Ladies & Gentlemen,

I am pleased to welcome you to the 63rd Annual General Meeting of your Company.

We are meeting at a time when the economic and social environment in India is undergoing some uncomfortable changes. GDP growth is not as vigorous as was expected and industrial output, in particular, has slowed to modest levels. Inflation has been firmly entrenched for well over a year with no sign of moderating. Interest rates have been jacked up in the battle against inflation but this may dampen growth. Public sentiment is not optimistic because of widespread corruption and Government apathy. The entire scenario is a far cry from the positive mood that prevailed a year ago.

Blue Star’s Board of Directors met this morning to review and approve the financial results for the 1st quarter of 2011-12. Total Income grew by 6% to Rs 705 crores, but the severe pressure on margins due to inflationary cost increases combined with higher operating expenses and finance costs resulted in lower Net Profit of Rs 9.79 crores compared to Rs 37.15 crores last year.

The financial results have declined mainly because of adverse conditions that impacted the electro-mechanical projects business. The situation was compounded by the management of the Projects teams’ failure to fully address the new challenges. We have responded by strengthening the teams, execution processes, and monitoring and control systems. While we have initiated corrective action, it will be some time before we see satisfactory results because of the continuing difficult business environment.

Even though the Corporate outlook is likely to remain cloudy for a while, we are not disheartened by the challenges we face. Blue Star has been in business for nearly seven decades and has experienced many ups and downs. Each situation posed different challenges and each time, we were able to adapt to the circumstances, change ourselves and emerge stronger than before.

Let me explain the reasons for my positive viewpoint. Blue Star has many achievements and strengths that give me confidence for the future. We established our leadership in central airconditioning and commercial refrigeration in the early ‘90s and continue to be a leader in most of the businesses we operate in.

Our largest business, central airconditioning, has huge potential in our tropical country. Being leaders, we are well positioned to exploit the growing business opportunities. We are also India’s biggest manufacturer of central and packaged airconditioning products. This makes us one of only 2 companies that can offer a turnkey “design and build” capability in central airconditioning. For our customers this means that they only have to deal with one company instead of independent consultants, suppliers and contractors. We take total responsibility for the job including system design and engineering, selection and manufacture of critical equipment, installation of the entire system, and after sales service to ensure optimum performance. This single-point accountability is reassuring to customers because of the complexity, high cost and importance of their airconditioning installations.

Blue Star offers the widest range of airconditioning and commercial refrigeration products in India. Even in the current challenging market conditions, we have increased our market share in the room airconditioner and refrigeration products business. In the packaged airconditioning segment, we remain market leaders. In short, Cooling Products are growing well and producing healthy profits.

Though it may sound like a cliché, employees, undoubtedly, are the main resource who help us deliver business results. A motivated and capable force can catapult an organisation to peaks. In Blue Star’s case, our people have a great strength: they rely on the Corporate Values and Beliefs and the ‘Blue Star Way’ to serve our customers. I am convinced that the Blue Star Way is what gives us an edge over our competitors and makes us a leader in our business. The passion, skill and willingness of our people to go out of their way for the Company and the customer make me proud.

I have listed some of Blue Star’s strengths that support my confidence. The immediate priority is to keep the organisation charged. In spite of a long road ahead, we are determined to get back to profitable growth as we have a number of times in the past.

I would like to end by sincerely thanking all our stakeholders – customers, shareholders, employees, business partners and my fellow Directors. All of them have contributed to our Company in different ways. But they are similar in one important respect – their continuing trust and confidence in Blue Star. I am grateful to our supporters and assure them of our untiring efforts to live up to their expectations.

ASHOK M. ADVANI

July 29, 2011
Mumbai