It belongs to a conservative group in Chennai. But this company proved to be far from it. Early this decade, Carborundum Universal Ltd., of the Murugappa group, went on a takeover binge. Wendt India. Sterling. Eastern. And more recently, Cutfast. Perhaps, the company's strategy has much to do with the business it is in. M.M. Murugappan, joint managing director of Carborundum Universal, speaks to Sowmya Sivakumar on the prospects of the industry as well as his company in the emerging business environment.

What is the demand-supply scenario in the abrasive industry today?

The abrasive industry is an over Rs 400-crore business, with demand growing at about 13 per cent in value terms and 8-9 per cent in volume terms. There is adequate domestic capacity to meet customer requirements. A very small percentage of specialist abrasives is imported mainly for specialised engineering applications.Abrasives are of three kinds:

Conventional abrasives (bonded and coated) are based on brown or white aluminium oxide, silicon carbide and zirconia alumina. On the higher value-added end are super abrasives, which use diamond and cubic boron nitride (CBN).

The third kind, sol-gel abrasives, are based on aluminum oxide made by a different (chemical) process. These give five times the performance of conventional abrasives at about twice the cost. The total installed capacity in the bonded abrasive segment is about 20,000 tonnes. In the coated segment, it is around 15 million square metres. Their main applications are in the automobile, auto ancillary, bearings, steel, fabrication and construction industries. Super abrasives have applications mainly in engineering and marble and granite stone-cutting industries.

The major players are Grindwell Norton, Carborundum and Orient Abrasives. In the bonded abrasive segment, Grindwell and Carborundum Universal are neck-to-neck with 41 per cent and 40 per cent market shares. Sterling and Cutfast, associate companies of Carborundum, have four per cent and two per cent each, Orient has some seven to eight per cent. The remaining is shared by smaller players.

In the coated abrasive segment, Carborundum, Cutfast and Eastern, another subsidiary of Carborundum, together command about 45 per cent of the market, Grindwell, about 20 per cent, John Okaey & Mohan and K L Tirani, around 10 per cent each. 3M, an international brand, which imports and sells here, has about 6 per cent of the market. There are again, a host of other smaller players. The super abrasive segment is highly fragmented and include Wendt India, a Carborundum associate and L M Vanmoppes of the Amalgamations group.

What is the nature of this industry?

It is a very mature one, with not too many ups and downs. It is highly dependent on the user industries, so as long as they are growing, so do we. Growth rates are moderate and steady. The company's profit (PBT) margin in 1996-97 was about 12 per cent... it is a good business to be in.Has the recent industrial slowdown affected your company's operations?We don't get immediately hit by a demand drop, there is always a lag of, say, three months. We are in that period now, so we haven't yet felt the impact. Our order book position is still satisfactory. So, there has been no cutback on production, but we are closely monitoring our customer requirements.

Hopefully, a recovery should take place before we are affected by the slowdown.

How has liberalisation, in general, and the coming in of auto majors, in particular, altered the industry's fortunes?

There is now a perceptible surge in demand for specialist coated abrasives. Its demand, presently only half of that for bonded abrasives, is on the increase, with greater emphasis on productivity and finish. Specialist coated abrasives meet more sophisticated requirements of surface finishes and have a wide range of applications in metal working, auto, white goods, wood cutting, leather and sanitary fittings.

I also foresee a shift from hand-sanding to machine-sanding processes.As for the auto majors, demand from this front will come up only when they start engine manufacturing. Here again, the specialist abrasives segment is bound to benefit.Abrasives is an industry where the product has to be established, sold and serviced. Support systems are very important. Those who can provide this will naturally be preferred by the customers. In fact, Grindwell sells a larger part of its output directly to customers, while we have been selling more through dealers. In view of the increasing emphasis on service by large and small customers, we are now trying to strike the right balance.

How are you planning to tide over the power crisis that has affected your operations in Kerala and Gujarat?

The industry is power-intensive, with power forming 20-26 per cent of manufacturing cost. Our total requirement for making abrasive grains is 30 MW. We have set up a hydel captive plant of 12 MW in Kerala. We had applied to the Kerala government for setting capacity of at least 10-15 MW. But the process is extremely slow, due to the Kerala government's indecisiveness with regard to privatising power sector. Recently, we have been assigned Chathankottunada Stage II, in Kozhikode district, for setting up a 7 MW captive plant, and a feasibility study is under way.Cutfast's electro-minerals plant in Gujarat has become unviable with power costs going above Rs 4 per unit. All employees have been laid off and the plant has been closed down temporarily. We are considering either a change in the product mix or a permanent closure. Relocating is not on the cards, since we have enough capacity in Kerala, anyway.

Which are the areas you have gone in for re-engineering after the take-over of Cutfast?

Restructuring is an on-going process. We continue to try and maximise synergies between Carborundum, Cutfast and other associate companies. Though they have not been merged, the businesses are managed together. The product-mix is being rationalised and manufacturing operations, streamlined. There has also been a financial restructuring in Cutfast. High interest short term loans have been replaced by lower interest ones. The idea is to develop each business into a profit centre. Cutfast has made a profit of around Rs 1.65 crore in 1996-97, against a loss of Rs 1.76 crore in '95-96.

What will be your focus in the coming years?

Increasing capacities, exploring new markets and improving our product range. We intend to enter the sol-gel based abrasives segment soon, initially by importing them from the US and selling them here. We are also looking at increasing exports to the US and Europe - we're targeting at doubling them in three years. This year, about Rs 2 crore has been set aside for application-based research and around Rs 7 crore for modernisation and expansion of capacity in both bonded and coated segments. This will be funded through internal accruals and debt.

Do you foresee heightened competition from Grindwell Norton, what with St Gobain stepping up its investment plans?

St.Gobain's stated focus in abrasives, with a spate of acquisitions, will give Grindwell greater access to their other companies worldwide. But we will be more than equal by focusing on R&D, improving internal efficiencies and strategic global alliances. No doubt, there's going to be tough competition. But that's what keeps us on our toes. In the end, our customers will surely benefit.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.