Ladies and Gentlemen:

It gives me great pleasure to welcome you to the 54th Annual General Meeting of your Company.

Last year was a difficult year for Indian companies in a slow economy. In this challenging situation, Blue Star coped reasonably well. Despite little sales growth, profits improved significantly and encouraged the Board of Directors to declare a record dividend of 65%. I trust shareholders are satisfied.

Current Year

In the current year, there are some tentative signs of industrial recovery and macro-economic indicators are generally positive. Business sentiment has turned more confident. But the disappointing progress of the monsoon so far is a new cause for concern which could severely impact the key agricultural and rural sector if the weather Gods remain unkind. Another adverse development is the lack of foreign interest in India as a place to visit and invest in due to the continuing military confrontation with Pakistan. It is perhaps, wishful thinking that mature political leadership will resolve the impasse thus allowing both countries to focus on economic progress.

Blue Star's unaudited first quarter results have just been announced today. Total Income has grown by 5% to Rs 114.63 crores. The market remains extremely competitive and there is continued pressure on prices and margins. It is through careful attention to costs and resources that your Company has improved its financial performance with Net Profit increasing by 16% from Rs 2.03 crores to Rs 2.35 crores. If the economy continues to revive, I can say with cautious optimism that we are well positioned to participate in renewed growth.

Corporate Vision: A World Class Customer Experience

In my letter to shareholders in the Annual Report for 2000-01 I had written briefly about the Corporate Vision: To deliver a world class customer experience (WCCE). This is a subject about which I feel very deeply, so I would like to share some thoughts with you.

What Does 'World Class' Mean?

What we mean by 'world class' is the ability to compete successfully against global players. World class has various dimensions - technology, quality, price, delivery, after-sales service, and a number of subjective factors that affect customers such as the attitude, responsiveness and behaviour of our people, and the effectiveness of communications.

Customer Experience

No business organization can exist without customers. This may be stating the obvious but, all too often, people tend to be so caught up in their daily work that they lose sight of this fundamental fact. But merely accepting the basic premise that the customer is king (or queen) is not enough. We must understand what it is that the customer is looking for. The answer is not always obvious. It is more than the lowest price. It goes beyond the best technology and quality. While these tangible factors are, no doubt, important we must be sensitive to intangible factors, views and feelings which contribute to a good 'customer experience'. It includes the warmth with which the customer is greeted by the telephone operator or receptionist, the helpful attitude of our sales and service teams, the proactive communication and responsiveness and, in general, the comfort level in dealing with the Company. A world class customer experience must encompass the totality of all these factors - the tangible, measurable ones as well as the subjective elements influencing the customer which cannot easily be quantified but which nevertheless, are very important.

Our quest for WCCE starts with the realization that the goal is not fixed; competition and progress keep raising the performance standards and customer expectations ever higher. Today's customers are unwilling to accept a product or service which they would have regarded as good only a decade ago. And we also expect that today's standards of excellence will prove to be inadequate a few years from now. This is progress. So the laudable goal of WCCE involves undertaking an ongoing, challenging yet worthwhile journey for the Company even though it has no final destination.

What Is The Strategy To Deliver A World Class Customer Experience?

Blue Star has not been a passive player so far. It is because we have been actively striving to improve our competitiveness for so many years that we have maintained our leadership position in the market. But there is no room for complacency. We must run faster and faster to stay ahead. Even though we have been doing a number of good things, they have been handled in an ad hoc manner. The WCCE programme now ties all these activities together and gives a sharper corporate focus.

We are adopting a three-pronged approach that tackles the three essential 'Ps' of being world class - people, products and processes. All three are receiving considerable attention and investment. Our human resources are being upgraded through training to enhance attitudes and skills. Products are being looked at on an end-to-end basis right from design, engineering, manufacturing, through installation and warranty. And all processes which affect the customer - the sales process, order execution and after-sales service - are being streamlined to be more customer friendly.

Modern processes need a contemporary infrastructure. Several crores of capital is being invested to upgrade the manufacturing plants, communications facilities, IT systems and software, and service equipment.

Two quick benefits of this approach are already visible. First is greater clarity amongst our employees. All of them down to worker level understand what WCCE is and what they must do. With better understanding, their commitment to the programme is much higher. Secondly, with the whole organization involved, the resources allocated to WCCE have now substantially increased so the speed of the journey has accelerated.

Acknowledgements

I would like to end by expressing my gratitude to my colleagues on the Board for their wise counsel and guidance. We are proud of all our employees and business associates for their commitment and dedication. My sincere thanks go to our esteemed customers for their continued patronage. Last, but certainly not the least, I thank you, our shareholders, personally and on behalf of the Board, for your undivided support over the years. I assure you we will continue to strive to justify your confidence in your Company.

ASHOK M. ADVANI

Mumbai
July 29, 2002