Rs. 127.3 Million Non-Convertible Debenture Issue	AA+/Stable (Rating revised from AA/Positive)
Rs. 600 Million Short-Term Debt Programme	P1+ (Reaffirmed)

CRISIL has upgraded its rating on Carborundum Universal Limited's (CUMI's) outstanding non-convertible debenture issue, following the steady improvement in the company's financial profile.

CUMI's revenues have grown at a compounded annual growth rate of 8 per cent in the period 2002 to 2005, and its operating profit margin has improved to 18 per cent in 2004-05 (refers to financial year, April 1 to March 31), from an average of 16 per cent in the period 2002-04. This improvement in profitability stems from higher revenues, lower employee costs, cost rationalisation initiatives, and increased captive hydel power availability at CUMI's electrominerals division, and has sustained in the first quarter of 2005-06 as well.

Besides, CUMI's conservative financial policy, steady cash generation from operations, and sale of assets / investments, have resulted in low gearing (0.21 times as at March 31, 2005, compared to 0.85 times as at March 31, 2002) and healthy debt protection measures (net cash accruals/total debt of 0.96 times, and interest cover of 19 times, in 2004-05). Return on capital employed is also at a strong 24 per cent in 2004-05, compared to 18 per cent in 2001-02.

The ratings also reflect CUMI's leadership in the bonded and coated abrasive segments, and the initiatives that it has taken to consolidate the same. The company's strong brand equity, wide product portfolio and geographical reach, and integrated manufacturing operations, have helped it to sustain its leadership position. The diversity in its end-user segments also cushions it from a downturn in any one segment.

These rating strengths are partly tempered by the intense competition in the domestic abrasives and ceramics segments. In addition, CUMI's networth of nearly Rs. 2 billion as at March 31, 2005, although improving over time, is not commensurate with its rating category.

CRISIL expects that CUMI's business and financial profile will benefit from its proposed capacity additions in the near term, and from continuing healthy demand from key end-user segments such as automobiles, auto ancillaries, fabrication, construction, power and metals. CRISIL also expects that CUMI will maintain its capital structure and debt protection measures at comfortable levels over the medium term.

Outlook: CRISIL expects CUMI to sustain the improvement in its financial profile, while maintaining its strong business profile. The rating also presumes that CUMI will not undertake any large capital expenditure other than ongoing projects over the medium term and will not render any financial support to the Murugappa group's proposed steel venture.

CUMI belongs to the Chennai-based Rs65-billion Murugappa group. It manufactures abrasives (bonded, coated and super), ceramics (industrial ceramics and refractories) and electrominerals. These business segments accounted for 71 per cent, 20 per cent, and 9 per cent, respectively, of its turnover for the quarter ended June 30, 2005. The company operates ten plants - six in Tamil Nadu, two in Kerala, and one each in West Bengal and Gujarat. CUMI reported a profit after tax (PAT) of Rs. 384.2 million for the

year ended March 31, 2005 (Rs. 317.2 million in the previous year) on net sales of Rs. 3.1 billion (Rs. 2.7 billion). The company reported a PAT of Rs. 88.7 million for the quarter ended June 30, 2005 (Rs. 73.0 million in the previous corresponding period) on net sales of Rs. 757.4 million (Rs. 659.5 million).