Financial results of Carborundum Universal Limited

Standalone net sales up by 12% for the year, consolidated net sales up by 31%; consolidated PAT at Rs.104 crore

Chennai, 29 April, 2009: The board of directors met today and approved the audited financial results for the year ended 31st March 2009.

Q4 stand alone performance
Net sales at Rs.162 crore (previous year Rs.165 crore) was maintained at about last year levels despite the difficult market conditions and economic scenario. Electrominerals business registered a strong performance both on top line and profits before interest and tax; ceramics improved sales by 7% while profits were lower because of the impact of higher depreciation on the new plants commissioned during the year. Abrasives sales and operating profits declined due to the lower off take from user industries.

Operating profits (i.e. PBIT before other non operating income) declined from Rs.23.6 crore to Rs.15.9 crore primarily due to exchange fluctuation losses arising out of the unexpected appreciation in US Dollar rates.

In the previous year, there was a one time profit of Rs.11.5 crore on sale of assets in Q4, as a result of which other non operating income was lower this year. Consequently PBIT was lower at Rs.20 crore (previous year Rs.37 crore).

The company focused on cash generation during the quarter which helped to reduce debt levels.

2008-2009 standalone performance
Against the backdrop of global recession, sales recorded a growth of 12%. During the first half of the year, demand was brisk and the growth rate strong at 21%. The recessionary trends that engulfed the world during the second half of the year, dampened the growth momentum. Despite these developments, the diversified product portfolio and the niche market approach adopted by the company helped it to manage the challenges posed by the difficult economic environment and end the year on a positive note, with a growth of 4% in revenues for the second half.

The initiatives taken in the recent past to build capabilities in terms of world class manufacturing facilities and product capability, the focus on niche- product segments and developing customer specific products have resulted in wider acceptance for the company’s products and consequently a steep growth of 57% in exports.

The strong performance from non-abrasive business lines, particularly electro-minerals and refractories, helped the company to continue on a strong growth trajectory. The abrasives business, did well to maintain its turnover in a market plagued by weak sentiment, credit crunch and shut downs for inventory reduction. While off-take from the auto, general engineering and steel sectors nose-dived from the third quarter, demand from several major user industries mainly cement, construction, infrastructure, non-metals, ceramics, sponge iron, carbon black, cement and glass was a little more encouraging.

Earnings before interest, depreciation and tax (EBITDA) margins did not reach targeted levels as a result of a combination of factors – unexpected volatility in foreign currency markets and disproportionate increase in raw material cost, particularly in abrasives and refractories. Despite these adversities, EBITDA was maintained at last year’s level of Rs.104 crore. Depreciation and interest costs were higher consequent to the higher capital expenditure. The developments in the global financial sector accentuated the hike in interest costs.

The company continued its exercise of divesting non-strategic assets to fund construction of strategic assets. During the year, the Madhavaram property which housed the anti-corrosives operations was sold yielding a profit of Rs.28 crore. The non operating income, in the current year was only Rs.39 crore as against Rs.76 crore in the previous year, due to higher profits from asset disposals last year. As a result profit after tax was lower at Rs.60 crore (previous Rs.97 crore).

Capital expenditure during the year was about Rs.774 million, with investments primarily for continuing the effort to build a world-class back end in technical ceramics, super refractories and electrominerals. Apart from the new investments, the company made considerable progress in getting the desired benefits from the various capital expenditure projects commissioned in the past few years. With the threat of a global recession looming large, it was decided to restrict spending to projects already commenced and essentials. Consequently total capital expenditure was kept well below originally planned levels.

CUMI consolidated performance
Consolidated sales recorded a growth of 31% aided by very strong performance of the Russian and Australian operations. The previous year results, include that of the Volzhsky Abrasive Works, Russia (VAW) for 7 months only. VAW continued to ride high on the strong revenue flow from silicon carbide sales, a large part of which is from sales to Europe and North America. The strident increase in sales was also a result of better product mix, production process improvements leading to higher volumes and improved price realisations. The abrasives market in Russia was lacklustre due to the recessionary trends, with the result the performance of abrasives and refractories business in VAW recorded a downturn.

In CUMI Australia, sales increased by over 50% driven by the strong order flows from the minerals and coal handling sectors, which in turn were taking up major expansions in capacity. The unique business model of offering a complete solution right from design, manufacture, installation and servicing has helped the company to perform better than competition.

In South Africa, Foskor Zirconia had an excellent run during the first five months after the acquisition. With end user markets, particularly the steel refractory industry, going through difficult times, off take slowed down in Q4. Fusion operations have been temporarily suspended to reduce inventory levels.

CUMI Middle East had a moderate growth and the CUMI branded products continued to gain wider acceptance. CUMI America improved its performance in a declining US market with more intensified marketing efforts. At CUMI Canada, given the continuing difficulties in the housing market, it was decided to refocus the business on industrial ceramics products. This strategy is paying off and is expected to help to turn positive the fortunes of this operation next year.

The joint ventures in India and China registered modest performances due to market conditions, with CUMI’s share of combined turnover growing from Rs.95 crore to Rs.99 crore. In China, the company’s joint venture, Jingri-CUMI Super-Hard Materials Co. Ltd., registered lower sales. The new abrasive manufacturing facilities have stabilized, but could not operate at full capacity due to lower export off-take.

Other subsidiaries / associate i.e. Sterling Abrasives, Southern Energy Development Corporation Limited, Net Access India Private Limited and Laserwords Private Limited performed well.

Profit from operations before other income, interest and tax registered a sharp increase of 29%, from Rs.124 crore to Rs.159 crore.

Profit after tax was lower at Rs.104 crore (previous Rs.119 crore) primarily because of higher non operating profits due to asset disposals during previous year.

Dividend
The board has recommended a dividend of Rs.2 per share (100%) on face value of Rs.2 per equity share for 2008-2009. Last year a similar dividend of Rs.2 per share (100%) was paid.

The audited financial results are enclosed.

About the Murugappa Group
Headquartered in Chennai, the Rs.9582 crore (USD 3 billion) Murugappa Group is India’s leading business conglomerate. 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 limited companies have manufacturing facilities spread across 13 states in India. The organization fosters an environment of professionalism and has a workforce of over 30000 employees. The Group which has forged strong joint venture alliances with leading international companies like DBS Bank, Mitsui Sumitomo, Cargill, Foskor, China Engineering & Exploration Bureau and Groupe Chimique Tunisien, has consolidated its status as one of the fastest growing diversified business houses in India.

For further information, please contact:
Chandrika Raman
Asst General Manager
Group Corporate Communications
Murugappa Group
Ph – 044 25306535
Mob: +91 9840071172
E-mail: ChandrikaR@corp.murugappa.com

V Ramesh
Chief Financial Officer
Carborundum Universal Ltd.
Ph – 044 42216132
Mob: + 91 9940057663
Email: rameshV@cumi.murugappa.com

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