Ladies & Gentlemen,

It is a pleasure to welcome you to the 61st Annual General Meeting of your Company.

BUSINESS SCENE

For the last couple of years, the global economy has been going through major turmoil resulting from wild excesses and weak regulation that created a massive bubble in world financial markets. When the bubble burst, it precipitated a crisis that demanded emergency support measures by virtually all governments to stabilise stock markets and the entire banking system. These immediate objectives have been achieved. But the major industrialised economies are in serious recession with unemployment rates climbing to levels not seen since the Great Depression of the 1930s. There is general agreement that revival of economic growth will take some time.

India, too, has been impacted by these events, though not as severely as the developed countries. Industrial growth has been falling for more than a year and GDP growth in 2008-09 has reduced to 6.7% from 9.1% in 2007-08. Since global trade has dropped drastically, exports are badly affected. There is uncertainty and volatility in markets and not much clarity on when economic growth will pick up.

CORPORATE PERFORMANCE

Blue Star’s performance for 2008-09 has already been dealt with comprehensively in the Annual Report. It explains how we focused on cash flow and cost control to deal with the business downturn and ended the year on a positive note. The resulting profit improvement and strong financial position enabled the Board of Directors to maintain the dividend at Rs 7.00 per equity share.

In the current year, market conditions have so far remained lackluster, except in a few specific growth areas. The Board of Directors this morning has approved the Unaudited Financial Results of the Company for Q1 2009-10. Operating Income reduced to Rs 539.81 crore from Rs 631.04 crore in Q1 last year. In spite of the unexciting top line, I am happy to announce that Net Profit grew by 13% to Rs 41.17crore. This encouraging result is largely due to the successful cost control drive that reduced the breakeven point of the Company and substantially improved the operating margin. In effect, the lower cost structure we achieved last year improved further in Q1 enabling the Company to produce higher profits even though the top line actually declined in the poor business environment.

Regarding the business outlook for the rest of the year, economic forecasts generally indicate that the worst is behind us. A moderate revival of GDP growth in India is expected later this year, but there is considerable uncertainty on exactly when growth will begin and how quickly it will pick up.

Blue Star has coped well with the downturn so far and we remain in a relatively strong position. The carry forward order position is reasonable at Rs 1717 crore, an increase of 21% compared to last year. We are alert for early indicators of business revival and can gear up quickly for faster growth when new opportunities arise. With the continuing macro uncertainties, I am not in a position to provide a reliable year-end forecast for the Company, but I remain cautiously optimistic.

PREPARING FOR THE FUTURE

In an environment of uncertainty, increased risk and modest growth prospects, it is easy to fall into a mood of pessimism about the future. I must assure all our stakeholders that we do not share this mood. The Company has already taken effective steps to get through the slowdown without serious deterioration of financial performance. And it is only a matter of time before economic growth picks up.

But we are not resting complacently while we wait for better times to return. It is clear that even after economic growth revives, the business world will be different in many ways. So, we cannot go back to 'business as usual'. Some changes have already occurred. Other changes will evolve in unpredictable ways. We are preparing for them.

Our Company will require a different set of qualities and skills to remain a successful industry leader in a fast-changing scenario. These include agility and adaptability, a climate of innovation, and a corporate mindset that welcomes change instead of resisting it. Developing these attributes does not just happen; it takes hard work. It also takes commitment and management with a lead-from-the-front style. The new top management team has these qualities and has already got started.

And yet, with all the changes taking place, some important aspects of the Company will remain the same: The focus on meeting the evolving needs and expectations of our customers; and following the Blue Star Guiding Values and Beliefs. On these timeless principles, there can be no compromise.

ACKNOWLEDGEMENTS

I must convey my sincere thanks to all our employees and business partners for their enthusiasm, professionalism and dedicated contribution to the Company’s performance. I also thank my colleagues on the Board for their wise counsel and guidance. We truly value the continued patronage of our esteemed customers. And, of course, I remain grateful to you, our faithful shareholders, for your continuing confidence in our Company.

ASHOK M. ADVANI

July 27, 2009
Mumbai