Ladies and Gentlemen:

I am delighted to welcome you to the 52nd Annual General Meeting of your Company.

The year 1999-2000 was an eventful and satisfying year for Blue Star. You will be happy to note that yours was one of the few airconditioning companies in India to have done reasonably well last year. Despite flat revenues, there was a remarkable improvement of 43% in net profit, virtually all of which came from our non-software businesses.

Economic Scene

The current fiscal year began on an encouraging note. Growth in the Indian economy, and in particular, industrial activity, seemed to be picking up and the prospect of political stability had boosted business confidence.

But the last few months have revealed some confusing macro-economic developments. Industrial growth in April-May 2000 declined to 5.6% compared to 6.2% in the first two months of 1999; inflation is climbing again; the rupee has dropped sharply by about 5% against the dollar in the last three months, forcing the Reserve Bank to tighten liquidity and increase interest rates; some key industrial sectors of the economy such as automobiles, cement and consumer durables have slumped; the capital markets are in a lack-lustre state. All this has somewhat tempered the earlier mood of business optimism.

On the positive side, Government moves in the second round of reforms are starting to push the insurance and telecom sectors in the right direction; software and IT services are growing fast; exports are climbing; there is a marked shift in economic activity from manufacturing to services; agricultural output is expected to pick up provided the monsoon continues to behave. All these should provide a substantial growth impetus to the economy.

On balance, even though we see a mixed picture, taking all factors into account, the economy will hopefully show reasonable growth this year.

Corporate Performance And Prospects For 2000-2001

Blue Star's unaudited 1st Quarter results, excluding software, which were announced a month ago showed a healthy growth of 19% in Total Income to almost Rs 107 crores. Net Profit quadrupled to Rs 3.16 crores albeit from a low base.

New order inflow in the four month period April-July 2000 have amounted to Rs 175 crores showing an increase of 22% over last year. Revenues in the same period have grown from Rs 115 crores to Rs 136 crores. Unfilled orders are comfortable at Rs 257 crores.

Looking at the first four months business performance, I would say that the outlook for your Company is good this year. Cut-throat competition notwithstanding, our market shares have improved in most of the segments in which we operate. Barring some unexpected political or economic shock, I remain confident that the current year will show significant growth in your Company's sales and profits.

Airconditioning And Refrigeration Industry

The demand for airconditioning in the country is increasing rapidly. Major growth sectors include:

• The booming software industry and allied activities such as computer training institutes.
• The hospitality sector covering hotels, bars, restaurants and entertainment.
• Commercial and shopping complexes.
• Increasing middle-class demand for residential airconditioners
• Exploding internet activity including web servers and cyber cafes.

Blue Star is playing a leading role in these developments by offering a wide range of airconditioning solutions.

Our commercial refrigeration business has also benefited from the growth in the ice-cream, horticulture and healthcare industries. We are well positioned to exploit the increasing demand for cold rooms, deep freezers and water coolers.

At this juncture, I would like to dwell on certain important issues:

• In a tropical country such as ours, where airconditioning is almost a basic necessity, there are innumerable public places such as hospitals, auditoriums and educational institutions that are not able to afford airconditioning. Unfortunately, airconditioning continues to be regarded as a luxury and is taxed at high rates. There are also many anomalies in customs and excise duties. The counter-productive nature of high duties and complicated schedules impact the AC & R industry in an adverse manner. As a nation, we can reach higher levels of growth in many industries involving human capital, by encouraging the use of airconditioning through a rational and moderate tax regime.
• Another problem of the airconditioning industry in India is the absence of an independent testing and certification service for airconditioning equipment. Such institutions are common in developed countries and their certification provides customers assurance that the equipment offered conforms to the claimed quality standards and ratings. Efforts are currently under way through industry associations and professional bodies to fill this gap by providing a much needed certification service to the Indian AC & R industry.
• For users of airconditioning and refrigeration, power consumption is a matter of serious concern. This has become increasingly important with the combined effect of the rapidly increasing cost of electrical power and the growing shortage of generating capacity. Surprisingly, the country still does not have statutory standards and regulations with regard to energy consumption of products. Nevertheless, Blue Star has taken this subject very seriously. As leaders in the industry, we are committed to the introduction of energy efficient products which are of benefit to our customers and our power deficient country. The York range of chillers, variable speed drives and packaged airconditioners with scroll compressors are some examples. Similarly, deep freezers marketed by us save energy upto 70% in comparison with other products in that category. Customers clearly appreciate the savings in the form of lower electricity bills which rapidly pay back the investment in the equipment.
• Digital electronics has created a convergence of telecommunications, computing and content technologies. The internet and the new world of e-commerce is revolutionising business by rapidly changing the rules of the game.
  
  Even though much of the earlier hype pertaining to dotcom companies has evaporated, a new business model is now emerging. There is a growing consensus that traditional companies such as Blue Star can have a good future if they change from "bricks and mortar" to "clicks and mortar" by adopting better ways of delivering products and services using the power of information technology and the internet.
  
  Your Company has implemented ERP software for the manufacturing units as well as airconditioning projects business. Sales force automation and service operations management software are in place. We are in the process of web-enabling this software to provide enhanced levels of customer satisfaction. The Blue Star website is being upgraded with a store front for on-line shopping and a complaint logging module for customer service.
• In line with the Montreal Protocol, CFC refrigerants must be phased out by January 1, 2003 by manufacturers of AC & R equipment in India. Not satisfied with this extended time-frame, Blue Star accelerated the phase-out by discontinuing the use of CFC refrigerant, type R-11, last year, almost four years ahead of the deadline. As a matter of fact, we have developed necessary capabilities for retrofitting old CFC based machines of many of our customers with environmentally acceptable alternatives.

In Conclusion

I wish to record my deep sense of gratitude to all our employees and business associates for their dedicated contribution to the Company's performance and growth. I convey my sincere thanks to my colleagues on the Board for their guidance and support. We also value our business association and relationship with our customers. And finally, let me thank you, our shareholders, personally and on behalf of the Board, for your undivided support over the years.