Chennai: It is integration time at the Indian abrasives major Carborundum Universal Limited (Cumi) which acquired and set up plants in Russia, India and China.
The last two years saw the Rs526 crore turnover Cumi going on shopping and expansion binge within and without India.
In September this year, the company acquired $54 million turnover Volzhsky Abrasive Works (VAW), Russia. Cumi acquired a 96 per cent stake in VAW for $37 million through its special purpose vehicle Cumi International Limited, Cyprus. An open offer to acquire the balance from other shareholders is on and would close on 23.1.2008.
In August, Cumi acquired the Rs12 crore revenue industrial ceramics division of IVP Limited at Aurangabad, Maharashtra for around Rs6.25 crore on a slump sale basis.
In China, the Indian company's joint venture company Jingri Cumi Super Hard Materials Company Limited has started commercial operations of its new 3,000 tpa bonded abrasives plant.
The fag end of 2006 saw Cumi buying two units in Jabalpur, Madhya Pradesh for Rs3.2 crore.
While one unit manufactures monolithic refractories, the second is engaged in the manufacture of high quality refractory cement, an input for the former. The acquisition provided Cumi an additional monolithic manufacturing capacity of 12,000 tonne per annum (tpa) catering to markets in Central India.
According to company officials, these are exciting times as they are in the process of integrating the new acquisitions in their supply chain dynamics and chalking out which plant would supply where.
In order to interact with the two companies located in the non-English speaking countries of Russia and China, Cumi has hired three Russian and one Chinese translator to facilitate communication. This apart, top Cumi officials have started learning Russian and Chinese languages.
VAW-It is wow
Like a newly married couple, Cumi and VAW are excited and are eagerly exploring and evaluating different integration possibilities. The Russian company is the world's second largest silicon carbide manufacturer with capacity of 65,000 tpa. The first is Saint Gobain, said to have a capacity of around 1.1 lakh tpa globally.
According to Cumi officials, the Russian acquisition has come at the right time when globally there is a capacity shortage in the grains segment.
''We can now become a global player in the micro grains segment,'' said one official.
Western countries discourage new plants in this field. Plants in Europe are closing down and even China that contributes 50 per cent of the alumina grains is tightening its environmental laws.
Hence no major new investment has taken place in this segment.
According to Cumi officials, alumina grains are short in supply and the prices have gone up by 35 per cent recently. Cumi's alumina grains needs are around 12,000 tpa and it sources majority of that from China with long term deals.
VAW also makes bonded abrasives (capacity 35,000 tpa) and specialised refractories (3000tpa) similar to what Cumi has in India.
According to Cumi officials, the Russian company sells around 9000 tpa of bonded abrasives and there is a good scope to increase the capacity.
Interestingly nearly 52 per cent of VAW's workforce is women.
For Cumi, the immediate focus is to improve efficiencies and fitting VAW in with its global supply chain.
The Indian company is handling its first overseas acquisition with utmost care. Finding the existing VAW management capable of handling the Russian end, Cumi didn't disturb the set up there. Nor did Cumi post its official there to oversee. According to Cumi officials the operational integration between Cumi and VAW is happening SBU wise.
Presently different teams - production, marketing and technology - from Cumi are meeting their Russian counterparts. While the Indian team imparts production efficiency techniques in Russia, they also learn the way huge capacities are handled with minimum work force.
The results have already started showing. During the first nine months of operations VAW has posted a turnover of $50 million. For the whole year the company is expected to have a turnover of $60 million. Additional investments in Russia will happen only after consolidating the existing operations and scaling up of capacity utilisation.
In the abrasives segment, Cumi now has a total capacity of around 50,000 tpa (VAW 35,000 tpa, new bonded abrasives plant in China 3,000 tpa and Cumi's own in India 12,000 tpa). The new Chinese plant which makes resinoid products, will also make vitrified products soon. As per indications, the Chinese plant will cater to the Middle East market.
Similarly in the refractories segment Cumi will align its Indian operations with that of VAW.
Cumi is also expanding its domestic refractories capacity with a new 3000 tpa plant at Ranipet in Tamil Nadu, at an outlay of Rs25 crore.
Land to the extent of 18 acres has been acquired for the purpose, and the plant is expected to start operations in June 2008.
The company is also setting up a Rs37 crore metallised cylinder plant at Hosur, which is expected to go on stream next year.
Recently Cumi's major projects like expansion of industrial ceramics capacity at its Hosur plant to 6,000 tpa, bonded abrasives plant at Uttarakhand with a capacity of 3,000 tpa and the power tools plant at Bangalore went on stream.
According to officials, the full benefits of these investments will accrue from next fiscal onwards, when all its new plants stabilise operations and reach better capacity utilisation.
For Cumi the third quarter results will be sober. The bottomline growth may not be commensurate with growth in the topline, on account of higher depreciation and interest costs starting to kick in.
The company has raised $5 million from external commercial borrowing to meet the acquisitions and other investments. Cushioning the interest burden is the revenue of Rs57 crore from the sale of land in Chennai, which was used for settling some bank loans.
The company is also seriously looking at disinvesting some of its non-core investments and also synergising operations of its subsidiaries.
Meanwhile the officials expect the consolidated turnover to for this fiscal to be in the region of Rs1000 crore.