Chennai: The Rs526-crore turnover Carborundum Universal Ltd (CUMI), has signed a binding MOU with consortium of investors to acquire 84.14 per cent stakes in Volzhsky Abrasives Works, Russia. CUMI is part of the $2-billion Chennai-headquartered Murugappa group.

The MoU will be firmed up with a share purchase agreement once CUMI completes the physical due diligence and the deal is approved by Russian Federal Antimonopoly Service. Both are expected to be completed by this July.

Officially not disclosed the acquisition price is expected to be less than Volzhsky Abrasives'' turnover of $54 million.

CUMI will fund the acquisition through a mix of debt and internal accruals while the actual structuring is yet to be freezed. "Volzhsky Abrasives actually mirrors CUMI''s current operations and is a good fit for us," said chairman M M Murugappan.

The Russian company is the largest producer of silicon carbide abrasives there with 65,000 tonne per annum (tpa) capacity. It also manufacturers bonded abrasives (capacity 35,000 tpa) and specialised refractories (1500 tpa).

It is Volzhsky Abrasives'' export centric silicon carbide business that attracted CUMI. The Russian company''s production capacity is ten times that of CUMI''s in India. Further CUMI with operations in Australia, Canada, China, Middle East, US and India could meet the global demand for silicon carbide abrasives from Russia and also get into value added micro abrasives.

In addition the Russian company has energy security it terms of fuel availability at cheaper price, which is not there in the case of similar companies in other countries.

Asked whether CUMI would source raw materials from Russia to make the products here, Murugappan said that it was cheaper to produce silicon carbide abrasives in Russia and the production cost of bonded abrasives in Russia and India are more or less the same.

He said, "The Russian company has good technical team. It will now be supplemented by additional technical support from India." This is important as Volzhsky Abrasives will have to shore up its activities in bonded abrasives business as it produced only 11,500 tonne last year, nearly one third of its actual capacity.

The Russian acquisition is part of CUMI''s planned strategy to have cost effective input bases in China and Russia. In 2006 CUMI acquired Sanhe Yanjiao Jingri Industrial Diamond Company, China for $4.9 million. The Chinese company makes synthetic diamonds. Now with CUMI''s help Jingri is setting up a bonded abrasives plant.

"In Russia it is the other way around. We will acquire a conventional plant and later get into specialised segments," Murugappan said.

Meanwhile CUMI is setting up a pilot power tools plant near Bangalore to go hand in hand with its abrasives business. According to Murugappan, the new business compliments the existing one and does not require any major capital outlay.

For the current year CUMI has budgeted a capital expenditure of Rs130 crore to be funded equally by debt and internal accruals.