Online
Carborundum Universal
BSE: 513375 | NSE: CARBORUNIV | ISIN: INE120A01026 | Abrasives
- Directors Report
- Chairman's Speech
- Auditors Report
- Notes To Accounts
- Accounting Policy
- Finished Products
- Raw Materials
| Directors Report | Year End : Mar '08 |
The Directors have pleasure in presenting their 54th Annual Report
together with the audited financial statements for the year ended 31st
March 2008. 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.
ECONOMIC OVERVIEW
As per the advance estimates of the Central Statistics Organisation,
the Indian economy is expected to achieve a growth rate of 8.7% during
2007-08. Though this represents a deceleration from the higher growth
rates of the previous two years, the performance is an indication that
the economy has moved to a higher growth plane. Macro economic
fundamentals continued to inspire confidence and the investment climate
was full of optimism. The manufacturing sector produced mixed results.
While capital goods industry, chemicals and food products and certain
other industries witnessed acceleration in growth, certain sectors like
consumer durable goods, automobiles and segments of auto components
industries and textiles slowed down visibly. As a result, the growth
in index of industrial production is estimated to be lower than the
double digit growth of 2006-07. The sharp appreciation in the rupee
vis-a-vis the US dollar impacted the exporting community across
industry segments.
CORPORATE RESTRUCTURING
Pursuant to the approval of the High Court of Judicature at Madras,
Prodorite Anticorrosives Limited (‘PACL’), a wholly owned subsidiary of
the Company has been merged with the Company with effect from 1st April
2007. PACL is engaged in the business of acid resisting cements,
corrosion resisting products, polymer concrete and fibre reinforced
plastics. PACLs business has synergies with that of the ceramics
business of CUMI and therefore the merger has been effected.
Consequently the stand-alone results for the current year will include
the operations of PACL also.
COMPANY PERFORMANCE OVERVIEW
Rs. million
31.3.2008 31.3.2008 31.3.2007
(with PACL) (without PACL)
Gross Sales
(Incl. Services)
- Domestic 5736 5507 4561
Sales - Exports 870 822 707
Total Sales
(Incl. Services) 6606 6329 5268
Riding on the back of an optimistic mood in the economy, the Company
registered sales of Rs.6329 million (excluding PACL), a growth of 20%.
The Company has now doubled its sales over the last 4 years. In
absolute terms, sales grew by Rs.1061 million over 2006-07, which is
higher than the increase of Rs. 1026 million achieved last year.
Export revenues increased by 16%. All business segments recorded double
digit growth rates – Abrasives by 14%, Ceramics by 32% and
Electrominerals by 36%.
The year 2007-08 was one more year of successful acquisitions and
strategic capital investments. A sum of Rs.1030 million was spent on
greenfield / brownfield expansions, new product and technology
upgradation projects. Apart from the new investments, the Company is
taking concerted efforts to achieve the desired objectives with respect
to the projects commissioned in the previous year.
During the year, the Company set up a 100% subsidiary in Cyprus, CUMI
International Limited (“CIL”) with an investment of nearly Rs.100
crores. CIL has successfully acquired a consolidated 86% stake in
Volzhsky Abrasive Works, Russia (VAW). VAW is ranked as the worlds
second largest silicon carbide manufacturer, with 65,000 tons per annum
installed capacity. While VAW’s capacity for bonded abrasives is more
than double that of CUMIs, its current sales represents 70% of CUMIs
sales in tonnage terms. VAW also produces super refractories. VAW is a
significant player in the Russian abrasives and refractories market. It
also exports about 44% of its production, mainly to the European
markets. This acquisition is of strategic importance to CUMI in
realizing its aspirations of becoming a significant player in the
international abrasives, ceramics and minerals business.
During the year, a profit of over Rs.624 million was realized through
sale of immovable properties (mainly the land and building of the
coated abrasives facility at Pallikaranai near Chennai which was closed
during the year) and also sale of long term investments.
Consequent to the supply demand mismatch of minerals globally and
restrictions by China on production and sale of brown fused alumina,
the industry witnessed substantial price increases for many of its
products. Exports profitability also suffered due to sharp appreciation
of the rupee over the last one year. Consequently, earnings before
interest and depreciation (EBITDA) grew by 13% over the previous year.
Benefits of capital investment can start accruing with a gestation of 4
to 6 quarters after commencement of commercial production. The Company
has aggressively invested over Rs. 2816 million over the last three
years in building capacities and enabling efficiency improvements. Of
this, Rs.606 million represents work in process which will be
commissioned in 2008-09. The sizeable capex spending has contributed to
depreciation increasing by over 50% and interest cost by over 130% as
compared to the previous year. Profit before interest and tax (without
reckoning the one time profit from sale of investments/properties) was
higher by 7% and profit before tax (without reckoning the one time
items) lower than last year.
The key financial indicators are as follows:
Rs. million
31.3.2008 31.3.2007
Gross Sales & Services 6606 5268
Profit before interest
and tax (i.e. excluding
profit on sale of fixed assets/
investments) 917 854
Profit from operations
(i.e. excluding
profit on sale of fixed assets/
investments) 748 783
Profit on sale of fixed
assets (net of expenses) 504 70
Profit on sale of
investments 120 -
Profit before tax 1372 853
Profit after tax 972 587
Dividend and Appropriation of profits
The Board is pleased to recommend a dividend of 100% (i.e. Rs. 2/- per
equity share of Rs 2/- each) for the year 2007-08. Last year a dividend
of 75% was paid.
The amount available for appropriation and the recommended
appropriations are given below:
Rs. million
Available for appropriation
Profit after tax 971.70
Add: Balance brought
forward from previous year 650.09
Total 1621.79
Recommended
appropriations
Transfer to general reserve 97.17
Dividend 186.71
Dividend Tax 28.48
Balance carried forward 1309.43
Total 1621.79
CUMI CONSOLIDATED PERFORMANCE OVERVIEW
The key financial data for the consolidated operations are given below:
Rs.million
31.3.2008 31.3.2007
Gross Sales & Services
(including proportionate
share of income in
joint ventures) 9860 6883
Profit before interest
and tax
(i.e. excluding
profit on sale of fixed
assets / investments) 1305 1125
Profit from operations
(i.e. excluding profit on
sale of fixed assets /
investments) 1116 1049
Profit on sale of
fixed assets
(net of expenses) 504 70
Profit on sale of
investments 120 -
Profit before tax 1740 1119
Profit after tax 1189 751
VAW, Russia registered a turnover of Russian RUB 1703 million (about
Rs. 2774 million) during the calendar year 2007. Since VAW became a
subsidiary of CUMI only in September 2007, the consolidated results
incorporate only 7 months operations of VAW. Post the acquisition,
several project teams are at work to enhance the width and scale of
operations of VAW.
In China, the Companys joint venture, Jingri-CUMI Super-Hard Materials
Co. Ltd., performed reasonably during 2007 in its existing business
lines viz., industrial diamonds and diamond cutting wheels. Sales for
the 12 months ended March 2008 was RMB 88 Million (approximately Rs.473
million). A modern 2000 tonne facility for resin bonded abrasives was
commissioned in the third quarter of 2007-08 and a 1000 tonne vitrified
bonded abrasives plant in the last quarter of 2007-08.
In Australia, CUMI Australia performed well achieving a turnover of AUD
8.85 million, (approximately Rs.289 million) a growth of 18% over
previous year. With markets in a state of flux, the Company increased
business volumes by acquiring new clients, focusing on new applications
and launching new products.
In the Middle East, CUMI Middle East continues to ramp up business
volumes as planned and is creating a solid base for capitalizing the
market potential for CUMI’s products in this region. CUMI America
maintained its performance in a declining US market. The performance of
CUMI Canada (which caters mainly to the US and Canadian markets) was
however adversely impacted because of the recession in the housing
sector.
In India, Murugappa Morgan Thermal Ceramics Limited (which is in
refractory fibre business) and Ciria India Limited (engaged in
designing and installation of refractory systems), both of which are
joint ventures with the Morgan Crucible plc., U.K., registered growth
of 14% and 71% respectively in sales driven by good inflow of project
orders. Wendt India Limited, which is now a joint venture with the
Winterthur Group, increased sales by 9%. Sterling Abrasives registered
strong performance with a growth of 17% in sales. Southern Energy
Development Corporation Limited, which is into gas based power
generation increased revenues by 12%. Net Access (India) Private
Limited which is in IT facilities management increased revenues by 40%.
A consolidated financial statement (incorporating the operations of the
company, its subsidiaries, joint ventures and associate) has been
provided in the Annual Report. In view of this, the Department of
Company Affairs, has in exercise of its powers under Section 212(8) of
the Companies Act, 1956, exempted the Company from furnishing the
individual annual reports of the subsidiaries. Therefore the annual
reports of the subsidiary companies have not been annexed. However, the
annual accounts of the subsidiary companies and the detailed related
information will be made available to the investors of the Company and
its subsidiary companies on request and will also be kept for
inspection in the respective registered offices.
PERFORMANCE OF BUSINESS SEGMENTS
(including information required to be given in the Management
Discussion and Analysis Report)
Buoyed by the strong performance of several user industries, the
company registered robust growth in revenues in all its business lines.
The profit before interest and tax however did not keep pace with the
growth in revenues on account of the increase in depreciation (which
resulted from the aggressive capital expenditure incurred in the recent
past), hike in cost of certain inputs, currency appreciation and also
the gestation time taken by the capital investments to yield their full
benefits.
The market developments, current year performance and outlook for the
various business segments are elaborated below.
Abrasives
Key financial summary
Rs. million
2007-08 2006-07 % growth
Domestic sales - Gross 3931 3391 16%
Exports 300 307 (2%)
Total Sales 4231 3698 14%
Operating income
(without reckoning profit 541 529 2%
on sale of fixed assets)
Capital employed 2918 2477
Contribution to total
sales of CUMI 64% 70%
Contribution to total
operating income of
CUMIs business
segments 56% 60%
Market scenario
- Aided by the strong performance of all major user segments domestic
sales improved over previous year by 16%.
- In the direct customer segment, growth has come primarily from steel
industry. In the mass market segment, the boom in fabrication and
construction industries generated strong demand for thin wheel
products. Super abrasives sales also registered good growth aided by
steady supplies from the Chinese joint venture and also development of
new products directed towards construction industry. The trend to shift
from hand tools to power tools is gaining strong momentum amongst
carpenters, plumbers, construction workers and other artisans. The
Company has developed specific products to cater to this segment and
sales of these power tools commenced in the third quarter of 2007-08.
- Product Management approach has paid rich dividends with growth in
sales being achieved by product differentiation through branding,
establishing new channels for improved product availability and
increased end user meets. CUMIWORLD experience centre has been
established in Pune to provide end users with training on latest trends
in grinding and finishing technology. The first one has been
successfully operating in Ludhiana for two years.
- The market structure in the domestic abrasives industry remained
broadly similar to the previous year. The industry continues to be
largely catered to by two leading players. CUMI continues to be the
overall market leader. However tier two players are bringing increasing
competitive pressure by being price warriors. Imported products also
continue to pose a strong challenge at the lower end.
- The Company continues to leverage its strengths in product
development and application engineering to meet the specific needs of
customers and also launch new products to address the mass market.
Manufacturing
- During 2007-08, the overall focus of the manufacturing team in
abrasives was on establishing the new plant at Uttarkhand and the power
tools plant at Bangalore as well as on consolidating the investments
made in the recent past and undertaking cost reduction efforts.
- Construction of the state of the art manufacturing facility near
Roorkee in Uttarkhand State was completed in September 2007. The plant
stablilised its operations within two months from commencement and is
expected to achieve 80% capacity utilisation in 2008-09. With the
fiscal incentives that this plant enjoys, the products rolled out from
this plant would strengthen the Company’s efforts to address the price
conscious market segments.
- The coated abrasives plant at Sriperumbudur in Tamil Nadu which was
completed last year has stabilized operations and is steadily
progressing towards achieving the project parameters that were
envisaged. The plant started achieving the planned cost benefits in the
last quarter of the year and full benefits are expected to accrue from
2008-09. Productivity levels have increased and process changes have
been introduced to cut down lead time for delivery. Several new
products were manufactured which received good market response. The
plant received the ISO 9001: 2000 certification. Consequent to the
stabilization of this plant, the coated abrasives facility at
Pallikaranai was closed and the land and buildings sold.
- The vitrified bonded abrasives facility at Hosur which was modernized
last year has started yielding benefits in terms of reduction in power
and fuel costs.
- At the Tiruvottiyur plant, efforts were mainly directed towards
reducing manufacturing cost.
- During the year, the Company made an entry into the power tools
business. This is a strategic fit to the abrasives business given that
abrasives are used as accessories in majority of the power tools and
both products are sold through the same marketing network. Entry into
power tools business would help to foster sales of abrasive products.
Further the power tools business is poised for strong growth given the
current state of economic development in India. Taking into account
these factors, a modern plant has been set up at Bangalore and it
commenced production in October 2007. The initial market response for
the products is encouraging.
- Manufacturing costs witnessed an increase because of increase in the
price of imported grains, which is a key input for abrasives business.
Increase in international oil prices also had a negative impact. The
division worked to counter these adverse developments by developing
alternate low cost sources for other inputs like resins, glass fabric
and vulcanized fibre, increasing manufacturing efficiencies in certain
plants and also by effecting selling price increases in a phased
manner.
Market scenario
- CUMI’s Ceramics business operated in two niche segments i.e. high
alumina ceramics and super refractories (fired and monolithics). The
third product line of anticorrosion engineering products has now been
added to the Ceramics business with the merger of PACL with CUMI.
- The Ceramics business registered a growth of 32% (without considering
the addition on account of merger of PACL). The business performed well
both in the domestic market (35% growth) and in the export markets (26%
growth). The unexpected and steep appreciation of the Indian Rupee
during the first half of the year dented export earnings. To mitigate
the adverse impact of this, the division selectively increased prices
for customized products.
- In the domestic market, sales growth was driven by increase in demand
from major user industries like ceramics, sponge iron, cement, carbon
black, power generation & distribution and glass. Sales of castables
witnessed an appreciable increase of over 40%. The Jabalpur unit, which
was acquired last year, has played a significant role in strengthening
the monolithics business. New products in terms of new formulation and
geometry were manufactured to meet customer requirements. Sale of new
products and new applications were Rs. 207 million. Improved product
availability and development of new products contributed to increased
market share in both super refractories and high alumina ceramics.
- In November 2007, CUMI acquired the engineered ceramic business of
IVP Limited at Aurangabad to strengthen its presence in the high
alumina ceramics business. The acquisition has widened CUMI’s product
range, provided it with access to new manufacturing processes and
enabled CUMI to take leadership in engineered ceramics which is value
added part of the high alumina ceramics business. The process of
integrating this business with the existing high alumina ceramics
business is underway and the full benefits of the acquisition are
expected to be reaped from the next year.
- The market structure of the domestic high alumina ceramics business
has consequently undergone a shift. Post this change, the domestic
market is addressed by three domestic players and also imports from
Europe. In Super Refractories, the Company operates in a niche
segment, i.e. temperature above 1000° C, which is catered to by two
other players apart from the Company.
- In exports, strong growth was achieved backed by good off-take from
key customers of high alumina ceramic products.
Manufacturing
- The new automated plant at Hosur for manufacturing wear resistant
liner tiles, set up at a cost of around Rs. 318 million has been fully
commissioned. Use of high precision and automated equipment in the
plant has given the capability to manufacture products to meet closer
tolerance levels and will give CUMI a stronger footing to address the
international markets for high alumina ceramic tiles. The new plant has
helped to increase productivity and this was leveraged to achieve
higher sales of wear resistant liner tiles both in the domestic and
export markets.
- Work on establishment of a modern facility for manufacturing of high
alumina metallized cylinders at a cost of about Rs.500 million is
progressing well. State-of-the-art equipments are being installed for
producing high quality products and production processes have been
redesigned for cost and quality benefits. The project is slated for
completion in the second quarter of 2008-09. The project, when
completed, is expected to make the Company a key player in the
international metallized ceramics business.
- In order to strengthen its position in the fired refractories
segment, the company is setting up a green field facility in Vellore
district. Incorporating advanced features, the plant would help CUMI
to nearly double its capacity for fired products. The plant is
scheduled to be commissioned in the second half of 2008-09.
- The monolithics facility at Jabalpur in Madhya Pradesh, which was
acquired last year, has been fully revamped and production levels
maximized and enhanced quality parameters achieved. The unit is
strategically located in Central India and this was fully leveraged to
achieve higher sales in the monolithics business. The operations of the
monolithics unit at Okha in Gujarat was consolidated with the Jabalpur
plant.
- Availability and price of calcined alumina, a key raw material for
high alumina ceramics, continues to remain a concern for the business.
To mitigate this, the company has been working on annual arrangements
with suppliers at better prices and is also undertaking productivity
enhancement efforts to control costs.
Market scenario
- Domestic sales grew by 34%, while the exports registered a growth of
48%.
- The market for fused grains was buoyant throughout the year. The
realizations were higher than the previous year largely due to the fact
that the supply situation of these minerals from China was affected by
repeated increase in prices and unpredictability in supplies. The
market share for the division in brown fused alumina remained flat,
while it recorded an increase in white fused alumina and silicon
carbide.
- CUMI’s position in the silicon carbide business has been
significantly strengthened by the acquisition of VAW, Russia and the
benefits of this acquisition will also be reaped by this business.
Further, the SBU has enlarged its customer base for supply of silicon
carbide microgrits for the photovoltaic industry and this is expected
to pay rich dividends in the ensuing years.
- The operating income of the business increased to Rs.160 million from
Rs.153 million last year. Operating income from products was at Rs.68
million compared to Rs.50 million last year.
- The increase in operating income does not correspond with the sales
growth because of product mix changes, increase in price of key raw
materials like bauxite and raw petroleum coke, higher expenditure on
repairs and renewals and also higher depreciation which resulted from
the capital expenditure undertaken in the last 2 years.
Manufacturing
- Manufacturing efficiencies were kept under control, with most of the
parameters meeting planned numbers. The major exception was the drop in
yield of brown fused alumina crude, because of non availability of high
quality raw bauxite.
- The second phase of expansion of the silicon carbide microgrit plant
was undertaken as per schedule and reached its full capacity by the end
of the year. The expansion project has met the desired objectives,
viz., cost of production and quality parameters of output.
- Modernization of the sub-station at Edapally plant is nearing
completion. This extensive revamp of the substation will help the plant
in addressing the increasing power and control requirements of the
ongoing expansion of the semi-friable alumina heat treatment facility
and ceramic grain facility.
- The Maniyar hydro power station generated 39 million units (previous
year 42 million units). As a result of excess rainfall in June and
July 2007 the water level at the tail race increased beyond optimum
levels which reduced the loading capacity of generators. Consequently
generation was lower during these two months.
RISK AND CONCERNS
Some of the major concerns for the Company’s businesses and the steps
being taken to counter them are:
- Escalation in international prices of calcined alumina and brown
fused alumina and availability of abrasive grade bauxite which are key
inputs for the industrial ceramics and abrasives business. To address
this, the Company is working on annual contracts with key suppliers and
also making efforts to conclude long term arrangements which will
provide assured supplies.
- Fuel price increase will impact the Company as many of the kilns are
fuel fired. To mitigate the adverse impact of fuel cost increases, the
Company is continuously working on improving efficiency parameters in
kilns. Alternate fuels are also being explored. Apart from the direct
impact on manufacturing cost, fuel price increase will also impact
freight cost (both inward and outward) which will push up costs. Price
increases to neutralise the cost increase are being periodically done.
- To counter potential increase in cost of power, lower cost captive
power generation options are under evaluation.
The projected slowdown in the world economy would impact the Company,
directly to the extent of its export business and also indirectly to
the extent of the spin-off effect it has on the Indian economy. The
Company would continue to take steps to widen its geographical spread
of operations so as to minimize the impact of any such adverse
developments.
- The tight money policy being pursued by RBI and the consequent spiral
in interest rates have pushed up hurdle rates for new projects and
acquisitions. Foreign currency borrowings (though in a restricted
manner because of governmental regulations and tighter liquidity in
international markets) would offer some scope for lowering finance
cost.
OUTLOOK
As per the IMF’s World Economic Outlook for 2008, global expansion is
losing speed in the face of a major financial crisis. The slowdown has
been greatest in the advanced economies, particularly in the United
States, where the housing market correction continues to exacerbate
financial stress. Among the other advanced economies, growth in Western
Europe has also decelerated, although activity in Japan has been more
resilient. In the emerging markets, economies are expected to continue
to expand strongly, although growth is expected to slow down from the
heady pace of the past two years. At the same time, headline inflation
has increased around the world boosted by the continuing buoyancy of
food and energy prices, particularly in the emerging markets.
In India, there are some signs of slowdown in certain sectors. The
spike in inflation witnessed in recent months and consequently the
upward movement in interest rates will have a dampening effect on the
economy. Government has declared that reigning inflation was of higher
priority than maintaining the growth momentum. Despite these
developments, there appears to be all round optimism in the economy.
In the year ahead, the Company will continue on its journey to become a
significant player in the international abrasives, ceramics and
minerals market through a mix of organic and inorganic growth. Focus
would be on successfully commissioning the new metallised ceramics
plant and super refractories plant and also consolidating the
acquisitions and sizeable capital investments made in the recent past,
so as to extract the best returns from these investments. The Company
will also work on reconfiguring its supply chain to get full mileage
out of its presence in the three largest emerging economies viz.
China, India and Russia and to use this advantage to gain a visible
presence in the global market.
FINANCIAL REVIEW
A. Earnings
- Gross sales (including services) grew from Rs 5268 million to Rs 6606
million. Export sales were at 13 per cent of sales.
- Profit before interest and tax was Rs 1541 million (previous year Rs.
925 million).
- Interest cost was Rs 169 million (previous year Rs 71 million).
- Profit before tax was Rs.1372 million (previous year Rs.853 million).
Profit after tax was Rs 972 million (previous year Rs. 587 million).
- The earnings per share was Rs. 10.41 (previous year Rs.6.28). The
dividend outgo is Rs. 215 million (previous year Rs. 164 million).
B. Financial position
Shareholders funds as on 31st March 2008 were Rs. 3519 million.
Addition for the year was Rs. 779 million.
Year end bank borrowings (Rs. 2994 million) comprises long term
borrowings of Rs. 2081 million and short term borrowings of Rs. 913
million. The debt-to-equity was 0.86.
Net fixed assets were at Rs 3246 million. The total capital expenditure
for the year was Rs. 1030 million which exceeds the depreciation of Rs.
253 million for the year. Investments recorded an increase of Rs.800
million mainly due to the investment into the wholly owned subsidiary,
CUMI International Limited. Net current assets have increased from Rs.
1371 million to Rs. 1867 million.
INTERNAL CONTROL
- CUMI has put in place extensive 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 in the Company.
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.
ENERGY CONSERVATION & TECHNOLOGY
Energy Conservation
Energy conservation measures during the year inter alia includes
revamping / modification to kilns, optimising use of steam in the
manufacturing process, demand based management system for compressed
air system to reduce consumption of power, introduction of energy
efficient lighting system and power factor improvement. Total
investment for the energy conservation measures was Rs.7 million and
benefits expected estimated at Rs.5 million annually. The grain
processing facility that is being set up in the electrominerals plant
will have an energy efficient kiln which will yield energy savings of
about Rs.2.5 million. The preliminary work for establishment of the
kiln has been completed and commissioning is expected to take place
next year.
Measures planned for the year ahead inter-alia involve improved
compressor design in silicon carbide plant, revamping / modifications
in kilns, steam condensation recovery from process, modifications to
compressed air systems and lighting systems and installation of energy
efficient dust collectors. The total investment planned is Rs. 11
million and the estimated savings is Rs. 7 million. In addition, the
expansion proposal in the electrominerals plant will have an energy
efficient compressor which will yield energy savings of Rs.3 million.
TECHNOLOGY Research & Development Efforts in brief
Efforts were mainly focussed on developing:
- new products and new formulations
- technology for alternative input materials
- cost reduction.
Benefits derived
R & D efforts during the year resulted inter-alia in the following
developments:
- New range of grains for organic bonded abrasive products
- Processes for upgrading the performance of natural abrasives
- Grain agglomerates to substitute zircon grains
- Development of Cool-cut wheels
- Microgrits for energy sector
- Semi-friable grains, microgrits for wire- sawing and diesel
particulate filters
- Ceramic grains for abrasive applications
- Alternate fillers for use in manufacture of bonded abrasives
- New formulations for wear resistance application for the European
market
- New high alumina formulation for high impact applications
- New monolithic refractories for specific applications
Future Plans
In high alumina ceramics, efforts will be directed towards providing
customized solutions to customers for their wear, abrasion and erosion
applications. In super refractories, R&D efforts will be focussed on
developing new fired products in alumina and silicon carbide segments
and formulating monolithic refractories for customer specific
applications. The abrasives division would work on development of
alternate raw materials to control input costs, launching new products
with unique product features and improvements in grain coating process.
In electrominerals, the plan is to widen the activity related to
materials addressing the energy and environment sectors which involve
focusing on products like diesel particulate filters, filters for metal
and gas filtration and ultra fines.
TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION
Efforts, in brief, made towards technology absorption, adaptation and
innovation
- New technologies and processes were sought to be incorporated in the
manufacturing facilities being established
- New product development to address market requirements
- Development and stabilization of manufacturing processes for new
products developed Benefits derived as a result of the above efforts,
e.g. product / process improvements, cost reduction, product
development, import substitution, etc.
- In the ceramics division, the new facility set up for manufacture of
ceramic tiles in Hosur incorporated latest technology & process control
mechanisms in the plant starting from raw material conveying to
finishing of the tiles. Automatic batching system, state-of- the-art
ball mill for milling, pick-and-place robotic systems in presses and
advanced inspection systems are some of the technological advances
featured in this plant. This has provided the division with the
capability to manufacture products to closer tolerances, helped lower
cost of production and also enhanced productivity.
- The Company has been working closely with international consultants
for incorporating modern manufacturing methods in the metallised
cylinders plant that is being set up in Hosur.
- In bonded abrasives, the Company launched several new products for
the customer segment and also for the channel segment. In customer
segment, the focus was towards precision grinding application with new
family of grains - brown, semi friables, MSB and 80A. New low
temperature fired bonds with better self dressing characteristics have
been developed during the year. In resinoid, substantial work has been
done in F- type, roll grinding and liner wheels. Generic product
development especially in the areas of thin wheels has given the lead
over competition in terms of performance in price. The new products
launched in snagging, tool room and rice polishing wheels has gained
good market acceptance and brought in the growth. The above efforts
will help significant growth in the years to come. The Company has
assimilated the process of making unitised wheels.
- In coated abrasives, the focus during the year was in creating
products for the economy range. Good growth was achieved typically in
SandMaster rolls and Concorde discs. The launch of Deco Paper, Eco
SandMaster rolls and WoodMasterwill see significant volume growth in
08-09. The product development initiatives are focused towards
addressing construction and woodworking industries. The new products
developed for customer segment namely, flap discs, belts including wide
belts have helped CUMI to add new customers during the year. This will
help to bring in growth in the direct customer segment in 08-09.
- In electrominerals, the scaling up issues with regard to the
manufacture of ceramic grain has been surmounted and the product has
been taken up for regular production. This will give a competitive
advantage in addressing the abrasives market.
- Total new product sales for the Company which (includes new entries
and products launched during the last two years) was Rs.440 million.
Imported Technology
Technology Floor Synthetics
imported Polishing based backing
Wheels and products
thereafter
Year of Import 2004-05 2005-06
Has technology
been fully
absorbed Yes Being absorbed
If not fully N.A. Technology for
absorbed, areas manufacture of
where this has polyester cloth
not taken place, design was
reasons therefor absorbed. The
and future plans process of indigeni-
of action zing the chemicals
for the same have
been initiated.
Alo Latex Paper
and AIo buffing
paper designs have
been tested in the
field and based on
the feedback,
further trials have
been planned for
establishment.
Coated Metallised Ceramic
abrasive cylinders segments
discs
2006-07 2006-07 2006-07
Being absorbed Being absorbed Being absorbed
The design for Equipment in the Sample lots
Zirconia fibre disc new metz plant manufactured and
has been absorbed selected as per have been
and further fine new technology. certified by
tuning in design has Process competent
been done to suit parameters in the agencies. Initial
market requirements. new plant will be orders based on
With the market as per the revised using the new
requirements mainly technology. formulation are
on individual coated planned to be
discs, this concept executed in
will be extended to 2008 - 09
these products and
will undergo
extensive market
testing this year.
EXPORTS
Export sales continued to make good strides with sales increasing from
Rs.707 million to Rs.822 million (without PACL), a growth of 16%.
Ceramics business registered a robust growth of 26% aided by good
off-take from key customers.
The Company’s products continue to receive good market response in
Australia and Middle East. Exports to North American markets also
gained momentum during the year with follow up orders from existing
customers and product acceptance from new customers being extremely
encouraging.
CUMI Canada has recently taken up marketing of these products in North
America which is expected to give a further impetus to growth in this
market. New markets have been identified in Europe, USA and South
Africa. The export initiatives were significantly strengthened with the
commissioning of the new tile plant.
Export of bonded abrasives registered a growth of over 16%. Thin wheel
sales were particularly strong and showed good promise. However there
was a set back in coated abrasives exports because of the downswing in
US housing sector. As a result total exports of abrasives registered a
marginal decrease over last year. Efforts are on to de-risk the coated
abrasives export business by reducing the reliance on home segment and
focusing on other products to build sustainability in coated exports.
Geographical expansion was made with entry into new countries in
Eastern Europe and in West Asia. The Company’s marketing subsidiaries
in USA, Canada, Middle East and the stocking point in Europe helped
achieve market and product expansion.
The electrominerals division took concerted steps to become a visible
player in European market for fused alumina and silicon carbide
microgrits. As a result exports grew by 48%. Several sales promotion
initiatives were undertaken which opened up long term prospects. Steps
have been taken to reduce delivery lead times by setting up a stocking
point in Venlo. Apart from Europe, preliminary steps have been taken
for gaining market entry in Asian and African markets.
During 2008-09, export growth would continue to be driven by the
marketing efforts of the overseas subsidiaries and also by the
international sales teams based out of India. Export development effort
would include participation in exhibitions, advertisements, flexing
relationships with channel partners and direct visits to customers. The
Company would particularly leverage its matrix of manufacturing
facilities located across India, Russia and China to cater to the
global market requirements.
Rs. million
Foreign Exchange Earnings 870
(including deemed exports)
Foreign Exchange Outgo
- Capital Equipment 226
- Investment in subsidiary 986
- Raw materials and other payments 1103
FINANCE AND HUMAN RESOURCES Finance
The Indian economy witnessed significant hardening of interest rates
during the year. Liquidity also remained tight. To counter the adverse
impact of the tight monetary situation the company made increased use
of low cost foreign currency credit facilities.
The capital expenditure and acquisitions were financed by a mix of
rupee and foreign currency long-term borrowings of about Rs 667
million, asset disposals and accruals of current and past years. A
large part of the foreign currency and interest rate risks have been
hedged. Working capital requirements were met by a mix of concessional
export finance and short term loans from the Company’s consortium of
banks and foreign currency buyer’s credit. Servicing of all existing
and new debt obligations were done on time.
Interest cost increased from Rs. 71 million to Rs. 169 million on
account of the increase in funding requirements resulting from the
large capital investments, the spike in domestic interest rates and
also the Reserve Bank’s restrictions on long term foreign currency
loans which are cheaper than domestic rupee borrowings.
During the year, CRISIL reaffirmed its long term rating of
‘AA/Positive’. For short term borrowings, the Company continued to
maintain CRISIL’s highest ‘P1+’ rating.
Human Resources
The Heart of Change - the third phase of this strategic workshop was
conducted to train the senior management as enablers and prepare them
for the process of engaging everyone in the organisation to fuel and
sustain greater growth.
To expand our horizon and to take a premier position in the new global
arena, Future Forward, a unique talent bank was conceived. A team
comprising of individuals with diversified talents and cross industry
experience was formed to create new business platforms addressing
Future Markets & Future Customers.
CUMI Leadership Program, a flagship initiative to continuously develop
fast track managers into leaders is in a successful stage of
completion. Learnings from this program have already been implemented
by the participants providing them not only with the opportunity to
strengthen their leadership skills but also contributing to greater
productivity and enhanced growth. Training on TPM, Six sigma, Lean
Manufacturing etc, helped the participants to understand the value of a
robust manufacturing process.
In keeping with changing trends, and the expectations and profile of
the workforce, it is important to change and align HR Practices to suit
evolving market needs. With this objective, employees are being moved
out of the purview of ‘unionized staff’ to new Self Managed Teams. This
would provide them career progression and also a better status in
society.
Employee hiring, especially campus recruitments, have been done with
societal interests in mind without any compromise on quality. The
recruitment process focused on identifying talents from tier two cities
across the country. It is believed that diverse young minds thus
recruited, will strengthen CUMI’s talent pipeline.
One of the focus areas is to bring in a diversified workforce and
encourage employment of women. In order to facilitate this objective,
Mitr meaning ‘Friend’ – a forum to address the gender sensitive issues
that women employees face at work, has been put in place.
The total employee involvement programmes viz., SGA, CFT, Kaizen, 5S
and Suggestion Schemes were continued. They were showcased and
recognized in the grand finale of the year, CUFEST i.e. CUMI’s Annual
Quality festival.
The period under review also witnessed healthy and conducive
relationship with shop floor employee. The total number of permanent
employees at the end of the year was 1707 (previous year - 1543)
GOVERNANCE Board of Directors
Mr. S N Talwar retires by rotation at the forthcoming Annual General
Meeting and is eligible for reappointment. Having completed 70 years of
age, he has expressed his desire not to seek re-election in line with
Board’s convention. Mr Talwar has been on the Company’s Board for 25
years and the Board wishes to place on record its sincere appreciation
for the contributions made by him to the Company during his long
tenure.
Mr. T M M Nambiar also retires by rotation at the forthcoming Annual
General Meeting and is eligible for reappointment. He has also
completed 70 years and has accordingly expressed his desire not to seek
re-election in line with Board’s convention. The Board wishes to place
on record its sincere appreciation for his contributions during his
tenure.
Auditors
M/s Deloitte, Haskins & Sells, Chartered Accountants, 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
The directors’ responsibility statement as required under the Companies
Act, 1956 is annexed to and forms part of this report.
Corporate Social Responsibility
A sum of Rs. 3 million was donated to M/s. A.M.M. Foundation, which is
a philanthropic organisation and manages nine institutions in the field
of education and healthcare run on a non-profit basis. A sum of Rs. 1.5
million was donated to A.M.M. Murugappa Chettiar Research Centre, which
is a non-profit research organisation engaged in research related to
improvement of rural areas and also executes consultancy work and
research projects in the area of fisheries development, environmental
education etc.
As part of its commitment to society, the Company has been extending
support for improving health and hygiene of the people living in and
around some of the company’s plant locations, by conducting free
medical and health awareness camps and distributing medicines.
STATEMENT OF EMPLOYEES’ REMUNERATION
The details of employees who were paid remuneration in excess of Rs.
2,00,000/- per month or Rs. 24,00,000 per annum during 2007-08 are as
follows:
Name and Age Designation/ Gross remunera-
Nature of tion paid in
duties 07-08 (Rs.)
1 2 3
Ananthaseshan N Vice President - 2,506,018
(45) EMD
Deepak Durairaj Vice President 2,422,918
(51) Intl Business &
Product Mgmt.
Kishore N (54) President - 5,417,515
Abrasives &
Technology
Periakaruppan AR Vice President - 2,593,393
(58) Marketing -
Abrasives
Rajagopalan R (50) Vice President - 2,580,960
Marketing -
Ceramics
Ravi P R (56) President - 4,901,638
EMD & Ceramics
Ramesh V (51) Chief Financial 3,460,531
Officer
Sitharam Koka(57) Executive on 4,276,172
Deputation
Srinivasan K (50) Managing 6,961,155
Director
Qualification Date of Previous
and commence- employment
experience ment of
(years) employment
4 5 6
M.Sc (Applied 19.02.86 -
Sciences),
M.Tech Material
Science (22)
B.Tech Chemical 01.05.81 -
(27)
M.Tech 16.06.95 Dy. General
(Indl. Engg) (30) Manager -
E I D Parry (India) Ltd.
B.E. 12.09.73 -
(Chemical) (35)
B.E. 01.04.82 -
(Mech.) (26)
B.Sc. AICWA, 07.02.90 Dy. Finance
MBA (34) Manager,
Madras
Fertilisers Ltd.
B.Com., AICWA, 15.11.06 President
PGDBM (IIM) TVS Finance &
(29) Services Ltd.
B.Sc. PGDBM 01.10.85 Regional Sales
(IIM) (34) Manager
Bakelite Hylam Ltd.
B.Tech 30.01.02 Vice President
(Mech) (28) Wendt (India) Ltd.
Note
a) Remuneration has been calculated in accordance with clarification
given by the Department of Company Affairs in their circular No.23/76
(No.8/27)(217A/75- CLV) dated 6th August 1976. Accordingly, perquisites
have been valued in terms of actual expenditure incurred by the Company
in providing benefit to the employees except in cases where the actual
amount of expenditure cannot be ascertained with reasonable accuracy. A
notional amount as per Income Tax Rules has been added in such cases.
b) The above mentioned employees are not relatives (in terms of the
Companies Act, 1956) of any director of the Company.
c) (i) The persons mentioned above are wholetime employees of the
company.
(ii) Mr. K Srinivasan was appointed as Managing Director by the
shareholders from 1.2.2006 till 31.1.2010. He is subject to all service
conditions as applicable to any other employee of the Company including
termination with 3 months notice.
(iii) The nature of employment of other employees is contractual and
terminable with 3 months notice.
d) No employee of the Company is covered by the provisions of Section
217(2A)(a)(iii) of the Companies Act, 1956
EMPLOYEE STOCK OPTION SCHEME
Pursuant to the approval accorded by the shareholders at the
fifty-third Annual General Meeting of the company held in July 2007,
the Compensation and Nomination Committee has formulated the
Carborundum Universal Limited Employee Stock Option Scheme 2007. As
required under the SEBI Regulations, the following details of this
scheme as on 31.03.2008 are being provided:-
Nature of Disclosure
a. Options granted
b. The pricing Formula
c. Options vested
d. Options exercised
e. The total no of shares arising as a result of exercise of option
f. Options lapsed/surrended
g. Variation of terms of Option
h. Money realised by exercise of Options
i. Total no of Options in force
j. (i) Details of Options granted to Senior Management Personnel
Particulars
13,65,700 Options have been granted during the year (in two tranches
i.e. on 29.09.2007 and 28.01.2008). Each Option, upon vesting, gives
the grantee a right to subscribe to one equity share of Rs. 2/ each of
the company. The number of options that would vest in each grantee is
based on the annual performance rating for each financial year and as
per the following schedule :- % of the total Date of vesting number of
options
20% One year from the date of grant
20% Two years from the date of grant
30% Three years from the date of grant
30% Four years from the date of grant
The Options carry a right to subscribe to equity shares at the latest
available closing price on the Stock Exchange in which there was
highest trading volume, prior to the date of grant of the Options.
Nil
Nil
13,65,700 equity shares assuming all Options are exercised.
Nil
No variation has been done
Not applicable since none of the Options have been exercised till
31.03.2008
13,65,700
Name and Designation No. of Options
granted
K. Srinivasan 221,900
Managing Director
N. Kishore 138,300
President - Abrasives and
Technology
P.R. Ravi 91,900
President - Ceramics and EMD
V. Ramesh 91,900
Chief Financial Officer
M. Muthiah 48,800
Vice President - HR
(ii) Any other employee who received a grant in any one year, of
Options amounting to 5% or more of the total Options granted during the
year.
(iii) Employees who were granted Options, during any one year, equal to
or exceeding 1% of the issued capital of the company at the time of
grant k. Diluted Earnings Per Share (EPS) pursuant to issue of shares
on exercise of Option calculated in accordance with Accounting Standard
AS - 20
l. (i) Difference between the compensation cost using the intrinsic
value of the stock Options (which is the method of accounting used by
the company) and the compensation cost that would have been recognized
in the accounts if the fair value of Options had been used as the
method of accounting.
(ii) Impact of the difference mentioned in (i) above on the profits of
the company
(iii) impact of the difference mentioned in (i) above on the EPS of the
company
m.(i) Weighted average exercise price of Options
(ii) Weighted average fair value of Options
n. (i) Method used to estimate the fair value of Options
(ii) Significant assumptions used (weighted average information
relating to all grants):- (a) Risk-free interest rate
(b) Expected life of the Option
(c) Expected volatility
(d) Expected dividend yields
(e) Price of the underlying share in market at the time of option grant
Nil
Nil
Rs. 10.41
The employee compensation cost for 2007-08 would have been higher by
Rs. 21.68 million had the company used the fair value of Options as the
method of accounting instead of the intrinsic value.
The profit before tax for 2007-08 would have been lower by Rs. 21.68
million had the company used the fair value of Options as the method of
accounting instead of the intrinsic value.
The basic and diluted EPS would have been lower by Rs. 0.15
Rs. 182.87 per equity share
Rs. 66.85 per equity share Black-Scholes model
7.50%
Varies from 2.5 years to 5.5 years depending on the date of vesting
43.23%
2.53%
Rs. 182.87 per equity share
The certificate from the Statutory Auditors under the Securities and
Exchange Board of India (Employees Stock Option and Employees Stock
Purchase Scheme) Guidelines, 1999, confirming that the Carborundum
Universal Limited Employees Stock Option Scheme 2007 has been
implemented in accordance with the guidelines and shareholders
resolution will be placed before the shareholders at the ensuing Annual
General Meeting.
ACKNOWLEDGEMENT
The Board places on record, its appreciation for the cooperation and
support received from shareholders, customers, dealers, suppliers,
employees, government authorities, banks and joint venture partners.
On behalf of the Board
Chennai M M MURUGAPPAN
30th April 2008 Chairman
|
|
 | |
| Source : Religare Technova | |
| |