Carborundum Universal Ltd announces Q3 results

Chennai, 28 January 2008: The Board of Directors met today and approved the unaudited financial results for the quarter ended 31st December 2007.

Net sales grew to Rs.139 crore from Rs.120 crore for the corresponding quarter of the previous year, a growth of 16 per cent. All product lines performed well.

Depreciation for the quarter was higher by Rs. 1.8 crore and interest expense by Rs. 2.8 crore as a result of the large capital expenditure that is being incurred.

EBITDA (without reckoning exceptional items and the costs associated with the closure of the Pallikaranai operations) increased by 6 per cent. This was despite the increase in input costs, increase in staff cost and depreciation in US Dollar which impacted export earnings.

A strategic decision was taken in 2005 to relocate manufacturing facilities and use the cash flow generated by sale of prime land to build manufacturing capabilities of international standards. As a first step the Company had commissioned a state-of-the art coated abrasives plant in Sriperambudur in 2006. This was followed by the phased scaling down of operations at the Pallikaranai coated abrasives plant and its ultimate closure in 2007. Following this the land, which is located in an emerging residential area, was sold for a sum of Rs.58 crore and the resultant cash flow used to part finance the Russian acquisition.

The exceptional income resulting from this sale was Rs. 55 crore as a result of which profit before tax for the quarter was Rs.68 crore (Previous year Rs.20 crore). The profits after tax for the quarter was Rs. 48 crore (Previous year Rs. 13 crore).

CRISIL has assigned "AA+/Stable" rating for the Company's term / working capital debt and "P1+" rating for the Short-Term Debt Programme.

The unaudited stand alone financial results published in accordance with Clause 41 of the listing agreement is enclosed herewith as Annexure 1.

OPERATIONS
In abrasives (which is the largest business), off-take from major user industries like steel, forgings, foundry, fabrication, and construction was good. There was however a visible drop in the off take from the automobile sector. Despite this, sales grew by 10 per cent. PBIT (without exception items) recorded an increase of 7 per cent. Increase in price of key raw materials and staff cost which is a key input for this business affected margins. To give a thrust to nascent business segments, the division has gone in for a strategic increase in staff strength leading to higher manpower costs.

The ceramics business continued its robust performance both in the domestic market and exports, recording a growth of 24 per cent. Demand continued to be strong from power generation, ceramic tiles, steel industries, power transmission, ceramic tiles, HT Insulators, cement, carbon black and glass industries. The division registered a 8 per cent increase in PBIT despite increase in cost of inputs and also appreciation of the Indian Rupee versus the US Dollar.

In electrominerals sales grew by 17 per cent. The fortunes of the brown aluminium oxide business have brightened with steadily eroding of competitiveness of Chinese products. Sales of white fused alumina was robust. The PBIT of the division decreased because of steep increase in cost of raw bauxite.

All businesses are implementing price increases in a phased manner to counter the cost escalation in key inputs.

YEAR-TO-DATE CUMI CONSOLIDATED OPERATIONS
In Russia, several project teams are at work to enhance the width and scale of operations of Volzhsky Abrasive Works (VAW). VAW achieved a turnover of Rs.93 crore during the 4 months ended December 2007. The prospects for the business in the medium term future appears bright in view of the hardening of minerals prices across the world.

In China, Jingri-CUMI Super Hard Materials Company Limited, the joint venture with the Chinese public sector organization, has completed construction of the new resinoid bonded abrasives facility in record time and has commenced operations in December 2007. The facility for manufacture of vitrified bonded abrasives is nearing completion and scheduled to go into commercial production in February 2008. The existing industrial diamond and diamond cutting wheel business has been stable. With the abrasives facility going into production, the JV's business is likely to get a major boost.

In Australia, CUMI Australia performed well registering a 9 per cent growth during the first 9 months of the current year. 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 impacted substantially because of the recession in the housing sector.

In India, Murugappa Morgan Thermal Ceramics Limited (which is 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 a growth of 16 per cent and over 100 per cent respectively in sales driven by good inflow of project orders. Wendt India Limited, which is now a JV with the Winterthur Group, has performed well with business growing by 12 per cent. Sterling Abrasives also registered a strong performance with a growth of 22 per cent in sales. Southern Energy Development Corporation Limited, which is in power generation increased revenues by 15 per cent. The anticorrosives business (carried on by Prodorite Anticorrosives Limited) witnessed lower sales (18 per cent) as a consequence of drop in project orders. Net Access which is in computer facilities management increased revenues by 40 per cent.

Consolidated income for the nine months ended December 2007 increased from Rs.459 crore to Rs.629 crore. Profit before tax (before exceptional income) has remained flat. PAT including the exceptional income was Rs.83 crore (Rs.55 crore last year). The results for the current year include four month's operations of Volzhsky Abrasive Works, Russia, which was acquired in September 2007.

The unaudited consolidated financial results for the nine months ended 31st December 2007 is enclosed as Annexure 2.

GROWTH INITIATIVES
The bonded abrasives plant at Uttarkhand which commenced operations in end of last quarter has stabilized operations and is performing in line with expectations. Given the fiscal incentives provided by the State of Uttarkhand, this plant will enable CUMI to strengthen its presence in the price sensitive segments of this product line.

The dedicated facility for manufacturing wear resistant liner ceramic tiles in the Hosur industrial ceramics plant at a cost of about Rs.30 crore which was commissioned in a phased manner, has been fully completed in October 2007. The expansion has helped to double capacity to manufacture ceramic tiles for industrial applications.

The Power Tools business commenced operations in October 2007 by launching 14 products. The initial response from the market is encouraging.

The Industrial Ceramics Unit of M/s IVP Limited at Aurangabad was taken over with effect from 16th November 2007 and integration of operations is under progress. The acquisition of this unit has helped to widen CUMI's product range in industrial ceramics.

Implementation of the Metallised Cylinders project at Hosur is progressing as planned. The project scope has been enhanced and consequently the outlay increased from Rs.37 crore to Rs.49 crore spread over 2 years. The plant has been designed in consultation with international technologists to deliver consistent products of international standards.

The Board has approved the setting up of a new Super Refractories plant in Vellore District, Tamilnadu at a cost of about Rs. 30 crore which will help to double capacity for super refractory products over a two year time frame. The new plant will help CUMI to enhance its product range in the refractory segment and also benchmark its products with global majors.

CORPORATE RESTRUCTURING
The Board has also approved the proposal for merger of the Company's subsidiary, Prodorite Anticorrosives Limited (PACL) with the Company. PACL is a 100 per cent subsidiary of CUMI and is engaged in the business of acid resisting cements, corrosion resisting products, polymer concrete and fibre reinforced plastics etc. This business is synergistic with the super refractories business of CUMI. The merger is expected to give an impetus to this business as a result of the synergies and also the benefits of being part of a larger entity.

OUTLOOK
Given the positive outlook for the Indian Economy, business outlook continues to look promising. The Company has invested over a sum of Rs.400 crore in the last 2 years in strategic investments (comprising brownfield and green field investments, capital expenditure and acquisitions) across all businesses to address a broad spectrum of objectives - global thrust, modernization of existing facilities, capacity expansion, proximity to customers, widening product range and presence in emerging markets. The benefits of these investments are just beginning to pay-off and the full benefits will be realized progressively over the next two years.

To counter the increase in cost of key inputs, price increases are being effected in a phased manner in all business segments. The Company is also working on strategic initiatives to secure its raw material source on a long term basis both to ensure availability and also to keep a control on costs.

The international business are also expected to do well particularly, particularly the Russian operations, given the trend of mineral prices to remain firm.

CUMI is reconfiguring its manufacturing operations in India, China and Russia so as to fully leverage the benefit of its presence in the world's largest emerging markets and also to use these in conjunction with its network of marketing outfits in North America, Middle East, Europe and Australia to cater to the developed markets.

About the Murugappa Group
Headquartered in Chennai, the USD 2 billion (Rs.8500 crore) Murugappa Group is India's leading business conglomerate. Market leaders in diverse areas of business including engineering, abrasives, finance, general insurance, sanitary-ware, cycles, sugar, farm inputs, fertilisers, plantations, bio-products and nutraceuticals, its 29 registered companies have manufacturing facilities spread across 14 states in India. The organization fosters an environment of professionalism and has a workforce of over 30,000 employees.

The Group has forged strong joint venture alliances with leading international companies like Roca, Cargill, DBS Bank, Mitsui Sumitomo and Groupe Chimique Tunisien and has consolidated its status as one of the fastest growing diversified business houses in India

For further information, please contact:
V Ramesh
Chief Financial Officer
CUMI
Tel: 044 42216132
Mobile: 99400 57663

Chandrika Raman
Asst. General Manager, Group Corporate Communications
Murugappa Group
Tel: 044 25306535
Mobile: 98400 71172

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