Stand alone Net Sales up by 18% – EBITDA growth by 41%
Consolidated Sales up by 8% – EBITDA growth by 30%

Chennai, 27th January 2010: The Board of Directors met today and approved the unaudited financial results for the quarter ended 31st December 2009.

Q3 Financial Overview

Sales for the quarter at Rs.190 crores (Rs.160 crores for Q3 of last year), represents a growth of 18% over the corresponding quarter of last year. All three business verticals viz. abrasives, ceramics and electro-minerals registered double digit growth rates. Growth was primarily driven by the domestic markets with the buoyancy in the Indian economy resulting in stepped up consumption in several sectors of the economy. There was good off-take from several user industry segments. However project orders was lack-lustre as several major projects were getting postponed, particularly for refractories. Export sales was maintained at about last year levels (Rs.38 crores vs.Rs.39 crores) despite the sluggish demand from European and North American markets which continued to be impacted by the recession.

As a result of the strong growth in sales, EBITDA grew by 41% (Rs.35 crores vs Rs.25 crores). EBITDA margins also moved up from 15.6% to 18.6%. The growth in turnover coupled with control on fixed and energy costs helped in achieving this. Depreciation was higher (Rs.9.3 crores vs. Rs.8.6 crores) as a result of the full year impact of the capital expenditure incurred last year. Profit before interest, tax and extraordinary items increased by 61% from Rs.16.8 crores to Rs.27 crores. Interest costs were lower (Rs.5.6 crores vs Rs.7.7 crores) as a result of the favourable money market conditions in India.

It may be recalled that in Q3 of the previous year, there was an exceptional item of Income of Rs.28.75 crores arising from sale of land and building housing the anti-corrosives operations which was shifted to a new location near Ranipet. As a result of this, the profit before tax for the current year’s Q3 shows a drop (Rs.22 crores vs Rs.38 crores). Consequently profit after tax for the quarter was also lower than last year (Rs.14.7 crores vs Rs.27.5 crores)

Performance of Business Segments

The Abrasives business performed well with a 21% growth in sales from Rs.91 crores last year to Rs.110 crores. Order incoming for non standard products, which is the barometer of the Abrasives consumption for User Industries, has significantly improved indicating growth in various customer segments. Off-take from major user industries including auto, auto components, bearing, steel and general engineering was good. Focused approach in retail initiatives has delivered good results for mass market products. Export sales were lower due to the prevailing demand situation in Europe and North America. The Company continued to maintain its leadership position in the domestic market. Despite the strong growth in turnover, profits were lower by 4% due to pricing pressures and product mix.

The Ceramics business performed well with a growth of 19% over the corresponding quarter of last year (Rs.53 crores vs Rs.45 crores). Exports of industrial ceramics products grew by 33%. The performance of the business would have been stronger but for the continued sluggishness in the North American markets. Metallised Cylinder business has picked up well and has reached full capacity utilization. The products continue to gain acceptance from several key customers both in the international and domestic markets. In refractories, sales grew by 15% over Q3 of 2008-09. This was achieved despite lower incoming orders from several customer segments and postponement of major projects. PBIT of the business grew by 67% from Rs.5.4 crores to Rs.9 crores.

The Electrominerals business continued to maintain its robust performance with sales outpacing last year’s by 21% (Rs.40 crores vs Rs.33 crores last year). The domestic market (particularly abrasives and refractories) played a pivotal role in helping the business achieve growth. In the export markets, there are signs of recovery in the silicon carbide microgrit market. Pipeline stocks with customers have reduced and order inflows are strengthening. PBIT of the business witnessed a steep increase of 41% from Rs.7 crores to Rs.10 crores. Construction of the first phase of the Silicon Carbide microgrit facility in Cochin SEZ is almost complete. The plant is expected to go into full steam production by April 2010.

Consolidated Performance

Consolidated Sales (incl. that of Joint Ventures) registered a 8% growth (Rs.327 crores vs. Rs.304 crores). The top line growth was primarily on account of the buoyancy in the Indian markets. EBITDA grew by 30% from Rs.48 crores to Rs.62 crores. As a result of the exceptional item mentioned earlier, the profit before tax for the quarter shows a drop (Rs.45 crores vs Rs.58 crores last year). Consequently, profit after tax was lower at Rs.23.6 crores vs Rs.38.5 crores last year.

The Russian subsidiary grew sales by 9% in Rouble terms during the quarter as compared to the corresponding quarter of last year. While sales of silicon carbide continued to do well, the abrasives business continued to be impacted by the lull in the Russian economy. Profit after tax registered an impressive growth of over 50% as a result of lower input costs and tight control on fixed costs. In South Africa, Foskor Zirconia registered a topline growth of 15% through focused efforts to widen its user industry base and with the steel industry which is its major user segment showing some signs of recovery. However profits for the quarter was lower than last year primarily due to the substantial strengthening of the South African Rand.

In Australia sales was marginally higher than last year. However the profit after tax for the quarter recorded an impressive growth of over 30%. Lower input costs as a result of the strengthening of the Australian currency helped the Company in its bottom line growth.

The demerger of the Chinese joint venture into two separate entities one for abrasives and the other for diamond / diamond tools business has been completed on 31st December 2009. The CUMI consolidated results for the nine months period ended Dec 09, include a loss of Rs.6.3 crores arising out of the Chinese operations. Performance of the Joint venture was impacted due to lower capacity utilization of the abrasives facilities and high overhead costs of the Joint venture. The abrasives business will henceforth be a wholly owned subsidiary of CUMI. 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.

CUMI Middle East registered a 40% growth in sales by making focused efforts to enter new markets in the region and also backed by early signs of revival in UAE. The performance of CUMI America and CUMI Canada continued to be affected by the downturn in the North American economy and both top and bottom lines showed a negative trend.

During the quarter, Sterling Abrasives registered a 23% growth in sales aided by the momentum in the manufacturing sector of the Indian economy and also doubled its profit after tax.

Board Changes

Mr. A Vellayan has stepped down from the Board consequent to his assuming office as Executive Chairman of the Murugappa Group.

Mr. Sanjay Jayavarthanavelu, Wholetime Director of Lakshmi Machine Works Ltd., Coimbatore has been inducted into the Board as an Additional Director. Mr. Jayavarthanavelu brings with him two decades of experience in the engineering industry.

Outlook

The growth momentum in the Indian economy has become firmly entrenched. The forecasts by the government on the economic indices bode well for the Company. However the European and North American economies continue to give mixed signals and the market is still circumspect. With India being an exception to the global economic trends and given the long term economic growth expectations of India, India would become a very sought after market for all international players. This would increase the number of international companies entering the country to have a share in the growth pie. Consequently competition would intensify for the Company in all its business segments bringing with it pricing pressures. The Company would leverage on its long experience in the Indian market to counter competition and also take concrete steps to ride on the resurgent mood in the Indian economy.

In the global markets, the approach would continue to be cautious. While some of the niches in which the Company operates remains relatively unaffected, growth initiatives would be by way of adopting focused marketing efforts to address specific countries and developing / underdeveloped markets and also by strengthening existing customer relationships.

Given the above, the Company expects to maintain in Q4, the positive trends of Q3.

About Murugappa Group

Headquartered in Chennai, the Rs. 15,907 crores (USD 3.14 billion) Murugappa Group is one of India’s leading business conglomerates. Market leaders in diverse areas of business including Engineering, Abrasives, Finance, General Insurance, Cycles, Sugar, Farm Inputs, Fertilizers, Plantations, Bio-products and Nutraceuticals, its 29 companies have manufacturing facilities spread across 13 states in India. The organization fosters an environment of professionalism and has a workforce of over 32,000 employees. The Group has forged strong joint venture alliances with leading international companies like DBS Bank, Mitsui Sumitomo, Foskor, Cargill and Groupe Chimique Tunisien has consolidated its status as one of the fastest growing diversified business houses in India.