Chairman's Agm Speech
The Speech of the Chairman, Mr Ashok M Advani, at the 57th Annual General Meeting of Blue Star Limited

Ladies and Gentlemen:

Welcome to the 57th Annual General Meeting of your Company.

Business Scene

Last year, Indian economic growth slowed down to 6.9% due to a poor monsoon. This was still a respectable figure compared to the modest historical average. In the current year, the rains are expected to be normal though there is still an element of uncertainty regarding agricultural output. The industrial and services sectors continue to grow well and since they represent about 75% of the economic activity of the country, the overall GDP growth for India should be reasonably good this year

Blue Star's unaudited financial results for the 1st quarter of 2005-06 have been announced today. I am happy to inform you that Total Income is up by 29% to Rs 230.12 crores while Net Profit at Rs 5.05 crores has surged by 40%. New order bookings of Rs 336 crores have grown by 41% and continue to maintain an excellent rate of inflow. With a healthy current unfilled order position of Rs 533 crores and a good macro-economic outlook for this year, your Company's year-end performance should be very good.

The Growth Imperative

In the business world, growth has become the most widely acknowledged single measure of corporate performance and success. Companies are largely judged by how fast they are growing. Since growth is a competitive game, a company that fails to grow as fast as its industry sector will see its market share and profits eroding. Over a period of time, this competitive weakness could even jeopardize its long term survival.

While growth relative to the relevant industry sector is important, absolute growth is equally so. By this, I mean a company's business growth over the previous year's level regardless of the rest of the industry. In mature industries or sectors that are growing slowly or where there are too many players competing for a relatively small market, it becomes difficult for a company to grow fast. Unless it can devise a strategy to accelerate its revenue growth to a level where it remains profitable on a consistent basis, it will remain a mediocre performer struggling to satisfy investors and retain talented employees.

Turning to the growth of the air conditioning and commercial refrigeration industry in India, a remarkable change has been taking place over the past several years. Until a decade ago, air conditioning remained a small industry subjected to high taxes and a variety of Government restrictions because it was regarded as a luxury. Progressive relaxation of these harsh measures combined with free competition have reduced prices to more affordable levels while dramatically improved technology and quality have risen to world class levels. The result has been an acceleration in the industry's growth rate in recent years.

These positive developments have been reinforced by the current buoyant economy. There has been a boom in demand for central air conditioning for the services sector including information technology, IT enabled services, business process outsourcing, healthcare, hospitality, retail, entertainment, and telecom. At the lower end, there has been equally impressive growth in the light commercial segments like restaurants, boutiques, showrooms, ice cream and coffee parlours. It is no wonder that the central air conditioning market in India grew by more than 20% last year and in the current year, there do not seem to be any signs of a slowdown.

At the global level, the world market for the AC and R industry recorded impressive growth figures last year especially in China, the United States, Europe and even Japan. Closer to home, the Middle East, in particular, the UAE and Qatar, are booming. There is hectic construction activity in the real estate sector with millions of square feet of airconditioned residential and commercial properties being added. The developments in the Middle East and Europe are of particular interest to us as these are identified target markets for export of our products and projects.

Coming more specifically to Blue Star, we have been presented in the last couple of years with a double growth opportunity - a buoyant economy and a dynamic AC and R industry. We have done exceptionally well in capitalizing on the opportunities. We have improved our market share, revenues and profits in India and are growing rapidly in export markets. These are achievements of which we are proud.

But growth and financial performance are not enough. We are equally aware of our responsibilities to keep up with the times. On the technology front, we have always acknowledged the need to move over to energy-efficient products and services and have initiated a series of actions that are covered in the Annual Report. Compliance with environmental requirements such as using appropriate refrigerants and minimizing global warming also figure in our product development plans. And in central air conditioning, we offer special turnkey solutions to meet individual customer requirements.

Business Challenges

While this is an exciting growth story, we also face a number of major challenges. These can be broadly classified into two categories - external and internal challenges.

External challenges are mainly market related. Large, aggressive Asian competitors with deep pockets and powerful brands are buying market share at low prices especially in the residential consumer market. This has led to debilitating price wars. We have been relatively less impacted by these developments because this is a market we have not actively addressed. Let me explain why.

Years ago, we took a strategic decision that the consumer durables market is not one that Blue Star will focus on because our competitive strengths lie in different areas. We positioned ourselves to concentrate on the growing corporate and commercial market for central air conditioning and on special products like room airconditioners and refrigeration products such as deep freezers and water coolers aimed at the commercial market. Corporate and commercial customers have different needs from residential consumers. What we offer them is value added solutions that meet their specific requirements. These include customized system design, technical and engineering capability, flexible product design and manufacturing, and good after sales service. Our growth rate has been extremely healthy so clearly, the strategy is working.

Internal challenges pertain mainly to developing a human resource capability to handle high growth on a sustained basis. Rapid business expansion requires additional skilled manpower, both technical and managerial but they are in short supply. Since experienced people are not easy to recruit, they have necessarily to be trained and developed in house, and this takes time. To tackle our immediate need, we have adopted a two-pronged strategy.

The first is to boost manpower productivity through a variety of measures including investment in information technology, business process reengineering, outsourcing of non-critical activities and dealerisation. The second aspect of the strategy focuses on positive human resource development and employee retention measures. While employee remuneration is an important part of corporate human resource policy, paying high salaries is not enough. People expect to be treated fairly, they want to acquire new skills and assume higher responsibilities. And they want to be part of a successful enterprise that they are proud of. I believe that Blue Star largely satisfies these employee expectations.

Acknowledgements

In conclusion, I would like to express my appreciation to the Board of Directors for their guiding role in steering Blue Star's affairs while adhering to high standards of Corporate Governance. I am especially proud of the record performance delivered by our employees. Our customers remain the source of both our livelihood and your returns and we value their patronage. And, of course, my fellow directors join me in thanking you, our loyal shareholders for your confidence in the Company.

 

ASHOK M. ADVANI

Mumbai
Monday, July 27, 2005

 

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