Ladies & Gentlemen,

I am pleased to welcome you to the 68th Annual General Meeting of your Company.

Corporate Performance

Summer in India this year began earlier than usual and it was exceptionally hot. Countrywide demand for air conditioners, water coolers, deep freezers and cold rooms grew at a rapid rate. What is particularly impressive is that Blue Star's unitary products sales growth in Q1 was 34%, significantly higher than that of the market. Let me give you some comparative data. Our room air conditioner sales jumped 38% compared to market growth of 27% while water cooler sales grew 22% versus 12% overall market growth.

The Board of Directors met this morning to approve the Unaudited Financial Results for Q1. Consolidated Total Income reached ₹1216.81 crores, an increase of 19% over last year. Profit Before Tax and exceptional items grew by 9% to ₹64.90 crores. However, last year's figures include the discontinued IT business which distorts the growth percentages. A more meaningful comparison without IT shows that Consolidated Total Income grew 29%, while Profit Before Tax was 32% higher than last year. I am sure you will find these results very encouraging.

Though it is still relatively early in the financial year, there are definite signs of a selective revival in consumer spending in several industries. With half the monsoon season behind us, there is clear evidence of normal quantum and distribution of rainfall. Good rains have relieved the drought and will boost agricultural output putting much needed spending capacity in the hands of the rural population. The fallout effect will also help revive industrial investment and growth. Another positive development is the constructive political mood during the current monsoon session in Parliament which is expected to pass the landmark GST legislation that will provide a big fillip to the economy.

People Make the Difference

The Company's Annual Report provides a comprehensive view of last year's performance and records the leadership transition to the new team comprising Managing Director, Vir S Advani and Joint Managing Director, B Thiagarajan. Change is in the air with the launch of their aggressive strategic plan which aims to transform the Company over the next 3 years.

Management experts tell us that vision, strategy, resources, people, structure and processes are required for the success of a Company. But the best business strategy does not mean anything unless it is executed well by the people. Today, financial resources are easy to mobilize, but leadership talent and human resources are in short supply.

The traditional AC&R field is not a sunrise industry that attracts good talent. In fact, being one of the leaders, Blue Star has been a poaching ground for competitors to entice capable engineers and managers. So far, we have been relatively successful in keeping employee attrition at manageable levels. An important factor contributing to employee loyalty for over seven decades has been the Blue Star Corporate culture.

We have committed employees many of whom place the Company's interest above their own. They appreciate our emphasis on professional management and the existence of a meritocracy which determines an employee's position in the hierarchy. Today, other than the Managing Director Vir Advani, no other employee is from the Promoter family.

A few months before he died more than 40 years ago, my father and Founder, Mohan T Advani, wrote of the destiny of Blue Star, "I feel that what will help us most is our sense of belonging. We have pulled together through good times and bad. We shall do so in the future." I am proud that we have lived up to his expectation. In fact, the recently enunciated Blue Star Credo emphasises the sense of belonging and reads, "I am Blue Star. I take pride in delivering a world-class customer experience."

While the Blue Star culture has been a great strength so far, in today's fast changing world, a new generation of people (born in the '80s and '90s and commonly referred to as Gen-Y) have been entering society with ideas, values and life-styles very different from their aging parents. They are increasingly becoming the consumers and employees of today and tomorrow. We recognise that the Company's human resource policies of the past need to be adapted to satisfy changing expectations and aspirations.

We recently conducted a comprehensive employee engagement survey to get feedback on our employees' feelings about the Company, its vision, values and leadership; our businesses, their jobs; their work environment and culture. This feedback was then compared with other good engineering companies to identify sources of relative strength as well as areas needing improvement.

One of the most heartening learnings was that 91% of the total of 2033 employees actually responded to the questionnaire. This is far more than most of the companies in the benchmark group and indicates a high level of involvement.

Several areas of strength were identified such as pride in being associated with Blue Star; strong belief in Management's vision, competence and ethics; appreciation of Management's regular communications with them; and satisfaction with the friendly, family-like work environment.

There were also some aspects where improvement is required. These include a desire for greater fairness and transparency around performance evaluations and promotions; fairness and parity of pay and benefits; need for simpler and less time-consuming systems and processes; and better work-life balance.

Even though Blue Star is generally regarded as a preferred employer in the engineering industry, we are not satisfied with just being better than average. Our goal is to be among the top 10. Towards this end, an extensive human resource transformation programme has been designed to:

• attract, develop and retain talent from the better colleges and institutes
• triple training man-days
• provide a structured career path for employees including accelerated growth for young professionals and managers
• raise compensation levels above the industry average
• introduce a performance-linked variable pay scheme to drive plan implementation and improve financial results
• simplify and automate internal processes to improve productivity and allow employees to spend more time with customers, dealers and business associates
• improve gender balance
• improve work-life balance.

These are significant changes and will take time to implement. But we must persist. There should be no doubt that people make the difference. So I must emphasise the importance of energising our employees to keep improving performance and to reward them in a manner that will result in an even higher level of engagement.

In conclusion, I extend my customary thanks to all our stakeholders – customers, shareholders, employees, business associates and, of course, my fellow Directors. I greatly appreciate your active participation, confidence and support as Blue Star moves into a new era.

ASHOK M ADVANI

August 1, 2016
Mumbai