Carborundum Universal

Dear Shareholders
 
 CUMI's commitment to all round business excellence continued in the
 year 2005-6. Supported by another year of good growth in the Indian
 economy and increasing acceptance of products and services in overseas
 markets, all divisions of the company showed robust growth in revenues
 and profits. The company's focus on a strategic direction towards
 strengthening its emphasis on material sciences, and in particular
 ceramics for industrial and specialty applications took firmer shape.
 
 The abrasives division had another year of consistent performance. In
 bonded abrasives, customer partnerships in India and overseas were
 enhanced through a structured approach to Grinding Systems Engineering,
 ensuring that the knowledge within the company and that of the customer
 was used to improve both quality and productivity at the customer end.
 New distribution channels have been set up to improve product
 availability and to provide specialist service offerings in the rapidly
 growing construction markets. Coated abrasives showed moderate growth
 largely owing to difficulties in distribution in the North American
 market. With the acquisition of the distributor and the restart of
 business under CUMI Canada, there is already strong evidence of
 regaining position in this market. The new coated maker plant at
 Sriperumbudur will come on stream in the second quarter of 2006-7. This
 will considerably enhance product offerings and also help improve
 capability to serve markets worldwide through our strategic alliance
 partners.
 
 Industrial ceramics and refractories had another year of outstanding
 growth. Refractory sales grew owing to increased capital spending by
 customers, as also the recognition of our ability to be a reliable
 supplier partner. Industrial ceramics grew similarly further supported
 by greater value added service offerings to the infrastructure and
 mining industries. Issues relative to raw materials which constrained
 progress in the past year were resolved well through international
 sourcing and building greater robustness in the manufacturing
 processes.
 
 With the improved off-take from user divisions and the introduction of
 a range of new products, the electrominerals division further improved
 their performance. Power generation at the Maniyar hydroelectric plant
 was at an all time high thus ensuring both availability and better cost
 advantage to the division.
 
 These encouraging trends have provided greater confidence to increase
 the capital expenditure across all divisions of the company to 711
 million rupees during the year. These projects were managed well and
 the benefits of enhanced capacity and capability will be seen from the
 current year,
 
 To provide better distribution services and application support to
 customers, overseas offices have been established in China and UAE and
 preparations have been made to open such a facility in the Netherlands
 to serve Europe. This together with CUMI's establishments in United
 States, Canada and Australia will cover most of our overseas customer
 base. These offices are manned by experienced sales and technical
 professionals supported by application groups in India to give
 customers the best of our capabilities.
 
 New technology partnerships have been initiated with Dakot of South
 Africa in the areas of high alumina ceramics and specialist bio ceramic
 materials for wound care.
 
 CUMI's subsidiaries and joint ventures have performed well during the
 year. These are part of our strategic focus and our thrust and
 commitment towards growing them profitably through good direction and
 management support, together with our partners, is strong and will
 continue to be strengthened further.
 
 The current year has started well, Results for the first quarter are
 expected to be in line with our plan, stronger than last year, both in
 revenues and profits, The various growth initiatives are progressing as
 planned and will help to enhance the Company's performance in 2006-7.
 
 A joint venture has been recently concluded with China Engineering and
 Exploration Bureau (`CEEB') to take a 49% stake in Jingri Industrial
 Diamond Company, Yanjiao, China (`Jingri'). Jingri is a large
 manufacturer of industrial diamonds and also produces super abrasives
 for the stone and construction industry through its joint venture with
 a Korean partner. Post CUMI's investment, Jingri would set up a
 state-of-the-art 2000 tons bonded abrasives plant near Beijing. With
 this joint venture, CUMI will move a step further in its twin
 objectives of offering a full range of abrasives and creating a strong
 manufacturing back-end to serve its global customers.
 
 As your Company becomes more global in its aspirations and operations,
 the guidance and wise counsel of my colleagues on the Board continues
 to be invaluable, particularly in steering the Company through hitherto
 uncharted territory. On behalf of the CUMI team, I wish to express our
 sincere thanks to them.
 
 We also gratefully acknowledge the contributions of Mr. K N Shenoy who
 retired last July after serving on the Board for nearly a decade. Mr.
 Shenoy was a constant source of insight and encouragement to all of us
 at CUMI. We would also like to thank Mr, James Whitehead who retires
 from the Board at the forthcoming Annual General Meeting. The Company
 has immensely benefited from Mr.Whitehead's rich international
 experience in the abrasives industry.
 
 The strong results of the past year would not have been possible but
 for the tremendous stretch and challenge taken on with great conviction
 by the CUMI team. These challenges of scaling up, new projects and
 global penetration were handled with an entrepreneurial zeal.
 
 Finally, my thanks to you shareholders who have reposed your faith and
 confidence in us through all our endeavours, as we continue this
 journey towards becoming a Global Company,
 
 M M Murugappan
 Chairman