CORPORATE INFORMATION

Board of Directors
M M Murugappan, Chairman S N Talwar Subodh Kumar Bhargava T L Palani Kumar T M M Nambiar A Vellayan Sridhar Ganesh K Srinivasan, Managing Director N Kishore, President - Abrasives &Technology P R Ravi, President
- Ceramics & EMD

Management Committee
K Srinivasan, Managing Director V Ramesh, Chief Financial Officer

M Muthiah, Vice President - HR

Company Secretary
S Dhanvanth Kumar

Bankers
State Bank of India Standard Chartered Bank

Auditors
Deloitte Haskins & Sells, Chennai

Bank of America IDBI Bank Limited

REPORT OF THE DIRECTORS

(including Management Discussion and Analysis) Your Directors have pleasure in presenting their 54 th 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--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 (with PACL) (without PACL) Gross Sales (Incl. Services) Domestic Sales Exports Total Sales (Incl. Services) 31.3.2007

5736 870 6606

5507 822 6329

4561 707 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 VAWs 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 Profit before interest and tax (i.e. excluding
profit on sale of fixed assets/ investments)

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 Add: Balance brought forward from previous year Total Recommended appropriations Transfer to general reserve Dividend Dividend Tax Balance carried forward Total 97.17 186.71 28.48 1309.43 1621.79 971.70 650.09 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

6606

5268

Profit before interest and tax

(i.e. excluding profit on sale of fixed assets / investments)

917

854

1305

1125

Profit from operations

(i.e. excluding profit on sale of fixed assets/ investments)

Profit from operations

(i.e. excluding profit on sale of fixed assets / investments)

748 504 120 1372 972

783 70 853 587

1116

1049

Profit on sale of fixed assets (net of expenses) Profit on sale of investments Profit before tax Profit after tax

Profit on sale of fixed assets

(net of expenses)

504

70

Profit on sale of investments Profit before tax Profit after tax

120 1740 1189

1119 751

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/-

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 CUMIs 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 2007-08 Domestic sales - Gross Exports Total Sales Operating income (without reckoning profit on sale of fixed assets) Capital employed Contribution to total sales of CUMI Contribution to total operating income of CUMIs business segments 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 3931 300 4231 541 2918 64% Rs. million 2006-07 3391 307 3698 529 2477 70% % growth 16% (2%) 14% 2%

56%

60%

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 Companys 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.

Ceramics Key financial summary 2007-08 (with PACL) Domestic sales - Gross Exports Total external sales Captive Total sales Operating income Capital employed Contribution to total sales of CUMI Contribution to total operating income of CUMIs business segments Market scenario CUMIs 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 1149 430 1579 53 1632 273 1463 2007-08 (without PACL) 919 383 1302 46 1355 253 Rs. million 2006-07 % growth (without PACL) 681 305 986 38 1024 201 804 35% 26% 32% 21% 32% 26%

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 CUMIs 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

25%

19%

28%

23%

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. Electrominerals Key financial summary Rs. million 2007-08 Domestic sales - Gross Exports Total external sales Captive Total sales Operating income Capital employed Contribution to total sales of CUMI Contribution to total operating income of CUMIs business segments 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 656 141 797 278 1075 160 666 12% 2006-07 489 95 584 311 895 153 574 11% % growth 34% 48% 36% (11%) 20% 5%

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. CUMIs 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

16%

17%

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 Companys 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 IMFs 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. The energy consumption details for super refractories are as follows: A Power and fuel consumption 2007-08 a Electricity i. Purchased Units (Kwh) Total amount (Rs. Million) Rate per unit (Rs.) ii. Own (Through Diesel Generator) Units (Kwh) Units per litre of diesel oil Cost per unit (Rs.) b Furnace Oil (used for Kiln) Quantity (litres) Total cost (Rs. Million) Rate per unit (Rs.) c Kerosene (used for Kiln) Quantity (litres) Total cost (Rs. Million) Rate per unit (Rs.) d C 9 Plus (used for kiln) Quantity (litres) Total cost (Rs. Million) Rate per unit (Rs.) e Coal (used for kiln.) Quantity (Kgs.) Total cost (Rs. Million) Rate per unit (Rs.) 1659138 8.39 5.05 141319 3.14 10.76 126565 2.66 21.04 1789876 51.59 28.82 194330 5.52 28.43 223045 1.06 4.77 1487117 7.01 4.72 59130 3.07 11.42 1852668 52.00 28.07 2006-07

B Consumption per tonne of production 2007-08 a Electricity (units) Fired Products Monolithics (including Refractory cement) b Fuel Kerosene and C 9 Plus (litres) used for fired products Coal (kg) used for low grade refractory cement Furnace oil (litres) used for high grade refractory cement 409 29 2006-07 497 14

538 1243 162

627 -

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 wiresawing 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.

Expenditure on R & D Rs. million Capital Recurring Total Total expenditure as a percentage to turnover 9 27 36 0.5%

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-ofthe-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

10

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 WoodMaster will see significant volume Imported Technology Technology imported Floor Polishing Wheels 2004-05 Synthetics based backing and products thereafter 2005-06

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.

Coated abrasive discs 2006-07

Metallised cylinders

Ceramic segments

Year of Import Has technology been fully absorbed If not fully absorbed, areas where this has not taken place, reasons therefor and future plans of action

2006-07

2006-07

Yes N.A.

Being absorbed Technology for manufacture of polyester cloth design was absorbed. The process of indigenizing 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.

Being absorbed The design for Zirconia fibre disc has been absorbed and further fine tuning in design has been done to suit market requirements. With the market requirements mainly on individual coated discs, this concept will be extended to these products and will undergo extensive market testing this year.

Being absorbed Equipment in the new metz plant selected as per new technology. Process parameters in the new plant will be as per the revised technology.

Being absorbed Sample lots manufactured and have been certified by competent agencies. Initial orders based on using the new formulation are planned to be executed in 2008 - 09

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 Companys 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.

11

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 Companys 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
(including deemed exports)

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 Companys consortium of banks and foreign currency buyers 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 Banks 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 CRISILs 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.

870

Foreign Exchange Outgo - Capital Equipment - Investment in subsidiary - Raw materials and other payments 226 986 1103

12

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 CUMIs 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. CUMIs 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 Boards convention. Mr Talwar has been on the Companys 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 Boards 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 companys plant locations, by conducting free medical and health awareness camps and distributing medicines.

13

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/ Nature of duties 2 Vice President EMD Gross remuneration paid in 07-08 (Rs.) 3 2,506,018 Qualification and experience (years) 4 M.Sc (Applied Sciences), M.Tech Material Science (22) Date of commencement of employment 5 19.02.86 Previous employment

1 Ananthaseshan N (45)

Deepak Durairaj (51) Kishore N (54)

Vice President Intl Business & Product Mgmt. President Abrasives & Technology Vice President Marketing Abrasives

2,422,918

B.Tech Chemical 01.05.81 (27) M.Tech (Indl. Engg) (30) B.E. (Chemical) (35) B.E. (Mech.) (26) B.Sc. AICWA, MBA (34) 16.06.95

5,417,515

Dy. General Manager E I D Parry (India) Ltd. -

Periakaruppan AR (58)

2,593,393

12.09.73

Rajagopalan R (50) Vice President Marketing Ceramics Ravi P R (56) President EMD & Ceramics

2,580,960

01.04.82

4,901,638

07.02.90

Dy. Finance Manager, Madras Fertilisers Ltd. President TVS Finance & Services Ltd. Regional Sales Manager Bakelite Hylam Ltd. Vice President Wendt (India) Ltd.

Ramesh V (51)

Chief Financial Officer

3,460,531

B.Com., AICWA, 15.11.06 PGDBM (IIM) (29) B.Sc. PGDBM (IIM) (34) B.Tech (Mech) (28) 01.10.85

Sitharam Koka(57) Executive on Deputation Srinivasan K (50) Managing Director

4,276,172

6,961,155

30.01.02

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/75CLV) 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

14

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 Nature of Disclosure a. Options granted 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: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 number of options 20% 20% 30% 30% b. The pricing Formula Date of vesting

One year from the date of grant Two years from the date of grant Three years from the date of grant 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 K. Srinivasan Managing Director N. Kishore President - Abrasives and Technology P.R. Ravi President - Ceramics and EMD V. Ramesh Chief Financial Officer M. Muthiah Vice President - HR No. of Options granted 221,900 138,300

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

91,900 91,900 48,800

15

(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

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.

(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) (d) (e) Expected volatility Expected dividend yields Price of the underlying share in market at the time of option grant

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 30th April 2008 M M MURUGAPPAN Chairman

16

REPORT ON

CORPORATE GOVERNANCE
(Pursuant to clause 49 of the Listing Agreement) The Directors have pleasure in presenting the Corporate Governance Report for the year ended 31st March 2008. 1. The Companys Corporate Governance Philosophy Carborundum Universal Limited (CUMI), as a constituent of the Murugappa Group, is committed to high standards of corporate governance in all its activities and processes. CUMI looks at corporate governance as the cornerstone for all sustained superior financial performance and for serving all the stakeholders. Apart from drawing from the various legal provisions, the group practices are continuously benchmarked with industry practices. The entire process begins with the functioning of the Board of Directors, with leading professionals and experts serving as independent Directors and represented in the various Board Committees. Systematic attempt is made to ensure symmetry of information. Key elements in corporate governance are transparency, internal controls, risk management, internal/external communications and good standards of safety and health. The Board has empowered responsible persons to its broad policies and guidelines and has set up adequate review processes. 2. Board of Directors a) Composition The Board comprised of 8 members as on 31st March 2008. The Board has been constituted in a manner, which will result in an appropriate mix of executive and independent directors. This has been done to preserve the independence of the Board and to separate the Board functions of governance and management. b) Board Meetings The Board has a formal schedule of matters reserved for its consideration and decision. These include setting performance targets, reviewing performance, approving investments, ensuring adequate availability of financial resources and reporting to the shareholders. The Board periodically reviews the compliance of all applicable laws and gives appropriate directions wherever necessary. The Board has laid-down a Code of Conduct for all the board members and the senior management of the company. Annual declaration is obtained from every person covered by the Code of Conduct. A declaration to this effect signed by the Managing Director is attached to this report. The Company has laid down procedures to inform Board members about the risk assessment and minimisation procedures. The Board reviews the significant business risks identified by the management and the mitigation process being taken up. The Board also reviews the Board meeting minutes and financial statements of subsidiary companies, and also their significant transactions. Six Board Meetings were held during the year on 30th April 2007, 22nd June 2007, 27th July 2007, 26th October 2007, 28th January 2008 and 27th March 2008.

17

c) Details of the Board members during 2007-08

Name Category No. of Directorships/ Chairmanships (excluding CUMI)+ No. of Committee memberships/Chairmanships (excluding CUMI)* No. of Attendance Shares board at last held meetings AGM in CUMI attended 6 Yes 407500

Mr. M M Murugappan Promoter & Chairman Non Executive Director Mr. S N Talwar Non-Executive Independent Director Non-Executive & Independent Director

10 (of which 6 as Chairman)

4 (of which 3 as Chairman)

12 (of which 1 as Chairman)

9 (of which 4 as Chairman)

Yes

20000

Mr. Subodh Kumar Bhargava

11 (of which 2 as Chairman)

9 (of which 2 as Chairman)

Yes

Nil

Mr. T L Palani Kumar Non-Executive & Independent Director Mr T M M Nambiar Non-Executive & Independent Director Promoter & Non Executive Director

Nil

Nil

Yes

Nil

4 (of which 2 as Chairman)

Yes

Nil

Mr A Vellayan

9 (of which 4 as Chairman)

Yes

316130

Mr Sridhar Ganesh Non Executive (Joined the Board on Director 30th April 2007) Mr K Srinivasan Managing Director + * Executive Director

Nil

Nil

No

Nil

Yes

7650

Excluding Alternate Directorships and directorships in foreign companies, private companies (which are not subsidiary or holding company of a public company) and Section 25 companies Only Audit & Investors Grievance committee.

The Company has paid a sum of Rs. 76,500/- to Talwar, Thakore & Associates (of which Mr. S N Talwar is a partner) for legal services rendered during the year ended 31st March 2008. 3. Board Committees The Board has set up the following Committees as per the requirements of the stock exchanges: a. Audit Committee This committee has been formed to monitor and provide effective supervision of the financial control and reporting process. The terms of reference of the committee are in line with the requirements of the Companies Act, 1956 and the Listing Agreement. This inter alia includes review of the financial reporting process (including related party transactions), internal

audit process, adequacy of internal control systems, and also recommending the appointment of the statutory / internal auditors and their remuneration. The committee met on 5 occasions during the year. The Chairman of the Board, the statutory auditor, internal auditor and members of the senior management are permanent invitees to the committee meetings. The names and attendance of the committee members are given below: Names of the members Mr. Subodh Kumar Bhargava (Chairman) Mr. T L Palani Kumar Mr. T M M Nambiar Meetings attended 4 5 5

18

b.

Compensation & Nomination Committee

The main functions of this committee are to (a) recommend to the Board the appointment/ reappointment of the executive and non-executive directors and the induction of Board members into various committees (b) approve the remuneration package of the executive director(s), annual incentive and periodic increments in salary (c) to formulate, implement, administer and superintend the Employee Stock Option Scheme(s). This committee comprises entirely of independent directors. The committee met 3 times during the year. The names and attendance of committee members are given below: Names of the members Mr. Subodh Kumar Bhargava (Chairman) Mr. T L Palani Kumar Meetings attended 3 3

The Board has appointed Mr. S Dhanvanth Kumar, Company Secretary as the Compliance Officer for the purpose of compliance with the requirements of the Listing Agreement. 4. Directors Remuneration a. Policy The compensation of the Managing Director comprises of a fixed component and a performance incentive based on certain pre-agreed parameters. The compensation is determined based on level of responsibility and scales prevailing in the industry. The Managing Director is not paid sitting fees for Board / Committee meetings attended by him. The compensation of the non-executive directors takes the form of commission on profits. Though the shareholders have approved payment of commission upto 1% of net profits of the Company for each year calculated as per the provisions of the Companies Act, 1956, the actual commission paid to the directors is restricted to a fixed sum. This sum is reviewed periodically taking into consideration various factors such as performance of the Company, time spent by the directors for attending to the affairs and business of the company and extent of responsibilities cast on directors under general law and other relevant factors. Further the aggregate commission paid to all non-executive directors is within the limit of 1% of the net profits as approved by the shareholders. The non-executive directors are also paid sitting fees within the limits set by government regulations for every Board / Committee meeting attended by them. b. Remuneration for 2007-08 Non-Executive Directors Name (Rs.in 000s) Sitting Commifees ssion(a) 145 70 145 185 130 75
(b)

c. Share Transfer, Finance and Investors Grievance Committee The terms of reference of this committee encompasses formulation of investors servicing policies, looking into redressal of investors complaints and approval / overseeing of transfers, transmissions, transpositions, splitting, consolidation of shares and debentures, demat/remat requests, allotment of debentures and authorizing terms of various borrowings and creating security in respect thereof, allotment of shares on exercise of options by employees under the Employees Stock Option Scheme and performing other functions as delegated to it by the Board from time to time. The Committee met on 5 occasions during the year. The names and attendance of Committee members are given below: Names of the members Mr. M M Murugappan (Chairman) Mr. A Vellayan Mr. K Srinivasan Meetings attended 5 3 5

Mr. M M Murugappan Mr. S. N. Talwar Mr. Subodh Kumar Bhargava Mr. T L Palani Kumar Mr. T M M Nambiar Mr. A Vellayan Mr. Sridhar Ganesh Total

300 300 300 300 300 300 276 2076

75 825

19 complaints mainly non receipt of annual report / dividend have been received from shareholders during the year. All of them have been resolved to the satisfaction of the shareholders. There were no complaints pending as on 31.03.2008.

(a) Will be paid after adoption of accounts by shareholders at the fifty fourth Annual General Meeting (b) Director for part of the year.

19

Managing Director Name Salary & Allowances Mr K Srinivasan (a) Notes (a) Mr. K Srinivasan was appointed as Managing Director by the shareholders from 1.2.2006 till 31.1.2010. As per the terms of his remuneration, he is eligible for an annual incentive based on a balanced scorecard which comprises of company financials, company scorecard and personal objectives. For 2007-08 a sum of Rs.10,08,000 has been provided in the accounts for this purpose. The actual amount will be decided by the Compensation and Nomination Committee in July 2008. He is No. of options granted Exercise Price Vesting Schedule 4569 Fixed Component Retirement benefits 536 Other benefits 886

(Rs.in 000s) Variable Component Incentive (b) 970

subject to all other service conditions as applicable to any other employee of the Company including termination with 3 months notice. (b) Represents incentive paid in 2007-08 in respect of the financial year 2006-07. The details of options granted to Mr. K Srinivasan under the Carborundum Universal Limited Employees Stock Option Scheme 2007 are as follows:

2,21,900 options (each option being exercisable into one equity share of Rs. 2/- each) were granted on 29th September 2007 Rs. 183.60/- being the market price The number of options that would vest is based on the annual performance rating for each financial year and as per the following schedule:% of the total number of options 20% 20% 30% 30% One year from the date of grant Two years from the date of grant Three years from the date of grant Four years from the date of grant Date of vesting

Exercise period

Within 3 years from the date of vesting of the respective option, in one or more instalments

5. General Body Meetings a. Last 3 Annual General Meetings Year 2004-2005 Date 23.07.2005 Time 3.30 PM Venue T T K Auditorium, Music Academy, T T K Road, Royapettah, Chennai 600 014 - do - do -

2005-2006 2006-2007

24.07.2006 27.07.2007

3.30 PM 3.30 PM

b.

Special Resolutions passed during the last three Annual General Meetings. Item of business Issue of Employee Stock Options Passed on 27.07.2007 Member of the Central Council of the Institute of Company Secretaries of India, who was appointed as Scrutiniser. The first was for amendment of objects clause of memorandum of association and authorizing

Sl.No. 1.

c. Special Resolutions passed by Postal Ballot since 1st April 2007 Two special resolutions were passed by postal ballot since 1st April 2007. The same were conducted by Mr. R Sridharan, Practising Company Secretary and

20

commencement of power tools business and the results were announced on 28th June 2007. 4,26,54,721 votes were cast in favour of the resolution and 15,352 votes against the resolution. The second was for amendment of objects clause of Memorandum of Association and authorizing carrying on of anticorrosives and bio ceramics businesses. The results were announced on 10th March 2008. 5,47,41,163 votes were cast in favour of the resolution and 6,950 votes against the resolution. 6. Disclosures a. There were no materially significant related party transactions during the year having conflict with the interests of the Company. b. There has been no non-compliance by the Company or penalty or stricture imposed on the Company by the Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last 3 years. c. The Company has established a whistle blower mechanism to provide an avenue to raise concerns, in line with the Company commitment to the highest possible standards of ethical, moral and legal business conduct. The mechanism also provides for adequate safeguards against victimization of employees who avail of the mechanism and also for appointment of an Ombudsperson who will deal with the complaints received. The policy also lays down the process to be followed for dealing with complaints and in exceptional cases, also provides for direct appeal to the Chairperson of the Audit Committee. It is confirmed that during the year, no employee has been denied access to the audit committee. 7. Means of Communication The quarterly unaudited financial results and the annual audited financial results are normally published in Business Standard and Makkal Kural. Press releases are given to all important dailies. The financial results, press releases and

presentations made to institutional investors / analysts are posted on the Companys website i.e. www.cumi.murugappa.com. The financial results are posted on SEBIs website i.e. www.sebiedifar.nic.in. 8. Managements Discussion & Analysis Report In order to avoid duplication and overlap between the Directors Report and a separate Management Discussion & Analysis Report, the information required to be provided has been given in the Directors Report itself as permitted by the listing agreement. 9. Non Mandatory Requirements (i) The Board has constituted a Compensation and Nomination Committee. The terms of reference of this Committee is given in para 3 (b) above. Half yearly financial results were sent to individual household of shareholders for the six months ended 30th September 2007.

(ii)

(iii) Pursuant to the non mandatory requirements of the Listing Agreement, the Company has established a whistle blower mechanism. (iv) The Companys financial statements do not carry any qualifications by Auditors. (v) The expenses incurred by the Chairman in performance of his duties are reimbursed.

Other non-mandatory requirements have not been adopted at present. 10. General Shareholder Information This is annexed. On behalf of the Board Chennai th 30 April 2008 M M Murugappan Chairman

21

Auditors Certificate on Corporate Governance

To The members of Carborundum Universal Limited We have examined the compliance of conditions of Corporate Governance by CARBORUNDUM UNIVERSAL LIMITED, for the year ended 31 March 2008, as stipulated in clause 49 of the Listing Agreement of the said Company with stock exchanges. The Compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which management has conducted the affairs of the Company.
st

for DELOITTE HASKINS & SELLS Chartered Accountants M K Ananthanarayanan Partner Membership No.19521

Chennai 30th April 2008

Declaration on Code of Conduct

To The Members of Carborundum Universal Limited This is to confirm that Board has laid down a code of conduct for all Board members and senior management of the company. It is further confirmed that all directors and senior management personnel of the company have affirmed compliance with the Code of Conduct of the company as at 31st March 2008, as envisaged in clause 49 of the Listing Agreement with stock exchanges.

Chennai 30 April 2008

th

K Srinivasan Managing Director

22

General Shareholder Information

1. Registered Office of the Company Parry House, 43 Moore Street, Chennai 600 001 2. Forthcoming Annual General Meeting Thursday, the 24th July 2008 at 3.00 p.m. at Tamil Isai Sangam, Rajah Annamalai Mandram, Chennai 600 108. Last date for receipt of proxy forms: 22 nd July 2008, 3.00 p.m. 3. Financial Year 1st April to 31st March 4. Book Closure Dates Thursday, the 10th July 2008 to Thursday, the 24th July 2008 (both days inclusive). 5. Share Capital The paid up capital of the Company was Rs. 18,67,08,000 comprising 9,33,54,000 equity shares of Rs.2/- each. 6. Dividend The Board of Directors have recommended a dividend of 100% (Rs. 2/- per equity share of Rs. 2/- each) and the same will be paid after approval at the Annual General Meeting. The warrants will be posted by 31st July 2008. In case of shareholders opting for ECS, the dividend would in the normal course be credited to their accounts by 31st July 2008. Instructions to shareholders a) Shareholders holding shares in physical form Requests for change of address must be sent to the Companys registrar, M/s Karvy 7. Listing on stock exchanges and stock code Stock Code Computershare Private Limited, not later than 10th July 2008 to enable them to forward the dividend warrants to the latest address. Members are also advised to intimate M/s Karvy Computershare Private Limited the details of their bank account to enable the same to be incorporated in the dividend warrants. This would help to prevent any fraudulent encashment of the dividend warrants. b) Shareholders holding shares in demat form In respect of shareholders who have provided relevant bank account details to their DPs and who reside in Ahmedabad, Bangalore, Bhubaneswar, Chandigarh, Chennai, Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Guwahati, Patna and Trivandrum and any other centres as decided in consultation with the bankers, the dividend would be remitted by ECS to their bank account. The Company would send a remittance advice after payment of dividend by ECS. In respect of shareholders residing in other centres, the bank account details furnished by their Depository Participants (DPs) would be incorporated in the dividend warrants and these would be mailed to their residence. If there is any change in bank account details, shareholders are requested to advice their DPs immediately about the change. Further, if there is any change in address, shareholders are requested to advice their DPs immediately about the new address.

Stock Exchange National Stock Exchange of India Ltd. Exchange Plaza, Bandra-Kurla Complex Bandra (E) Mumbai 400 051 Bombay Stock Exchange Ltd. Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai 400 001 Madras Stock Exchange Ltd. Exchange Building, Post Box No. 183, 11 Second Line Beach, Chennai 600 001
Annual listing fees has been paid to the above stock exchanges.

CARBORUNIV

513375

CRB

23

8. Depositories Connectivity National Securities Depository Ltd. (NSDL) Central Depository Services (India) Ltd. (CDSL) ISIN: INE120A01026 9. Market price data & performance in comparison with BSE MIDCAP a. Market price data Month Bombay Stock Exchange High Rs. Low Rs. Traded Volume
(No. of shares)

National Stock Exchange High Rs. Low Rs. Traded Volume

(No. of shares)

April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008

161.00 182.60 184.20 190.00 182.50 195.00 185.90 186.00 178.25 183.00 157.00 146.50

139.50 140.40 146.00 166.20 167.00 174.00 135.25 151.00 157.25 120.00 130.00 100.00

157817 3162486 1850965 1151089 415396 893985 712284 633735 270099 288786 124507 250785

161.00 187.00 183.40 190.70 182.70 195.95 187.00 186.00 183.00 183.05 157.00 147.00

135.10 140.10 147.50 166.60 165.20 174.10 150.00 150.50 157.00 116.50 120.00 100.05

290276 6750094 2432075 1417999 412132 5095691 658100 519273 338269 399152 292847 524103

b. Performance in comparison with BSE MIDCAP

Series1 200.00 175.00 150.00 125.00 100.00 75.00 50.00

Apr-07

Series2 11000.00 9500.00 8000.00 6500.00 5000.00 3500.00 2000.00

May-07

Aug-07

Nov-07

Sep-07

10. Share Transfer Process The applications for transfer of shares and other requests from shareholders holding shares in physical form are processed by Karvy Computershare Private Ltd.

The Board has delegated the power to approve transfers to the Share Transfer, Finance & Investors Grievance Committee and also to the members of the Committee and the Company Secretary. The transfers are approved atleast twice a month.

24

Dec-07

Feb-08

Jun-07

Mar-08

Oct-07

Jan-08

Jul-07

11. Shareholding Pattern/ Distribution a. Shareholding Pattern as on 31.03.2008 Category Promoter Group Financial Institutions Non-resident (NRIs / OCBs / FIIs) Banks Mutual Funds Others Total b. Distribution of Shareholding as on 31.03.2008 Category 1-100 101-200 201-500 501-1000 1001-5000 5001-10000 Above 10000 Total 12. Dematerialisation of shares The Company has signed agreements with both National Securities Depository Limited (NSDL) and with Central Depository Services (India) Ltd. (CDSL) to provide the facility of holding equity shares in dematerialised form. As per SEBIs instructions, the Companys shares can be sold through stock exchanges only in dematerialised form. Sl. No. Date of grant subscribe to No. of Options (each giving (Rs. per share) one equity share of Rs. 2/-) 13,35,700 30,000 As on 31st March 2008, 8,89,06,686 equity shares constituting 95.24% of the total paid up capital of the company have been dematerialised. 13. Outstanding GDRs / ADRs etc. The outstanding position of Employee Stock options as on 31st March 2008 and their likely impact on the equity share capital is as under: Exercise price full conversion Likely impact on full conversion Share Capital Share Premium (Rs. in million) (Rs. in million) 2.67 0.06 242.56 4.45 No. of Holders 6474 2593 3621 2259 3250 282 387 18866 % to total 34.32 13.74 19.19 11.97 17.23 1.50 2.05 100.00 No. of Shares 354859 466718 1354098 1874280 7096749 2129928 80077368 93354000 % to total 0.38 0.50 1.45 2.01 7.60 2.28 85.78 100.00 % to total Capital 43.07 10.02 1.99 0.03 11.72 33.17 100.00

1. 2.

29.09.2007 28.01.2008

183.60 150.45

Other than the above, there are no outstanding GDRs/ADRs/Warrants or any Convertible instruments. 14. Address for correspondence a. Compliance Officer S. Dhanvanth Kumar Company Secretary Carborundum Universal Limited Parry House, 43 Moore Street, Chennai 600 001. Tel: (044) 42216141 Fax: (044) 42216149 Email:DhanvanthkumarS@cumi.murugappa.com b. Investors Services Officer K. Gayathri Asst Company Secretary Carborundum Universal Limited Parry House, 43 Moore Street, Chennai 600 001. Tel: (044) 42216142 Fax: (044) 42216149 Email: gayathrik@cumi.murugappa.com, investorservices@cumi.murugappa.com Registrars and Share Transfer Agents Karvy Computershare Private Limited Plot Nos. 17-24, Vithal Rao Nagar, Madhapur, Hyderabad - 500 081. Tel: (040) 23420815 to 23420824 Toll Free No. 1-800-3454001 Fax: (040) 23420814 email: mailmanager@karvy.com website: www.karvy.com 15. Plant Locations Abrasives Carborundum Universal Limited P B No.2272, Tiruvottiyur, Chennai 600 019 Tamil Nadu Tel : +91-44-25733322 / 42211000 Fax : +91-44-25733499 / 25733280 / 25731027

25

Carborundum Universal Limited Bonded Division, Plot No.48, SIPCOT Industrial Complex, Hosur 635 126, Dharmapuri District, Tamil Nadu Tel : +91-4344-276864 / 277059 / 276630 / 279855/279844 Fax : +91-4344-277060 Carborundum Universal Limited Gopalpur Chandigarh, P.O. Ganga Nagar, Kolkata 700 132, West Bengal Tel : +91-33-25384418 Fax : +91-33-25386331 Carborundum Universal Limited Cloth Processing Plant, C-4 & C-5, Kamarajar Salai, MMDA Industrial Complex, Maraimalai Nagar 603 209 Kanchipuram District, Tamil Nadu Tel : +91-4114-253093 / 253195 Fax : +91-4114-253097 Carborundum Universal Limited F-1/2, F2 - F5, SIPCOT Industrial Park, Pondur A Village, Sriperumbudur - 602 105. Kanchipuram District Tel: +91-44-37100204, 47114400 Fax : +91-44-47114600 Carborundum Universal Limited K 3, ASAHI Industrial Estate Latherdeva Hoon, Mangalore Jhabrera Road, PO Jhabrera Tehsil Roorkee, Hardwar District, Uttarkhand - 247 667 Tel: +91-01332-275846/224064 Ceramics Carborundum Universal Limited Industrial Ceramics Division, Plot No. 47, SIPCOT Industrial Complex, Hosur 635 126 Dharmapuri District, Tamil Nadu Tel : +91-4344-276027 / 276418 Fax : +91-4344-276028 Carborundum Universal Limited Super Refractories Division, Plot Nos.102 & 103 SIPCOT Industrial Complex (Phase II) Ranipet 632 403, Tamil Nadu Tel : +91-4172-244582 / 244197 Fax : +91-4172-244982

Carborundum Universal Limited Prodorite Division, 57 & 58 Thattankulam Road, Madhavaram, Chennai - 600 060. Tel : +91-44-25530953-56/25531952 Fax : +91-44-25530374 Carborundum Universal Limited Plot Nos. 35,37, 48-51, Adhartal Industrial Estate, Jabalpur, Madhya Pradesh - 482 004. Tel : +91-0761-2680398 / 6539996 Fax: +91-0761-2680678 Carborundum Universal Limited Plot No. A-7/2 MIDC Area, Chikalthana, Aurangabad - 431 210, Maharashtra Tel : +91-240-2482562 Fax: +91-240-2482003 Electrominerals Carborundum Universal Limited Electrominerals Division, PB No.1 Kalamassery Development Plot P.O, Kalamassery 683 109 Ernakulam District, Kerala Tel : +91-484-2541058/ 2540309/2540525 Fax : +91-484-2532019 Carborundum Universal Limited Electrominerals Division, PB No. 3 Nalukettu, Koratty 680 308, Trichur District, Kerala Tel : +91-480-2732313 /2732061 Fax : +91-480-2732821 Carborundum Universal Limited Maniyar Hydroelectric Works, Maniyar P.O., Vadasserikara, Pathanamthitta Dt, Kerala 689 662 Tel : +91-4735-274223 Fax : +91-4735-274223 Carborundum Universal Limited Bhatia Mines, Bhatia Western Railway, Jamnagar District, Gujarat 361 315 Tel : +91-2891-233464 Carborundum Universal Limited Electrominerals Division, P.B No.2 Okha Port P.O. Jamnagar District, Gujarat 361 350 Tel : +91-2892-262063 / 262065 Fax : +91-2892-262061

On behalf of the Board

Chennai 30th April 2008 M M Murugappan Chairman

List of promoters of Carborundum Universal Limited belonging to the Murugappa Group pursuant to regulation 3(e)(i) of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. EID Parry (India) Ltd. & its subsidiaries Silkroad Sugar Private Ltd. New Ambadi Estates Pvt. Ltd. & its subsidiaries Ambadi Enterprises Ltd.& its subsidiaries Tube Investments of India Ltd. & its subsidiaries TII Shareholding Trust Presmet Private Limited Laserwords Private Limited & subsidiaries Cholamandalam DBS Finance Ltd. & its subsidiaries Coromandel Engineering Company Limited Murugappa Educational & Medical Foundation AMM Arunachalam & Sons P Ltd. AMM Vellayan Sons P Ltd. MM Muthiah Sons P Ltd. Kadamane Estates Company Yelnoorkhan Group Estates Murugappa & Sons MM Muthiah Research Foundation 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. A R Lakshmi Achi Trust AMM Foundation AMM Medical Foundation M V Murugappan & family M V Subbiah & family S Vellayan & family A Vellayan & family A Venkatachalam & family M M Murugappan & family M M Venkatachalam & family M A Alagappan & family Arun Alagappan & family M A M Arunachalam & family Any other company, firm or trust promoted or controlled by the above Family for the above purpose includes the spouse, dependent children and parents

Chennai 30th April, 2008

For Carborundum Universal Limited S. Dhanvanth Kumar Company Secretary

26

INDEPENDENT

FINANCIAL STATEMENTS 2007-2008

27

DIRECTORS RESPONSIBILITY STATEMENT

ANNEXURE TO THE DIRECTORS REPORT Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that : in the preparation of the Profit & Loss Account for the financial year ended 31st March 2008 and the Balance Sheet as at that date (financial statements) applicable accounting standards have been followed; appropriate accounting policies have been selected and applied consistently and such judgments and estimates that are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit of the company for that period; proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; the financial statements have been prepared on a going concern basis.

On behalf of the Board

Chennai 30th April 2008

M M MURUGAPPAN Chairman

28

AUDITORS REPORT
TO THE MEMBERS OF CARBORUNDUM UNIVERSAL LIMITED 1. We have audited the attached Balance Sheet of CARBORUNDUM UNIVERSAL LIMITED (the Company) as at 31st March 2008, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4. Further to our comments in the Annexure referred to above, we report that: (i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; (iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts; (iv) In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the accounting standards referred to in subsection (3C) of Section 211 of the Companies Act, 1956; (v) On the basis of written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2008, from being appointed as a director in terms of clause (g) of subsection (1) of section 274 of the Companies Act, 1956 on the said date;

(vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with schedules and notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March 2008; (b) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. FOR DELOITTE HASKINS & SELLS Chartered Accountants M K Ananthanarayanan Partner Membership No.19521

(ii)

Chennai 30th April, 2008

29

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE 1. In respect of fixed assets: a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. The fixed assets were physically verified in a phased manner by the management in accordance with a programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. According to the information and explanations given to us, no material discrepancies were noticed on such verification. The fixed assets disposed off during the year, in our opinion do not constitute a substantial part of the fixed assets of the Company and such disposals has, in our opinion not affected the going concern status of the Company. 5. of the above loan, the maximum amount involved during the year was Rs.7.89 million and the year end balance was Rs.3.2 million. (b) According to the information and explanations given to us, the Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. 4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and nature of its business with regard to the purchase of inventory and fixed assets and with regard to the sale of goods and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in such internal controls. In respect of the contracts or arrangements referred to in Section 301 of the Companies Act, 1956, a) According to the information and explanations given to us, the particulars of contracts or arrangements that needed to be entered into the register have been so entered. In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements entered in the Register maintained under the said section of the Companies Act, 1956 and exceeding the value of Rs. 5 lacs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time.

b)

c)

2.

In respect of its inventories: a) As explained to us, inventories were physically verified by the management at reasonable intervals. In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business. In our opinion and according to the information and explanations given to us, the Company has maintained proper record of its inventory. The discrepancies noticed on physical verification between physical stock and book records were not material.

b)

b)

c)

3.

(a) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. In respect of loan granted in earlier years, the receipt and payment of principal amounts and interest have during the year been regular/as per stipulations. The rate of interest and other terms and conditions of the aforesaid loan, are, in our opinion, prima facie not prejudicial to the interest of the Company. In respect

6. 7.

The Company has not accepted any deposits from the public during the year. In our opinion, the Company has an internal audit system commensurate with the size and nature of the Companys business. We have broadly reviewed the Cost records maintained by the Company for generation and captive consumption of power pursuant to the Rules made by the Central Government for the maintenance of the Cost Records under Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima

8.

30

facie the prescribed accounts and records have been made and maintained. We have, however, not made a detailed examination of the records with a view to determining whether they are accurate or complete. 9. Statutory and Other Dues a) According to the information and explanations given to us, the Company has been regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Wealth Tax, Sales Tax/VAT, Customs Duty, Service tax, Excise Duty, Cess and any other material statutory dues applicable to it with the appropriate authorities during the year. According to the information and explanations given to us, no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income Tax, Wealth tax, Sales Tax/VAT, Customs Duty, Service tax, Excise Duty and Cess were in arrears, as at 31st March 2008 for a period of more than six months from the date they became payable. According to the information and explanations given to us, there are no dues of Sales Tax/VAT, Income Tax, Wealth tax, Customs Duty, Service tax, Excise Duty and Cess that have not been deposited on account of any dispute except for the dues referred to in Note No.3(a) of Schedule 18.

13. In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the Company. 14. In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause (xiv) of the companies (Auditors Report) Order, 2003 are not applicable to the Company. 15. In our opinion, the terms and conditions on which the Company has given any guarantees for loans taken by others from Banks are not prejudicial to the interests of the Company. 16. According to the information and explanations given to us, in our opinion, the term loans availed by the Company were, prima facie, applied by the Company during the year for the purpose for which they were raised. 17. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short term basis have been used for long term investment. 18. The Company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956. 19. The company has not issued any secured debentures during the year. 20. The Company has not raised any money by public issues during the year. 21. To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year.

b)

c)

10. As at the end of the year the company does not have accumulated losses and has not incurred cash loss during the current year and in the immediately preceding financial year. 11. According to the information and explanations given to us by the management, we are of the opinion that the Company has not defaulted in repayment of dues to banks. 12. According to the information and explanations given to us and based on our examination of documents and records, we are of the opinion that no loans or advances have been granted by the Company on the basis of security by way of pledge of shares, debentures and other securities.

FOR DELOITTE HASKINS & SELLS Chartered Accountants

Chennai 30th April, 2008

M K Ananthanarayanan Partner Membership No.19521

31

Balance Sheet as at 31st March 2008

(Rs. million) Schedule SOURCES OF FUNDS Shareholders Funds Share Capital Reserves and Surplus Loan Funds Secured Loans Unsecured Loans Long Term Lease Liability (Note no. 20) 3 4 1 2 186.71 186.71 3332.04 2553.02 .................................................... 3518.75 2739.73 .................................................... 2267.27 726.93 1797.02 31.03.2008 31.03.2007

15.84 17.49 .................................................... 3010.04 1814.51 .................................................... 282.61 206.54 .................................................... 6811.40 4760.78 ....................................................

Deferred Tax Liability (Net) (Note no. 23) Total APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital work-in-progress ( including capital advances) 5

4282.04

3570.95

1641.63 1467.78 .................................................... 2640.41 2103.17 605.90 389.32 .................................................... 3246.31 2492.49 ....................................................

Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances

6 7 8 9 10

1697.68 945.57 1322.86

897.36 738.68 937.43

169.71 273.26 460.17 278.98 .................................................... 2898.31 2228.35 ....................................................

Less: Current Liabilities & Provisions Current Liabilities Provisions

11 815.71 693.59 215.19 163.83 .................................................... 1030.90 857.42 .................................................... 1867.41 1370.93 .................................................... 6811.40 4760.78 .................................................... 17 18

Net Current Assets Total Significant Accounting Policies Notes on Accounts Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M M Murugappan Chairman

K Srinivasan Managing Director

M K Ananthanarayanan Partner Chennai, 30th April 2008

V Ramesh Chief Financial Officer

S Dhanvanth Kumar Company Secretary

32

Profit and Loss Account

for the year ended 31st March 2008

(Rs. million) Schedule INCOME Gross Sales Less : Excise duty Net Sales Income from work bills and services Profit on sale of fixed assets (Note no. 11) Other income EXPENDITURE Raw materials consumed (Accretion)/ Decretion to stock Employee cost Other costs Depreciation Less: Transfer from fixed assets revaluation reserve Interest and finance charges ( Note no. 15) 13 14 15 2265.23 (63.04) 692.99 2026.69 252.75 1702.65 (94.42) 525.45 1633.33 168.92 12 6567.75 5267.72 737.65 622.16 .................................................... 5830.10 4645.56 38.22 567.52 70.35 279.00 143.86 .................................................... 6714.84 4859.77 .................................................... 31.03.2008 31.03.2007

0.68 0.73 .................................................... 252.07 168.19 169.06 71.25 .................................................... 5343.00 4006.45 .................................................... 1371.84 853.32 309.50 199.50 76.53 58.31 14.11 8.90 .................................................... 971.70 586.61 650.09 285.97 .................................................... 1621.79 872.58 .................................................... 97.17 58.66 .................................................... 97.17 58.66 .................................................... 186.71 140.03

PROFIT BEFORE TAX Less: Provision for income tax Current tax Deferred tax Fringe Benefit Tax PROFIT AFTER TAX Add:Unappropriated profits from previous year Profit available for appropriation APPROPRIATIONS Transfer to General Reserve Dividend Proposed @ 100% (Previous year @ 75% ) Dividend tax (Note no. 22)

Balance carried over to Balance Sheet E P S - Basic and Diluted (Rs.) - Face value Rs. 2 Significant Accounting Policies Notes on Accounts Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman

2 17 16 & 18

28.48 23.80 .................................................... 215.19 163.83 .................................................... 1309.43 650.09 .................................................... 10.41 6.28

K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

V Ramesh Chief Financial Officer

33

Cash Flow Statement

for the year ended 31st March 2008

(Rs. million) 31.03.2008 A. Cash flow from operating activities Net profit before tax and extraordinary items Depreciation Interest and finance charges (Profit)/loss on sale of fixed assets (net) Provision for doubtful debts and advances Profit/(loss) on sale of investments (net) Interest and dividend income Excess provision made in previous year reversed Voluntary retirement scheme payments (Profit/loss on exchange fluctuation Operating profit before working capital changes Adjustments for (increase) / decrease in: Trade and other receivables Trade payables Inventories Cash generated from operations Direct taxes paid Voluntary retirement scheme payments Net cash flow from operating activities B. Cash flow from investing activities Purchase of tangible fixed assets Sale of fixed assets Acquisition of business unit Investment in a Joint venture/Subsidiary Purchase of long term investments Sale of long term investments Receipt of loans given to third parties Dividend received Interest received Direct Taxes paid on capital gains Net cash used in investing activities C. Cash flow from financing activities Proceeds from Long term borrowings Repayment of Long term borrowings Proceeds from other borrowings (net) Interest paid Dividend paid (inclusive of dividend tax) Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents opening balance Opening balance of liquid investment Cash balance obtained on amalgamation Cash and cash equivalents closing balance Closing balance of liquid investment Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman V Ramesh Chief Financial Officer K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary 666.56 510.09 (164.13) (163.20) ................ 849.32 (260.15) 273.26 175.12 1.48 169.71 20.00 ................ 260.15 31.03.2007

1371.84 252.07 169.06 (567.52) 6.89 (119.45) (68.10) (14.79) 29.42 36.81 ................ 168.19 71.25 (70.35) 1.96 0.02 (68.35) (3.92) 1.41 (5.09) ...............

853.32

(275.61) ................ 1096.23

95.12 ............... 948.44

(483.87) 17.83 (183.46) ................ (231.13) (29.42) ................

(649.50) ................ 446.73 (260.55) ................ 186.18

(135.85) 163.02 (224.28) ............... (213.91) (1.41) ...............

(197.11) ............... 751.33 (215.32) ............... 536.01

(937.13) 603.34 (62.50) (985.62) 139.58 4.50 63.72 4.46 ................

(1169.65) (126.00) (1295.65)

(1036.00) 160.10 (32.00) (231.39) (0.10) 20.00 2.30 65.67 1.99 ............... (1049.43) 1209.51 (125.20) (69.89) (198.42) ............... 816.00 302.58 145.80

273.26 175.12 ............... 302.58

34

Schedules to accounts

as at 31st March 2008

(Rs. million) 31.03.2008 1. Share Capital Authorised 125,000,000 equity shares of Rs.2 each 250.00 250.00 ....................................................................................................................................................................................... Issued, Subscribed and Paid-up 107,193,000 equity shares of Rs. 2 each fully paid-up Above includes:893,565 shares of Rs. 2 each allotted as fully paid up for consideration other than cash pursuant to contracts 2,339,295 shares of Rs. 2 each allotted to shareholders of amalgamated companies 82,825,120 shares of Rs. 2 each allotted as fully paid up bonus shares by capitalisation of share premium and general reserve. 27.68 27.68 ......................................................................................... 214.39 214.39 31.03.2007

Less: 13,839,000 shares of Rs. 2 each bought back from the shareholders pursuant to the offer for buy-back of shares made in 2000-01 93,354,000 shares of Rs. 2 each fully paid

186.71 186.71 ......................................................................................... 186.71 186.71

2. Reserves and Surplus 31.3.2007 Additions Deductions/ Adjustments

(Rs. million) 31.3.2008

Capital Reserve Fixed assets revaluation reserve Capital subsidy Profit on forfeiture of shares / warrants Capital redemption reserve Other Reserves General reserve Hedging reserve (Note no. 24) 1828.33 127.98 # 1956.31 30.81 10.08 6.03 27.68 2.31@ 28.50 10.08 6.03 27.68

Profit and Loss account balance

5.99 (5.99) ...................................................................................................... 1902.93 127.98 8.30 2022.61 ...................................................................................................... 650.09 1309.43 ...................................................................................................... 2553.02 3332.04

@ Includes reversal of revaluation reserve amount of Rs. 1.63 million pertaining to assets disposed off during the year. # Additions to general reserve includes Rs. 30.81 million arising on amalgamation of erstwhile subsidiary.

35

Schedules to accounts

as at 31st March 2008

(Rs. million) 31.03.2008 3. Secured Loans Loan from Banks Term loan from Banks in India - Secured by a pari-passu first charge on fixed assets Cash Credit - Secured by first charge on stocks and book debts and a second charge on fixed assets Term Loans from Overseas Banks - External commercial borrowings (Note no. 5) - Secured by a pari-passu first charge on movable fixed assets 1430.82 914.26 650.00 500.00 31.03.2007

186.45

382.76

........................................................................ 2267.27 1797.02 ....................................................................... 500.00

Term loan and other loans include loans repayable within one year 4. Unsecured Loans @ Medium Term/ Short term loans from Banks

726.93 ........................................................................ 726.93 ........................................................................ 699.15

@ includes amount repayable within one year

36

5. Fixed Assets (Rs. million) COST DEPRECIATION As at As at As at NET BLOCK Written down value as at

As at On assets acquired on amalgamation as at 1.04.2007 1.04.2007 Additions (Deletions) 31.03.2008 (Deletions) 31.03.2008 On assets acquired on amalgamation as at 1.04.2007 1.04.2007 Additions 31.03.2008

31.03.2007

Intangible Assets 0.20 0.20 0.20 0.43 5.41 0.32 2.99 0.11 2.42 1.61 17.27 3.60 0.00 1.18 11.86 1.50 11.25

Goodwill

0.20

Trade Mark

1.61

0.00

Technical Knowhow

13.67

Tangible Assets 0.41 2.64 34.25 0.76 23.89 212.48 5.38 0.88 0.88 5.38 0.55 0.03 167.38 1255.36 27.92 8.25 87.81 765.07 (b) 3252.59 (c) 88.33 11.88 6.50 (e) 29.99 84.22 1.31 2.16 55.86 164.91 570.30 (d) 15.15 0.21 13.71 68.07 1.03 1.38 0.76 178.44 1405.15 32.82 7.78 34.25 87.05 586.63 1847.44 55.51 4.10 35.49 38.45 458.12 1492.43 44.74 5.48

Land -

- Freehold

35.49 (a)

0.99

- Leasehold

38.45

Buildings

625.50 (a)

4.65

Plant & Machinery

2747.79 (c)

18.72

Furniture & Fixtures

72.66

1.83

Vehicles

13.73

0.10

Vehicles taken on lease 21.85 0.68 3.33 2.83 23.03 6.14 0.03 6.02 1.55 10.64 12.39 15.71 .....................................................................................................................................................................................................................................................................................................

Total 3570.95 26.97 813.77 129.65 4282.04 1467.78 6.87 252.72 85.74 1641.63 2640.41 2103.17 ..................................................................................................................................................................................................................................................................................................... Previous Year 2676.90 1110.38 216.32 3570.95 1425.44 168.92 126.58 1467.78 2103.17 1251.46

(a) (b) (c) (d) (e)

Land & Building added upto 31st August 1984 are stated as per revaluation done in that year. Includes Rs. 382.07 million ( Previous year Rs. 232.63 million) being cost of building on lease hold land. Net of subsidy received Rs.0.77 million Includes R&D equipments Rs. 9.33 million ( Previous Year Rs.1.82 million) Represents refundable deposit made for leasehold land transferred to deposits.

37

Schedules to accounts
6. Investments Sl. No. Description

as at 31st March 2008

(Rs. million) Quantity in Nos. 31.03.2008 31.03.2007 Nominal Value (Rs.) Value 31.03.2008 31.03.2007

A. LONG TERM : I Quoted (Trade) a. Equity Shares (fully paid) Wendt (India) Ltd. Coromandel Engineering Co. Ltd. II Quoted (Non-Trade) 1900 400 5000 500 100 1000 165 200000 1900 400 500 500 100 1000 165 10 10 5 1 2 10 2 2 (a) 0.05 0.01 0.00 0.01 0.00 0.01 0.00 20.13 0.05 0.01 0.00 0.01 0.00 0.01 0.00 797352 42900 797352 42900 10 10 10.36 0.43 10.36 0.43

a. Equity Shares (fully paid) Mahindra & Mahindra Ltd. John Oakey Mohan Ltd. Grindwell Norton Ltd. Orient Abrasives Ltd. EID Parry (India) Ltd. Cholamandalam DBS Finance Ltd. Tube Investments of India Ltd. Coromandel Fertilisers Ltd. III Unquoted (Trade) a. Equity Shares (fully paid) Murugappa Morgan Thermal Ceramics Ltd. Murugappa Management Services Ltd. Ciria India Ltd. CUMI Employees Co-operative Society/Stores Jingri CUMI Super Hard Materials Co., Ltd China Kerala Enviro Infrastructure Ltd. b. Equity Shares (fully paid) - Subsidiaries CUMI Canada Inc, Canada Sterling Abrasives Ltd. Net Access (India) Pvt. Ltd. CUMI Australia Pty Ltd., Australia Prodorite Anticorrosives Ltd. Southern Energy Development Corpn. Ltd. CUMI America Inc., USA CUMI- Middle East FZE, UAE CUMI International Limited, Cyprus c. Redeemable Preference Shares (fully paid) - Subsidiaries CUMI Canada Inc., Canada CUMI International Limited, Cyprus

1430793 25205 59999

1430793 25205 59998

10 100 10

44.04 2.53 1.68 0.03 (b) 231.39 0.10

44.04 2.53 1.68 0.03 231.39 0.10

10000

10000

10

1250000 54000 1600000 1050 310008 500 1 13999787

1250000 54000 1600000 1050 1000000 310008 500 1 -

CAD 1 100 10 AUD 1 10 10 USD 100 AED 100000 USD 1 (c)

48.01 37.10 16.00 14.79 11.12 2.13 1.26 575.72

48.01 37.10 16.00 14.79 10.05 11.12 2.13 1.26 -

1000000 10000000

1000000 -

CAD 1 USD 1

38.40 409.90

38.40 -

38

(Rs. million) Sl. No. Description Quantity in Nos. 31.03.2008 IV Unquoted (Non-Trade) a. Equity Shares (fully paid) Laserwords Pvt. Ltd. Cholamandalam Factoring Ltd. Chennai Willingdon Corporate Foundation b. Others 7 Years National Savings Certificate B CURRENT INVESTMENTS Quoted (Non -Trade) a. Birla FTP - Quarterly series 9 Growth b. Chola Liquid Fund Total a. Quoted Investments - Cost - Market Value b. Unquoted Investments - Cost 31.03.2007 Nominal Value (Rs.) Value 31.03.2008 31.03.2007

1759080 6500 5

175908 6500 5

1 (d) 10 10 (e)

232.49 0.12 0.00

232.49 0.12 0.00

(f)

0.00

0.00

17512227 1997200

10 10

175.12 20.00 ........................................ 1697.68 897.36 ........................................ 30.87 526.62 1666.81 206.12 864.77 691.24

....................................................................................................................................................................................................

Statement of addition / deletion of investments

Sl. No. Description Nos Value Rs. Nominal Value Rs.million

a. Additions during the year i. CUMI International Limited, Cyprus, Equity shares 13999787 10000000 141318713 12050000 US $ 1 US $ 1 10 10 575.72 409.90 1415.50 120.50

ii. CUMI International Limited, Cyprus, Preference shares iii. Chola Liquid fund iv. UTI Liquid fund Addition due to Amalgamation

i. Ciria India Limited 1 10 0.00 .................................................................................................................................................................................................... b. Deletions during the year i. Mahindra & Mahindra Ltd. 200000 1000000 139321513 12050000 17512227 10 10 10 10 10 20.13 10.05 1395.50 120.50 175.12 800.32 ii. Prodorite Anticorrosives Ltd. (c) iii. Chola Liquid Fund iv. UTI Liquid Fund v. Birla FTP - Quarterly series 9 Growth Net increase / (decrease) in investments Note No. (a) (b) (c) (d) (e) (f) Stock split face value Rs. 10 to Re. 1 Investment in common stock of the company Cancellation on amalgamation Stock split face value Rs. 10 to Re. 1 Shares allotted against earlier years corporate membership contribution Deposited with the Government

39

(Rs. million) 31.03.2008 7. Inventories Raw materials Work-in-process Finished stock Goods-in-transit Stores and spare parts 332.19 233.85 272.30 36.74 70.49 ................ 945.57 ................ 31.03.2007 241.45 242.22 193.57 11.88 49.56 ................ 738.68 ................

8. Sundry Debtors (Unsecured) Over six months Considered good Considered doubtful Other debts Considered good Considered doubtful Less: Provision for doubtful debts Sundry debtors includes retentions against Invoices (Also refer note 6a) 9. Cash and Bank Balances Cash and cheques on hand and remittances in transit Balances with scheduled banks : - Current account - Unclaimed dividend account - Deposit account 10. Loans and Advances (Unsecured) Advances recoverable in cash or in kind or for value to be received (Refer note 6 b) Considered good Considered doubtful Less: Provision for doubtful advances Deposits - Considered good @ Balances with customs and central excise authorities Advance payments of Income Tax & Fringe Benefit Tax Less : Provision for taxation & Fringe Benefit Tax 92.23 24.15 ................ 116.38 1230.63 ................ 1347.01 24.15 ................ 1322.86 ................ 1.74 99.41 65.13 4.99 0.18 ................ 169.71 ................ 90.10 58.61 4.36 120.19 ................ 273.26 ................ 31.96 18.17 ................ 50.13 905.47 ................ 955.60 18.17 ................ 937.43 ................

240.42 2.94 ................. 243.36 2.94 .................

240.42 65.42 67.04

84.44 2.77 ................ 87.21 2.77 ................

84.44 59.20 84.26

1746.01 1658.72 ................. 87.29 ................ 460.17 ................ 2898.31

1360.38 1309.30 ................ 51.08 ................ 278.98 ................ 2228.35

Total Current Assets, Loans and Advances @ Includes inter-corporate deposits due from a subsidiary fixed deposit receipt lodged with commercial tax department refundable long term deposit for leasehold land

3.20 0.07 6.50

7.89 -

40

(Rs. million) 31.03.2008 11. Current Liabilities and Provisions Current Liabilities Sundry creditors Total outstanding dues of micro enterprises and small enterprises (Note no. 8) Total outstanding dues of creditors other than micro enterprises and small enterprises (a) Advance for Contracts/Jobs/Customers Due to directors Interest accrued but not due on loans Investor Education and Protection Fund shall be credited by the following amounts namely:- (b) i) Unpaid dividend ii) Unpaid matured deposits iii) Interest accrued on matured deposits Liabilities relating to employee benefits Provisions Proposed dividend Dividend tax (Note No. 22) Current Liabilities & Provisions 31.03.2007

16.75 643.72 4.09 3.08 7.80

24.71 528.03 3.24 2.87

4.99 0.07 0.06 ................

5.12 135.15 ................ 815.71 ................ 186.71 28.48 ................ 215.19 ................ 1030.90

4.36 0.07 0.12 ................

4.55 130.19 ................ 693.59 ................ 140.03 23.80 ................ 163.83 ................ 857.42

(a) Includes amount due to subsidiaries Rs. 4.10 million ( Previous year Rs.0.62 million) (b) These represent warrants / cheques issued and remaining un-encashed as at 31st March 2008. There is no amount which has fallen due as at Balance sheet date to be credited to Investor Education and Protection Fund. 12. Other Income From investments (trade) Dividend from subsidiaries Dividend from others From investments (non-trade) Dividend from others Interest from banks Interest from inter corporate deposits Interest from others Service income Profit / (loss) on sale of investments (net) Scrap sales Profit on exchange fluctuation (net) Provisions for expenses no longer required written back Provisions for doubtful debts/advances no longer required written back Recovery of Bad debts written off in earlier years Miscellaneous income Tax deducted at source on interest Dividend from long term investment Dividend from current investment 13. (Accretion)/Decretion to Stock a) Opening stock Work-in-process Finished stock b) Add : Stock transfer from trial prodn./ on acquisition & amalgamation Work-in-process Finished stock Total of (a) & (b) 31.03.2008 27.42 34.26 31.03.2007 26.46 34.40

2.04 4.80 1.17 0.68 0.58 1.22 2.64 0.79 26.11 22.24 119.45 (0.02) 37.05 23.77 5.09 14.46 3.92 0.33 0.67 12.82 20.51 .................................................. 279.00 143.86 .................................................. 0.99 0.31 62.60 64.42 1.12 1.24

242.22 149.78 193.57 165.10 .................................................. 435.79 314.88 .................................................. 1.83 24.29 5.49 2.20 .................................................. 7.32 26.49 .................................................. 443.11 341.37

41

(Rs. million) 31.03.2008 Less: Closing stock Work-in-process Finished stock 31.03.2007

(Accretion) to stock 14. Employee Cost Salaries, wages and bonus Contribution to provident and other funds Voluntary retirement compensation Remuneration to Managing director (Note no 16) Welfare expenses

233.85 272.30 ................ 506.15 ................ (63.04) 505.93 42.73 29.42 6.11 108.80 ................ 692.99 ................

242.22 193.57 ................ 435.79 ................ (94.42) 382.09 43.80 1.41 5.81 92.34 ................ 525.45 ................

15. Other Costs Consumption of stores and spares Power and fuel (a) Rent Excise duty on stock differential * Rates and taxes Insurance Repairs to: (b) - Buildings - Machinery Directors sitting fees Commission to non-wholetime directors Auditors remuneration Travel and conveyance Freight, delivery and shipping charges Selling commission Turnover discounts Rebates and allowances Advertisement and publicity Printing, stationery and communication Contribution to research institution Bad debts and advances written off Less : Provision adjusted Provision for doubtful debts, advances and deposits Professional fees Services outsourced Loss on exchange fluctuation (net) Miscellaneous expenses (a) Net of own power generation, which includes Rs. 16.62 million (previous year NIL ) banked with KSEB (b) Includes stores and spare parts 5.83 4.27 ................

250.69 610.12 10.35 (0.77) 69.05 15.56 12.33 121.21 0.83 2.08 2.31 93.26 197.53 20.30 47.44 58.09 27.03 36.39 1.50 2.91 3.00 ................

208.75 525.94 7.88 4.31 84.02 15.84 8.16 117.44 0.80 1.37 1.89 62.77 136.83 20.99 41.41 53.25 16.04 30.01 2.10

1.56 6.89 20.00 314.73 36.81 71.40 ................ 2026.69 ................ 118.02 84.83

(0.09) 1.96 22.57 218.07 51.02 ................ 1633.33 ................ 150.34 85.26

* Represents excise duty relating to difference between the opening and closing stock of finished goods. The excise duty shown as deduction from sales in the profit and loss account represents excise duty on sales during the year.

42

16. Quantitative Particulars 1. CAPACITIES, PRODUCTION, TURNOVER AND STOCK Class of goods Unit Installed Capacity Actual Production Opening Stock Closing Stock Turnover (b) Quantity Value (Rs.million) 13637 (12304) 10.16 (10.92) 40000 (5112) 4006 (2747) 12291 (8001) 11732 (9440) 2756.65 (2345.87) 1468.97 (1350.00) 2.27 (0.57) 701.55 (487.22) 589.50 (491.09) 796.75 (583.63) 252.07 (9.34) 6567.75 (5267.72) 38.22 ................ 6605.97 (5267.72)

Abrasives (c) Bonded Coated Industrial Cloth Ceramics Industrial Ceramics Refractories Electrominerals Grains Others Gross Sales Income from Work bill & Services Total

Tonne In Million Sq. metre Metre Tonne Tonne

17954 (12910) 18.83 (21.85) 4500000 (4500000) 5150 (3200) 24000 (19000) 25000 (21400)

14667 (11703) 10.32 (11.02) 3797720 (4081129) 4004 (2747) 13917 (8652) 18484 (18341)

2709 (3310) 1.40 (1.30) 0 (1175) 6 151 (148) 580 (261)

3739 (2709) 1.56 (1.40) 0 0 4 440 (151) 811 (580)

Tonne

Notes (a) Figures in brackets are for previous year (b) Turnover is exclusive of captive consumption (c) Includes products purchased and sold 2. RAW MATERIALS CONSUMED (Inclusive of Captive Consumption) 2007-08 Unit Quantity Value (Rs.million) 953.15 304.62 274.73 1508.49 3040.99 775.76 818.63 2222.36 ................ 3040.99 ................ 2006-07 Quantity Value (Rs.million) 791.82 249.69 235.54 1375.01 2652.06 949.41 594.03 2058.03 ................ 2652.06 ................

Abrasive Grains Bonds and Resins Calcined Alumina Others (Inclusive of Captive Consumption) Of the above: Imported Indigenous

Tonne Tonne Tonne Total

30325 8140 10875

25423 7749 8554

Total

27% 73% ................ 100% ................

22% 78% ................ 100% ................

3. CONSUMPTION OF STORES AND SPARE PARTS (Inclusive of Captive Consumption) Imported Indigenous Total (Inclusive of Captive consumption) 1% 99% ................ 100% ................ 2.95 347.43 ................ 350.38 ................ 14.86 1% 99% ................ 100% ................ 0.54 307.52 ................ 308.06 ................ 14.05

43

17 Significant Accounting Policies (i) Basis of preparation of financial statements The financial statements have been prepared under the historical cost convention with the exception of Land and Buildings (which were revalued) on accrual basis and in accordance with Generally Accepted Accounting Principles in India (Indian GAAP). The said financial statements comply with the relevant provisions of the Companies Act, 1956 (the Act) and the mandatory Accounting Standards notified by the Central Government of India under Companies (Accounting Standards) Rules, 2006. (ii) Fixed assets and depreciation / amortisation Fixed assets are stated at historical cost (net of CENVAT/VAT wherever applicable) except land and buildings added up to 31st August 1984 which are shown as per the revaluation done in that year, less accumulated depreciation. Cost comprises of direct cost, related taxes, duties, freight and attributable finance costs till such assets are ready for its intended use. Subsidy received from State Government towards specific assets is reduced from the cost of fixed assets. Fixed assets taken on finance lease are capitalised. Capital work in progress is stated at the amount expended upto the Balance sheet date. Machinery spares used in connection with a particular item of fixed asset and the use of which is irregular, are capitalized at cost net of CENVAT / VAT. Expenditure directly relating to construction activity is capitalized. Indirect expenditure incurred during construction period is capitalized as part of the indirect construction cost to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure incurred during the construction period which is neither related to the construction activity nor is incidental thereto is charged to the Profit and Loss Account. Income attributable to the project is deducted from the total of the indirect expenditure. Depreciation on fixed assets has been provided on straight-line method at rates and in the manner specified in Schedule XIV of the Companies Act 1956, except leased vehicles which are depreciated at 25% which is higher than Schedule XIV rates. The difference between the depreciation for the year on the revalued assets and depreciation calculated on the original cost is recouped from the fixed assets revaluation reserve.

Depreciation on additions to fixed assets is provided on a pro-rata basis from the date of commissioning of the individual asset. Premium on Lease hold Land is amortised over the tenure of the lease. Individual assets costing less than Rs.5,000 each are depreciated in full in the year of acquisition. Intangible assets are stated at cost and are amortised over their estimated useful life of 5 years on straight line basis. (iii) Impairment of assets At each balance sheet date, the carrying values of the tangible and intangible assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where there is an indication that there is a likely impairment loss for a group of assets, the Company estimates the recoverable amount of the group of assets as a whole and the impairment loss is recognized. (iv) Borrowing costs Borrowing costs, if any, are capitalised as part of qualifying fixed assets when it is possible that they will result in future economic benefits. Other borrowing costs are expensed. (v) Inventories Raw materials are valued at cost on weighted average basis or net realizable value, whichever is lower. Cost includes freight, taxes and duties net of CENVAT / VAT credit wherever applicable. Customs duty payable on material in bond is added to the cost. Fuel, Packing materials and stores and spare parts are valued at cost determined on weighted average basis or net realizable value whichever is lower. Work in process is valued at cost or net realizable value whichever is lower. Cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. Finished goods are valued at cost or net realizable value, whichever is lower, including excise duty. Cost includes all direct costs and applicable production overheads, to bring the goods to the present location and condition. (vi) Investments Investments that are intended to be held for more than a year, from the date of acquisition, are

44

classified as long term investments and are carried at cost. However, provision for diminution is made in the value of investments if such diminution is other than of temporary in nature. Current investments are stated at lower of cost or fair value. (vii) Revenue recognition Revenues are recognized and expenses are accounted on their accrual with necessary provisions for all known liabilities and losses. Benefits on account of entitlement to import goods free of duty under Duty Entitlement Pass Book Scheme, are accounted in the year of export. The revenues from divisible contracts is recognized on the percentage completion method in respect of works contracts and from supplies on despatch. In respect of indivisible contracts, the revenues are recognized on a percentage completion method based on the billing schedules agreed by the customers. Dividend income on investments is accounted for, when the right to receive the payment is established. (viii) Research and Development All revenue expenditure related to research and development are charged to the respective heads in the profit and loss account. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company. (ix) Employee Benefits a. Defined contribution plan Fixed contributions to the Superannuation Fund which is administered by Company nominated trustees and managed by Life Insurance Corporation of India and to Employee State Insurance Corporation [ESI] are charged to the profit and loss account. Company also contributes to a government administered Pension fund on behalf of its employees, which are charged to the profit and loss account. b. Defined benefit plan The liability for Gratuity to employees as at Balance Sheet date is determined on the basis of actuarial valuation using Projected Unit Credit method and is funded to a Gratuity fund administered by the trustees and managed by Life Insurance Corporation of India. The liability there of paid / payable is absorbed in the accounts.

The employees and the Company make monthly fixed contributions to the Carborundum Universal Limited Employees Provident Fund Trust, equal to a specified percentage of the covered employees salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The Company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate. c. Long term Compensated absences In respect of long term portion of compensated absences [Leave benefits], the liability is determined on the basis of actuarial valuation and is provided for. d. Short term employee benefits Short term employee benefits including accumulated compensated absences determined as per companys policy/scheme are recognized as expense based on expected obligation on undiscounted basis. (x) Voluntary Retirement Compensation Compensation to employees who have retired under voluntary retirement scheme are charged off to revenue. (xi) Employee Stock Option Scheme Stock options granted to the employees under the stock option scheme are evaluated as per the accounting treatment prescribed by the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by Securities Exchange Board of India. The Company follows the intrinsic value method of accounting for the options and accordingly, the excess of market value of the stock options as on date of grant, if any, over the exercise price of the options is recognized as deferred employee compensation and is charged to the Profit and Loss Account on graded vesting basis over the vesting period of the options. (xii) Foreign Currency Transaction Foreign currency transactions are recorded at the rates of exchange prevailing on the date of the transactions. Monetary assets & liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and the gain or loss, is recognised in the profit and loss account. The premium or discount arising at the inception of forward exchange contracts (other than those relating to a firm commitment or a highly probable forecast) are amortized as expense or income over the life of the contract.

45

(xiii) Government Grants Lump-sum capital subsidies, not relating to any specific fixed asset, received from State Governments for setting up new projects are accounted as capital reserve. (xiv) CENVAT/Service Tax CENVAT credit on materials purchased / services availed for production / Input services are taken into account at the time of purchase. CENVAT credit on purchase of capital items wherever applicable are taken into account as and when the assets are acquired. The CENVAT credits so taken are utilised for payment of excise duty on goods manufactured / Service tax on Output services. The unutilised CENVAT credit is carried forward in the books. (xv) Segment reporting The accounting policies adopted for segment reporting are in line with the accounting policies of the Company with the following additional policies : a. Inter-segment revenues have been accounted on the basis of prices charged to external customers. b. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the

enterprise as a whole and are not allocable to segments on a reasonable basis have been included under Unallocated Corporate Expenses. (xvi) Income Tax Current tax is determined on income for the year chargeable to tax in accordance with the Income Tax Act, 1961. Deferred tax is recognised for all the timing differences. Deferred tax assets are recognized subject to the consideration of prudence. (xvii) Provisions, Contingent Liabilities and Contingent Assets Provisions are recognised only when there is a present obligation as a result of past events and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.

18.

Notes on Accounts 31.03.2008

(Rs. million) 31.03.2007

Notes to Balance Sheet 1 Estimated amount of contracts remaining to be executed on capital account and not provided for 2 Contingent Liabilities: a) Outstanding bills discounted b) Outstanding guarantees c) Outstanding letters of comfort / guarantee d) Outstanding letters of guarantee for availing non-fund limits by subsidiary e) Outstanding letters of credit 3 a) No provision is considered necessary for disputed income tax, sales tax, service tax, property tax and excise duty demands which are under various stages of appeal proceedings, based on legal opinions that these demands are not sustainable in law. However, out of these the income tax demands of Rs. 98.51 million (previous year Rs. 98.51 million) have been adjusted by the department against the refunds due for other assessment years. In respect of Sales tax, Central Excise and Service tax amounts deposited in protest aggregate to :

379.46 156.58 45.57 809.96 479.64 60.62

180.67 179.10 27.09 101.60 0.00 70.59

132.00 15.67

144.10 17.23

46

The disputed dues are given below:

Name of Statute Forum where pending Years

(Rs. million) 31.03.2008 27.37 31.03.2007 27.37

Income Tax Act

Commissioner of Income Tax (Appeals) Income Tax Appellate Tribunal High Court

1992-93, 97-98, 00-01, 01-02, 02-03, 04-05 1990-91, 91-92, 93-94, 98-99 to 2000-01, 02-03 1987-88,92-93, 95-96,97-98

39.30

39.30

31.84 31.84 .................................................. 98.51 98.51 .................................................. 6.03 11.39

Sales Tax Act

Commissioner of Sales Tax (Appeals) Sales Tax Appellate Tribunal High Court

1998 to 2004

1990 to 2000 1989 to 1990

6.39

10.49

0.47 0.47 .................................................. 12.89 22.35 .................................................. 0.86 0.81

Central Excise

Commissioner of Central Excise (Appeals) The Customs, Excise & Service Tax Appellate Tribunal High Court

2003 to 2005

1996 to 2001 1987 to 1991

2.06

5.55

Service Tax

The Customs, Excise & 2002 to 2003 Service Tax Appellate Tribunal Commissioner of Central Excise (Appeals) 2005

1.80 1.80 .................................................. 4.72 8.16 .................................................. 6.68 6.68

1.80 1.80 .................................................. 8.48 8.48 .................................................. 7.40 6.60

Property tax

High Court

1994 to 2006

b) Employees demands pending before Labour Courts - quantum not ascertainable at present c) Claims against the Company not acknowledged as debt : i. Disputed demands by Kerala State Electricity Board 3.54

ii. Contested Provident Fund and ESI demands

0.54 0.54 .................................................. 0.54 4.08 ..................................................

Notes on Amalgamation i. Pursuant to the Scheme of Amalgamation of the erstwhile Prodorite Anticorrosives Limited, (a wholly owned subsidiary of the Company) engaged in the business of manufacture and marketing of acid resistant cements, corrosion resistant products, polymer concrete & fibre reinforced plastics, with the Company as sanctioned by the Honourable High Court of Madras on 10th April 2008, the entire undertaking of the amalgamating company including all assets and liabilities and reserves shall stand transferred to and vested in the Company with effect from 1st April 2007. Accordingly, the accounts for the year ended 31st March 2008 have been drawn up giving effect to the scheme and include the transactions relating to the amalgamating company for the year 2007-08.

47

(Rs. million) 31.03.2008 ii. The amalgamation has been accounted for under the Pooling of Interests method as prescribed by Accounting Standard 14 issued by the Institute of Chartered Accountants of India. Accordingly, the assets, liabilities and other reserves of the erstwhile Prodorite Anticorrosives Limited have been taken over at their book values. The net excess value of assets over the liabilities after adjusting the cost of investments of the Company in the amalgamating company amounting to Rs 30.81 Million has been added to the general reserve of the Company. iii. Pursuant to the Scheme of Amalgamation referred to in para (i) above and after considering the extinguishment of the Equity shares held in the amalgamating company, no shares are issued as the amalgamating company is a wholly owned subsidiary. iv. Pursuant to the Scheme of Amalgamation, investment of 10,00,000 equity shares in Prodorite Anticorrosives Limited have been cancelled and is adjusted against the net value arrived at on amalgamation as indicated in para (ii) above. v. As the Court Order sanctioning the Amalgamation was passed only on 10th April 2008, the investments held in the name of the amalgamating company as at 31st March 2008 are in the process of being transferred in the name of the company. 5 External Commercial Borrowings (ECB) amounting to USD10 million and USD 0.33 million and JPY 232.92 million were raised during the year. In respect of the borrowings of USD 10 million made during the current year and JPY 2225.19 million made in previous year, the Company has entered into a cross currency swap arrangement whereby the principal and interest amount thereon have been swapped and firmed up into Indian Rupees at a fixed rate of interest. These arrangements have been recognized and the amount of borrowings has been stated in the books in Rupee values as per the said arrangement. The borrowings of USD 0.33 million and JPY 232.92 million made during the current year and outstanding as at the balance sheet date is kept unhedged and have been restated at the exchange rate prevailing as on that date. 6 a. Debtors include due from subsidiaries of the company : (i) (ii) (iii) (iv) (v) (vi) CUMI America Inc. Maximum amount due at any time during the year Sterling Abrasives Ltd Maximum amount due at any time during the year CUMI Australia Pty Ltd Maximum amount due at any time during the year CUMI Canada Inc. Maximum amount due at any time during the year CUMI Middle East FZE Maximum amount due at any time during the year Volzhsky Abrasive Works Maximum amount due at any time during the year 5.80 7.89 4.13 14.67 33.02 33.62 39.85 47.13 45.17 51.68 1.02 1.02 7.64 13.28 7.96 14.66 17.19 29.91 26.92 30.17 26.42 26.46 31.03.2007

1324.16

914.26

106.66

b. Advances include inter-corporate deposits placed with the following subsidiary company : Net Access (India) Pvt Ltd Maximum amount due at any time during the year 3.20 7.89 7.89 10.25

48

(Rs. million) 31.03.2008 7 a) The following pre-commissioning expenses incurred during the year on various projects have been included in Fixed Assets/ Capital Work in Progress Account Head Raw material Consumption Consumption of Stores & Spares Excise Duty Salary, Wages & Bonus Contribution to Provident & other funds Welfare Expenses Power & Fuel Rent Insurance Travel & Conveyance Freight General Services Repairs to Building Repairs to Machinery Printing, Stationery & communication Rates & Taxes Professional Fees Miscellaneous Expenses Interest Less: Sales Less: Other Income Less: Closing Stock Work in progress Finished goods b) Pursuant to a business purchase agreement dated 14th August 2007, the Company acquired the ceramics business in Aurangabad, on a going concern basis for a consideration of Rs.62.5 million. The unit manufactures and sells a range of high alumina engineered ceramic products like ignitors, seals, thread guides, nozzles etc. The fixed assets (including intangible assets comprising of technical knowhow) acquired on slump sale basis, were accounted in the books based on the valuation report given by an independent valuer. The plant commenced operations in November 2007. 8 There are no dues to Micro and Small Enterprises as per Micro, Small and Medium Enterprises Development Act, 2006 which are outstanding for more than 45 days at the Balance Sheet date, which is on the basis of such parties having been identified by the management and relied upon by the auditors. a. The Company has adopted the revised Accounting Standard 15 (Revised) on Employee Benefits effective from 1st April 2006 though it was mandatory only from 1st April 2007. b. The details of actuarial valuation in respect of Gratuity liability as at 31st March 2008 are given below : i. Projected benefit obligation as at beginning of the year Service cost Interest cost Actuarial (Gains) / Losses Benefits paid Projected benefit obligation as at end of the year 31.03.2007

8.93 15.03 17.36 0.84 1.56 2.41 0.68 0.11 8.46 2.36 0.18 0.36 0.25 5.39 2.44 23.16 -

38.15 0.75 0.19 12.21 1.07 1.70 12.83 0.66 0.68 10.19 2.33 1.79 0.01 0.70 0.96 0.49 12.42 6.15 29.04 (6.07) (0.05)

(24.29) (2.20) ........................................... 89.52 99.71 ...........................................

83.84 5.23 5.90 (3.56) (10.31) 81.10

68.39 6.04 4.85 5.53 (7.45) 77.36

49

(Rs. million) 31.03.2008 ii. Amount recognised in the balance sheet : Projected benefit obligation at the end of the year Fair value of the plan assets at the end of the year (Liability) / Asset recognised in the Balance sheet iii. Cost of the defined plan for the year : Current service cost Interest on obligation Expected return on plan assets Net actuarial (gains) / losses recognised in the year Net cost recognised in the Profit and Loss account iv. Assumptions : Discount rate Expected rate of return Estimates of future salary increase take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. c During the year the Company has made provision for long term accumulated compensated absences on actuarial basis, which in the previous year was done on estimated cost basis. Consequent to this change, the payment and provisions for employee benefits for the year ended 31st March 2008 is net of reversal of provision for longterm accumulated compensated absences amounting to Rs.2.39 million. Had the Company followed the same policy as in previous year, the amount of payment and provisions for employee benefits for the year ended 31st March 2008 would have been higher by Rs.9.24 million. Details of the key actuarial assumptions used in the determination of Long term compensated absences are as under : i Projected benefit obligation as at the beginning of the year Service cost Interest cost Actuarial losses / (Gains) Benefits paid Projected benefit obligation as at the end of the year ii Amount recognised in the balance sheet: Projected benefit obligation at the end of the year Fair value of the plan assets at the end of the year (Liability) / Asset recognised in the Balance sheet iii Cost of the defined plan for the year: Current service cost Interest on obligation Expected return on plan assets Net actuarial (gains) / losses recognised in the year Net cost recognised in the Profit and Loss account iv Assumption: Discount rate Estimates of future salary increase take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. The liability for the previous year was determined on actual basis and hence is not comparable. d With respect to the Provident Fund Trust administered by the Company, the Company shall make good the deficiency, if any, in the interest rate declared by Trust below statutory limit. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future. 31.03.2007

81.10 58.13 (22.97) 5.23 5.90 (3.43) (3.47) 4.23 8.00% 8.00%

77.36 30.55 (46.81) 6.04 4.85 (1.89) 5.00 14.00 7.50% 7.50%

32.55 5.74 2.44 (5.68) (2.07) 32.98 32.98 0.00 (32.98) 5.74 2.44 0.00 (5.67) 2.51 8.00%

50

(Rs. million) 31.03.2008 10 a. Pursuant to the approval accorded by shareholders at their Annual General Meeting held on 27th July 2007, the Compensation and Nomination Committee of the Company formulated Carborundum Universal Limited Employee Stock Option Scheme 2007' (ESOP 2007 or the Scheme) b. Under the Scheme, options not exceeding 46,67,700 have been reserved to be issued to the eligible employees, with each option conferring a right upon the employee to apply for one equity share. The options granted under the Scheme would vest in a period not less than one year and not more than five years from the date of grant of the options. The options granted to the employees would be capable of being exercised within a period of three years from the date of vesting. c. The exercise price of the option is equal to the latest available closing market price of the shares on the stock exchange where there is highest trading volume as on the date prior to the date of the Compensation and Nomination Committee resolution approving the grant. d. Pursuant to the above mentioned scheme, on the recommendation of the Compensation and Nomination Committee, the Company has, during the year, granted 13,65,700 options vesting over a period of four years commencing from the respective dates of grant. The exercise price being equal to the closing market price prevailing on the date prior to the date of grant, there is no deferred compensation cost to be amortised. e. The vesting of options is linked to continued association with the Company and the employee achieving performance rating parameters. The details of the grants under the aforesaid scheme are as follows : Grant - I Date of Grant Exercise Price (Rs.) Vesting commences on Options granted Options outstanding (Not vested) as on 31.03.2008 Contractual Life 29.09.2007 183.60 29.09.2008 13,35,700 Grant - II 28.01.2008 150.45 28.01.2009 30,000 31.03.2007

13,35,700

30,000

The ESOP 2007 is established with effect from 29th September 2007 and shall continue to be in force until (i) its termination by the Board/Compensation and Nomination Committee or (ii) the date on which all of the options available for issuance under the ESOP 2007 have been issued and exercised.

The fair value of options based on the valuation of the independent valuer as of the respective dates of grant are given below. Grant - I Fair value as per Black scholes options pricing formula (Rs.) Exercise Price (Rs.) Grant - II

67.11 183.60

55.52 150.45

51

(Rs. million) 31.03.2008 Had the Company adopted the fair value method in respect of options granted, the total amount that would have been amortised over the vesting period is Rs.91.3 million and the impact on the financial statements would be : Increase in employee costs Decrease in Profit after Tax Decrease in Basic & Diluted Earnings per share Fair value has been calculated using the Black Scholes Options Pricing Formula and the significant assumptions in this regard are as follows : (weighted average basis) Risk free Interest rate Expected Life Expected volatility Expected dividend yield Notes to Profit and Loss Account 11 Profit on sale of fixed assets include Rs.557.90 million relating to sale of Land and Building consequent to closure of Pallikaranai and Varvala units. The Pallikaranai unit was closed following the setting up of coated abrasive operations at Sriperumbudur. The expenditure aggregating to Rs.36.8 million incurred at Pallikaranai location subsequent to suspension of operations till the date of closure, have been included under the respective heads of expenditure. In addition VRS expenditure of Rs.26.6 million had been incurred due to the closure of the unit and the same is included under employee costs. 12 a. Value of Imports on CIF basis: Raw materials Components & Spare parts Capital goods b. Expenditure in foreign currencies on account of (on cash basis): Professional / consultancy fees Commission Travel and other matters 13 Earnings in foreign exchange on account of: Value of exports on FOB basis Royalty Dividend 14 Donation given to Political parties during the year are : Communist Party of India (Marxist) Communist Party of India (Marxist) United Bharatiya Janata Party 12.78 16.60 43.57 848.03 1.44 12.72 40.08 1.73 17.74 661.98 0.31 7.51 1015.86 14.07 226.48 727.98 30.48 261.69 7.50% 2.5 to 5.5 years 43.23% 2.53% 21.68 14.31 Rs.0.15 31.03.2007

0.025 0.025 0.015 ............................................... 0.065 ............................................... 118.13 23.16 4.57 1.01 0.53 0.89 53.16 29.04 3.47 1.88 0.46 0.91

15 Interest and finance charges includes that of debentures and fixed loans - Net of Capitalisation amounting to 16 (a) Managing Directors Remuneration Salaries & Allowances Incentive Contribution to provident, gratuity and other funds b) Money value of perquisites (included under appropriate heads of account)

52

(Rs. million) 31.03.2008 c) Computation of commission to directors: Profit before tax as per Profit and Loss Account Add: Directors sitting fees Remuneration to managing director Money value of perquisites to managing director Commission to non-wholetime directors 31.03.2007

1371.84

853.32

0.83 0.80 6.11 5.81 0.89 0.91 2.08 1.37 ............................................... 1381.75 862.21 ............................................... (0.91) (0.67) (567.52) (70.35) (119.45) 0.02 ............................................... 693.87 791.21 ............................................... 6.94 7.91 2.08 1.37

Less: Excess provision of incentive to managing director in the previous year reversed Profit on sale of Fixed assets Profit on sale of investments Net profit as per Section 349 of the Companies Act,1956 1% thereon Commission to directors: Non wholetime directors restricted to 17 Auditors Remuneration Statutory audit Tax Audit Other services Out of pocket expenses

1.10 0.90 0.20 0.05 0.95 0.91 0.06 0.03 ............................................... 2.31 1.89

18 Related Party Disclosures a) List of Related Parties i) Parties where control exists - Subsidiaries CUMI America Inc Net Access (India) Pvt Ltd Southern Energy Development Corporation Ltd Sterling Abrasives Ltd CUMI Australia Pty Ltd CUMI Middle East FZE CUMI Canada Inc CUMI International Limited Volzhsky Abrasives Works (subsidiarys subsidiary) II) Other related parties with whom transactions have taken place during the year Joint Ventures Murugappa Morgan Thermal Ceramics Ltd Ciria India Ltd Wendt India Ltd Jingri-CUMI Super-Hard Materials Co., Ltd Associates Laserwords Pvt Ltd Key Management Personnel Mr. K Srinivasan

53

18 b) Transactions with Related party (Rs. million)

Subsidiaries Associate Joint Ventures Key Management Personnel Total

2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 1 Income from sales and services 2 Purchase of goods 3 Lease/rental income 4 Purchase of power 5 Expenditure on other services 6 Dividend income 7 Interest received 8 Reimbursement of employee cost 9 Purchase of fixed assets

366.83 23.02 67.56

334.48 0.58 0.07 34.63

39.65 58.53 0.21 -

39.94 24.77 0.27 -

406.48 81.54 0.21 67.56

374.42 25.35 0.34 34.63

9.57 27.42 0.56

9.27 26.46 0.19

34.26 -

31.67 -

9.57 61.68 0.56

9.27 58.13 0.19

1.28 985.62

0.30 -

5.00 -

4.49 3.92 231.39

6.28 985.62

4.79 3.92 231.39

10 Investments made 11 Inter-corporate deposits placed 12 Debtors 13 Creditors 14 Inter-corporate deposits outstanding 15 Managerial remuneration

128.98 4.10

5.00 86.17 0.62

11.21 1.64

1.02 5.95

140.19 5.75

5.00 87.19 6.57

3.20 -

7.89 -

7.00

6.72

3.20 7.00

7.89 6.72

54

18 (c) DETAILS OF MATERIAL TRANSACTIONS WITH RELATED PARTIES DURING THE YEAR 31.03.2008

Subsidiaries

Associate

Joint Ventures

Key Manage- Grand ment Per- Total sonnel

CUMI America Inc Total Total

Southern Net Energy Access Sterling Develop CUMI (India) Abrasives ment Australia Pvt. Ltd. CorporaPty Ltd. tion Ltd. Ltd. CUMI MIddle East FZE CUMI Canada Inc Wendt (India) Ltd. CUMI Volzhsky Interna- Abrasive tional Works Ltd. Laserwords Pvt. Ltd. Murugappa Morgan CIRIA Thermal India Ceramics Ltd. Ltd. Jingri CUMI Super Hard Materials Co Ltd.

Income From Sales and Services 44.51 2.70 141.98 91.38 53.04 2.34 366.83 13.24 16.08 2.40

30.88

7.93

39.65

406.48

Reimb. on Deputation of Employees 1.28 1.28 0.43 4.57

5.00

6.28

Purchase of Goods / Services 2.98 4.13 0.96 5.40 985.62 9.30 11.71 2.26 33.02 45.17 39.85 1.02 128.98 4.10 27.42 985.62 3.20 67.56 67.56 0.56 9.57 0.65 0.37 13.95 20.04 23.02 9.89

5.65 0.21 2.33 1.27 14.31 -

0.85 6.00 -

42.98 7.38 -

58.53 0.21 11.21 1.64 34.26 -

7.00

81.54 0.21 9.57 0.56 67.56 140.19 5.75 61.68 985.62 3.20 7.00

Lease/Rental Income

IT Services Paid

9.57

Interest Recd.

0.56

Purchase of Power

Debtors in CUMI

5.80

Creditors in CUMI

0.88

Dividend Income

1.01

Investments Made

ICD Outstanding

3.20

Managerial Remuneration

55

56

19 (a) SEGMENT DISCLOSURE

Abrasives 07-08 06-07 Ceramics 07-08 06-07 Electrominerals 07-08 06-07 Eliminations 07-08 06-07 Total 07-08

(Rs. million)

A. PRIMARY SEGMENT INFORMATION

Particulars

06-07 1. REVENUE Gross Sales 4230.52 3697.91 1578.70 986.18 796.75 583.63 6605.97 5267.72 Less : Excise Duty 522.93 461.69 132.92 95.32 81.80 65.15 737.65 622.16 Net External Sales 3707.59 3236.22 1445.78 890.86 714.95 518.48 5868.32 4645.56 Inter segment Sales 53.38 37.76 278.37 311.56 (331.75) (349.32) Total Revenue 3707.59 3236.22 1499.16 928.62 993.32 830.04 (331.75) (349.32) 5868.32 4645.56 2. RESULT Segment result 540.98 529.45 272.52 201.47 159.65 153.07 973.15 883.99 Unallocated corporate expenses (124.07) (98.12) Interest expense (169.06) (71.25) Interest and dividend income 68.08 68.35 Profit on sale of fixed assets (Net)* 501.22 70.42 (1.53) (0.14) 4.59 0.07 504.28 70.35 Loss/Profit on sale of investments 119.45 Income taxes (400.13) (266.71) Net profit 1042.20 599.87 270.99 201.33 164.24 153.14 971.70 586.61 3. OTHER INFORMATION Segment assets 3249.15 2821.85 1708.07 908.91 799.76 679.85 5756.98 4410.61 Unallocated corporate assets 2085.32 1207.59 Total assets 3249.15 2821.85 1708.07 908.91 799.76 679.85 7842.30 5618.20 Segment liabilities 331.33 344.64 245.44 105.29 133.99 106.07 710.76 556.00 Unallocated corporate liabilities 3612.78 2322.47 Total liabilities 331.33 344.64 245.44 105.29 133.99 106.07 4323.54 2878.47 Capital expenditure 305.41 581.25 593.65 345.57 112.38 123.97 Depreciation 143.14 99.65 58.49 29.25 41.93 31.96 Non-cash expenses other than depreciation ........................................................................................................................................................................................................................................................................................................................... B. SECONDARY SEGMENT INFORMATION 31.03.08 31.03.07 1. Revenue by Geographical market India 4997.90 3938.50 Rest of the world 870.42 707.06 Total 5868.32 4645.56 ........................................................................................................................................................................................................................................................................................................................... 2. Carrying amount of Segment Assets India 5442.53 4257.20 Rest of the world 314.45 153.41 Total 5756.98 4410.61 ........................................................................................................................................................................................................................................................................................................................... 3. Additions to Fixed and Intangible Assets India 1011.44 1050.79 Rest of the world Total 1011.44 1050.79

* Profit on sale of assets for 07-08 is after netting off Rs. 26.6 million (VRS) and Rs. 36.8 million (expenses incurred at Pallikaranai)

19 (b) Notes to Segmental Reporting i) Business Segments The Company has considered business segment as the primary segment for disclosure. The business segments are : abrasives, ceramics and electrominerals. Abrasives segment comprises of bonded, coated, processed cloth, polymers, powertools and coolants. Ceramics comprises of super refractories, industrial ceramics, anticorrosives & bioceramics. Electrominerals include the abrasive / refractory grains and the captive power generation from hydel power plant. The above segments have been identified taking into account the organisation structure as well as the differing risks and returns of these segments. ii) Geographical Segments The geographical segments considered for disclosure are : India and Rest of the world. All the manufacturing facilities and sales offices are located in India. Sales to the rest of the world are also serviced by Indian sales offices. Geographical revenues are segregated based on the location of the customer who is invoiced or in relation to which the revenue is otherwise recognised. iii) Segmental assets includes all operating assets used by respective segment and consists principally of operating cash, debtors, inventories and fixed assets, net of allowances and provisions. Segmental liabilities include all operating liabilities and consist primarily of creditors and accrued liabilities. Segment assets and liabilities do not include income tax assets and liabilities. 20 Notes relating to Leases (Rs. million) 31.03.2008 The company has acquired vehicles under finance lease with respective asset as security a. Cost of leased assets (vehicles) as on 31.03.2008 b. Net carrying amount as on 31.03.2008 c. Reconciliation between total minimum lease payments and their present value: Total minimum lease payments as on 31.03.2008 Less: Future liability on interest account Present value of lease payments as on 31.03.2008 23.03 12.39 21.85 15.71 31.03.2007

18.89 21.45 (3.05) (3.96) ................................................ 15.84 17.49

d. Yearwise Future Minimum lease rental payments on contracts entered after 01.04.2001 Total Minimum Lease Payments as on 31.03.2008 (i) Not later than one year (ii) Later than one year and not later than five years (iii) Later than five years 6.14 12.75 Nil Present value of Lease payments as on 31.03.2008 4.57 11.27 Nil Total Present Minimum value of Lease Lease Payments payments as on as on 31.03.2007 31.03.2007 5.58 15.87 Nil 3.86 13.63 Nil

57

21

Notes to Earnings Per Share (EPS) a. The calculation of the Basic and Diluted Earning per share is based on the following data: (Rs. million) 31.03.2008 Net Profit for the year Weighted average number of equity shares outstanding during the year Basic and Diluted Earning per share (Face value of Rs.2 each) 971.70 93,354,000 Rs. 10.41 31.03.2007 586.61 93,354,000 Rs. 6.28

b. The unit price of stock options granted to the Employees are anti-dilutive and hence the basic and diluted earnings per share remain the same. c. Previous year net profits does not include that of the merged entity, viz., Prodorite Anticorrosives Limited (Refer Note-4) and hence EPS figures are not comparable. 22 Provision for dividend tax has been made considering the credit available for set off in respect of dividend tax payable on dividends to be distributed by two subsidiary companies, based on the provision under newly inserted subsection (1A) of Section 115 O of the Income Tax Act. (Rs. million) 31.03.2008 31.03.2007 23 Components of Deferred tax liability (Net): Deferred tax asset arising out of Timing difference relating to: Provision for bad and doubtful debts and advances Voluntary retirement scheme payments Leave encashment provision Other disallowances under section 43 B

9.21 7.12 12.95 9.97 11.45 10.76 29.97 27.71 ...................... ...................... 63.58 55.56 ..................... ...................... 347.36 261.53 (1.17) 0.57 ...................... ...................... 346.19 262.10 ...................... ...................... (282.61) (206.54)

Deferred tax liability arising out of Timing difference relating to: Depreciation Leased assets

Net Deferred tax liability 24

Disclosures in respect of Derivatives A. During the year the company has entered into forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecast transactions. The company designates them as effective cash flow hedges. The company does not use derivative financial instruments for speculative purposes. The Institute of Chartered Accountants of India (ICAI) has issued AS 30 Financial instruments : Recognition and Measurement, which contains accounting for derivatives, recommendatory from 1.4.2009 and mandatory from 1.4.2011. Further ICAI has issued an announcement on 29th March 2008 dealing with the accounting for derivatives with emphasis on prudence. The company has adopted the measurement principles as laid down in the above standard with respect to above mentioned effective cash hedges. Pursuant to the application of the said measurement principles, the exchange differences arising on these transactions when marked to market as on 31st March 2008 aggregating to Rs.5.99 million has been debited to Hedging Reserve which is in accordance with AS - 30. (Rs. million) 31.03.2008 31.03.2007 B. a) Quantum of derivatives (all of which identified as hedges) outstanding as at the end of the year (notional principal amount) on : Forward exchange contracts Simple currency options b) Foreign currency exposure not hedged by a derivative instrument or otherwise

1546.30 Nil 386.49

5.15 Nil 108.98

58

25. a

Information on Joint Ventures as per AS 27 List of Joint Ventures as on 31st March, 2008 : Name of the Joint Venture Country of Incorporation Share in ownership and voting power 49.00% 39.87% 30.00% 48.70%

Murugappa Morgan Thermal Ceramics Ltd (MMTCL) Wendt (India) Ltd (Wendt) Ciria India Ltd (Ciria) Jingri-CUMI Super-Hard Materials Co., Ltd (Jingri)

India India India China

Contingent Liabilities in respect of Joint Ventures: (Rs. million) MMTCL i) Directly incurred by the company (Previous year) Share of the company in contingent liabilities which have been incurred jointly with other venturers (Previous year) Share of the company in contingent liabilities incurred by Jointly controlled entity (Previous year) Share of other venturers in contingent liabilities incurred by jointly controlled entity (Previous year) Nil Nil Wendt Nil Nil Ciria Nil Nil Jingri Nil Nil Total Nil Nil

ii)

Nil Nil

Nil Nil

Nil Nil

Nil Nil

Nil Nil

iii)

11.01 (11.30)

1.99 (0.31)

0.00 (0.86)

0.00 0.00

13.00 (12.47)

iv)

11.46 (11.76)

3.01 (0.47)

0.00 (2.01)

0.00 0.00

14.47 (14.24)

c Capital commitments in respect of joint Ventures : i) Direct capital commitments by the company (Previous year) Share of the company in capital commitments which have been incurred jointly with other venturers (Previous year) Share of the company in capital commitments of the Jointly controlled entity (Previous year) Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil

ii)

Nil Nil

Nil Nil

Nil Nil

Nil Nil

Nil Nil

iii)

1.55 (7.01)

7.06 (3.32)

0.00 (1.51)

0.00 0.00

8.61 (11.84)

Disclosure of Financial data as per AS 27 is based on the audited financials of the jointly controlled entities

59

Share of the company in the assets, liabilities, incomes and expenses of the Jointly controlled entities are given below: (Rs. million) MMTCL Proportionate share in Joint ventures relating to: Assets as on 31.03.2008 (Previous year) Liabilities as on 31.03.2008 (Previous year) Income for the year 2007-08 (Previous year) Expenses for the year 2007-08 (Previous year) 312.13 (295.99) 96.18 (125.05) 376.66 (314.51) 307.52 (226.15) 331.72 (217.14) 140.85 (54.15) 235.93 (215.56) 183.00 (161.69) 48.36 (41.27) 16.55 (19.34) 107.78 (62.99) 81.86 (50.27) 465.91 1158.12 (341.56) (895.96) 205.33 458.91 (118.13) (316.67) 230.51 950.88 (117.89) (710.95) 221.73 794.11 (113.99) (552.10) Wendt Ciria Jingri Total

26

Previous years figures have been regrouped wherever necessary to conform to current years grouping. The current year figures includes that of the merged entity, viz., Prodorite Anticorrosives Limited (Refer Note 4) and hence are not comparable with previous year figures.

Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman V Ramesh Chief Financial Officer K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

60

Balance Sheet Abstract and Companys General Business Profile

(Pursuant to Schedule VI Part IV of the Companies Act, 1956

Registration details Registration No: L29224TN1954PTC000318 Balance Sheet Date : 31.03.2008 State Code: 18

II

Capital raised during the year (Amount in Rs. 000s) Public Issue Bonus Issue Nil Nil Rights Issue Private Placement Nil Nil

III

Position on mobilisation and development of funds (Amount in Rs. 000s) Total Liabilities Sources of funds Paid up Capital Reserves & Surplus Long term lease liability Application of funds Net Fixed Assets Net Current Assets 3246311 1867406 Investments 1697683 186708 3332037 15844 Secured Loans Unsecured Loans Deferred Tax Liability 2267273 726932 282606 6811400 Total Assets 6811400

IV

Performance of Company (Amount in Rs. 000s) Turnover Profit before tax Earnings per share (Rs.) 6714843 1371844 10.41 Total Expenditure Profit after tax Dividend (%) 5342999 971700 100%

Generic names of three principal products/services of Company (as per monetary terms) Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description 680422.01 & 68.05 Abrasives- Bonded and Coated 28.18 & 28.49 Electrominerals 69.06 & 690600 Industrial Ceramics

M M Murugappan Chairman V Ramesh Chief Financial Officer

K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

Chennai, 30th April 2008

61

On a Global Trail

62

CONSOLIDATED

FINANCIAL STATEMENTS 2007-2008

63

Auditors Report on Consolidated Financial Statements

AUDITORS REPORT TO THE BOARD OF DIRECTORS OF CARBORUNDUM UNIVERSAL LIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF CARBORUNDUM UNIVERSAL LIMITED AND ITS SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE 1. We have audited the attached Consolidated Balance Sheet of Carborundum Universal Limited and its subsidiaries CUMI America Inc., CUMI Australia Pty Ltd., CUMI Canada Inc, CUMI Middle East FZE, Net Access (India) Private Limited, Sterling Abrasives Limited, Southern Energy Development Corporation Limited, CUMI International Ltd, OAO Volzhsky Abrasive Works, its joint ventures - Murugappa Morgan Thermal Ceramics Limited, Wendt (India) Limited, Ciria India Limited and Jingri CUMI Super Hard Materials Co., Ltd, China and its associate Laserwords Private Limited as at 31st March 2008 and the Consolidated Profit and Loss Account for the year then ended and the Consolidated Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of Carborundum Universal Limiteds management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the Accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We did not audit the financial statements of certain subsidiaries and the joint ventures whose financial statements reflect total assets of Rs. 6695.99 million as at 31st March 2008 and total revenues of Rs. 4949.36 million and net cash flows amounting to Rs. 107.31 million for the year then ended. These financial statements and other financial information have been audited by other auditors, whose reports have been furnished to us, and our opinion is based solely on the reports of other auditors. 4. We report that the consolidated financial statements have been prepared by the Carborundum Universal Limiteds management in accordance with the requirements of Accounting Standard (AS) 21 Consolidated Financial Statements, Accounting Standard (AS) 23 Accounting for Investment in Associates and Accounting Standard (AS) 27 Financial Reporting of Interest in Joint Ventures, notified by the Central Government of India under the Companies (Accounting Standards) Rules, 2006. Based on our audit and on consideration of reports of other auditors on separate financial statements and on the other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached Consolidated Financial Statements give a true and fair view in conformity with the Accounting Principles generally accepted in India: (a) in the case of the Consolidated Balance Sheet, of the state of affairs of Carborundum Universal Limited and its Subsidiaries, Joint Ventures and Associate as on 31st March 2008; (b) in the case of the Consolidated Profit and Loss Account, of the Profit for the year ended on that date; and (c) in the case of the Consolidated Cash Flow Statements, of the Cash Flows for the year ended on that date.

3.

FOR DELOITTE HASKINS & SELLS Chartered Accountants

Chennai 30th April, 2008

M K Ananthanarayanan Partner Membership No.19521

64

Consolidated Balance Sheet

as at 31st March 2008

(Rs. million)
Schedule 31.03.2008 31.03.2007

SOURCES OF FUNDS Shareholders Funds Capital Capital Reserve on Consolidation : Joint ventures Reserves and Surplus

186.71 186.71 20.56 20.56 2 ..................................................... 4260.41 3212.53 4467.68 3419.80 .....................................................

Loan Funds Secured Loans Unsecured Loans Long term Lease Liability (Note No. 12) Deferred Tax Liability (Net) (Note No. 14) Minority Interest Total APPLICATION OF FUNDS Goodwill on consolidation Associates Subsidiaries Joint ventures Fixed Assets Gross block Less: Depreciation Net Block Capital work-in-progress (including capital advances)

3 4

2400.24 1920.41 1403.80 15.30 18.21 18.64 ..................................................... 3822.25 1954.35 ..................................................... 330.86 227.98 378.86 185.61 ..................................................... 8999.65 5787.74 ..................................................... 208.35 711.68 111.67 208.35 23.91 111.67

6132.72 4443.96 2542.28 1796.75 ..................................................... 3590.44 2647.21 758.84 416.10 ..................................................... 4349.28 3063.31 427.71 355.93

Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Less: Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (Deferred revenue expenditure to the extent not written off) Total Significant Accounting Policies Notes on Accounts Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai 30th April 2008 M M Murugappan Chairman

6 7

1734.03 1016.67 2261.37 1325.97 476.03 498.94 507.48 339.85 ..................................................... 4978.91 8 1500.99 1062.72 215.18 165.93 ..................................................... 1716.17 1228.65 ..................................................... 3262.74 1952.78 ..................................................... 9 ..................................................... 0.00 0.01 8999.65 5787.74 ..................................................... 14 15 3181.43

K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

V Ramesh Chief Financial Officer

65

Consolidated Profit and Loss Account

for the year ended 31st March 2008

(Rs. million) Schedule INCOME Gross Sales Less : Excise duty Net Sales Income from processing charges Profit on sale of Fixed Assets (Note No. 9) Income from work bills & services Other income Proportionate share of Income in Joint Ventures EXPENDITURE Raw materials consumed (Accretion)/ Decretion to stock Employee cost Other costs Depreciation Less: Transfer from fixed assets revaluation reserve Interest and finance charges (Note No. 8) Proportionate share of Expense in Joint Ventures PROFIT BEFORE TAX Less: Provision for income tax Current tax Deferred tax Fringe Benefit tax PROFIT AFTER TAX (before Share of profit from
Associates & minority interest)

31.03.2008

31.03.2007

10

8784.96 6134.01 (766.77) (673.01) .................................................... 8018.19 5461.00 85.87 38.20 567.54 70.35 38.22 256.62 106.59 951.19 710.95 .................................................... 9917.63 6387.09 ....................................................

11 12 13

2876.48 1966.20 (97.33) (66.93) 1064.02 695.94 3048.80 1849.55 .................................................... 301.16 195.92 0.90 0.95 .................................................... 300.26 194.97 189.04 75.92 796.03 552.10 .................................................... 8177.30 5267.75 .................................................... 1740.33 1119.34 444.73 294.20 81.70 59.14 16.11 11.87 .................................................... 1197.79 754.13

Add: Share of Profit from Associate Less: Minority Interest PROFIT AFTER TAX Add:Unappropriated profits from previous year Profit available for appropriation APPROPRIATIONS Transfer to General Reserve Dividend Proposed @ 100% (Previous year 75%) Dividend Tax (Note No. 15) Balance carried over to Balance Sheet E P S - Basic and Diluted (Rs.) Face value Rs. 2 SIGNIFICANT ACCOUNTING POLICIES NOTES ON ACCOUNTS Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman V Ramesh Chief Financial Officer 14 15

54.46 47.92 63.52 51.22 .................................................... 1188.73 750.83 .................................................... 1169.11 640.77 .................................................... 2357.84 97.17 1391.60 58.66

186.71 140.03 28.48 23.80 2045.48 1169.11 .................................................... 2357.84 1391.60 .................................................... 12.73 8.04

K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

66

Consolidated Cash Flow Statement for the year ended 31st March 2008
(Rs. million) 31.03.2008 A. Cash flow from operating activities Net profit before tax and extraordinary items: Depreciation Interest and finance charges (Profit)/Loss on sale of fixed assets (net) Provision for doubtful debts and advances (Profit)/Loss on sale of investments (net) Interest and dividend income Excess provision for expenses of earlier years released Voluntary retirement scheme payments (Profit)/ Loss on exchange fluctuation 31.03.2007

1740.33 300.26 189.04 (567.54) 8.12 (119.45) (17.68) (14.79) 29.42 45.03 ................. 194.97 75.92 (69.64) 6.31 0.02 (19.26) (6.77) 1.41 (5.09) .................

1119.34

(147.59) .................. 1592.74

177.87 ................. 1297.21

Operating profit before working capital changes Adjustments for (Increase)/ Decrease in : Trade and other receivables Trade payables Inventories (1116.20) 2141.33 (1689.03) .................

(178.88) 156.13 (663.90) .................. 928.84 (237.52) ................. (260.27) ................. 1036.94

Cash generated from operations Direct taxes paid Voluntary retirement scheme payments (276.54) (29.42) .................

(256.38) (305.96) .................. 622.88 (1.42) ................. (257.80) ................. 779.14

Proportionate share of adjustments to cash flow from operating activities in JVs Net Cash Flow from operating activities B. Cash Flow from investing activities Purchase of fixed assets (including capital work in progress) Sale of fixed assets Acquisition of business unit Purchase of long term investments Sale of long term investments Loans given to third parties Receipt of loans given to third parties Dividend received Interest received Proportionate share of cash flow from investing activities in JVs Direct Taxes paid on capital gains Net cash used in investing activities

(0.51)

(0.51) 622.37

32.30

32.30 811.44

(1025.16) 615.69 (62.50) (2786.14) 251.19 0.00 4.50 45.06 8.76 (186.67) .................

(1128.05) 172.54 (1643.45) 1233.62 (0.27) 0.00 44.47 1.94 (103.92) .................

(3135.27) (126.00) ................. (3261.27)

(1423.12)

67

(Rs. million) 31.03.2008 C. Cash Flow from financing activities Proceeds from long term borrowings Repayments of borrowings Proceeds from other borrowings Interest paid 2295.39 (6.42) 510.70 (163.01) (72.40) (214.70) 15.19 ................. 2467.05 .................. (171.85) 847.09 ................. 235.41 1245.73 (126.73) 31.03.2007

Dividend paid ( inclusive of dividend tax) (187.19) Proportionate share of cash flow from financing activities in JVs Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents opening balance: Cash and bank balances # Proportionate share of cash & Bank balances in Joint Ventures Cash and cash equivalents closing balance: Cash and bank balances Proportionate share of cash & Bank balances in Joint Ventures 399.31 76.72 ................. 476.03 .................. (171.85) 17.58 .................

525.05 122.83 ................. 647.88

211.47 52.07 ................. 263.54 376.11 122.83 ................. 498.94 ................. 235.41

# Includes Rs. 148.94 million relating to VAW, the subsidiary added during the year. Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman V Ramesh Chief Financial Officer K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

68

Schedules to Consolidated Accounts

31.03.2008 1. Share Capital 250.00

as at 31st March 2008

(Rs. million) 31.03.2007

Authorised 125,000,000 equity shares of Rs. 2 each Issued, Subscribed and Paid-up 107,193,000 equity shares of Rs. 2 each fully paid up Above includes - 893,565 shares of Rs.2 each allotted as fully paid up for consideration other than cash pursuant to contracts - 2,339,295 shares of Rs. 2 each allotted to shareholders of amalgamated companies - 82,825,120 shares of Rs.2 each allotted as fully paid up bonus shares by capitalisation of share premium and general reserve. Less: 13,839,000 shares of Rs. 2 each bought back from the shareholders pursuant to the offer for buy back of shares made in 2000-01 93,354,000 shares of Rs.2 each fully paid

250.00

214.39

214.39

27.68 .................. 186.71 .................. 186.71

27.68 ................. 186.71 ................. 186.71

As at 31.03.2007 2. Reserves and Surplus Capital Reserve Fixed assets revaluation reserve Capital subsidy Profit on Forfeiture of Shares / Warrants Capital redemption reserve Other Reserves General Reserve Hedging Reserve Surplus as shown in Profit and Loss Account Less: Dividend Tax paid by Subsidiaries & JV Less: Adjustment arising on desubsidiarisation of subsidiaries Less: Adjustment arising on merger of a subsidiary Add: Adjustment arising on account of proposed dividend by a subsidiary Foreign Currency Translation Reserve Proportionate share in Joint ventures

As at Additions Deductions 31.03.2008

30.81 10.08 6.03 27.68 1816.06 127.98 #

2.31*

28.50 10.08 6.03 27.68

0.00 1944.04 5.99 @ (5.99) ...................................................................................................... 1890.66 127.98 8.30 2010.34 1169.11 2045.48 (7.09) 7.09 7.40 (7.40) (30.11) 0.00 (30.11) (30.81)

0.00

30.81

0.00 14.51 14.51 0.00 68.44 68.44 189.96 189.96 ...................................................................................................... 3212.53 4260.41

* # @

Includes reversal of revaluation reserve of Rs. 1.63 million pertaining to assets disposed off during the year. Addition to General Reserve includes Rs. 30.81 million arising on amalgamation of erstwhile subsidiary company. (Refer Note No. 6) Represents the Parent companys adjustment towards effective cash flow hedges as per AS 30

69

Schedules to Consolidated Accounts

as at 31st March 2008

(Rs. million) 31.03.2008 3. Secured Loans 31.03.2007

Loans from Banks Term Loans - Secured by pari passu first charge on fixed assets Cash Credit Secured by first charge on stock and book debts and a second charge on fixed assets Others - External Commercial Borrowings aggregating to JPY 2458.11 million and USD 10.33 million. Of which JPY 2225.19 million & USD 10 million are fully covered by a cross currency swap arrangement for principal and interest, into Indian rupees at fixed rate of interest Secured by a pari-passu first charge on movable fixed assets 19.93 27.35 ....................................................... 2400.24 1920.41 ....................................................... 500.00 273.08 457.16 676.41 521.64

1430.82

914.26

Proportionate share in Joint Ventures

Term loan and other loans include loans repayable within one year 4. Unsecured Loans @$

Medium Term / Short term loans from Banks Proportionate share in Joint Ventures

1390.22

0.00

@ includes amounts repayable within one year $ includes loans of a subsidiary, which is coverd by a Guarantee from Parent company.

13.58 15.30 ....................................................... 1403.80 15.30 ....................................................... 699.15 663.30

70

(Rs. million) Cost Additions(f) /(deletions) 0.00 0.00 3.60 5.10 1.61 17.27 5.10 0.11 2.41 0.00 0.32 2.99 5.10 0.43 5.40 0.00 1.18 11.87 0.00 1.50 11.26 As at 31.03.2008 As at 1.4.2007 Additions(f) /(deletions) As at 31.03.2008 As at 31.03.2008 As at 31.03.2007 Depreciation/Amortisation Net Block

5. Fixed Assets

As at 1.4.2007

Intangible Assets Goodwill Trade Mark Technical Know-how fees Tangible Assets Land - Freehold

5.10 1.61 13.67

0.41 38.50 0.00 0.00 0.00 38.50 40.73 (2.64) 0.00 0.00 0.00 0.00 0.00 - Leasehold 40.68 55.86 90.04 1.09 0.84 1.93 88.11 39.59 (6.50) (e) 0.00 0.00 0.00 0.00 0.00 0.00 Buildings 693.52 (a) 591.01 1254.55 (b) 181.64 225.78 393.70 860.85 511.88 (29.98) 0.00 (13.72) 0.00 Plant & Machinery 3007.68 (c) 1029.26 (d) 3950.50 (c) 1389.42 533.97 1854.63 2095.87 1618.26 (86.44) 0.00 (68.76) Furniture & Fixtures 83.36 23.99 106.00 31.11 11.29 41.37 64.63 52.25 (1.35) (1.03) Vehicles 25.29 40.55 60.92 9.76 20.52 28.16 32.76 15.53 (4.92) (2.12) Vehicles taken on lease 23.19 3.83 24.20 6.21 6.06 10.69 13.51 16.98 (2.82) (1.58) ................................................................................................................................................................................................................................................................................................................ TOTAL 3934.83 1748.51 5548.69 1626.85 801.77 2341.41 3207.28 2307.98 (134.65) (87.21) Proportionate share in 509.13 78.81 584.03 169.90 34.01 200.87 383.16 339.23 Joint ventures (3.91) (3.04) ................................................................................................................................................................................................................................................................................................................ Grand Total 4443.96 1827.32 6132.72 1796.75 835.78 2542.28 3590.44 2647.21 (138.56) (90.25) ................................................................................................................................................................................................................................................................................................................ Previous Year 3262.05 1412.70 4443.96 1681.51 246.34 1796.75 2647.21 1580.54 (230.79) (131.10)

40.73 (a)

(a) (b) (c) (d) (e) (f)

Land & Building added upto 31st August 1984 are stated as per revaluation done in that year. Includes Rs. 382.07 million ( Previous year Rs. 232.63 million) being cost of building on lease hold land. Net of subsidy received Rs.0.77 million. Includes R&D equipments Rs 9.33 million ( Previous Year Rs.1.82 million). Represents refundable deposit made for leasehold land transferred to deposits. Current year additions include Rs. 890.70 million added on acquisition of a subsidiary during September 2007. Cumulative depreciation of Rs. 517.70 million pertaining to those assets are shown under current year additions to Depreciation.

71

Schedules to Consolidated Accounts

Particulars 6. Investments

as at 31st March 2008

(Rs. million) 31.03.2008 31.03.2007

Quoted - Equity - Others Investments in Mutual funds - short term Unquoted - Equity - Others Proportionate share in Joint Venture Investment in Associates Total Cost of Quoted Investments Cost of Unquoted Investments Total Market value of Quoted Investments

0.50 126.50

20.63 0.02 238.02

8.29 6.16 0.00 0.01 55.46 52.15 165.18 110.72 ....................................................... 355.93 427.71 ....................................................... 127.00 258.67 228.93 169.04 ....................................................... 355.93 427.71 ....................................................... 692.90 613.38 .......................................................

7.

Current Assets, Loans And Advances

Inventories Stock-in-trade Raw Materials Work-in-process Finished Stock Traded Stock Goods-in-transit Stores and spare parts Proportionate share in Joint Ventures

332.78 263.47 240.41 248.04 337.74 228.19 578.54 90.09 43.88 24.16 78.64 56.40 122.04 106.32 ....................................................... 1734.03 1016.67 .......................................................

Sundry Debtors (Unsecured) Over six months Considered good Considered doubtful Other debts - Considered good Less: Provision for doubtful debts Proportionate share in Joint Ventures

Sundry debtors includes retentions against invoices Cash and Bank Balance Cash and cheques on hand and remittances in transit Balances with Scheduled Banks: - Current Account - Unclaimed Dividend Account - Deposit Account Proportionate share in Joint Ventures

685.73 88.65 25.73 22.61 ....................................................... 711.46 111.26 1303.86 1032.25 ....................................................... 2015.32 1143.51 25.73 22.61 ....................................................... 1989.59 1120.90 ....................................................... 271.78 205.07 ....................................................... 2261.37 1325.97 ....................................................... 1.74

277.97

92.10

107.08 136.23 4.99 4.37 9.28 143.42 76.71 122.82 ....................................................... 476.03 498.94 .......................................................

72

Schedules to Consolidated Accounts

as at 31st March 2008

(Rs. million) 31.03.2008 Loans and Advances (Unsecured) Advances recoverable in cash or in kind or for value to be received Considered good Considered doubtful Less: Provision for doubtful advances Deposits Considered good@ Balances with Customs and Central Excise Authorities Advance Payments of Income Tax & Fringe Benefit Tax Less : Provision for Taxation & Fringe Benefit Tax Total Proportionate Share in Joint Ventures Total Loans and Advances Total Current Assets, Loans and Advances @ Includes fixed deposit receipt lodged with commercial tax department refundable long term deposit for leasehold land 8. Current Liabilities and Provisions Current Liabilities Sundry Creditors Total outstanding dues of micro enterprises and small enterprises Total outstanding dues of creditors other than micro and small enterprises Due to Directors Interest accrued but not due on Loans Investor Education and Protection Fund shall be credited by the following amounts namely :-(#) a. Unpaid dividend b Unpaid matured deposits c. Interest accrued on matured deposits Liabilities relating to employee benefit Proportionate share of Joint Ventures 31.03.2007

........................................................ 247.54 88.00 0.00 2.77 ....................................................... 247.54 90.77 0.00 2.77 ....................................................... 247.54 88.00 71.12 62.31 67.03 84.43 ....................................................... 1821.61 1455.95 1724.84 1395.87 ....................................................... 96.77 60.08 ....................................................... 482.46 294.82 25.02 45.03 ....................................................... 507.48 339.85 ....................................................... 4978.91 3181.43 0.07 6.50

16.75 1016.53 3.08 7.86

26.33 796.04 3.24 3.02

4.99 0.07 0.06 135.14

4.36 0.07 0.12

316.51 229.54 ....................................................... 1500.99 1062.72 ....................................................... 186.71 28.47 140.03 23.80

Provisions Proposed Dividend Provision for Tax on Dividend (Note No. 15) Proportionate share of Joint Ventures

Current Liabilities & Provisions (#) These represents warrants / cheques issued and remaining un-encashed as at 31st March 2008.There is no amount which has fallen due as at Balance sheet date to be credited to Investor Education and Protection Fund. 9. Miscellaneous Expenditure Preliminary expenses Proportionate share in Joint venture

0.00 2.10 ....................................................... 215.18 165.93 ....................................................... 1716.17 1228.65 .......................................................

0.00 0.01 ....................................................... 0.00 0.01 .......................................................

73

Schedules to Consolidated Accounts

as at 31st March 2008

(Rs. million) 31.03.2008 10. Other income From Investments (Trade) - Dividend From Investments (Non-trade) - Dividend Interest from Banks Interest from Inter corporate deposits Interest from Others Service income Profit/(Loss) on sale of Investments Profit on exchange fluctuation Scrap sales Provision for expenses no longer required written back Miscellaneous income Tax deducted at source on interest Dividend from Long term Investment Dividend from Current Investment 11. (Accretion)/ Decretion to Stock (a) Opening Stock Work-in-process Finished stock (b) Add : Stock Transfer from Trial Production/ on acquisition & amalgamation Work-in-process Finished stock 8.30 2.04 4.68 0.02 2.64 17.48 119.45 2.33 37.05 14.79 47.84 ................... 256.62 ................... 0.99 ................... 9.22 1.12 31.03.2007 7.98 4.80 4.39 1.22 0.88 14.49 (0.02) 11.01 23.77 6.77 31.30 ................ 106.59 ................ 0.31 ................ 7.77 5.01

248.04 228.19 ................... 476.23 ................... 1.82 2.77 ................... 4.59 ................... 480.82 240.41 337.74 ................... 578.15 ................... (97.33) 863.22 51.65 29.42 6.11 113.62 ................... 1064.02 ................... 296.87 1119.94 20.05 (0.77) 85.20 27.10 14.14 141.33 4.53 ................ 8.98 137.06 3.11 ................

152.81 230.00 ................ 382.81 ................ 24.29 2.20 ................ 26.49 ................ 409.30 248.04 228.19 ................ 476.23 ................ (66.93) 528.03 60.28 1.41 5.81 100.41 ................ 695.94 ................ 233.37 509.84 16.19 4.31 95.81 27.01

Total of (a) & (b) Closing Stock Work-in-process Finished stock (Accretion)/ Decretion to Stock 12. Employee Cost Salaries, wages and bonus Contribution to provident and other funds Voluntary Retirement Scheme Remuneration to Managing director Welfare expenses 13. Other Costs Consumption of stores and spares Power and fuel # Rent Excise duty on stock differential $ Rates and taxes Insurance Repairs to : Buildings Machinery * Others

160.00

149.15

74

Schedules to Consolidated Accounts

as at 31st March 2008

(Rs. million) 31.03.2008 Technical fee / Royalty Directors sitting fees Commission to non-wholetime directors Auditors remuneration Travel and conveyance Freight, delivery and shipping charges Selling commission Turnover discounts Rebates and allowances Advertisement and publicity Printing, stationery and communication Loss on sale of fixed assets Loss of Exchange fluctuation Contribution to research institution Bad debts and advances written off Less : Provision adjusted Professional fee Management fee Provision for doubtful debts, advances and deposits General services Miscellaneous expenses # Net of own power generation, which includes Rs. 16.62 million (previous year Rs. Nil million) banked with KSEB * Includes stores and spare parts $ Represents Excise Duty relating to difference between the opening and closing stock of finished goods. The excise duty shown as deduction from sales in the Profit and Loss Account represents excise duty on sales made during the year 14. Accounting policies to consolidated accounts of CUMI with its subsidiaries, joint ventures and associate Basis of preparation The consolidated financial statement of Carborundum Universal Limited with its subsidiaries, interest in joint ventures and associate have been prepared under historical cost convention with the exception of land and buildings (which were revalued) on accrual basis and in accordance with Generally Accepted Accounting Principles in India (Indian GAAP). The said financial statements comply with the relevant provisions of the Companies Act, 1956 (the Act) and the mandatory Accounting Standards notified by the Central Government of India under Companies (Accounting Standards) Rules, 2006 ii. Basis of Consolidation The financial statements are prepared in accordance with the principles and procedures for the preparation and presentation of consolidated financial statements as laid down under Accounting standards 21,23 and 27. Consolidated financial statements are prepared using uniform accounting policies except as stated in (iii)(c), (vi)(b) and (xi) (b) & (d) of this Schedule, the adjustments arising out of the same are not considered material. In respect of foreign subsidiaries viz CUMI America Inc, CUMI Australia Pty Ltd, CUMI Middle East FZE and CUMI Canada Inc which are classified as Integral Foreign Operations, the financials were translated into Indian Currency as per Accounting Standard 11 (revised) and the exchange gains/(losses) 10.15 0.84 2.08 3.98 147.01 360.16 26.82 50.55 58.09 32.48 46.17 0.44 47.38 1.50 8.03 4.59 ................. 6.63 4.76 ................ 31.03.2007 1.20 0.82 1.37 2.37 83.80 193.37 27.54 43.70 53.25 24.89 38.47 0.71 2.63 2.75

3.44 40.60 0.00 8.11 348.74 151.87 ................... 3048.80 ................... 118.02 84.83

1.87 38.58 1.37 6.31 233.73 55.14 ................ 1849.55 ................ 150.34 98.00

i.

75

arising on conversion are recognised in the Profit and Loss Account. With respect to overseas joint venture Jingri-CUMI Super Hard Materials Company Limited, CUMI International Limited and its subsidiary Volzhsky Abrasives Works which are classified as Non-Intergral foreign operation, the financials were translated into Indian Currency as per the aforesaid Accounting Standard and the exchange gains/ (losses) arising on conversion are accumulated under Foreign Currency Translation Reserve. iii. Fixed assets and depreciation a. Fixed assets are stated at historical cost (net of CENVAT/VAT wherever applicable) less accumulated depreciation except land and buildings added up to 31st August 1984 which are shown as per the revaluation done in that year; and land and buildings of Sterling Abrasives Limited which are shown as per the revaluation done on 31st December 1993. Cost comprises of direct cost, related taxes, duties, freight and attributable finance costs till such assets are ready for its intended use. Subsidy received from State Government towards specific assets is reduced from the cost of fixed assets. Fixed Assets taken on finance lease are capitalised. Depreciation on fixed assets has been provided on straight-line method at rates specified in Schedule XIV of the Companies Act 1956, except that: i. Leased vehicles which are depreciated at 25% which is higher than Schedule XIV rates.

e.

Intangible assets are amortised over the estimated useful life of the assets on straight line basis.

iv.

Impairment of assets At each balance sheet date, the carrying values of the tangible and intangible assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where there is an indication that there is a likely impairment loss for a group of assets, the company estimates the recoverable amount of the group of assets as a whole, and the impairment loss is recognised. Borrowing costs Borrowing costs are capitalised as part of qualifying fixed assets when it is possible that they will result in future economic benefits. Other borrowing costs are expensed.

v.

b.

vi.

Inventories a. Inventories are valued at lower of cost and net realisable value. Cost includes all direct costs and applicable production overheads to bring the goods to the present location and condition. Excise duty on the finished goods is added to the cost. In respect of Raw materials, accessories and stores and spares cost is determined on weighted average basis which includes freight, taxes and duties net of CENVAT credit wherever applicable, except Ciria India Ltd (joint venture) where cost is determined on First in First out method. Customs duty payable on material in bond is added to cost. Trading stocks are valued at First in First out method Work-in-process relating to construction contracts are valued at cost. Direct expenses identifiable to a specific job are debited to that job. Indirect expenses are not allocated but charged as period cost in the year it is incurred.

c.

b.

ii. In respect of Assets held by Indian Subsidiaries & Overseas Subsidiaries, Joint Ventures, and Associate depreciation is provided based on the estimated useful life of those assets as estimated by the respective Companies. iii. Assets held by Ciria India Limited are depreciated at Schedule XIV rates on Written Down Value basis. iv. Assets held by CUMI Canada Inc are depreciated over their estimated useful life as estimated by that company. v. The difference between the depreciation for the year on the revalued assets and depreciation calculated on the original cost is recouped from the fixed assets revaluation reserve. d. Individual assets costing less than Rs.5,000 each are depreciated in full in the year of acquisition. vii.

c. d.

Investments Long term investments are stated at cost/ valuation and provision for diminution is made if such diminution is other than temporary in nature. Short term investments are stated at lower of cost and market value. In the case of Ciria

76

India Ltd (joint venture), cost is determined on weighted average basis. viii. Revenue recognition i. Revenues are recognised and expenses are accounted on their accrual with necessary provisions for all known liabilities and losses. Service income is recognised on the basis of percentage of completion. Revenue for divisible contracts is recognised in respect of supplies as and when the supplies are completed and in respect of construction on the percentage completion method. Revenue from indivisible contracts is recognised on a percentage completion method based on the billing schedules agreed with customers. The relevant cost is recognised in Accounts in the year of recognition of revenue. Profit so recognised is adjusted to ensure that it does not exceed the estimated overall contract margin. The total costs of the contracts are estimated based on technical and other estimates. Foreseeable loss, if any, is recognized when it becomes probable and could be estimated.

b.

Defined Benefit Plan : The liability for Gratuity to employees, as at Balance Sheet date is determined on the basis of actuarial valuation using Projected Unit Credit Method and is funded to a Gratuity fund administered by the trustees and managed by Life Insurance Corporation of India and the contribution thereof paid / payable is absorbed in the accounts. Where it is determined on the basis of the Payment of Gratuity Act by certain subsidiaries, it is provided but not funded. Liability in respect of Long term portion of accumulated compensated absences is determined on actuarial basis and is provided for. The Parent Company and its employees make monthly fixed contributions to Carborundum Universal Limited Employees Provident Fund Trust, equal to a specified percentage of the covered employees salary. The interest rate payable by the Trust to the beneficiaries is being notified by the Government every year. The parent company has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the notified interest rate.

ii.

iii. Dividend income on investments is accounted for when the right to receive the payment is established. iv. Benefits on account of entitlement to import goods free of duty under Duty Entitlement Pass Book Scheme, are accounted in the year of export. ix. Research and Development All revenue expenditure related to research and development are charged to the respective heads on the Profit and Loss Account. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company. x. Voluntary Retirement Compensation In the parent company compensation to employees who have retired under voluntary retirement scheme is written off to revenue. xi. Employee Benefits a. Defined Contribution Plan : Fixed contributions to the Superannuation Fund and recognized Provident Fund are absorbed in the accounts. c.

Long term Compensated absences In respect of long term portion of compensated absences (Leave benefits), the liability is determined on the basis of actuarial valuation and is provided for.

d.

Short-term Employee Benefits Short term employee benefits determined as per companys policy/scheme are recognised as expense based on expected obligation on undiscounted basis in the case of parent company and other Indian Subsidiaries and Joint ventures except in the case of Southern Energy Development Corporation Limited, an Indian subsidiary, where leave encashment benefit on retirement to eligible employees is ascertained on actual basis and provided for. With respect to overseas subsidiaries & joint ventures the Company has provided for employee benefits as per the local regulations.

77

e.

Employee Stock Option Scheme Stock options granted to the employees under the stock option scheme by Parent company are evaluated as per the accounting treatment prescribed by the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 issued by Securities Exchange Board of India. The Parent Company follows the intrinsic value method of accounting for the options and accordingly, the excess of market value of the stock options as on date of grant, if any, over the exercise price of the options is recognized as deferred employee compensation and is charged to the Profit and Loss Account on graded vesting basis over the vesting period of the options

when the assets are acquired. The CENVAT credits so taken are utilised for payment of excise duty on goods manufactured / service tax on out put services. The unutilised CENVAT credit is carried forward in the books. xv. Segment reporting The accounting policies adopted for Segment reporting are in line with the accounting policies of the Group with the following additional policies : a. Inter-segment revenues have been accounted on the basis of prices charged to external customers. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the Segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to Segments on a reasonable basis have been included under Un-allocated Corporate expenses. Current Tax is determined on income for the year chargeable to tax in accordance with the Income tax Act, 1961. Deferred tax is recognised for all the timing differences. Deferred tax assets are recognised when considered prudent.

b.

xii.

Foreign Currency Transaction a. Foreign currency transactions are recorded at the rates of exchange prevailing on the date of transactions. Monetary assets & liabilities outstanding at the year-end are translated at the rate of exchange prevailing at the year-end and profit or loss is recognised in the profit and loss account. The premium or discount arising at the inception of forward exchange contracts (other than those relating to a firm commitment or a highly probable forecast) are amortized as expense or income over the life of the contract.

xvi.

Income Tax i.

ii.

b.

xvii. Provisions, Contingent Liabilities and Contingent Assets Provisions are recognised only when there is a present obligation as a result of past events and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) Possible obligation which will be confirmed only by future events not wholly within the control of the Company or (ii) Present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.

xiii.

Government Grants Lump sum capital subsidies, not relating to any specific fixed asset, received from State Governments for setting up new projects are accounted as capital reserve.

xiv.

Excise Duty/ Service Tax CENVAT credit on materials purchased/ services availed for production/input services are taken into account at the time of purchase and CENVAT credit on purchase of capital items wherever applicable are taken into account as and

78

15. 1

Notes on Accounts to Consolidated Financial Statements Information on Consolidated Financials as per Accounting Standard 21, Accounting Standard 23 and Accounting Standard 27

A SUBSIDIARIES a List of Subsidiaries included in the Consolidated financials. Country of Incorporation 31.03.2008 Share in ownership and voting power 31.03.2007 Share in ownership and voting power

Name of the Subsidiary

Direct Holdings : CUMI America Inc., Prodorite Anticorrosives Ltd Net Access (India) Pvt Ltd Southern Energy Development Corporation Ltd Sterling Abrasives Ltd CUMI Australia Pty Ltd CUMI Canada Inc CUMI Middle East FZE CUMI International Ltd Holding through Subsidiary OAO Volzhsky Abrasive Works b

USA India India India India Australia Canada Ras Al Khaimah, UAE Cyprus Volgograd, Russia

100% 100% 62.00% 60.00% 51.22% 100% 100% 100%

100% 100% 100% 62.00% 60.00% 51.22% 100% 100% -

85.80%

Consolidation is done based on the audited financials of the subsidiaries as on 31.03.2008. In respect of CUMI America Inc., CUMI Australia Pty Ltd, CUMI Middle East FZE, CUMI Canada Inc., CUMI International Ltd and OAO Volzhsy Abrasive Works the audited financials were translated into Indian currency as per Accounting Standard 11 (revised) -Accounting for the effects of changes in Foreign exchange rates. B ASSOCIATES a Associate included in the Consolidated financials. Country of Incorporation 31.03.2008 Share in ownership and voting power 44.53% 31.03.2007 Share in ownership and voting power 44.53%

Name of the Associate

Laserwords Pvt Ltd b

India

Equity method of accounting in consolidation is done based on audited financials of the Associate as on 31.03.2008.

C JOINT VENTURES a List of Joint ventures included in the Consolidated financials. 31.03.2008 Share in ownership and voting power 49.00% 39.87% 30.00% 48.70% 31.03.2007 Share in ownership and voting power 49.00% 39.87% 30.00% 48.70%

Name of the Joint Ventures

Country of Incorporation

Murugappa Morgan Thermal Ceramics Ltd Wendt (India) Ltd Ciria India Ltd Jingri-CUMI Super-Hard Materials Co. Ltd. b

India India India China

Proportionate consolidation is done based on audited financials of the Joint ventures as on 31.03.2008, based on the financials as approved by the Board of Directors of that company. In respect of Wendt, the consolidated financials of the company with its subsidiary Wendt Grinding Technoligies Ltd, Thailand were considered for consolidation. In respect of Jingri, the consolidated financials of the company with its subsidiary Jingcheng China were considered for consolidation

79

(Rs. million)

Notes to Balance Sheet 31.03.2008 2 Pending approval of the proposed dividends in the annual general meetings of the respective subsidiaries and joint ventures, the same are not considered in the consolidated accounts as proposed dividends and are included under surplus carried to balance sheet under Reserves and Surplus Estimated amount of contracts remaining to be executed on capital account and not provided for Proportionate share of Capital commitments in Joint ventures Contingent Liabilities: a) Bills discounted outstanding b) Outstanding guarantees / Letters of Comfort Proportionate share of Outstanding guarantees from Joint ventures c) Outstanding letters of credit a) No provision is considered necessary for disputed income tax, sales tax, excise duty, service tax and property tax demands which are under various stages of appeal proceedings, based on legal opinions that these demands are not sustainable in law. However, out of these the income tax demands of the parent company have been adjusted by the department against refunds due for other assessment years. In respect of Sales tax, Central Excise and Service tax demands of the parent company, amounts deposited in protest aggregate to : Proportionate share of disputed demands in Joint ventures b) Claims against the company not acknowledged as debts i. Disputed demands by Kerala State Electricity Board / Tamil Nadu Electricity Board ii. Contested Provident fund and ESI demands iii. Others Pursuant to the Scheme of Amalgamation of the erstwhile Prodorite Anticorrosives Limited, (a wholly owned subsidiary of the Parent Company) engaged in the business of manufacture and marketing of acid resistant cements, corrosion resistant products, polymer concrete & fibre reinforced plastics, with the Parent Company as sanctioned by the Honourable High Court of Madras on 10th April 2008, the entire undertaking of the amalgamating company including all assets and liabilities and reserves shall stand transferred to and vested in the Parent Company with effect from 1st April 2007. a) The Parent Company has adopted the revised Accounting Standard 15 (Revised) on Employee Benefits effective from 1st April 2006 though it was mandatory only from 1st April 2007. b) During the year the Parent Company has made provision for Longterm accumulated compensated absences on actuarial basis, which in the previous year was done on estimated cost basis. Consequent to this change, the payment and provisions for employee benefits for the year ended 31st March 2008 is net of reversal of provision for longterm accumulated compensated absences amounting to Rs.2.39 million. Had the Parent Company followed the same policy as in previous year, the amount of payment and provisions for employee benefits for the year ended 31st March 2008 would have been higher by Rs.9.24 million. c) With respect to the Provident Fund Trust administered by the Parent Company, the Parent Company shall make good the deficiency, if any, in the interest rate declared by Trust below statutory limit. Having regard to the assets of the Fund and the return on the investments, the Parent Company does not expect any deficiency in the foreseeable future. 380.88 8.61 156.58 40.32 12.03 60.62 186.35 10.33 179.10 136.72 11.61 71.54 31.03.2007

142.19 15.67 0.97

154.77 17.23 2.58

35.04 38.58 1.03 1.03 0.21 ...................................................... 36.07 39.82 ......................................................

80

(Rs. million)

Notes to Balance Sheet 31.03.2008 8 Interest and finance charges includes that of debentures and fixed loans Net of capitalisation amounting to : Notes to Profit and Loss Account 9 During the year, the Parent Company closed the business at its Pallikaranai and Varvala unit. Accordingly, the profit on sale of fixed assets include Rs.557.90 million relating to sale of land and building in the above units. The expenditure aggregating to Rs.36.8 million incurred at Pallikaranai location subsequent to suspension of operations till the date of closure have been included under the respective heads of expenditure. In addition VRS expenditure of Rs.26.6 million had been incurred due to the closure of the unit and the same is included under Employee costs. 10 Related Party Disclosures a) (i) List of related parties where control exists - None (ii) List of related parties with whom transactions have taken place during the year Associate Laserwords Pvt Ltd Joint ventures Murugappa Morgan Thermal Ceramics Ltd Ciria India Ltd Wendt (India) Ltd Jingri-CUMI Super-Hard Materials Co., Ltd Key management personnel Mr. K Srinivasan 10 b) Transactions with Related party (Rs. million) Associate Joint Ventures Key Management Personnel Total 118.13 23.16 31.03.2007 53.16 29.04

2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 1 Income from sales and services 2 Purchase of goods 3 Lease/rental income 4 Dividend income 5 Reimbursement of employee cost 6 Purchase of fixed assets 7 Investments made 8 Debtors 9 Creditors 10 Managerial remuneration 39.65 58.52 0.21 34.26 5.00 11.21 1.64 39.94 24.77 0.27 31.67 4.49 3.92 231.39 1.02 5.95 7.00 6.72 39.65 58.52 0.21 34.26 5.00 11.21 1.64 7.00 39.94 24.77 0.27 31.67 4.49 3.92 231.39 1.02 5.95 6.72

81

10 (c) Details of Material Transactions with related parties during the year ended 31.03.2008
Joint Ventures Murugappa Morgan Thermal Ceramics Ltd 16.08 4.57 5.65 0.21 2.33 1.27 14.31 Jingri CUMI Super-Hard Materials Co Ltd. 7.93 42.98 7.38 Key Management Personnel

Wendt (India) Ltd Income from sales and services Reimb. on Deputation of Employees Purchase of Goods/ Services Lease/Rental Income Debtors in CUMI Creditors in CUMI Dividend Income Managerial Remuneration 13.24 0.43 9.89 0.65 0.37 13.95

Ciria India Ltd 2.40 0.85 6.00

Total

39.65 5.00 58.53 0.21 11.21 1.64 34.26

7.00

11 (A) Notes to Segmental Reporting a Business Segments The Company has considered business segment as the primary segment for disclosure. The business segments are : abrasives, ceramics, electrominerals, IT services and power. Abrasive segment comprise of bonded, coated, processed cloth, polymers, power tools and coolants. Ceramics comprise of super refractories, industrial ceramics, bio ceramics, ceramic fibre products and anti-corrosives. Electrominerals include the abrasive / refractory grains and the captive power generation from hydel power plant. IT services include web enabling services and digitised data capture. Power denote the generation of power from natural gas. The above segments have been identified taking into account the organisation structure as well as the differing risks and returns of these segments Proportionate share from Joint venture is seperately disclosed b. Geographical Segments The geographical segments considered for disclosure are : India and Rest of the world. All the manufacturing facilities and Sales offices are located in India, USA, Australia, Canada and Middle East (RAK). Geographical revenues are segregated based on the location of the customer who is invoiced or in relation to which the revenue is otherwise recognised c. Segmental assets includes all operating assets used by respective segment and consists principally of operating cash, debtors, inventories and fixed assets net of allowances and provisions. Segmental liabilities include all operating liabilities and consist primarily of creditors and accrued liabilities. Segment assets and liabilities do not include income tax assets and liabilities

82

11 (B) Segment Disclosure (Rs. million) Ceramics 07-08 1781.48 132.92 1648.56 66.45 62.46 9.57 (459.18) (459.18) (394.79) (394.79) 72.03 10.76 7.21 46.33 31.61 50.31 121.56 110.16 41.04 9.27 53.99 67.56 75.53 34.63 1715.01 345.03 289.59 260.78 153.07 1356.74 2153.23 830.04 8142.28 1273.94 155.16 1439.20 120.80 1318.40 38.34 1921.13 81.80 1839.33 313.89 583.63 65.15 518.48 311.56 62.46 41.04 53.99 75.53 0.00 0.00 8909.05 766.77 8142.28 0.00 06-07 07-08 06-07 07-08 06-07 07-08 06-07 07-08 06-07 07-08 Electrominerals IT Services Power Eliminations Total 006-07 6172.21 673.00 5499.21 0.00 5499.21 1045.61 158.86

A. PRIMARY SEGMENT INFORMATION Abrasives 06-07 4032.81 487.06 3545.75 0.99 3546.74 564.13

Particulars

07-08

1.

REVENUE Gross Sales Less : Excise Duty Net External Sales Inter segment Sales

5089.99 552.05 4537.94 1.70

Total Revenue

4539.64

2.

611.04

RESULT Segment result Proportionate share of Result in Joint venture Proportionate share of Result in Associate Unallocated corporate exp Interest expense Interest and dividend income Profit on sale of Fixed Assets (Net)** Profit /(Loss) on sale of investments Income taxes Minority interest 70.41 (1.79) (0.84) 4.59 0.07 (0.13) (0.01) 634.54 3140.93 1936.89 1176.13 1892.72 679.85 29.75 20.88 343.24 288.75 265.37 153.14 10.63 7.21 46.32 57.58 31.61 72.93

501.18

54.46 (140.68) (189.04) 17.68 503.84 119.45 (542.54) (63.52) 1188.73 7964.57

47.92 (98.11) (75.92) 19.26 69.64 0.00 (365.21) (51.22) 750.83 5090.72

Net profit after tax

1112.22

3.

OTHER INFORMATION Segment assets Proportionate share of Assets in Joint ventures Unallocated corporate assets * Total assets 3140.93 434.76 269.60 144.74 338.06 106.07 1936.89 1176.13 1892.72 679.85 29.75 13.56 20.88 8.97

4047.64

4047.64

57.58 28.29

72.93 8.50

1045.93 1705.31 10715.81 1176.31

895.94 1029.72 7016.38 703.04

Segment liabilities Proportionate share of Liabilites in Joint ventures Unallocated corporate liabilities @ Total liabilities 434.76 625.07 106.71 1.13 0.00 0.00 0.00 636.92 61.48 357.38 31.88 745.23 53.55 269.60 144.74 338.06 106.07 123.97 31.96 0.00

526.80

526.80

13.56 3.23 1.32 0.01

8.97 1.49 0.83 0.01

28.29 0.35 16.45 0.00

8.50 0.73 16.26 0.00

368.25 4703.59 6248.15

316.67 2576.88 3596.59

Capital expenditure Depreciation Non-Cash expenses other than Depreciation

600.14 158.98

0.00

83

B. SECONDARY SEGMENT INFORMATION Particulars 2007-08 1. Revenue by Geographical market India Rest of the world Total 2. Carrying amount of Segment Assets India Rest of the world Total 3. Additions to Fixed Assets and Intangible Assets India Rest of the world Total 7227.09 915.20 8142.29 5715.55 2249.03 7964.58 (Rs. million) Total 2006-07 4720.11 779.10 5499.21 4613.67 477.05 5090.72

1044.04 941.84 1985.88

1083.44 25.20 1108.64

* Includes goodwill of Rs 1026.21 million (Previous year Rs 343.93 million) @ Includes minority interest of Rs 361.86 million (Previous year Rs 185.61 million) ** Profit on sale of assets for 07-08 is after netting off Rs. 26.6 million (VRS) and Rs. 36.8 million expenses incurred at Pallikaranai.

31.3.2008 12. Notes relating to Leases a. Cost of Leased Assets as on 31.03.2008 Vehicles/Data processing equipments b. Net Carrying amount as on 31.03.2008 c. Reconciliation between total minimum lease payments and their present value : Total minimum lease payments as on 31.03.2008 Less : Future liability on interest account Present value of lease payments as on 31.03.2008 26.10 15.05

31.3.2007

24.20 17.34

21.76 (3.55) 18.21

23.14 (4.50) 18.64

d. Yearwise future minimum lease rental payments on contracts entered after 01.04.2001 Total Present Total Minimum Value of Minimum Lease Lease Lease Payments Payments Payments as on as on as on 31.03.2008 31.03.2008 31.03.2007 (i) Not later than one year (ii) Later than one year and not later than five years (iii) Later than five years 7.19 14.57 Nil 5.36 12.85 Nil 6.49 16.65 Nil Present Value of Lease Payments as on 31.03.2007 4.67 13.97 Nil

84

86
(Rs. million) Net Access (India) Pvt Limited 2007-08 16.00 (3.00) 17.65 30.65 72.17 10.09 1.31 8.78 20.88 51.55 6.31 0.15 6.15 188.23 128.39 130.08 54.79 5.39 49.40 40.95 158.06 84.80 115.64 36.97 3.83 33.15 25.66 206.07 237.54 47.21 17.15 30.06 13.16 171.92 202.69 40.62 14.55 26.07 10.53 195.49 288.63 70.52 21.25 49.27 24.63 163.53 245.36 63.56 19.15 44.40 22.20 55.74 88.89 3.52 0.00 3.52 27.09 29.82 (1.18) 0.00 (1.18) 175.30 151.25 (35.04) 0.00 (35.04) 16.00 (11.79) 16.67 5.00 152.68 30.55 5.00 144.23 8.82 9.00 107.61 89.46 9.00 90.90 72.02 16.33 109.67 69.49 16.33 85.05 62.15 1.09 2.00 52.65 1.09 (1.51) 27.52 87.98 (34.19) 121.51 87.98 0.85 107.57 959.27 (23.26) 678.15 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007-08 2006-07 2007 2006 Southern Energy Development Corporation Ltd Sterling Abrasives Limited CUMI Australia Pty Ltd CUMI Middle East FZE CUMI Canada Inc. CUMI International Limited Volzhsky Abrasive Works 2007 2006 N.A. 7.00 7.00 N.A. 1216.00 1221.00 N.A. 133.00 619.00 N.A. 1356.00 1847.00 N.A. 0.62 8.08 N.A. 2774.00 2469.00 N.A. 216.00 227.00 N.A. 71.00 74.00 N.A. 145.00 153.00 N.A. 15.00 196.40 1614.16 236.12 0.92 0.40 (23.25) 0.00 0.01 0.40 (23.26) -

Disclosure of Information relating to Subsidiaries (Vide letter No.47/135/2008-CL-III dated 25.03.2008 of the Ministry of Corporate Affairs)

(a) Summary financial information of Subsidiary Companies

CUMI America Inc.

2007-08

2006-07

1. 2. 3. 4.

Share capital Reserves & Surplus Total Liabilities a Total Assets (Including Investments) b 5. Investments 6. Turnover 7. Profit before Tax 8. Provision for Taxation 9. Profit after Tax 10. Proposed dividend c

2.00 11.89 1.50

2.00 10.64 1.55

15.38 42.65 2.33 0.48 1.85 0.60

14.19 42.35 4.31 1.16 3.15 1.00

Notes : a Total Liabilities include : Secured loan, Unsecured loan, Current Liabilities and Deferred Tax Liability

Total Assets include : Net Fixed assets, Investments, Current Assets, Deferred Tax asset and Deferred Revenue Expenditure

Includes interim dividend and dividend tax. For Volzhsky Abrasive Works, Russia, dividend for 2007 is due for consideration by the Board in May 2008.

In respect of CUMI International Limited, Cyprus and Volzhsky Abrasive Works, Russia, the figures are in respect of their accounting years ending 31st December. For all other subsidiaries the figures are for the year ended 31st March.

The above information has been furnished as required by the Ministry of Corporate Affairs whilst granting exemption under Section 212 of the Companies Act, 1956. As stipulated therein, in case of overseas subsidiaries, the Indian Rupee equivalent of the figures given in foreign currency as on 31.3.2008 has been used. Previous year figures have also been restated based on 31.03.2008 exchange rates for the sake of comparability.

(b) Details of Investments held by Subsidiary Companies (Rs. million) Nature a. Southern Energy Development Corporation Ltd. Carborundum Universal Limited Ciria India Limited Chola Mutual Fund Birla Sunlife Mutual Fund HDFC Mutual Fund UTI Mutual Fund Laserwords Pvt Ltd. Total b. Volizhsky Abrasive Works UES of Russia Abrasive Exports Volgoprom Bank Ross Stanco Instruments Total Long term-quoted-equity shares Long term-Unquoted equity shares Long term-Unquoted equity shares Long term-Unquoted equity shares 0.08 0.51 0.02 0.01 0.62 7.54 0.51 0.02 0.01 8.08 Long term-quoted-equity shares Long term-unquoted-equity shares Short term-quoted-units Short term - quoted units Short term - quoted units Short term - quoted units Long term-Unquoted equity shares 18.49 0.00 10.00 30.00 25.00 41.50 3.39 128.38 31.12.2007 18.49 62.91 3.39 84.79 31.12.2006 Value 31.03.2008 Value 31.03.2007

M M Murugappan Chairman Chennai, 30th April 2008 V Ramesh Chief Financial Officer

K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

87

(Rs. million) 31.03.2008 13. Information relevant for Accounting Standard 20 - Earnings per share a. The calculation of the Basic and Diluted Earning per share is based on the following data: Net Profit for the year Weighted average number of equity shares outstanding during the year Basic and Diluted Earning per share (Face value of Rs.2 each) b. The unit price of stock options granted to the Employees of Parent Company are anti-dilutive and hence the Basic and Diluted Earnings per share remain the same. 14. Information relating to Deferred tax a. Deferred Tax Assets arising out of timing difference relating to: Provision for Bad and Doubtful debts and advances Provision for Leave encashment Other disallowances under section 43 B Voluntary Retirement Scheme payments Proportionate share of Deferred tax assets in Joint ventures 9.50 11.83 29.92 12.95 2.03 .................. 66.23 .................. b. Deferred Tax Liability arising out of timing difference relating to: Depreciation Inventories Leased Assets Proportionate share of Deferred tax liabilities in Joint ventures 356.51 21.65 (1.17) 20.10 .................. 397.09 .................. (330.86) 270.62 0.00 0.57 18.44 ................ 289.63 ................ (227.98) 10.39 11.08 27.71 9.97 2.50 ................ 61.65 ................ 1188.73 93354000 Rs.12.73 750.83 93354000 Rs.8.04 31.03.2007

15. Provision for Dividend Tax has been made considering the credit available for set off in respect of dividend tax payable on dividends to be distributed by two subsidiary companies, based on the provision under newly inserted subsection (1A) of Section 115 O of the Income Tax Act. 16. Previous year figures have been regrouped wherever necessary. The current year financials include that of a subsidiary M/s. Volzhsky Abrasive Works, Russia which was acquired during Sept. 07 and hence the figures are not comparable. Per our Report of even date For Deloitte Haskins & Sells Chartered Accountants M K Ananthanarayanan Partner Chennai, 30th April 2008 M M Murugappan Chairman V Ramesh Chief Financial Officer K Srinivasan Managing Director S Dhanvanth Kumar Company Secretary

85