Ladies & Gentlemen,

Welcome to the 64th Annual General Meeting of your Company.

Corporate Performance

We are meeting after a year which saw the Company's performance deteriorate sharply. The Corporate results were reviewed in the Annual Report which you would have received. In it, I explained the reasons for last year's disappointing results and summarised the corrective measures taken by top management. On a more positive note, I indicated that the worst is behind us and that the Company is expected to return to profitability this year. I am sure that you are anxiously awaiting news of the 1st Quarter results, so I will tell you in brief.

The Board of Directors met this morning to review and approve the financial results for Q1 of 2012- 13. While Total Income grew modestly by 4% to Rs 731 crores, there was a welcome jump of 110% in Net Profit from Rs 9.79 crores to Rs 20.54 crores. What is particularly gratifying is the swing back to Profit in the Electro Mechanical Projects and Packaged Airconditioning Systems segment which had suffered a loss last year. These encouraging results are in line with our expectations.

Clearly, the recovery process has begun. The Company is on track to make a modest profit this year. However, I must caution you that the global economy and India, in particular, continue to slow down and face a difficult, uncertain future. A deficient monsoon, high inflation and a weak rupee add to India's economic woes. Therefore, my advice for this year is not to build up over-optimistic expectations. A full recovery of Blue Star's growth and profitability is likely to take some time due to the challenging business environment. In the meanwhile, financial prudence must remain a Corporate priority.

Reinventing the Corporation

Blue Star's growth and performance over the past 7 decades has been commendable and we have emerged as not only one of the leaders in the area of airconditioning and refrigeration, but also as a company with rich Values and Beliefs, which we are proud of. We are a good corporate citizen, and have demonstrated high standards of ethics in the way we run our businesses. We are a preferred vendor to many, and we are an enterprise, which many domestic and international collaborators, suppliers and business associates are happy to do business with. Most importantly, we are one of the preferred employers in India.

Today's business environment, however, imposes new challenges and calls for a fresh approach. It is, therefore, important for us to reinvent ourselves in a new paradigm, and at the same time build on the core values and rich heritage of the Company.

After problems emerged in the Electro Mechanical Projects business last year, we took swift action and replaced the senior management of the business. Over the last twelve months, the new team has 2 made significant progress in stabilising the business. Stringent guidelines have been introduced to control the quality of orders being booked. We have strengthened our engineering and execution teams to ensure better material management and project execution at sites. The introduction of new commercial controls ensures that costs are kept up-to-date in our SAP system and that risks are identified well in advance so that corrective measures can be taken in a timely manner. We have increased our investment in our people and are targeting to deliver three times more technical training with the objective of improving the quality of deliverables to our clients. Modern site practices and pre-fabrication technologies are being implemented to improve the productivity of our workforce and to reduce the wastage and rework at site.

All of these improvements are necessary for rebuilding our largest business. In addition to the nearterm benefit of improving the wafer-thin margins on the carry-forward order book, once institutionalised, these processes will also allow us to prepare ourselves for the next round of growth when the investment climate improves in the country. This, coupled with a new 3-year strategy that is currently under review, will serve as the blue-print for rebuilding a profitable contracting business.

In the products business, we compete with many leading MNCs, and new product development is one of our Corporate thrust areas. As a result, we are up-to-date in terms of technology, energy efficiency norms and environmental regulations. Manufacturing competitiveness and procurement efficiency are critical to our growth and profitability, and we will continue to invest in these areas. Our success in the recent times is attributable to our market penetration through distribution reach, and we are strengthening our dealer network in Tier 3 and 4 towns. We are perhaps the largest aftersales service provider in the field of airconditioning and refrigeration, with our service population crossing a record one million tons in June 2012. Expanding and modernisation of the service delivery operations is a top priority area for the Company.

The immediate short-term prospects for the products business appear to be muted, but considering the huge penetration gap in airconditioning and refrigeration, the opportunities ahead are exciting and attractive. I am confident that Blue Star will emerge as a winner, as in the past, by adapting itself to the new demands of the market.

Before I conclude, I must express my gratitude to our customers, shareholders, directors, employees and business associates who have stood by the Company during this difficult period. Their understanding and support have spurred the entire organisation on to extraordinary efforts in the drive back to corporate good health. Thank you.

ASHOK M. ADVANI

July 31, 2012
Mumbai