Carborundum Universal expects to come out of loss in China with new strategy

2016-09-05

Sep. 4, 2016 - Carborundum Universal Ltd (CUMI), part of Murugappa Group, is expecting to come out of losses in its business in China by changing its business model there.

The company's new strategy is to toll manufacture, manufacturing in third party plants with its own people controlling the quality, for select products and address the mid segment of the abrasives business, while the premium products will be exported from India to China.

The company has been trying various options in the operations in China, since the country accounts for a significant percentage of all the manufactured goods at the world and is a significant market for the company.

"We have to learn to compete, we have to learn to collaborate, and we have to learn to work in China. We have been at it now for at least 20 years and I think we have now evolved into is to not try and make products there the way we did earlier. We realised there is an asymmetry of cost for manufacture between multinational company and the local Chinese company," said K Srinivasan, managing director of CUMI to the analysts recently.

The company is trying to have the advantage of its own technology, knowledge and people but have the cost advantage of a Chinese manufacturer. It has stopped captive manufacturing, sold the facility and started getting its products made to the required specification, design and inputs by third party manufacturers who are contracted or toll manufacturers where the company has its own people implanted into their system so that they control the quality, the process and the output. It has also taken other steps to improve sales, which has resulted in lower losses in China by Rs 1 crore during the quarter ended June 31, 2016.

The losses in China has been Rs 10 crore annually. The company is expecting this to come out of losses and grow to profit in future.

The company manufacture in China the products specific to supply to Chinese market as well as to export some of it into its global operations. It is playing in the mid-premium segment in China and while the mid segment will get manufactured there, the high-end premium products which it globally supply will still be made in India and shipped out there for sales and support, said the officials.

The company, which is into manufacturing and sales of abrasives and allied products, electrominerals, industrial ceramics and super refractories, has posted a growth of 24% in net profit after tax at Rs 38.62 crore during the quarter ended June 30, 2016, on a consolidated basis as compared to Rs 31.13 crore during the same quarter last year. The total income from operations grew 10%, to Rs 532.12 crore during the quarter, as compared to Rs 484.22 crore during the corresponding quarter of previous year.