• Chairman's speech in AGM held on August 4, 2006
• Chairman's speech in AGM held on July 27, 2005
• Chairman's speech in AGM held on July 26, 2004
• Chairman's speech in AGM held on July 23, 2003
• Chairman's speech in AGM held on July 29, 2002
• Chairman's speech in AGM held on July 30, 2001
• Chairman's speech in AGM held on August 29, 2000

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
Mumbai

Ladies and Gentlemen:

Welcome to the 57th Annual General Meeting of your Company.

Business Scene

Last year, Indian economic growth slowed down to 6.9% due to a poor monsoon. This was still a respectable figure compared to the modest historical average. In the current year, the rains are expected to be normal though there is still an element of uncertainty regarding agricultural output. The industrial and services sectors continue to grow well and since they represent about 75% of the economic activity of the country, the overall GDP growth for India should be reasonably good this year

Blue Star's unaudited financial results for the 1st quarter of 2005-06 have been announced today. I am happy to inform you that Total Income is up by 29% to Rs 230.12 crores while Net Profit at Rs 5.05 crores has surged by 40%. New order bookings of Rs 336 crores have grown by 41% and continue to maintain an excellent rate of inflow. With a healthy current unfilled order position of Rs 533 crores and a good macro-economic outlook for this year, your Company's year-end performance should be very good.

The Growth Imperative

In the business world, growth has become the most widely acknowledged single measure of corporate performance and success. Companies are largely judged by how fast they are growing. Since growth is a competitive game, a company that fails to grow as fast as its industry sector will see its market share and profits eroding. Over a period of time, this competitive weakness could even jeopardize its long term survival.

While growth relative to the relevant industry sector is important, absolute growth is equally so. By this, I mean a company's business growth over the previous year's level regardless of the rest of the industry. In mature industries or sectors that are growing slowly or where there are too many players competing for a relatively small market, it becomes difficult for a company to grow fast. Unless it can devise a strategy to accelerate its revenue growth to a level where it remains profitable on a consistent basis, it will remain a mediocre performer struggling to satisfy investors and retain talented employees.

Turning to the growth of the air conditioning and commercial refrigeration industry in India, a remarkable change has been taking place over the past several years. Until a decade ago, air conditioning remained a small industry subjected to high taxes and a variety of Government restrictions because it was regarded as a luxury. Progressive relaxation of these harsh measures combined with free competition have reduced prices to more affordable levels while dramatically improved technology and quality have risen to world class levels. The result has been an acceleration in the industry's growth rate in recent years.

These positive developments have been reinforced by the current buoyant economy. There has been a boom in demand for central air conditioning for the services sector including information technology, IT enabled services, business process outsourcing, healthcare, hospitality, retail, entertainment, and telecom. At the lower end, there has been equally impressive growth in the light commercial segments like restaurants, boutiques, showrooms, ice cream and coffee parlours. It is no wonder that the central air conditioning market in India grew by more than 20% last year and in the current year, there do not seem to be any signs of a slowdown.

At the global level, the world market for the AC and R industry recorded impressive growth figures last year especially in China, the United States, Europe and even Japan. Closer to home, the Middle East, in particular, the UAE and Qatar, are booming. There is hectic construction activity in the real estate sector with millions of square feet of airconditioned residential and commercial properties being added. The developments in the Middle East and Europe are of particular interest to us as these are identified target markets for export of our products and projects.

Coming more specifically to Blue Star, we have been presented in the last couple of years with a double growth opportunity - a buoyant economy and a dynamic AC and R industry. We have done exceptionally well in capitalizing on the opportunities. We have improved our market share, revenues and profits in India and are growing rapidly in export markets. These are achievements of which we are proud.

But growth and financial performance are not enough. We are equally aware of our responsibilities to keep up with the times. On the technology front, we have always acknowledged the need to move over to energy-efficient products and services and have initiated a series of actions that are covered in the Annual Report. Compliance with environmental requirements such as using appropriate refrigerants and minimizing global warming also figure in our product development plans. And in central air conditioning, we offer special turnkey solutions to meet individual customer requirements.

Business Challenges

While this is an exciting growth story, we also face a number of major challenges. These can be broadly classified into two categories - external and internal challenges.

External challenges are mainly market related. Large, aggressive Asian competitors with deep pockets and powerful brands are buying market share at low prices especially in the residential consumer market. This has led to debilitating price wars. We have been relatively less impacted by these developments because this is a market we have not actively addressed. Let me explain why.

Years ago, we took a strategic decision that the consumer durables market is not one that Blue Star will focus on because our competitive strengths lie in different areas. We positioned ourselves to concentrate on the growing corporate and commercial market for central air conditioning and on special products like room airconditioners and refrigeration products such as deep freezers and water coolers aimed at the commercial market. Corporate and commercial customers have different needs from residential consumers. What we offer them is value added solutions that meet their specific requirements. These include customized system design, technical and engineering capability, flexible product design and manufacturing, and good after sales service. Our growth rate has been extremely healthy so clearly, the strategy is working.

Internal challenges pertain mainly to developing a human resource capability to handle high growth on a sustained basis. Rapid business expansion requires additional skilled manpower, both technical and managerial but they are in short supply. Since experienced people are not easy to recruit, they have necessarily to be trained and developed in house, and this takes time. To tackle our immediate need, we have adopted a two-pronged strategy.

The first is to boost manpower productivity through a variety of measures including investment in information technology, business process reengineering, outsourcing of non-critical activities and dealerisation. The second aspect of the strategy focuses on positive human resource development and employee retention measures. While employee remuneration is an important part of corporate human resource policy, paying high salaries is not enough. People expect to be treated fairly, they want to acquire new skills and assume higher responsibilities. And they want to be part of a successful enterprise that they are proud of. I believe that Blue Star largely satisfies these employee expectations.

Acknowledgements

In conclusion, I would like to express my appreciation to the Board of Directors for their guiding role in steering Blue Star's affairs while adhering to high standards of Corporate Governance. I am especially proud of the record performance delivered by our employees. Our customers remain the source of both our livelihood and your returns and we value their patronage. And, of course, my fellow directors join me in thanking you, our loyal shareholders for your confidence in the Company.

ASHOK M. ADVANI

Mumbai
Monday, July 27, 2005

Ladies and Gentlemen:

It gives me great pleasure to welcome you to the 56th Annual General Meeting of your Company.

Business Scene

Last year showed a brisk acceleration of economic growth in India largely because of an excellent monsoon which boosted demand for a wide range of products and services. As a result of the economic revival, 2004-05 has begun on a buoyant note for the country and for Blue Star.

The Company's unaudited 1st quarter results have just been announced today. Total Income has grown by 25% from Rs 142.48 crores to Rs 178.60 crores, while Net Profit has increased by a significant 36% to Rs 3.61 crores. Especially encouraging is the healthy order inflow in the same period which has jumped from Rs 188.74 crores to Rs 234.72 crores. With a comfortable backlog of orders in hand the Company's financial performance this year should continue to improve.

The Future of the Indian Manufacturing and Services Sectors

As recently as a couple of years ago, many Indian manufacturers were apprehensive about their future because of the problems of poor infrastructure, and the slow progress on urgently needed economic, legal and labour reforms. They were worried that as imports opened up and customs duties came down in line with the WTO Agreement, foreign competitors would grab a bigger share of the Indian market jeopardising the survival of the weaker local companies.

As we all know, that bleak scenario did not materialise. In spite of a dull economy and disappointing progress on reforms, Indian manufacturing companies have been busy putting their house in order. They have right-sized their organizations, tightened financial controls, modernised their plants, and focused on cost reduction, productivity improvement and quality assurance. The major improvement in Corporate financial results in recent times is proof of their growing success.

Indian industry has developed its own solutions to the multitude of problems that they are faced with. Unlike China, which has become a formidable industrial power in the mass production of a huge variety of standard goods, India is leveraging its own areas of strength in low cost yet highly capable technical manpower. Besides achievements in software services, the country is recognized as a competitive supplier of other technical and skilled services. The same human skills are being used in the industrial sector to design and manufacture customised products for special applications which are not suited to mass production.

Coming more specifically to Blue Star, I would like to clarify that we have been successfully following this strategy for several years in our core businesses of central airconditioning, commercial refrigeration and professional electronics where we have a strong market position. Customers for bigger airconditioning systems and plants are more concerned about factors such as technical performance, service and energy efficiency. They are less price sensitive than individuals who buy low-end airconditioners and similar standard products which are like commodities, with similar looks and features where the main differentiator is price. In our focus area of central airconditioning, each installation is different so the system must be engineered for that particular application. This, in turn, requires flexible manufacturing facilities that can fabricate a wide variety of equipment in relatively small quantities. The Projects Division then installs the equipment along with ancilliary work at site. And finally, the after-sales Service Division maintains and supports the plant after it has been put into use. Thus, in our business, engineering, product development, manufacturing, contracting and after-sales service all work in an integrated manner to provide value added solutions on a turnkey basis.

The capability to customize and supply different products depending on the differing needs of each market is what has enabled the Company to export products to the big Middle East and European markets. Each of these markets has its own special product specifications and customer preferences which we have learnt to cater to. The increasing success of this export strategy is evident from the value of our exports. In 2003-04, the Company's exports quadrupled to Rs 37.84 crores albeit from a small base. And the first quarter of this year has seen a continuation of healthy growth almost doubling last year's corresponding figure.

Meanwhile, the Indian central airconditioning market is also expanding rapidly at more than 30% this year. Major investments are going into the commercial and services sectors including software services, business process outsourcing, shopping malls, healthcare, hotels, restaurants and multiplexes. As market leader, Blue Star is well positioned to offer optimum turnkey solutions to meet these requirements. Customers are comfortable dealing with us because we provide single point accountability to meet their total requirements.

Conclusion

I must convey my sincere thanks to all our employees and business partners for their enthusiasm, commitment and dedicated contribution to the Company's performance. I also thank my colleagues on the Board for their wise counsel and guidance. All of us in Blue Star deeply value the patronage of our many customers - both old and new. And finally, let me thank you, our valued shareholders, personally and on behalf of the Board, for your unstinted support over the years.

ASHOK M. ADVANI

Mumbai
Monday, July 26, 2004

Ladies and Gentlemen,

Welcome to the 55th Annual General Meeting of your Company.

Diamond Jubilee

Today, I stand before you filled with pride. This is not just another AGM. It is a special one because, in a couple of months, Blue Star will be celebrating its Diamond Jubilee.

It was 60 years ago that my father, Mohan T. Advani, started the Company as a small 3-man enterprise. He was a man of modest means but lofty ambitions. With little more than a visionary dream, inspiring leadership and undying determination, he struggled to stabilize Blue Star as a viable enterprise and went on to build a solid organization. When he passed away in 1974, Blue Star was firmly established as a reputed public company.

It has been a privilege for me to lead the Company for the last 19 years of momentous change. The Blue Star of today is a successful, growing Corporate citizen with 22,000 shareholders, 1800 employees, market leadership in its core central airconditioning and refrigeration businesses, and an expanding global presence. These are achievements that not many companies in India can claim. In fact, a survey of the more than 5600 companies listed on the Bombay Stock Exchange reveals only 47 public companies that have been in existence for 60 years i.e. less than 1% of the total. Blue Star will now join this select group.

In keeping with this significant milestone, your Board of Directors has recommended a special Diamond Jubilee dividend of 25%, in addition to the 65% dividend paid last year, making a total of 90%. This is our gift to you, our loyal shareholders.

Current Year

After several slow years, the Indian economy is showing definite signs of revival. The monsoon has been very good, so far, and there are favourable forecasts for the rest of the season. With a significant increase in output, the industrial sector too seems to be more confident about the future outlook. And the services sector continues to grow at a healthy pace. These encouraging macro-economic developments point to a good year for the economy.

Blue Star's unaudited 1st quarter results have just been announced today. There has been a notable revenue growth of 24% with Total Income climbing to Rs 142.48 crores. Competitive pressures continue to squeeze margins; Net Profit has increased by 13% to Rs 2.65 crores.

Order inflow in the 1st quarter has shown a brisk increase to Rs 189 crores compared to Rs 146 crores last year. Given the promising outlook for the Indian economy and a substantial order backlog of Rs 313 crores, I am reasonably confident that Blue Star's financial performance in the current year will continue to maintain a healthy growth rate.

From Gold to Diamond - The Last 10 Years

Ten years ago, as part of the Golden Jubilee celebrations, I had given shareholders a historical perspective on the growth and evolution of Blue Star since its inception in 1943. Today, I would like to share with you some of the significant corporate developments of the last decade.

While the Annual Report gives a comprehensive and detailed account of the Company over the years, one can draw some interesting conclusions from the financial figures. Here are a few examples:

• Starting with 1992-93 as the base year with an index of 100, Total Income reached 270 in 2002-03. Though this may not seem very impressive, it is the record of steady and sustained growth that provides a feeling of confidence in the stability of the Company.
• It is on the profit front that one sees a more exciting picture. Profit After Tax climbed to an indexed figure of 752, a compound annual growth rate of more than 22%. This consistently high and growing profitability has been very satisfying.
• Dividend payout increased even more impressively. The indexed figure rose sharply to 987, virtually a ten-fold growth in ten years. Here again, the Company's generous dividend policy has offered an excellent return to our shareholders over the years. And now, the tax-free nature of dividend income has made the shareholders' investments even more attractive.

So much for the financial figures. But numbers do not tell the full story. What they do not reveal are the underlying strengths and capabilities of the people behind the Company's performance.

I have great respect for our employees. They have shown admirable resilience and flexibility by adapting to the new challenges and opportunities in the market, focused on meeting customer expectations, and in the process, delivered excellent results. Given the low operating margins in the highly competitive industry in which we operate, we cannot afford to pay exceptionally high salaries. So it is not money that is the main motivator of our people. Neither are they driven by tough orders coming from top management. What the Company's success is primarily due to is their total dedication to Blue Star. There are many examples of employees rising above and beyond the call of duty to meet an important commitment. They do this voluntarily because they see Blue Star as their Company. They are the reason for our success.

This is perhaps, the most enduring legacy of Mohan Advani: The creation of an organization where people work with pride and passion. We have a culture that respects the individual; gives equal opportunities to all based on their merit; where people are selected on the basis of professional competence, integrity and commitment; and everyone is encouraged to work together in the interests of the Company and its customers.

Acknowledgements

I cannot end without extending my sincere thanks to my colleagues on the Board for their wise guidance and support in successfully steering the Corporate ship through both calm and stormy seas. Blue Star's employees continue to deliver amazing performance and I am very proud of all of them. Our customers have taught us many useful lessons and kept us on our toes when we sometimes falter. And, of course, I am grateful to you, our faithful shareholders, for your continuing confidence in our Company.

ASHOK M. ADVANI

July 23, 2003
Mumbai

Ladies and Gentlemen:

It gives me great pleasure to welcome you to the 54th Annual General Meeting of your Company.

Last year was a difficult year for Indian companies in a slow economy. In this challenging situation, Blue Star coped reasonably well. Despite little sales growth, profits improved significantly and encouraged the Board of Directors to declare a record dividend of 65%. I trust shareholders are satisfied.

Current Year

In the current year, there are some tentative signs of industrial recovery and macro-economic indicators are generally positive. Business sentiment has turned more confident. But the disappointing progress of the monsoon so far is a new cause for concern which could severely impact the key agricultural and rural sector if the weather Gods remain unkind. Another adverse development is the lack of foreign interest in India as a place to visit and invest in due to the continuing military confrontation with Pakistan. It is perhaps, wishful thinking that mature political leadership will resolve the impasse thus allowing both countries to focus on economic progress.

Blue Star's unaudited first quarter results have just been announced today. Total Income has grown by 5% to Rs 114.63 crores. The market remains extremely competitive and there is continued pressure on prices and margins. It is through careful attention to costs and resources that your Company has improved its financial performance with Net Profit increasing by 16% from Rs 2.03 crores to Rs 2.35 crores. If the economy continues to revive, I can say with cautious optimism that we are well positioned to participate in renewed growth.

Corporate Vision: A World Class Customer Experience

In my letter to shareholders in the Annual Report for 2000-01 I had written briefly about the Corporate Vision: To deliver a world class customer experience (WCCE). This is a subject about which I feel very deeply, so I would like to share some thoughts with you.

What does 'world class' mean?

What we mean by 'world class' is the ability to compete successfully against global players. World class has various dimensions - technology, quality, price, delivery, after-sales service, and a number of subjective factors that affect customers such as the attitude, responsiveness and behaviour of our people, and the effectiveness of communications.

Customer Experience

No business organization can exist without customers. This may be stating the obvious but, all too often, people tend to be so caught up in their daily work that they lose sight of this fundamental fact. But merely accepting the basic premise that the customer is king (or queen) is not enough. We must understand what it is that the customer is looking for. The answer is not always obvious. It is more than the lowest price. It goes beyond the best technology and quality. While these tangible factors are, no doubt, important we must be sensitive to intangible factors, views and feelings which contribute to a good 'customer experience'. It includes the warmth with which the customer is greeted by the telephone operator or receptionist, the helpful attitude of our sales and service teams, the proactive communication and responsiveness and, in general, the comfort level in dealing with the Company. A world class customer experience must encompass the totality of all these factors - the tangible, measurable ones as well as the subjective elements influencing the customer which cannot easily be quantified but which nevertheless, are very important.

Our quest for WCCE starts with the realization that the goal is not fixed; competition and progress keep raising the performance standards and customer expectations ever higher. Today's customers are unwilling to accept a product or service which they would have regarded as good only a decade ago. And we also expect that today's standards of excellence will prove to be inadequate a few years from now. This is progress. So the laudable goal of WCCE involves undertaking an ongoing, challenging yet worthwhile journey for the Company even though it has no final destination.

What is the strategy to deliver a world class customer experience?

Blue Star has not been a passive player so far. It is because we have been actively striving to improve our competitiveness for so many years that we have maintained our leadership position in the market. But there is no room for complacency. We must run faster and faster to stay ahead. Even though we have been doing a number of good things, they have been handled in an ad hoc manner. The WCCE programme now ties all these activities together and gives a sharper corporate focus.

We are adopting a three-pronged approach that tackles the three essential 'Ps' of being world class - people, products and processes. All three are receiving considerable attention and investment. Our human resources are being upgraded through training to enhance attitudes and skills. Products are being looked at on an end-to-end basis right from design, engineering, manufacturing, through installation and warranty. And all processes which affect the customer - the sales process, order execution and after-sales service - are being streamlined to be more customer friendly.

Modern processes need a contemporary infrastructure. Several crores of capital is being invested to upgrade the manufacturing plants, communications facilities, IT systems and software, and service equipment.

Two quick benefits of this approach are already visible. First is greater clarity amongst our employees. All of them down to worker level understand what WCCE is and what they must do. With better understanding, their commitment to the programme is much higher. Secondly, with the whole organization involved, the resources allocated to WCCE have now substantially increased so the speed of the journey has accelerated.

Acknowledgements

I would like to end by expressing my gratitude to my colleagues on the Board for their wise counsel and guidance. We are proud of all our employees and business associates for their commitment and dedication. My sincere thanks go to our esteemed customers for their continued patronage. Last, but certainly not the least, I thank you, our shareholders, personally and on behalf of the Board, for your undivided support over the years. I assure you we will continue to strive to justify your confidence in your Company.

ASHOK M. ADVANI

Mumbai
July 29, 2002

Ladies and Gentlemen:

Welcome to the 53rd Annual General Meeting of your Company.

Corporate Performance

The Annual Report for 2000-01 gives a comprehensive picture of the Company's performance last year. While I do not intend to review it again, I can say with pride that it was a good year. There were significant improvements in revenues, profitability and resource utilization. The higher profits enabled the Board of Directors to declare a record dividend of 55% which, incidentally, will be paid out within this week.

Economic Scene

The health of the Indian economy has become a cause for concern. GDP growth last year was only 5.8%, with each month's economic indicators showing a declining trend. Even the services sector, led by software services which was booming until late last year, has been affected. In the current year, the economic picture continues to deteriorate and growth prospects look uncertain. Economists and financial experts are unable to provide a reliable forecast of either the degree or the duration of the slowdown.

Economic revival will need a number of positive developments - a good monsoon to boost agricultural output, implementation by the Government of overdue economic reforms, and global recovery. Until then, business is not investing, investors are sitting on the fence and consumers are not spending.

Current Year

After a year of good growth, Blue Star is now feeling the impact of the economic slowdown. The unaudited 1st quarter results announced today show Total Income of Rs 109.33 crores, marginally better than Rs 108.58 crores last year. Net Profit has declined from Rs 3.16 crores to Rs 2.03 crores.

Management has already initiated a number of corrective measures to cope with the slowdown:

• To enhance sales, additional emphasis is being placed on exports. Two of our collaborators in the United States have shown interest in sourcing some of their products from us because they recognize our engineering and manufacturing strengths and our ability to offer competitive prices. An encouraging start has been made with the first buyback arrangement.
• Our dealerisation programme for sales and installation of packaged airconditioning systems and small central airconditioning plants is picking up momentum. This year, we expect to considerably extend our sales reach to cover this under-exploited market segment.
• Last year, a number of innovative, new airconditioning products developed through our own R & D efforts played an important role in boosting our sales. This year, too, we plan to upgrade and expand our product range by introducing more cost-effective designs which offer enhanced features while maintaining margins in a highly competitive market.
• Our design and engineering capability has improved to such an extent in the last few years that we are actually working jointly with one of our US collaborators to supplement their product development efforts. This will bring in valuable revenues while we gain vital experience in international R & D practices.
• At a time when many customers are deferring new equipment purchases, there is a good opportunity to renovate and refurbish their old airconditioning systems. We are actively pursuing this after sales service opportunity.
• We have restructured our wide ranging airconditioning activities into 6 divisions which will more effectively address different market segments ranging from room airconditioners to very large airconditioning projects. This reorganization is also expected to rationalize manpower which will help to reduce costs and improve productivity.

Through these measures to boost sales and cut costs, we are hopeful of achieving reasonable financial performance this year in spite of the difficult business scenario.

Shareholder Expectations

During the past decade, with the entry of foreign institutional investors and the increasing presence of mutual funds, the profile of equity investors and their expectations from companies have undergone a major shift. Earlier, small investors subscribed to shares at low prices determined by bureaucrats in the office of the Controller of Capital Issues. They bought shares and usually held onto them.

Now FIIs and fund managers buy and sell shares on a short-term basis. They are not usually concerned about a Company's long-term prospects, but in the opportunity to make a quick profit. This is the way markets operate in the USA and UK and that has now become the established basis in India as well.

But investors need to address an important question: Is it valid to blindly transplant a Western model into Indian markets? I would point out some major factors in India which would lead investors in a different direction:

• Differences in Income Tax: In the USA, dividends are treated as ordinary income and taxed at the full income tax rate, but long-term capital gains are eligible for concessional tax treatment. Hence many companies and investors abroad pay little heed to dividends in the valuation of shares. On the other hand, in India, dividend income is tax-free in shareholders' hands and is, therefore, intrinsically more valuable than equivalent capital gains.
  
  
• Preoccupation with Short-Term Results: Quarterly results abroad have become an obsession with corporates, investors and stock analysts. Companies that miss quarterly earnings expectations are treated brutally by the stock market. Share prices can drop drastically even exposing them to take-over threats. This results in excessive preoccupation with quarterly earnings.
  
  In India, for various reasons, predatory take-over bids are a rarity. Managements have greater freedom to pursue long-term business strategies which are in the interests of genuine investors. Of course, the market does punish chronic poor performance with low share prices in the long run.
  
  
• Behaviour and Regulation of Stock Markets: In the USA, the Securities and Exchange Commission (SEC) is a watchful regulator of the stock markets to enforce healthy trading practices. But the behaviour of Indian stock exchanges is much more susceptible to shady activities and weak market regulation leaves much room for improvement. The recent stock market reforms by SEBI to curb unhealthy speculation are a welcome move to modernize the Indian bourses and bring their practices in line with international norms.
  
  It is a matter of time before trading volumes and share prices revive. Until then, investors would be well advised to deal in shares of companies with established track records and credible managements.

Blue Star's Value Proposition to Investors

Given the realities of the Indian capital markets, what Blue Star strives to achieve is steady growth in earnings which is translated into a growing stream of tax-free dividends for shareholders. Since ours is not a capital intensive business, profitability and cash flow are healthy enough to provide adequate funds to finance future growth while leaving enough surplus cash for a relatively high dividend payout. Future capital needs are comfortably met by retained profits supplemented with moderate borrowings, if required. We do not intend to dilute shareholders' equity and earnings by raising additional equity in the foreseeable future.

In short, Blue Star offers a fine investment opportunity to prudent long-term investors looking for good returns with moderate risk and no dilution. It is not a scrip for short-term speculators.

In Conclusion

Before I end, I must convey my sincere thanks to all our employees and business associates for their dedicated contribution to the Company's performance. To my colleagues on the Board, I convey my gratitude for their wise counsel and guidance. We deeply value the continued patronage of our many customers. And finally, let me thank you, our valued shareholders, personally and on behalf of the Board, for your unstinted support over the years.

Mumbai
July 30, 2001

Ladies and Gentlemen:

I am delighted to welcome you to the 52nd Annual General Meeting of your Company.

The year 1999-2000 was an eventful and satisfying year for Blue Star. You will be happy to note that yours was one of the few airconditioning companies in India to have done reasonably well last year. Despite flat revenues, there was a remarkable improvement of 43% in net profit, virtually all of which came from our non-software businesses.

Economic Scene

The current fiscal year began on an encouraging note. Growth in the Indian economy, and in particular, industrial activity, seemed to be picking up and the prospect of political stability had boosted business confidence.

But the last few months have revealed some confusing macro-economic developments. Industrial growth in April-May 2000 declined to 5.6% compared to 6.2% in the first two months of 1999; inflation is climbing again; the rupee has dropped sharply by about 5% against the dollar in the last three months, forcing the Reserve Bank to tighten liquidity and increase interest rates; some key industrial sectors of the economy such as automobiles, cement and consumer durables have slumped; the capital markets are in a lack-lustre state. All this has somewhat tempered the earlier mood of business optimism.

On the positive side, Government moves in the second round of reforms are starting to push the insurance and telecom sectors in the right direction; software and IT services are growing fast; exports are climbing; there is a marked shift in economic activity from manufacturing to services; agricultural output is expected to pick up provided the monsoon continues to behave. All these should provide a substantial growth impetus to the economy.

On balance, even though we see a mixed picture, taking all factors into account, the economy will hopefully show reasonable growth this year.

Corporate Performance and Prospects for 2000-2001

Blue Star's unaudited 1st Quarter results, excluding software, which were announced a month ago showed a healthy growth of 19% in Total Income to almost Rs 107 crores. Net Profit quadrupled to Rs 3.16 crores albeit from a low base.

New order inflow in the four month period April-July 2000 have amounted to Rs 175 crores showing an increase of 22% over last year. Revenues in the same period have grown from Rs 115 crores to Rs 136 crores. Unfilled orders are comfortable at Rs 257 crores.

Looking at the first four months business performance, I would say that the outlook for your Company is good this year. Cut-throat competition notwithstanding, our market shares have improved in most of the segments in which we operate. Barring some unexpected political or economic shock, I remain confident that the current year will show significant growth in your Company's sales and profits.

Airconditioning and Refrigeration Industry

The demand for airconditioning in the country is increasing rapidly. Major growth sectors include:

• The booming software industry and allied activities such as computer training institutes.
• The hospitality sector covering hotels, bars, restaurants and entertainment.
• Commercial and shopping complexes.
• Increasing middle-class demand for residential airconditioners
• Exploding internet activity including web servers and cyber cafes.

Blue Star is playing a leading role in these developments by offering a wide range of airconditioning solutions.

Our commercial refrigeration business has also benefited from the growth in the ice-cream, horticulture and healthcare industries. We are well positioned to exploit the increasing demand for cold rooms, deep freezers and water coolers.

At this juncture, I would like to dwell on certain important issues:

• In a tropical country such as ours, where airconditioning is almost a basic necessity, there are innumerable public places such as hospitals, auditoriums and educational institutions that are not able to afford airconditioning. Unfortunately, airconditioning continues to be regarded as a luxury and is taxed at high rates. There are also many anomalies in customs and excise duties. The counter-productive nature of high duties and complicated schedules impact the AC & R industry in an adverse manner. As a nation, we can reach higher levels of growth in many industries involving human capital, by encouraging the use of airconditioning through a rational and moderate tax regime.
  
  
• Another problem of the airconditioning industry in India is the absence of an independent testing and certification service for airconditioning equipment. Such institutions are common in developed countries and their certification provides customers assurance that the equipment offered conforms to the claimed quality standards and ratings. Efforts are currently under way through industry associations and professional bodies to fill this gap by providing a much needed certification service to the Indian AC & R industry.
  
  
• For users of airconditioning and refrigeration, power consumption is a matter of serious concern. This has become increasingly important with the combined effect of the rapidly increasing cost of electrical power and the growing shortage of generating capacity. Surprisingly, the country still does not have statutory standards and regulations with regard to energy consumption of products. Nevertheless, Blue Star has taken this subject very seriously. As leaders in the industry, we are committed to the introduction of energy efficient products which are of benefit to our customers and our power deficient country. The York range of chillers, variable speed drives and packaged airconditioners with scroll compressors are some examples. Similarly, deep freezers marketed by us save energy upto 70% in comparison with other products in that category. Customers clearly appreciate the savings in the form of lower electricity bills which rapidly pay back the investment in the equipment.
  
  
• Digital electronics has created a convergence of telecommunications, computing and content technologies. The internet and the new world of e-commerce is revolutionising business by rapidly changing the rules of the game.
  
  Even though much of the earlier hype pertaining to dotcom companies has evaporated, a new business model is now emerging. There is a growing consensus that traditional companies such as Blue Star can have a good future if they change from "bricks and mortar" to "clicks and mortar" by adopting better ways of delivering products and services using the power of information technology and the internet.
  
  Your Company has implemented ERP software for the manufacturing units as well as airconditioning projects business. Sales force automation and service operations management software are in place. We are in the process of web-enabling this software to provide enhanced levels of customer satisfaction. The Blue Star website is being upgraded with a store front for on-line shopping and a complaint logging module for customer service.
  
  
• In line with the Montreal Protocol, CFC refrigerants must be phased out by January 1, 2003 by manufacturers of AC & R equipment in India. Not satisfied with this extended time-frame, Blue Star accelerated the phase-out by discontinuing the use of CFC refrigerant, type R-11, last year, almost four years ahead of the deadline. As a matter of fact, we have developed necessary capabilities for retrofitting old CFC based machines of many of our customers with environmentally acceptable alternatives.

In Conclusion

I wish to record my deep sense of gratitude to all our employees and business associates for their dedicated contribution to the Company's performance and growth. I convey my sincere thanks to my colleagues on the Board for their guidance and support. We also value our business association and relationship with our customers. And finally, let me thank you, our shareholders, personally and on behalf of the Board, for your undivided support over the years.