Ladies & Gentlemen,

Welcome to the 65th Annual General Meeting of your Company.

Corporate Performance

The year 2012-13 was an important year for Blue Star for a number of reasons. After a big loss in 2011-12, it was necessary to quickly re-establish our credibility and reputation as one of India's leaders in the airconditioning and refrigeration industry. This was achieved and the Company delivered a profit in spite of the difficult business environment.

Your Board of Directors also recommended a dividend of Rs 3.00 per equity share, including a special dividend of Rs 1.00 to commemorate the birth centenary of our Founder Chairman, Mr. Mohan T. Advani, and the impending 70th anniversary of the founding of Blue Star. So it is certainly a time for all stakeholders of Blue Star to be proud and celebrate the happy occasion.

The Board also met this morning to review and approve the unaudited results for Q1 of 2013-14. Total Income grew by 5% to Rs 770.82 crores, while Net Profit for the quarter climbed by 11% to Rs 22.77 crores. These results were in line with our expectations of steadily improving results.

The Future of Indian Manufacturing

In 1991, India was hit by a foreign exchange crisis which required a bailout by the IMF. They were willing to provide emergency assistance, but insisted that the Indian Government undertake a process of economic reforms and a devaluation of the rupee. Though initially, this caused economic pain, it soon led to a welcome revival of the economy. Industrial growth began to pick up, but then, it slumped again in the late '90s partly due to the incomplete reform process.

An exception to the slowdown was the services sector. Information Technology (I/T) Services which were relatively free of stifling controls started growing rapidly. So while I/T Services boomed, Indian industry remained apprehensive about the future. There was concern that cheap foreign products imported at lower rates of customs duty would grab a bigger share of the Indian market and threaten the survival of uncompetitive local manufacturers.

As we all know, that bleak scenario did not materialise. Indian manufacturers rose to the challenge and demonstrated discipline and competence in putting their house in order: They invested in new technology and modernised their plants while focusing on cost reduction, productivity improvement and quality assurance. They also used their entrepreneurial skills and the uniquely Indian 'Jugaad' technique which adopts flexible and affordable innovations to get around impediments. In short, they became stronger competitors. Some sectors such as automotive components even succeeded in becoming global players. Thus, Indian manufacturing and exports grew at an impressive rate for the first decade of this century. All this occurred despite poor infrastructure and restrictive economic, legal and labour policies.

The decade of rapid economic growth in India unfortunately led to complacency and unrealistic expectations that India was destined for greatness in this century. In recent years, the Government has indulged in excessive spending on subsidies and fiscal mismanagement which have had disastrous economic consequences for the country. Today, we have slow economic growth, chronically high inflation and a weak rupee. The industrial sector, and exports in particular, have been seriously impacted. Investors, both foreign and Indian, seem to have lost confidence in India and put their investment plans on hold until they see a more encouraging outlook.

There is general recognition that widespread corruption and economic mismanagement need to be tackled urgently, but there is no consensus on the remedy. It has become clear that half-hearted tinkering with these deep-rooted issues is not enough. I would like to suggest that perhaps, the answer lies in simply doing what has successfully been done before.

Let me explain what I mean. Serious foreign investors complain that there is too much bureaucratic red tape and delay in getting approval for new projects. There are many complex procedures which need to be dismantled or at least simplified in line with other investor-friendly countries. Unfortunately, this is unlikely to happen in the near future. There is not much productive action due to political infighting and inter-ministerial dickering.

Indians do not have a history of cooperation and working together. Hence, in spite of lots of effort, usually very little gets achieved. But under certain conditions, we are capable of amazing results. For instance, when there is a national crisis, our strong sense of patriotism brings us together. We forget our differences and everybody does their bit for the national cause. This is what happened in 1991 when the foreign exchange crisis forced the Government to dismantle industrial licensing, relax a highly restrictive import policy and loosen tough foreign exchange regulations. Those reforms led to a remarkable decade of growth.

There have been a number of national emergencies that have united the country in the past. These include wars with Pakistan and natural calamities like floods and earthquakes that have brought out the best in our people. So we have several precedents where India has united and performed admirably when confronted by a crisis.

Today, the country faces an economic situation that is serious enough to lead to a financial crisis. Many of the problems are of our own making. Imagine what could happen if these man-made impediments were removed through bold decisions to reform the restrictive financial, administrative and labour regulations. These steps could transform the economy and kick-start growth. But it will take another foreign exchange crisis for that to happen.

I will conclude by reassuring our stakeholders that my frank assessment of the economic and financial situation should not be misconstrued as pessimism. While the Board of Directors is conscious of the risks and uncertainties, we are also aware of Blue Star's strengths and resilience. This gives us confidence as we steer the Company safely through these troubled times showing steady improvement in Corporate performance as we move ahead.

I must express my gratitude to our customers, shareholders, directors, employees and business associates who have stood by the Company through thick and thin. Your understanding and support have spurred the entire organisation to build a bigger and stronger Blue Star. My sincere thanks to all of you.

ASHOK M. ADVANI

July 22, 2013
Mumbai