The Murugappa group ended the year 2007-08 with a group turnover of Rs. 9582 crores and EBIDTA of Rs. 1075 crores. Over the previous year, Sales grew by 15.5 per cent and the EBIDTA grew by 17.4 per cent. The Group maintained its pace of investment with a capital expenditure to the tune of about Rs. 580 crores during 2007-08. The investment phase will continue in the year 2008-09 also to support this growth momentum.

2007-08 Key Highlights

All the businesses in the Murugappa Group barring sugar and auto related engineering have performed well. Notable performers include the financial services, Abrasives and sanitary ware businesses that have significantly improved sales. Fertilisers business significantly improved profitability during the year. However, due to sharp rise in steel prices in the second half of the financial year, which could not be passed on to the customers, Tube Investments could not fare as per plan during the year. Profit erosion was visible in EID as well due to a downturn in the sugar cycle. Smaller businesses have reported impressive growth in sales by 44 per cent and EBITDA by 91 per cent

Summary of Gross Sales and Profitability (EBIDTA) is presented below:

CONSOLIDATION OF GROWTH MOMENTUM

FY 2007-08 witnessed a series of heightened activities in the amalgamated canvas of the Murugappa Group. The set of initiatives were in line with the long term strategy of the group aimed at fostering the growth impetus further.

Expanding the Global Footprint

2007-08 was a land mark year for the Group as CUMI completed a major overseas acquisition in Russia – Volzhsky Abrasive works (VAW) - a significant producer of Abrasives, Refractories and Silicon carbide. VAW is strategically located in proximity to assured availability of raw materials and markets and is the World’s second largest producer of Silicon carbide with a capacity of 65000 MTs. This Acquisition, entailing an outlay of USD 40 million, has placed CUMI firmly in the global map of grain producers and is expected to significantly benefit CUMI in the long run.

During the year CUMI also commissioned its 3000 MT Abrasives Plant in China, implemented through its Joint venture with CEEB, a Chinese State Enterprise. The low cost products manufactured at this location will cater to the Chinese markets and also meet the demand in Middle East and Africa. CUMI has already set up a trading arm – CUMI Middle east to distribute the products across geographies.

The year also saw Tube Investments of India commissioning its Tube Plant in the special Industrial park at Suzhou, China at an investment of Rs. 31.73 crores. TI also opened a representative office in Kentucky, USA to be nearer to the customers and to tap the potential thereof.

Laserwords further consolidated its position in the industry by acquiring a boutique company – a niche player M/s Four Lakes Inc for a consideration USD 10 million.

EID parry’s SEZ for Sugar, in Kakinada, received the approval of the Government of India and the company is setting up a state-of-the-art 2000 TPD Sugar refinery in a Joint venture with Cargill, USA. This investment is expected to cost Rs 325 crores. Work in respect of this project is already progressing and the project is slated for commissioning in Dec 2008.

CFL has successfully completed Business Assistance Agreement (BAA) with Foskor, South Africa.

CFL’s well thought out strategy of getting into strategic tie ups for sourcing raw materials has paid off and the success of this venture can be attributed to this single well orchestrated strategy. In furtherance of this objective, CFL is committed to make a significant investment of USD 28.95 million in Tunisian Indian Fertilizer S.A (TIFERT) with M/s Groupe Chimique Tunisien (GCT) of Tunisia. This Project entails an investment of USD 515 million and moving towards financial closure by this year. LOIs for major equipments has already been released.

Domestic Expansions

The initiatives started for modernizing and expanding the capacities progressed well in 2007-08 and is poised to leap further into the year 2008-09.

The Engineering businesses CUMI and TII have set up facilities for manufacture of Abrasives and Auto Chains respectively in Uttaranchal and these facilities have become operational during the year.

To cater to the exponential growth and demand in the Power sector, CUMI is setting up a modern state-of-the-Art plant to manufacture Metallised Cylinders. This project, expected to cost about Rs. 50 crores, has bright prospects, given the huge potential and prospects for the Power industry in India. During the year, CUMI also made a foray into the Power Tools business. For CUMI, FY2008-09 will be a year of consolidation. Integration with all the overseas companies and putting up facilities in Russia to manufacture value added products and maximize revenue from the acquisition are being aggressively pursued.

The modernisation of the Tube Plant at Avadi is under-way. The company has embarked on a full scale modernisation of all its Plants to become more cost efficient and productive. The Metal Forming continues to maintain its strong hold in the Doorframe market by consolidating its market share. The SBU has been awarded the contracts for catering to the requirements of Hyundai i10 and also the Tata Nano. Plans are on to enter and service the Railways for its several metal forming requirements.

EID’s forward integration projects to de risk itself from the fluctuating fortunes of a pure sugar business are progressing in full swing. The company is currently implementing the following projects:

• Setting up of the Sugar refinery in Kakinada, Andhra Pradesh, in Joint Venture with Cargill of USA.
  
• Setting up facilities for manufacture of Alcohol and Ethanol in two locations at an investment of Rs. 165 crores. Out of this, company has already received permission for distillery in Shivganga with a capital outlay of Rs. 74 crores for 60 KLPD
  
• Setting up of Cogeneration facilities at Pettavaittalai at an investment of Rs.114 crores.

When the above investments are completed, all the Sugar factories of EID will become fully integrated and with the commissioning of the Sugar refinery, the entire sugar operations will become vibrant and stable, insulating itself from the vagaries of sugar cycle.

As part of its restructuring exercise, EID Parry has sold 47 per cent equity stake in their 50:50 Joint venture Company – Parryware Roca Private Limited, Chennai to Roca Group, Spain for a value of approximate Euro 112 million. For EID Parry the stake sale will help realize good value which can be invested in its core businesses. For Roca, the deal will ensure its strategy to stay ahead of competition in the high growth Indian bathroom products market.

With this move, EID Parry is gradually positioning itself as an agro & life sciences company. Significant investment is planned in the area of Sugar, Agro Products, Nutraceuticals and Bio products over the course of this year.

With the merger of CFL and GFCL, the operations of the fertilizer business have become big and the business is well poised to reap the advantages of size and economies of scale.

On the domestic front, in order to better serve its customers and to be nearer to the farming community, CFL has further increased the number of its Retail Chain Stores “Mana Gromor” in Andhra Pradesh. As on 31-3-08, the company has 20 Stores in place and based on experience, company shall expand this reach in its addressable market. The response to the retail initiatives has been overwhelming.

The initiative aims at providing better services to framers and meeting their needs at their doorstep. The canvas of services includes soil testing, advice on farming technique, sale of all major & minor nutrients, seeds etc. The model further envisages sale & distribution of farm implements, financial services, agri insurance and like categories to meet household needs of farmers.

Leading players in FMCG, Farm Implement, Health care & telecom players have approached CFL to participate in their distribution network.

Similar customer centric initiatives are being pursued by TI Cycles with the setting up of more number of BSA Go stores and by EID parry in the area of sale of retail pack of branded sugar to the consumers.

Financial services

Cholamandalam Finance, the joint venture with DBS, expanded its reach by setting up 81 new branches for offering varied services ranging from Personal loans, wealth management products and securities trading. A Platform for E-trading has also been developed and included as part of the customer offerings. The company’s products received a good response and the diversified business mix from Vehicle finance to corporate loans has enabled CHOLA to position itself as a Premier retail financial services company.

The General Insurance Joint venture expanded its presence by opening over 70 additional branches across the country. The company had yet another successful year of operation and was able to wipe out its accumulated losses.

People paradigm

The total headcount for the FY 2008 is 32906. Manpower as a resource has always been a key differentiator in the Murugappa Group and therefore given paramount importance. Management development center offered various programs aimed at developing future leaders. The ‘Emerging Leadership Program’ and ‘Business leadership Program’ have also helped the group in identifying and promoting key leaders within the group. Succession planning, to develop the second line of business leaders is a continuous process in the group. It is because of these focuses that the group was able to quickly graduate the second line leaders to higher positions whenever and wherever applicable.

Corporate social responsibility

The Murugappa Group has upheld its ancient family tradition of earmarking and spending a portion of family income for social service in its business enterprise also. Because the Murugappa family believes that social responsibility is not just a ritual — whether on family or corporate level — they believe it is fulfilling one's dharma. Therefore in all its philanthropic endeavors, the Group reflects its spiritual conscience and not just corporate obligation. Later, this approach was institutionalized through establishing the AMM Foundation wherein contributions from the Murugappa family were invested in community health and education. Group companies contribute 1 per cent of PAT to AMM Foundation every year in support of this endeavor. AMM Foundation continued to carry out the corporate social responsibilities on behalf of the Group by establishing and operating service-oriented philanthropic institutions in the fields of School Education, Technical Education, Medicare and Research. The Foundation runs four premier higher secondary schools in the city. About 10,000 children study in these schools and the success rate in the Public examination held in the last two years has been close to 100 per cent. The Foundation also runs an academically autonomous premier polytechnic institution that offers National Board accredited programmes. In the domain of Healthcare, the Foundation has set up 4 hospitals in Tamil Nadu where over 6 lakh patients benefit from the medical aid provided by the foundation, with nearly 1 lakh patients receiving free treatment at the foundation’s hospital in Pallathur. The Foundation is also engaged in Research in the diverse areas including Algae technology, Organic Farming, Eco-friendly projects, Bio-fuel technologies etc.

For further information, please contact:
Chandrika Raman
Asst General Manager -
Group Corporate Communications
Murugappa Group
Tel: 25306535 / 98400 71172
chandrikaR@corp.murugappa.com

Anu Lakshman
General Manager
IPAN
Tel: 28217294 / 9841039574
Email: anu.lakshman@ipan.com