Murugappa Group's turnover grows by 17 per cent and PBT by 45 per cent

The Murugappa Group completed a successful year, where its combined turnover increased by 17 per cent to Rs.7340 crore ($1630 million) and net profit (PBT) by 45 per cent to Rs. 800 crore ($177 million). It also set in motion long-range growth plans for all of its key businesses. Capital expenditure rose from Rs. 260 crore to Rs. 430 crore. The combined market capitalisation of the Group's listed companies increased by 136 per cent to cross $2 billion.

Current year
Improved operating performance coupled with strong economic growth in India helped improve turnover and profits in several large businesses like tubes, sugar, abrasives and ceramic, fertilizer and sanitary ware. Business conditions were difficult in some segments of cycles, financial services and plantation.

Of the sales and net income, the contribution is as follows:

Working for the future
The group continued its efforts to position its businesses for robust acceleration. Each business has clearly articulated road map and goals, while remaining prepared to take advantage when new opportunities arise.

• Business and structure alignment efforts were a major focus. Tube Investment (TII) acquired from Chola Finance the latter's stake in the insurance joint venture with Mitsui Sumitomo, and EID Parry, the Parry Nutraceutical business. TII also completed the merger of TI Diamond Chain. Further reduction of inter-se holdings was achieved to enhance shareholder value.

• Major expansion is underway in tubes (by 75 per cent), abrasives (by 65 per cent in the category), sanitaryware, pesticide, sugar and auto component businesses. In sugar, EID Parry will, apart from expansion of sugar and alcohol production, be investing significant sums in increasing co-gen power capacity. In 2005-06, power generation capacity went up from 24.5 MW to 42.5 MW, with another 22 MW under installation. Process changes, de-bottlenecking and balancing investment is unlocking latent capacity in the fertilizer units of Coromandel Fertilisers and Godavari Fertilisers. Upstream integration will continue to be a major focus in the fertilizer and abrasives businesses, while building integrated complexes (sugar, refinery, ethanol and co-gen) will be the future in the sugar business. In TI, specialities, going downstream with products and solutions will comprise our future path.

• Several acquisitions were made, both in India and overseas. In India, Coromandel Fertilisers is completing the acquisition of a pesticide unit in Gujarat to extend its product and geographical reach. A 2000 tcd (tones crushed per day) sugar mill has been acquired in Pondicherry.

• In FY2006, a major effort was to become more international. Acquisition was made by CUMI in Canada, and by Laserword (ITES business) in USA. Global distribution networks are being developed, and new project implementation and evaluation started in the fertilizer and its raw materials, tubes, abrasive segments.
  The group is building its first tubes plant in China, and is also on the look-out for potential acquisition in the engineering and material sciences fields.

• The group continually searches for joint ventures with international partners in segments where the combined strengths will be able to create world class businesses and processes.The recent tie-up with world leaders, ROCA for the Parryware business in Parryware Glamourooms, to bring in international designs and technology in this fast growing sector is an example. Together, ROCA and Parryware will be the world's largest sanitaryware combine.The joint venture with DBS Bank of Singapore in the financial services business of Cholamandalam Finance with its subsidiaries in asset management, securities and distribution businesses, will enhance both product range and process capability.EID Parry is setting up an export oriented 600000 tonne sugar refinery in Andhra Pradesh in a JV with Cargill, the world's largest sugar player. This unit is expected to cost Rs 325 crores and be in operation in 2007-08.

• Several new technology tie-ups are under way in abrasives and ceramics. These are exciting opportunities and can add significantly to our growth rate.

• Auto components including door frames from TII are now integral part of many top selling cars some of which are being exported. Development work is on for new cars from the Tata, Maruti and Hyundai line-up.

• Nutraceuticals business is focusing on specific organic products and on new algae based health products.

Across the group, focused teams are working on improving quality and capital efficiency, reducing defects, saving cost and accelerating delivery and new product development.

Financial prudence marked by low gearing and good credit rating supports our "grow to excellence" drive. This shows up in better market share, higher margins, customer appreciation and a safe work place.

Internally, the Management Development Centre set up in 2004, is fully functional in developing the leadership and managerial talent pool of the group. The Group runs two leadership programmes annually, namely, Business Leadership Programme (BLP) and Young Leaders Programme (YLP).

The group continued to build corporate governance and shareholder value, including bonus issue, special distribution of exceptional profits and stock splits. Apart from meeting all the mandatory provisions, the group took several voluntary steps to further enhance governance. All major group companies have adopted a "Whistle blower policy". Statutory auditor rotation has been completed. We have strengthened investor contacts and information sharing.

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