice from a shareholder proposing his candidature as Director in the ensuing Annual General Meeting.
Mr. M Lakshminarayan and Mr. Shobhan M Thakore, Independent Directors who were appointed for a term of three years at the 60th Annual General Meeting held on 1st August 2014 would be retiring on 31st July 2017. In view of their proposed retirement, basis the recommendation of the Nomination and Remuneration Committee, the Board reviewed its composition. Mr. P S Raghavan and Mr. Sujjain S Talwar were appointed as Additional Directors at the meeting held on 9th May 2017. Further, considering that Mr. Raghavan and Mr. Sujjain Talwar satisfy the independence criteria prescribed in applicable regulations, the Board has also recommended their appointment as Independent Directors of the Company for a term of 5 years commencing from 9th May 2017 to the shareholders. Following the changes in the Board composition, the constitution of the various Committees of the Board were also reviewed and revised.
Further, the Nomination and Remuneration Committee at its meeting held on 9th May 2017 also considered extending the services of Mr. K Srinivasan whose term as Managing Director of the Company would be expiring on 22nd November 2017. Based on the Committeeâs recommendation and subject to the approval of the shareholders, the Board has re-appointed Mr. K Srinivasan as the Managing Director of the Company for a further period of two years from 23rd November 2017 till 22nd November 2019.
Mr. M M Murugappan, retires by rotation at the forthcoming Annual General Meeting and being eligible has offered himself for re-appointment.
Suitable proposals regarding the above changes in the Board composition have been included in the Notice convening the 63rd Annual General Meeting for consideration and approval by the shareholders.
The Company has received declarations from all its Independent Directors confirming that they meet the criteria of independence prescribed both under the Companies Act, 2013 and the Listing Regulations.
Mr. K Srinivasan, Managing Director, Mr. Sridharan Rangarajan, Chief Financial Officer and Mrs. Rekha Surendhiran, Company Secretary continue to be the Key Managerial Personnel of the Company as per Section 203 of the Companies Act, 2013 and there were no changes during the year.
Board Meetings
During the year, five Board Meetings were held, the details of which are given in the Corporate Governance Report.
Board Evaluation
Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its various Committees as per the evaluation framework adopted by the Board on the recommendation of the Nomination and Remuneration Committee. Structured assessment forms which were duly reviewed and revised during the course of the year were used in the overall Board evaluation comprising various aspects of the Boardâs functioning in terms of structure, its meetings, strategy, governance and other dynamics of its functioning besides the financial reporting process, internal controls and risk management. The evaluation of the Committees was based on their terms of reference fixed by the Board besides the dynamics of their functioning in terms of meeting frequency, effectiveness of contribution etc.
Separate questionnaires were used to evaluate the performance of individual Directors on parameters such as their level of engagement and contribution, objective judgment etc. The Managing Directorâs evaluation was based on leadership qualities, strategic planning, communication, engagement with the Board etc.
The Chairman was also evaluated based on the key aspects of his role. The performance evaluation of the Independent Directors was carried out by the entire Board. The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors at their separate meeting held during the year.
Policy on Appointment and Remuneration of Directors
Pursuant to Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee of the Board has formulated the criteria for Board nominations as well as the policy on remuneration for Directors and employees of the Company. The criteria for Board nominations lays down the qualification norms in terms of personal traits, experience, background and standards for independence besides the positive attributes required for a person to be inducted into the Board of the Company. Criteria for induction into Senior Management positions have also been laid down.
The Remuneration policy provides the framework for remunerating the members of the Board, Key Managerial Personnel and other employees of the Company. This Policy is guided by the principles and objectives enumerated in Section 178(4) of the Companies Act, 2013 and reflects the remuneration philosophy and principles of the Murugappa Group to ensure reasonableness and sufficiency of remuneration to attract, retain and motivate competent resources, a clear relationship of remuneration to performance and a balance between rewarding short and long-term performance of the Company. The policy lays down broad guidelines for payment of remuneration to Executive and Non-Executive Directors within the limits approved by the shareholders. The Remuneration
Policy was reviewed by the Board during the year. Further details are available in the Corporate Governance Report.
The Board Nomination criteria and the Remuneration policy are available on the website of the Company at https://www. cumi-murugappa.com/policies.html.
Composition of Audit Committee
The Audit Committee of the Board comprises only Independent Directors. Mr. T L Palani Kumar is the Chairman and the other members are Mr. M Lakshminarayan, Mr. Sanjay Jayavarthanavelu and Mrs. Bharati Rao. Mr. Sujjain S Talwar has been inducted into the Committee on 9th May 2017. During the year, five Audit Committee meetings were held, the details of which are provided in the Corporate Governance Report.
Statutory Auditors
M/s. Deloitte Haskins & Sells, Chartered Accountants, (FR No. 008072S) Chennai, were appointed as Statutory Auditors of the Company at the 62nd Annual General Meeting to hold office up to the conclusion of the 63rd Annual General Meeting. Their office as Auditors will expire at the conclusion of the ensuing Annual General Meeting.
In line with the requirements of the Companies Act, 2013, the Company is required to appoint new Auditor in the place of M/s. Deloitte Haskins & Sells. Based on the recommendation of the Audit Committee, the Board of Directors have recommended the appointment of M/s. Price Waterhouse Chartered Accountants LLP, (Reg. No.FRN 012754N/N500016) as the Statutory Auditors of the Company to hold office from the conclusion of this Annual General Meeting until the conclusion of the 68th Annual General Meeting of the shareholders of the Company at a remuneration of ''38,66,000/- for the FY 2017-18, subject to annual ratification by the shareholders pursuant to applicable laws. A resolution seeking the approval of the shareholders for the appointment of Statutory Auditors is included in the Notice convening the ensuing Annual General Meeting.
The proposed Auditors have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed there under for appointment of Statutory Auditors. Further, as required under Regulation 33 of the Listing Regulations, they have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India.
The Board of Directors take the opportunity to place on record its grateful appreciation for the contribution and services rendered by M/s. Deloitte Haskins & Sells, its partners and managers during their tenure as the Statutory Auditors of the Company
The Report given by M/s. Deloitte Haskins & Sells on the Financial Statements of the Company for the year ended 31st March 2017 is provided in the financial section of the Annual Report. There are no qualifications, reservations, adverse remarks or disclaimers given by the Auditors in their report.
Cost Auditors
Pursuant to Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014 and amendments thereof, the Company is required to maintain cost accounting records in respect of products of the Company covered under CETA categories like organic and inorganic chemicals, electrical or electronic machinery, steel, plastic and polymers, ores and mineral products, other machinery, base metals etc. Further, the cost accounting records maintained by the Company are required to be audited.
The Board, on the recommendation of the Audit Committee, had appointed M/s. S Mahadevan & Co. (firm no. 000007), Cost Accountants, Chennai to audit the cost accounting records maintained by the Company under the said Rules for the FY 2016-17 on a remuneration of ''400,000/-. Further, the said firm has also been appointed by the Board to conduct the cost audit for the FY 2017-18 at the same remuneration.
The Companies Act, 2013 mandates that the remuneration payable to the Cost Auditor is ratified by the Members. Accordingly a resolution seeking the shareholderâs ratification of the remuneration payable to the Cost Auditor for the FY 2017-18 is included in the Notice convening the 63rd Annual General Meeting.
Secretarial Audit
M/s. R Sridharan & Associates, Practicing Company Secretaries, Chennai was appointed as the Secretarial Auditor to undertake the Secretarial Audit of the Company for the FY 2016-17. The report of the Secretarial Auditor is annexed to and forms part of this Report (refer Annexure F). There are no qualifications, reservations, adverse remarks or disclaimers given by the Secretarial Auditor in the Report.
Compliance Management
The Companyâs in house compliance management system tracks compliances across the various factories and offices of the Company. This tool has a comprehensive coverage of the various applicable laws and is periodically updated based on the regulatory changes.
Corporate Governance
In terms of Regulation 34(3) read with Schedule V of the Listing Regulations, a separate section on Corporate Governance including the certificate from the Statutory Auditors confirming compliance is annexed to and forms an integral part of this Report.
CEO/CFO Certificate
The Managing Director and the Chief Financial Officer have submitted a certificate to the Board on the integrity of the financial statements and other matters as required under Regulation 17(8) of the Listing Regulations.
DIRECTORSâ 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 2017, applicable accounting standards have been followed and no material departures have been made from the same;
- the accounting policies mentioned in Note 3 of the Notes to the Financial Statements have been selected and applied consistently and judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit of the Company for that period;
- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company for preventing and detecting fraud and other irregularities;
- the annual accounts have been prepared on a going concern basis;
- that internal financial controls to be followed by the Company have been laid down and that such internal financial controls are adequate and operating effectively;
- proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.
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 & Development and forex earnings/outgo as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is annexed to and forms part of this Report (refer Annexure C).
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 and its future operations.
PARTICULARS OF EMPLOYEES
The information on employees and other details required to be disclosed under Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed to and forms part of this Report (refer Annexure D).
During the year FY 2016-17, with the approval of the shareholders obtained through a Postal Ballot process, the Company introduced and implemented the Carborundum Universal Limited ESOP Plan 2016 (ESOP 2016) for grant of 37,72,000 Stock Options to eligible employees of the Company including any Managing Director and Whole-time Director as well as that of its subsidiaries. Under the earlier Companyâs ESOP Scheme 2007, no Option grants have been made since February 2012. The ESOP 2016 introduced in February 2017 currently governs the grant of Options to employees. The disclosures with respect to Options granted under the ESOP 2007 and ESOP 2016 are contained in the Corporate Governance section forming part of this Report. Further, the disclosures relating to Stock Options as per Securities and Exchange Board of India (Share based Employees Benefits) Regulations, 2014 read with the circular issued by SEBI on 16th June 2015 has been provided on the Companyâs website and is available in the link https://www.cumi-murugappa.com/policies.html. Both the ESOP Scheme 2007 and ESOP 2016 are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014.
ACKNOWLEDGEMENT
The Board gratefully acknowledges the co-operation received from various stakeholders of the Company viz., customers, investors, channel partners, suppliers, government authorities, banks and other business associates during the year. The Board also places on record its sincere appreciation of all the employees of the Company for their commitment and continued contribution to the Company.
On behalf of the Board Chennai M M Murugappan
May 9, 2017 Chairman
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, 2011
The Directors have pleasure in presenting their 57th Annual Report
together with the audited financial statements for the year ended 31st
March 2011. 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.
The year 2010 witnessed the reemergence of the world economy from the
throes of recession caused by the global financial crisis of 2008-09.
World economy recorded a growth of 5ü percent during the first half of
2010 and decelerated to about 33/4 percent during the second half. As
fears of a global depression receded in 2009, businesses at first
slowed their rate of de-stocking, and then, as confidence improved,
began to rebuild depleted inventories. This fostered a sharp rebound in
industrial production and trade, which lasted through the first half of
2010. As this phase progressed, inventory rebuilding and, as a
consequence, industrial production and trade moved into lower gear in
the second half of last year. In the meantime, however, reduced excess
capacity, accommodative policies and further improvements in confidence
and financial conditions encouraged investment and sharply reduced the
rate of unemployment. Consumption also regained strength.
Consequently, the recovery become more self-sustaining, risks of a
double-dip recession in advanced economies receded, and global activity
has started accelerating again.
While growth was visible across geographies, the pace of economic
growth was geographically uneven. The recovery broadly moved at two
speeds in emerging and developing economies, with appreciable
differences amongst each set of countries. In major advanced economies,
economic growth was modest, especially considering the depth of the
recession in earlier years, reaching just 3 percent. In contrast, many
emerging and developing economies witnessed robust growth, reaching
more than 7 percent in 2010.
In India, the economy has emerged with remarkable rapidity from the
slowdown caused by the global financial crisis. Growth in 2010-11 as
per the Advance Estimates released in January 2011 is estimated at
8.6%. Rebound in agriculture and continued momentum in manufacturing,
despite the deceleration in services, helped to drive the economy. The
slight slowdown in industrial
production in the later part of the year was more in the nature of a
road bump than any indication of a long term problem. On the demand
side, a rise in savings and investment and pick-up in private
consumption have resulted in strong growth of the GDP Inflation however
has remained a concern during a large part of the year, mainly driven
by food prices.
Top Line Summary
Against the backdrop of a resurgent world economy, the Companys global
revenues for 2010-11 registered a strong growth of 25 percent over the
previous year. The top line summary is as follows:
(Rs. million)
31.3.2011 31.3.2010
Net Sales *
- India 8540 7006
- Rest of the world 7467 5792
Total Net Sales 16007 12798
Other Income 474 345
Total Revenues+ 16481 13143
* Includes income from contracts and processing charges.
+Excludes exceptional items of profit / loss i.e. profit on sale of
land, building and investments/provision for dimunition in value of
investments
The growth in global revenues was particularly driven by the strong
performances of the Indian and Russian operations and also moderate
improvement recorded in the operations in South Africa and North
America. The Australian operations which experienced strong growth
during the past few years appeared to lose some of its momentum. Share
of international operations in the overall revenue pie increased from
45 percent to 47 percent during the year depicting an increasingly
international character which the Companys businesses are assuming.
On a standalone basis, the growth was even more pronounced, aided by
the strong acceleration in the Indian economy. Growth in revenues was
driven not only by robust performance in the domestic business but also
by sales to international markets.
While home sales grew by about 20 percent, export growth was explosive
with an increase of 43 percent.
The top line summary on a standalone basis for 2010-11 was as follows
registering an impressive growth of 25 percent:
(Rs. million)
31.3.2011 31.03.2010
Net Sales *
- Domestic 7251 6022
- Exports 1946 1359
Total Net Sales 9197 7381
Other Income + 337 238
Total Revenues + 9534 7619
* Includes income from contracts
+ Excludes exceptional items of profit / loss
Driven by the upswing in demand in most served markets, all business
segments performed creditably particularly the Abrasives business which
registered a sales growth of Rs.1483 million. It was a dream year for
the Abrasives business with sales crossing the Rs.5 billion mark on a
standalone basis. In percentage terms, the abrasives business topped
the pack registering a growth of 27 percent, electrominerals by 25
percent and Ceramics by 22 percent.
Off take was strong from key customer segments particularly from
automobiles, auto components, steel, construction and fabrication,
glass and petro chemical and iron and steel industries. Inflow of
project orders was also strong, barring the anti-corrosives product
group. The growth in order flow from the direct customer segment, which
is the barometer of the manufacturing sector of the economy, surpassed
that of the trade segment.
A noteworthy feature of the current year performance was that the
growth rate was sustained right through the year, with the Company
consistently clocking a sales increase of around 25 percent every
quarter compared to the corresponding quarter of the previous year.
The manufacturing teams performed creditably to service the enhanced
demand requirements of the markets. The additional capacities built
up over the last 3-4 years in various product lines helped the
Company to capture the benefits of the surge in volume.
Concerted effort was made during the year by various business units to
leverage the strength of the other business units with respect to
knowledge of local market or customer access or through advantages
afforded by lower factor cost.
Cost of key inputs, including abrasive grains, glass fibre discs,
cotton yarn, raw petroleum coke and zircon sand showed a spiraling
trend. To the extent feasible, the businesses managed to offset these
cost increases by passing them to the customers through price
increases. Power cost increase, which was quite steep in certain
geographies, further accentuated the cost push. Also, the bottleneck
in availability of power from the state grid due to power-cuts during
some parts of the year was managed to a very large extent with power
availability from the Companys power generating subsidiary. This
helped the business to deliver uninterrupted production which was very
critical given the buoyancy in demand.
Employee cost registered an increase of nearly 14% due to conclusion of
long term settlements with the workmen in two factories, increments in
management staff compensation and increase in flexi staff strength. The
growth in revenues helped the Company to absorb the resultant
additional burden.
Capital expenditure of Rs.669 million was incurred during the year.
The major investments were Phase II of the silicon carbide microgrit
project in Kochi, India, setting up of a line for manufacture of non
woven abrasives in the bonded abrasives plant in Chennai, India,
installation of balancing equipment in the metallised cylinders and
wear resistant tiles plant at Hosur, India, reconstruction and
technological upgradation of SiC black and green fusion cells and
installation of equipments for manufacture of new categories of
refractories and abrasives in Volzhsky, Russia and expansion of
facilities for manufacture of castable cement at Jabalpur, India. Some
minor investments were also done in the operations in Australia, China
and South Africa.
Barring brief spells, there was no volatile movement in the US dollar
exchange rates versus the Indian Rupee, which helped the Indian
operations to avoid uncertainties on export sales realization and cost
of imported inputs. In South Africa, the appreciation in the South
African currency against the US Dollar
and the strong volatility posed a threat to overall earnings since a
large part of the revenues were from international sales and US Dollar
denominated. The Company benefited from the foreign currency hedges
taken and protected earnings and profits. CUMI Australia benefited in
terms of lower raw material cost as a result of the strengthening of
the Australian currency against the US Dollar. The Russian Rouble
strengthened appreciably against the US Dollar posing a significant
challenge, as nearly all costs were in Roubles and a significant part
of the revenue in Euro and US Dollar.
Earnings
Gross operating margins on a consolidated basis remained at about last
years levels, though there was a mixed trend amongst product lines.
Aided by the 25 percent growth in revenues, EBITDA from operations
witnessed an increase of 27 percent.
Depreciation was higher by Rs.60 million as a result of the continuing
investments being made in various projects. Interest costs were lower
by 12 percent as a result of the soft interest rate regime that
prevailed in the first half of the year, improved working capital
management and decline in borrowings consequent to the healthy cash
flows generated by operations. Earnings before interest and tax and
exceptional items (EBIT) increased by 30 percent.
The Company continued to pursue its strategy of divesting non-core
assets to fund investments into core operations, which resulted in an
exceptional item of profit of Rs.235 million.
As a result of the upswing in operations and also the exceptional item
of profit, consolidated profit before tax for the year recorded a
significant increase of 51 percent over last year. Consequently profit
after tax was also higher by 68 percent at Rs.1708 million (previous
year Rs.1017 million)
On a standalone basis, earnings before interest and tax (excluding
exceptional items) increased by 48%. Profit after tax more than doubled
from Rs.580 million to Rs.1243 million.
The key earnings indicators (on a consolidated and standalone basis)
were as follows:
(Rs. million)
Consolidated Standalone
31.3.2011 31.3.2010 31.3.2011 31.3.2010
Total net 16481 13143 9535 7619
revenues*
Earnings
before interest,
depreciation & 3121 2460 2002 1439
tax (ÃEBITDA)
from operations*
Earnings before
interest and tax
2616 2016 1602 1085
from operations
(EBIT)*
Finance cost 271 308 203 239
Exceptional 235 (5)
items
Profit before tax 2580 1714 1643 842
Profit after tax 1708 1017 1243 580
Earnings per
share of Rs.2/- 18.27 10.90 13.29 6.21
each
EBIT/ Net Sales 16.3% 15.8% 17.4% 14.7%
ratio *
Return on capital 21.9 18.0 20.6 14.2
employed (%) *
* excluding exceptional items.
+ Exceptional items represent one time profit arising on sale of land,
buildings and investments and loss on provision for diminution in value
of investments.
Net sales includes income from processing charges / contracts.
On a consolidated basis, shareholders fund as on 31st March 2011 was
Rs.7455 million. Addition for the year (net of proposed dividend) was
Rs.1527 million.
Year-end debt levels (Rs.4085 million) comprise of secured loans
(including lease liability) of Rs.2201 million and unsecured borrowings
of Rs.1884 million. Borrowings have reduced by Rs.306 million during
the year. As a result, the debt-to-equity ratio on a consolidated basis
was 0.5 and on a standalone basis has improved to a comfortable 0.4
(from 0.7 last year).
Net fixed assets were at Rs. 5525 million (previous year Rs. 5316
million). The total capital expenditure for the year was Rs. 669
million, which exceeded the depreciation of Rs.505 million for the
year. During the year, the investments in the subsidiaries in USA,
Canada and Middle East were consolidated into CUMI International
Limited, Cyprus which is also a 100% subsidiary. This is a step
towards simplifying the holding structure of the international
operations.
The sharp focus given on working capital management paid rich
dividends. Though net current assets (excluding bank balances and
dividend provisions) increased from Rs.4057 million to Rs.4911 million,
this was primarily due to stepped up sales levels. Working capital
ratios showed marginal improvement.
The summary financial snapshot (on a consolidated and standalone basis)
were as follows:
(Rs. million)
Consolidated Standalone
31.3.2011 31.3.2010 31.3.2011 31.3.2010
Assets Summary
Fixed Assets 5525 5316 3885 3788
Goodwill on 832 849 -
consolidation
Net Current 5505 4315 2464 2036
Assets
Investments 749 779 1641 1718
Total 12611 11259 7990 7542
Funded by
Shareholders 7455 5929 5282 4289
funds
Minority Interest 594 490 -
Borrowings 4085 4391 2288 2838
Deferred Tax 477 449 420 415
Liability
Total 12611 11259 7990 7542
(Rs. million)
Consolidated Standalone
31.3.2011 31.3.2010 31.3.2011 31.3.2010
Debt Equity 0.5 0.7 0.4 0.7
Ratio
Current Ratio 3.4 3.3 2.7 2.6
With stock markets turning buoyant during the year, the employee stock
options turned attractive for employees as a result of which 114,761
options were exercised and an equivalent number of equity shares
allotted. A total sum of Rs. 21 million was realized as exercise price.
Cash Flow
On a consolidated basis, cash generation from operations was Rs. 2055
million in 2010-11. Net Cash used for purchase of fixed assets and
other investing activities was Rs.544 million. Net cash used for
repayment / servicing of borrowings and other financing activities was
Rs.1282 million. The net increase in cash and its equivalents was
Rs.229 million.
The amounts available for appropriation and the recommended
appropriations on a standalone basis are given below:
(Rs. million)
Available for appropriation
Profit after tax 1242.58
Balance brought forward from previous year 1640.29
Total 2882.87
Recommended appropriation
Transfer to debenture redemption reserve 31.25
Transfer to general reserve 750.00
Dividend
- Interim 140.05
- Final 93.47
Dividend tax 26.93
Balance carried forward 1841.17
Total 2882.87
Considering the increase in earnings for the year, the Board had in
February 2011 declared and paid an interim dividend at the rate Rs.1.50
per equity share of Rs.2 each. The Board is now pleased to recommend a
final dividend of Rs.1 per equity share of Rs.2 each for the financial
year 2010-11. This would make a total dividend of Rs.2.50 per equity
share for the year (as against Rs.2 paid for 2009-10).
PERFORMANCE OF BUSINESS SEGMENTS
(Including information required to be given in the Management
Discussion and Analysis Report)
The market developments, current year performance and outlook for
various business segments are elaborated below.
ABRASIVES
Business Profile
This business comprises of the following major product groups viz.
bonded abrasives, coated abrasives (including non-wovens), super
abrasives (through a joint venture), and power tools. The operations
are carried out through eleven manufacturing facilities located in
India, Russia and China. The subsidiaries/ related entities located in
North America, Middle East and Thailand support this business in
getting an extended customer reach.
On a consolidated basis, the Company continues to maintain a leadership
position in the Indian market. In the Russian market, the Company is
the market leader in bonded abrasives. Customers located in over 50
countries are also serviced through the network of subsidiaries and
related entities. Abrasives are used in a wide spectrum of industries
the key among them being automobile, engineering, fabrication, wood
working, home maintenance, construction and infrastructure.
Industry Overview
The global industry continues to be lead 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. During the
year, there was some consolidation in the global industry by
acquisition of a strong European bonded and super abrasives player by
another global abrasives player.
The Indian abrasives industry continues to be catered largely by two
leading players. There are a few smaller players specializing in select
products. The market is also catered to by imports particularly from
China. Many global abrasive manufacturers have entered the Indian
market either through sales offices or manufacturing facilities.
There are three major players in the domestic Russian industry.
Imports service a sizeable portion of the market. There was no major
change in the industry structure in this market.
Market scenario
CUMIs Abrasives business started the year on a very robust note
clocking a growth of 19 percent in the first quarter. With each
oncoming quarter the sales tempo was enhanced, riding the wave of
resurgence in the manufacturing sector in the Indian and Russian
economies. While sales in the Indian market increased by 21 percent,
in the Russian market growth was more strident touching 79 percent.
All major product categories witnessed healthy growth rates.
Sale of custom-built abrasives, which is a key indicator of the health
of the manufacturing industry, registered a steep increase of 37 per
cent. The Company was able to leverage the strong ties established with
various direct customers through several decades of partnership by
delivering quality products and extending its strong application
engineering skills and capture the benefits of the buoyancy in demand.
Sales into construction, fabrication, wood working and home maintenance
segments which are largely addressed through the trade channel also
improved through the product management approach. Efforts were taken to
improve brand visibility through road shows, end user meets and
participation in regional level exhibitions. To harness the business
opportunities arising from infrastructure development in India, special
focus was given on project sales, particularly in thin wheels.
During the year, the Company continued to pursue its strategy of
addressing the complete market spectrum with an appropriate combination
of brand and product. The product portfolio was continuously upgraded
to suit the evolving demands and needs
of customers. New product sales during the year was Rs. 605 million.
The product basket was also critically reviewed periodically to promote
a balance between healthy margins and product volumes. As a result,
some low margin products were taken off the line. Traded products were
used to address gaps in product portfolio and also where they offered a
comparative advantage in terms of manufacturing cost.
Generic product development especially in the areas of speciality
resinoid products has given the lead over competition in terms of
performance price parity. Growth in super abrasives and thin wheels was
encouraging with the supply and development of a slew of new products.
Product differentiation continued to remain the cornerstone of the
Companys competitive strategy.
Sales of super abrasive and other products by the joint venture viz.
Wendt India Ltd. grew by about 47 percent, with the Company focusing
on supply of precision components along with the traditional super
abrasive tooling business, for select customers. The effective change
in the joint venture partner is being challenged by the Company as it
is in breach of contractual arrangements and legal requirements.
In the power tools business the Company reinforced its position as a
long term player. Sales increased by 55 percent to Rs.110 million with
several products getting continued patronage from end users.
Relationships with several channel partners, who play a critical role
in promoting these products were strengthened. Market presence was
intensified in several states across India. The product portfolio was
strengthened, both by addition of products hitherto not in the product
basket and also by quality enhancement and value engineering of
existing products. New sources for products were identified to offer
value benefits and also to service the pipeline of new products planned
for the next year.
Manufacturing
All abrasives plants functioned immaculately to cater to the volume
requirements of the market. Given the strong off take from end users,
the Indian facilities operated at near full capacity in industrial
products.
Construction of a new line for manufacture of non-woven abrasives in
the Tiruvottiyur, India plant was completed towards the end of the
year. The facility was set up with know how from international sources.
In the last two years, the Company has been offering these products in
a small way by sourcing them from third party
manufacturers. By acquiring the capability to manufacture this product
in house the Company will be able to offer the complete spectrum of
abrasive products.
In the bonded abrasives plant in Hosur, India manufacturing process for
new varieties of castable wheels were developed and stabilized.
Improved fast firing cycles were introduced in kilns for vitrified
products which will yield benefits in terms of lower fuel consumption.
The abrasives plant at Roorkee, India graduated into a reliable source
for bonded and coated abrasives addressing the mass market segment.
Production levels were stepped up substantially over last year. The
individual disc coating facility has been fully stabilized for certain
sizes.
In Volzhsky, Russia re-layout of the manufacturing line was undertaken,
in certain parts of the facility, to accommodate additional equipment
designed to address the market requirements for specific categories of
products. Automatic presses were put into operation for manufacture of
small size vitrified wheels which has helped to widen the product
portfolio. Further work has also been undertaken to increase capacity
for manufacture of resinoid products.
The business witnessed steep cost increase in key raw materials like
abrasive grains, glass fabric disc etc. To counter the negative impact
of this, targets for cost savings were undertaken and achieved. In
spite of a double digit growth in cost of inputs, the business improved
operating margins from 9 percent to 14 percent. This was made
possible by improvement in internal efficiencies (like power and fuel
consumption rates, raw material input-output norms, identification of
alternate sources for inputs, development of alternate raw materials
and recycling of materials) and externally on the market side by
rationalizing prices through a segmented approach and also through
general price increases. Since the overall mood was positive, the
business was able to give effect to price increases smoothly.
2010-11 was a good year in terms of working capital management.
Collections were uniformly good and by virtue of tight sales
administration, receivables rates were improved. However inventory of
certain raw materials was consciously kept high to tide over supply
constraints in the market and also hedge against volatilities in
prices.
Key financial summary
(Rs. million)
Consolidated Operations Standalone Operations
2010 -11 2009-10 Growth 2010-11 2009-10 Growth
Net sales 6990 5507 27% 5155 4282 20%
Operating profits
before interest &
tax (PBIT) 960 517 86% 776 466 67%
Capital employed 4460 4127 8% 2782 2633 6%
Contribution to
total segment
revenue of CUMI 44% 43% 56% 58%
Contribution to
total segment
operating PBIT of
CUMI 35% 24% 49% 40%
CERAMICS
Business Profile
The ceramics business operates in three niche product groups viz.
industrial ceramics, super refractories and anti corrosives.
Industrial ceramics business offers alumina and zirconia products of
technical ceramic grades addressing wear & corrosion protection,
electrical insulation, thermal protection and ballistic protection
requirements. 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
joint ventures. The anti corrosives product group offers acid resistant
cements, polymer concrete cells and various other products addressing
the anticorrosion requirements of end users.
The key user industries for ceramics business are power generation and
transmission, coal washeries, grain handling, sanitary tiles and ware,
ballistic protection, cement, non ferrous metals, iron and steel
industries, carbon black, cement, non-ferrous metals, iron and steel,
insulators, furnace building, glass, petro-chemical and construction
industries.
The operations are carried out through eight manufacturing facilities
located in India and Russia. The subsidiaries in Australia, Canada,
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 mainly a regional
player with leadership positions in India and
Australia and also a key position in Russia. The Company also exports
to over 30 countries.
Industry structure
There has been no material change in the industry structure in India,
which is catered to by 4-5 major players. CUMI is a market leader in
certain market segments. In Australia, CUMI Australia is one of the
leading players in the lined equipment and industrial ceramic tiles
industry. There are about a dozen players in the industry, most of whom
market products imported from China and USA. There was no major change
in the industry structure during the year.
Market scenario
The Ceramics business grew by 27 percent on a consolidated basis
during the year. In industrial ceramics, the Company continued to
pursue its business model of designing and manufacturing ceramic tiles
in India and marketing them through the subsidiaries in Australia,
Canada, South Africa and lately CUMI China in their respective markets
and with other markets being handled directly by the Indian operations.
Driven by the strong recovery in the Indian market and also the revival
in many parts of the international markets, the business registered a
strong growth. The growth was to some extent dampened by the decline in
turnover in the Australian markets during the third and fourth quarters
of the year owing to floods in Australia and the resultant slowdown in
mining and bulk material handling segments. Further supplies from
Chinese suppliers who competed on price continued to be intense. The
business increased its share in the lined equipment business. Sales of
composite liners in rubber, ceramic and steel was promising. Sales
effort was strengthened by upgrading the installation facility and
also by increasing the sales force.
During the year, focused approach in servicing the Original Equipment
Manufacturers (OEMs) in projects for coal and power and offering
solutions to bulk material handling operators resulted in a 38 percent
growth in sales in India. Sales of wear protection products in
international markets grew by 22 percent owing to the improved
performance of the North American and European markets. CUMIs overseas
subsidiaries played a key role in stepping up sales in South Africa and
China. Initial supplies to new markets like Russia and Middle East have
prepared the ground for future growth.
Growth in engineered ceramics business was largely driven by exports
which more than doubled on account of supply of structural ceramic
parts for certain niche market segments where the Company has gained a
strong foothold. Metallized ceramics business grew by 30 percent and
50 percent in domestic and exports markets respectively.
In super refractories, sales of fired and monolithic products grew by
over 31 percent during the year in the Indian operations. Growth was
driven primarily by the strong offtake from user industries. Sales
growth was in excesss of 30 percent both in Indian and export markets.
In respect of the Russian operations, sales grew by 14 percent, with
the growth in international sales being off set by a marginal decline
in sales to the Russian markets. The refractory fibre business
registered a growth of over 27 percent in revenues. Refractory design
and installation services business registered a steep growth of 64 per
cent driven by strong offtake from project orders in the petrochemical
and fertilizer industries.
In the Indian markets the uptrend in sales was largely driven by higher
off take from iron & steel, glass, petro-chemical industries, power,
chemical processing, steel and furnace building industries. The
initiative to address turnkey orders paid rich dividends and helped to
enhance revenues from project orders from these customer segments.
Services of channel partners were engaged to supplement the sales
effort. The company has enhanced its reach by widening its customer
base in the domestic segment. Competition from imports affected few
product categories. During the year, the Company was empanelled as
an approved supplier by a leading international product licensor of
refractories for petro-chemical industry. Market development
initiatives were in the form of participation in international fairs.
Sales of anti-corrosive products were at last year levels. Sales of
polymer concrete cells, particularly in the export market, was
encouraging and helped to off set the lower order inflow on account of
project sales
Manufacturing
The operating margins of the Ceramics business was maintained at last
years levels despite intense competition particularly in large fixed
price project orders, steep increase in prices of fuel and some
increase in price of silicon carbide. Raw material costs for the high
alumina ceramics however remained generally stable. Raw material
consumption efficiencies were maintained at standard norms. With sales
volumes and revenues registering an increase, operating profits were
higher as a result of control on fixed costs.
The wear resistant liner plant at Hosur, India operated at peak
capacity and helped service the demand from domestic and overseas
customers. Robust processes helped the business to deliver consistent
products. With flexible manufacturing processes the business was able
to deliver the required product mix. In order to meet increased demand
for small tiles a state of the art high speed press was commissioned
during the year. With this in place, the plant bolstered its capability
to meet customer requirements for wear resistant tiles of varied
geometries. In order to further enhance manufacturing capabilities,
automation of additional processes were taken up. This coupled with six
sigma quality initiatives helped the plant to deliver consistent and
reliable products to customers. The plant also developed the
capability to manufacture certain hi-tech products addressing climate
control.
Addition of capacity balancing equipments and robust processes enabled
the metallized ceramics plant in Hosur, India to deliver consistent and
reliable metallized cylinders to suit the stringent requirements of
customers as also meet the escalating demand for volumes.
At the engineered ceramics plant at Aurangabad, India, production
processes were modified and stabilized and additional machines were put
into operation for injection moulding and stabilized.
The fired refractories plants in Ranipet, India and the newly set up
plant in Serkadu, India improved capacity utilisation. The Jabalpur,
India plant, continued to play a pivotal role in augmenting sales of
monolithic refractories. During the year additional investments in
equipment were made in this plant to augment capacity to manufacture
high alumina refractories cement production.
The anti-corrosives manufacturing facility at Serkadu, India which
commenced operations last year functioned well. Work on establishing a
line for manufacture of FRP composites has commenced and will be
completed in 2011-12.
Cost pressures in the refractory fibre business increased stress on
profitability which was to a certain extent addressed through cost
savings initiatives and price action at the customer end.
In Russia, the nitride bonded silicon carbide refractories line which
was set up with overseas technology functioned well. The products were
tested at labs in Switzerland and was certified as comparable with in
industry. First set of orders from a large aluminum producer was
obtained.
Key financial summary
(Rs. million)
Consolidated Standalone
2010-11 2009-10 Growth 2010-11 2009-10 Growth
Net Sales 3476 2857 22% 2469 1991 24%
Operating profits
before interest &
tax 612 557 10% 368 315 17%
(ÃPBIT)
Capital employed 3113 2845 9% 2265 2080 9%
Contribution to
total segment
revenue of 22% 22% 27% 27%
CUMI
Contribution to
total segment
operating 22% 26% 23% 27%
PBIT of CUMI
Business Profile
The major product groups of this business segment are fused alumina
(comprising brown and white alumina), silicon carbide and fused
zirconia. The operations are carried out through 6 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 power plant.
Industry Overview
The market structure in the global electrominerals business remained
largely unchanged with the Company continuing to be the second largest
player in the silicon carbide segment of this business.
In fused alumina, the company is mainly a national player focused on
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 fused zirconia, the Company is the
third largest manufacturer globally. The global industry is largely
catered to by top five players. There was no major change in the
industry structure during the year.
Market scenario
The domestic and international markets for electro minerals, was very
buoyant both on account of supply constraints and also demand growth.
The business recorded a growth of 25 percent in revenues with the
Indian operations achieving a growth of 34 percent and the Russian
operations by 24 percent over last year. The South African operations
grew by 21 percent. The increase in sales was both on account of
volume increase and also escalation in prices.
The silicon carbide business in Russia benefited from the upturn in the
local economy and also revival in the European markets. Exports
increased by 22 percent and domestic sales grew by 13
percent. Sales volumes increased by 13 percent. Prices for silicon
carbide, which was firm in the early part of the year, stabilized
later. Steps were taken to change the product mix to increase focus on
value added products.
In India, slow down in supplies from China helped the business in terms
of improved price realization across the entire product range. Buoyancy
in the manufacturing sector in India drove up demand for abrasives
which in turn resulted in brown fused alumina sales (including captive
supplies) increasing by 11 percent. The upturn in the abrasives
industry and the continued escalating requirements of the photovoltaic
industry helped silicon carbide sales to achieve a steep increase of
over 50 percent. White fused alumina sales increased by about 25 per
cent helped by the strong off take from refractory manufacturers. The
Indian operations continued its focus on specialty products addressing
select industries and developing and adapting products to meet the
emerging needs of this industry. This helped the Indian operations
double its international revenues and continue the stellar performance
of the past.
In South Africa, sales of fused zirconia and fumed silica witnessed a
11 percent growth in volumes aided by the recovery in key user
industries viz. refractories and steel. The appreciation of the South
African currency diminished competitiveness. In the second half of the
year the business witnessed a steep increase in input costs. To
protect profitability, prices were increased which met with some
resistance from key customers. As a result the growth in revenues was
lower than expected. Efforts to widen the customer base have been
initiated and the benefits of this would be seen in 2011-12.
Initiatives have been undertaken to enter new markets.
Manufacturing
To meet the increased demand, volumes were increased at all locations
by increasing throughputs from existing facilities.
Silicon carbide business was faced with steep increase in price of raw
petroleum coke. The cost push could not be fully passed on to customers
and as a result the business witnessed a drop in margins.
In the fused zirconia business, though off take increased, appreciation
of the South African currency increased the stress on earnings and
profitability. Steep escalation in sand prices hurt cost structure.
Preliminary steps for capacity expansion has been taken.
Investments have been made during the year in the silicon carbide
fusion facilities in Volzhsky, Russia to enhance efficiencies and
upgrade fusion technology.
The first phase of the silicon carbide microgrit facility at Cochin
Special Economic Zone, India commenced commercial production in April
2010. Subsequent phases are being implemented in a phased manner.
Key financial summary
(Rs. million)
Consolidated Standalone
2010-11 2009-10 Growth 2010-11 2009-10 Growth
Net Sales 5979 4789 25% 2102 1566 34%
Operating profits
before interest 1102 1027 7% 442 372 19%
& tax (ÃPBIT)
Capital employed 3439 2665 29% 1314 1105 19%
Contribution to
total segment 37% 37% 23% 21%
revenue of CUMI
Contribution to
total segment 40% 47% 28% 32%
operating PBIT of
CUMI
In Volzhsky Abrasive Works, turnover at RUB 2.8 billion for the year
ended December 2010 constituted a growth of 34% over previous year.
With the Russian and European economies emerging out from the
recessionary trends and supply constraints continuing in commodities,
the fortunes of the business became stronger. The uptrend in sales was
both on account of volume growth and also improved price realization.
Abrasives which witnessed steep growth benefited most from the
turnaround of the economy. Electro minerals also grew well. The
profitability of the business came under pressure because of higher
input costs.
In CUMI Australia, turnover of AUD 12 million for the year 2010- 11 was
lower than that for the previous year (AUD 13.6 million). Increased
competition from China and floods in the last quarter of the year which
affected the mining industry were some of the factors responsible for
the lower sales. Gross margins however recorded a marginal increase.
In South Africa, the operations of Foskor Zirconia saw a revival
consequent to the upturn in the off take from various user industries.
Sales at ZAR 160 million recorded a growth of 21 percent for the year
2010-11.
CUMI Abrasives and Ceramics Co. Ltd., China, has progressed well since
commencing full fledged operations in the first quarter of the current
financial year. Though the Company came into existence in December 2009
upon the earlier de-merger of the Chinese joint venture, considerable
time was taken to obtain various approvals and permission as a result
of which full fledged business could be commenced only much later.
During the year ended December 2010, the Company clocked a turnover of
CNY 18 million for the year. Capacity utilization improved as the year
progressed. A large part of the production was supplied to CUMI India
and VAW, Russia. The Company also established relationships with
customers in South America, Middle East and Europe including some for
OEM supplies. At CUMI Canada, sales for the year 2010-11 was CAD 3.1
million recording a growth of 25 percent. Increase in sale of
industrial ceramics products as a result of the improved economic
climate in Canada helped the Company to record higher turnover. CUMI
America doubled sales during the year. Turnover increased from USD 0.7
million to USD 1.3 million helped by the rebound in the US economy. The
Company enhanced its market reach and also its customer base. CUMI
Middle East recorded a decline in sales from USD 2.9 million last year
to USD 1.8 million in 2010-11. CUMI America, CUMI Canada and CUMI
Middle East became subsidiaries of CUMI International Cyprus during the
year.
Sterling Abrasives continued its strong run registering a 31 percent
growth in turnover. Sales of bonded abrasives was at Rs.418 million
aided by the strong off take from user industries. Southern Energy
Development Corporation Limited, the subsidiary engaged in power
generation, operated at about 85 percent capacity and supported the
power requirements of the various manufacturing units of CUMI in Tamil
Nadu as also other units belonging to the Murugappa Group. Turnover for
the year was Rs.156 million, at last year levels. Net Access India
Limited, which is in IT facilities management and managed services,
increased revenues by 19 percent. CUMI Fine Materials Limited is yet
to commence commercial activities. During the year the authorised
capital of the Company was enhanced in anticipation of new projects.
CUMI International Limited, Cyprus recorded a total income of USD 2
million representing mainly dividend and interest inflow.
A consolidated financial statement (incorporating the financial results
of the company, its subsidiaries, joint ventures and associate) has
been provided in the Annual Report. The key financial highlights of
each subsidiary based on the financial statements for their respective
financial years prepared by them under their applicable regulations is
also attached. 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 Circular No 51/12/2007-CL-lll
dated 8th February 2011. 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.
Finance
With the world economy just entering the recovery phase, money markets
were benign during the first two quarters of the year.
With inflation showing an upward trend, bank rates witnessed an uptrend
in India as the year progressed. However interest rates in overseas
locations continued to remain fairly supportive and stable.
Given the healthy cash flows, the Company did not contract any major
long term borrowings during the year. Substitution of debt with more
favourable terms has been done at CUMI International Cyprus. The
relationships with the CUMIs bankers in India have been leveraged to
get credit facilities for overseas subsidiaries. All debts have been
serviced on time (including scheduled repayments).
All capital expenditure was funded from internal accruals. The Indian
operations benefited from the benign interest regime in the first two
quarters of the year. Taking advantage of this, the Company had
contracted six month funding to finance its working capital needs which
helped it to enjoy the benefit of lower interest rates even when the
market rates increased during the latter part of the year.
With the Indian entity enjoying a significant natural hedge, a cautious
approach was adopted to hedge the remaining exposures. Given the
significant increase in business volumes and risks imposed in terms of
higher receivables, considerable focus was given on keeping the
receivables tidy.
The Company continued to retain its strong credit ratings - ÃP1+ for
short-term borrowings and ÃAA+ Stable for long-term borrowings - from
CRISIL.
Human Resources
The year 2010-11 went beyond resilience and revival from a global
slowdown, to one of growth exceeding expectations. HR initiatives were
aligned to this pace set by the business to ensure such growth
continues in the coming years.
The leadership team revisited ÃVision CUMI 2020 in a session
facilitated by a consultant of international repute, setting the tone
for the rest of the organization. They identified key observable
behaviors that they are committed to uphold at all times. The team also
followed through with their 360-degree feedback from the previous year,
by taking up individual development plans focusing on leveraging their
strengths and working on developmental needs.
The second-line leaders were also being geared up for their turn. The
CUMI Leadership Program saw its second batch graduate successfully with
the promise to be at the helm when CUMI 2020 happens. Young aspirants
werent far behind with CUMI ÃUstaad programs conducted to hone their
technical skills, especially the application engineering capabilities,
which are at the heart of CUMIs business.
The engagement levels of employees was measured and found to be higher
compared to similar companies in India. Based on a comparison of
market compensation levels across locations, compensation package was
selectively restructured during the year. An ÃOnline Performance
Management System was launched in order to align to the Groups
performance management framework and also to make it user-friendly for
employees spread across various locations. ÃMy Space, the enhanced
employee portal, was unveiled to provide a single window of access to
employees information needs.
The Company continues its commitment to employment and empowerment of
women through its ÃMitr Forum and other initiatives. Womens Day
Awards and participation in the MMA Womens Convention events were some
of the additional activities of this year.
At the workmen level, successful long-term settlements were signed in
major locations towards a healthy and productive work environment. A
basic training centre was started to build a supply of skilled
workforce to meet future needs, through an apprenticeship model
approved and recognized by the State Government in Tamilnadu. It also
proved to be a socially impactful program, turning school drop-outs and
unemployed youth from the local communities into a pool of employable
and skilled candidates.
Safety and Environment initiatives were undertaken in the form of
awareness campaigns, competitions, continuously monitoring matrices and
training programs.
Retaining critical talent and acquiring new talent to meet the business
needs was the biggest challenge in the last year; going forward,
initiatives like Graduate Engineer Training programs and recognising
top talents are expected to help the Company counter this challenge in
the coming years.
International Operations: Acquiring and retaining talent in CUMI China
continues to be a challenge and efforts towards employee orientation
and culture-building have been taken to address the same. In Foskor
Zirconia, South Africa, employee orientation and efforts to build a
positive culture have been initiated. Developing an e-learning platform
on CUMIs culture and best practices to replicate them in our overseas
ventures is being explored.
The total staff on rolls, of the Company (including subsidiaries and
joint ventures) was 4481 with 2548 people in India as on 31st March
2011.
The Companys dependence on petroleum products as fuel and as a raw
material input is sizeable. With prices taking a steep upward curve and
supply constraints becoming visible, profitability of various
businesses could come under pressure. While the cost increase would be
passed to customers, to the extent permitted by market situation,
concerted efforts are also being made to optimize consumption through
upgradation of firing equipment, improvement in technological processes
and practices. Risks of dependence on one or two suppliers for critical
raw materials are being addressed by initiating steps to widen the
supplier base.
The pace of change in customers requirements poses a constant
challenge in certain product lines. The technical teams are
continuously working to address these through improved manufacturing
processes. The possibility of lifting of tariff barriers could
intensify competition in certain geographies for some product lines.
Proactive interactions with the regulatory authorities through trade
associations are being done to address this.
Availability of workforce with the desired skills set and their
retention is becoming challenging in certain markets. Effective HR
intervention would be done to mitigate the effects of this trend.
Given the multiple countries in which the Company operates with each
location having sizeable trade flows in the form of imports or exports,
violent fluctuations could impair the profitability of the Company.
These risks are sought to be mitigated by adopting a prudent forex
policy whereby risks are hedged using financial products.
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.
World real GDP growth is forecasted at 4.5 percent in 2011 and 2012,
down modestly from 5 percent in 2010. Real GDP in advanced economies
and emerging and developing economies is expected to expand by about
2.5 percent and 6.5 percent, respectively. In advanced economies, the
handoff from public to private demand is advancing well, reducing
concerns that diminishing fiscal policy support might cause a
"double-dip" recession. Financial conditions continue to improve,
although they remain unusually fragile. In many emerging market
economies, demand is robust and overheating is a growing policy
concern. Unemployment remains high in advanced economies, and new
macroeconomic risks are building in emerging market economies. In
advanced economies, weak sovereign balance sheets and still- moribund
real estate markets continue to present major concerns, especially in
certain euro area economies. New downside risks are building up on
account of commodity prices, notably for oil, and, related,
geopolitical uncertainty, as well as overheating and booming asset
markets in emerging market economies. While the recovery is gaining
strength, downside risks continue to outweigh upside risks.
In India, based on the performance of the economy over the last five
years and analysis of the underlying trends of critical variables,
Indias real GDP is expected to grow by 9 percent (+/- 0.25) in
2011-12 and revert to the pre-crisis growth levels. A sharp
deterioration in weather conditions or a disproportionate spike in the
price of crude petroleum can lead to slower growth. Equally a sudden
movement of these variables in a favourable direction
can give a boost to the growth rate. Given governments gradual exit
from stimulus measures, the savings and investment rates are likely to
rise and thereby support achievement of the GDP growth estimates. As
stated earlier, certain amount of uncertainty continues to prevail over
the economic conditions in advanced countries. However in view of the
diminishing concerns of a second dip recession, the external risks to
India achieving a 9 percent growth rate appears low.
Given the estimates of growth, the Company is planning to cruise well
on its growth trajectory with optimism with regard to buoyancy in
revenues and profits. The main challenge will be spiraling raw material
prices which will be addressed through price corrections and
efficiencies. The Company will continue to make investments in capacity
addition and modernisation and will also actively consider any
investment opportunities for geographical expansion and technology
acquisition.
Board of Directors
Mr. Sridhar Ganesh and Mr. Shobhan M Thakore retire by rotation at the
forthcoming Annual General Meeting and being eligible have been
proposed for reappointment.
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.
As recommended by the Corporate Governance Guidelines of the Ministry
of Corporate Affairs, the partner in charge for the audit has been
rotated and Mr. B Ramaratnam has taken over from April 2010.
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.
The Company contributed for various philanthropic purposes in the field
of education and health-care and also for scientific research. Further
the Company has been providing need-based support to the community
around the Companys plant locations both in India and Russia, focusing
on education, health, sports and also welfare of war veterans.
Corporate Social Responsibility took a new shape by focusing on needs
of the local community identified through a structured study.
Accordingly, projects have been undertaken in the area of health,
hygiene and education to members of the local community. A total sum of
Rs.42 million has been spent on community development work in India and
Russia.
The directors responsibility statement, 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.
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
30th April 2011 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