Chairman's Agm Speech
The Speech of the Chairman, Mr Ashok M Advani, at the 58th Annual General Meeting of Blue Star Limited


Ladies & Gentlemen:

It gives me great pleasure to welcome you to the 58th Annual General Meeting of your Company.

Corporate Performance

The Annual Report presents a comprehensive picture of the Company's business and performance last year so it is not necessary to review it again. I would only like to add that all of us in Blue Star are proud to have sustained high growth in revenues and profits for three consecutive years. The excellent results allowed the Board to declare a record dividend of Rs 12 per share.

Business Scene

Over the last few years, the Indian economy has shifted to a steeper trajectory averaging a healthy GDP growth of around 8% per annum. Favourable demographic factors are providing an abundant supply of skilled manpower available to perform the well paying jobs that are in demand. This, in turn, creates a fast-growing market for a wide spectrum of goods and services. Thus, we have a virtuous economic cycle that reinforces itself leading to sustained high growth.

These positive factors have attracted global attention. No longer is India seen as plodder in the global economic race. Increasingly, we are being recognized as a big market as well as a very competitive source of manufactured products and provider of services. What is even more encouraging is that these positive trends are likely to be sustained over the coming decades because our growing, relatively young workforce will be able to satisfy emerging needs of the aging population of developed countries.

As the Indian economy continues to power ahead in 2006, the business fallout for Blue Star looks good. Our unaudited results for the 1st quarter of 2006-07 show record growth with Total Income up by 36% to Rs 312.81 cr. while Net Profit has jumped by 45% to Rs 7.30 cr. New order inflow in the same period has maintained a brisk tempo leading to a substantial unfilled order position of Rs 688 cr. at the end of the quarter. Given the current solid economic status, the business outlook for the rest of the year for your Company is very good.

A Sensible Approach To Corporate Social Responsibility

The business world is aware that society expects a great deal from corporates beyond the conventional role of dealing fairly with customers, providing employment and earning profits. The term 'Corporate Social Responsibility' (CSR) has entered the business vocabulary. Companies are, of course, judged by their financial results. But merely presenting good financial performance is not enough; society also needs corporate involvement in tackling major problems confronting the world outside the office door and the factory gate.

Helping underprivileged or needy people is the most common approach to CSR. The big challenge for a socially responsible company though, is to think beyond making charitable donations. Charity is fine but the best approach is one that creates a win-win-win solution that benefits customers, society and the company. This is the approach we are taking. Let me share some examples:

The rapid rate of industrialisation in developing countries like China and India promises a better future for our teeming millions. At the same time, economic development extracts a toll from society in the form of increasing pollution, global warming and depletion of limited resources such as forests and crude oil. As a result, there is mounting concern about shortages of vital commodities that could reach critical proportions in the coming years. These serious issues are being debated in various global forums.

Meanwhile, Blue Star is not sitting passively waiting for the impact of these developments to hit us. We have selected two major areas to address: energy efficiency and new refrigerants.

Energy Efficiency

With crude oil prices hitting record highs and little relief in sight, the pressure to cut the consumption of oil-based fuels is intensifying. In India, the problem is further complicated by the acute shortage of electrical energy and its high cost to industrial and commercial customers. Furthermore, as far as electrical power is concerned, due to inadequate past investment in building new generating capacity, the power shortage will be with us for several years.

Reducing power consumption in areas that use significant amounts of energy should clearly be industry's response to the high cost and shortage of electrical power. I am happy that the Government is pushing to introduce next year mandatory energy efficiency rating ofvairconditioners. This will make customers more aware so that they can take better informed buying decisions.

Years ago, Blue Star had recognised both the need and the opportunity in focusing on energy efficiency. We did not wait for Government to announce their policy on energy conservation and efficiency. Our first major innovation was the introduction of scroll compressors in packaged airconditioners in 1998. This design was able to deliver an energy saving of 8%. While this may not sound very impressive, an investment in the new technology by customers paid back in a short period of less than 2 years. And this payback was achieved in spite of the higher initial cost. Needless to say, the new design was a huge success in the market.

This is the win-win-win situation I referred to earlier. Customers clearly benefit by getting substantial savings in their power bills, society conserves scarce electrical power and Blue Star gets additional business.

After this experience, the numerous challenges faced by our small R & D team led to substantial investments by the Company in more R & D engineers, new computer aided design workstations and software, and more sophisticated testing facilities. The investments have resulted in a growing stream of better and more technologically advanced products in the last few years. These include India's first digital scroll units; Hi-Per packaged units that are 10%-12% more efficient than the old DX system and will pay back in 12 to15 months; and flooded water-cooled screw chillers which successfully deliver energy efficiency on par with the best international chiller designs. The common feature of these developments is that they share the energy efficiency platform.

It is not only new equipment that delivers such improvements in energy efficiency. Turning to after sales service, older airconditioning plants need to be properly maintained to ensure optimum performance. In many cases, revamping or retrofitting contemporary equipment in an old plant can save operating costs besides delivering better air quality and healthy conditions in the airconditioned areas. Towards this end, we have introduced a number of innovative service products in the areas of energy, air and water management that have been well received by customers.

New Refrigerants And Ozone Depletion

It was more than 20 years ago that the world acknowledged the serious problem of ozone depletion in the upper atmosphere caused by old CFC refrigerants. This was likely to be a health hazard to mankind and resulted in the signing of the Montreal Protocol in 1986. Under this international agreement, CFCs were required to be phased out over a specified time period and replaced by more environmentally-friendly refrigerants. Additional time was given to developing countries like India to comply with the stringent conditions.

Once again, Blue Star responded positively. We began phasing out the old CFCs even before the mandatory cut-off date and progressively switched entirely to the current generation of HFCs. Our engineers are already experimenting with and testing the next generation of refrigerants like R410a. A positive fallout we are seeing is that by being at the leading edge of refrigerant technology, we are perceived favourably by multinational customers and consultants. These developments will also strengthen our technical capability and competitive position as we globalise our business.

It is clear that growing environmental challenges are opening up a number of exciting new business opportunities for those with vision and the capability to exploit them. Blue Star is currently working on a number of promising projects and plan to introduce several new products and services in the next couple of years.

Conclusion

I cannot end before expressing my sincere thanks and appreciation to all Blue Starites and business partners for their commitment and hard work. I am also grateful for the guidance of my colleagues on the Board as well as to our customers for their valued patronage. And last but not least, my special thanks to you, our shareholders, for your confidence and support.

 

ASHOK M. ADVANI

August 4, 2006

 

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