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Directors Report of Carborundum Universal Ltd.

Mar 31, 2017

Directors’ 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 Directors’ 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 Government’s target and a bit stronger than the expectations. Strong fiscal support and a booming property market were the main factors that drove China’s 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 India’s reputation as one of the few bright spots in an otherwise grim global economy. India is not only amongst the world’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 year’s 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 Company’s cash flow generation is healthy. The following table summarizes the Company’s 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 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,0.75 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 division’s 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 world’s 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 dealers’ 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 Company’s 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 “A” 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 “A”. 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 Company’s 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 Company’s 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 division’s 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 OEM’s 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 ‘specialties’ 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 division’s profitability was impacted on account of that.

The existing Maniyar Hydel project serves only twenty five per cent of the division’s 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 Company’s 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 Company’s 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 ’ 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 ''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 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 Organizations (COSO) of the Tread way 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) orderly and efficient conduct of its business, including adherence to company’s 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 Company’s focus on the key organizational asset - its employees remains top priority. The Company continues to focus on hiring right candidates, looking at the employee’s 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 Company’s workforce continue to become younger, the training methods were revamped to appeal to Millennials. The Company’s 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 Company’s brand amongst the best employers.

The Company’s 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 family’s 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 centre’s 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 ‘Top 25 innovative organizations’.

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 entity’s 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 year’s 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 year’s 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 year’s 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 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 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 Company’s 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 Company’s 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 Government’s 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 India’s 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 country’s most populous state Uttar Pradesh. The result reflected support to Prime Minister’s 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, India’s 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, Government’s thrust on affordable housing and continued pursuit of ‘Make in India’ initiative is expected to favorably impact the Company’s businesses.

Auto ancillary sector holds a lot of promise given the fact that the penetration of automobiles in India is the lowest amongst world’s 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 Company’s 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 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 is available on the Company’s 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 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 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 Company’s 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 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 A and forms part of this Report.

BUSINESS RESPONSIBILITY REPORTING

The Company’s 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 Committee’s 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 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 judgment 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 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 shareholder’s 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 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 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.

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 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 Company’s 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 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

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 5¼ 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 (‘EBITDA) 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% (‘PBIT)

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 (‘PBIT)

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 - ‘P1+ for short-term borrowings and ‘AA+ 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 ‘Vision 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 ‘Ustaad 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 ‘Online 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. ‘My 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 ‘Mitr 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

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