Ladies & Gentlemen:
It gives me great pleasure to welcome you to the 59th Annual General Meeting of your Company.
The Indian economy has been expanding exceptionally well in recent years. In 2006-07, GDP growth accelerated to almost 10% largely because of the strong industrial sector. Within this sector, the manufacturing segment in which your Company operates, actually achieved 12.3% growth. The continuing expansion of the Services sector also was very encouraging.
All these positive developments continue to drive the rapid growth of our core businesses – airconditioning and commercial refrigeration in the current year. Blue Star’s unaudited 1st quarter results for 2007-08 were announced last week. Total Income climbed to Rs 462.32 crores, showing unprecedented growth of 48%, while Net Profit more than tripled to Rs 22.32 crores. Order inflow was excellent at Rs 687 crores and the unfilled order position rose to a healthy level of Rs 984 crores. If the overall economy continues on a high growth path, the performance of your Company should be very good this year.
Enhancing Stakeholder Value
The importance of stakeholder value and the Company's responsibility to enhance it for our stakeholders is a concept we have long believed in. It forms the philosophical basis for our Corporate Values and Beliefs and is fundamental to the way we run the Company. I would like to share some thoughts on stakeholder value.
During the course of its business, a corporate entity such as Blue Star, deals with different groups of people. These include customers, shareholders, employees, business associates and, of course, society-at-large. Each of these groups has an important relationship with the Company which is why we acknowledge them as stakeholders. It makes business sense for the relationships to be strengthened and made mutually beneficial.
Let us look at each stakeholder group:
Customers: There cannot be much debate that a business exists to meet customer needs. Obviously, if it fails to do so, it cannot survive. With customers being offered many choices in the competitive market, our goal is to become the customers’ preferred choice by providing a world class customer experience. This is the biggest strategic challenge that the Company must meet.
Shareholders: The Anglo-American business model emphasizes that corporate managements are entrusted with the responsibility to enhance the wealth of shareholders. A company’s stock price is the main indicator of shareholder wealth. Quarterly profits are very important and if they turn out to be lower than market expectations, it is regarded as a serious development by investors and boards of directors. This stock market pressure usually results in management being preoccupied with short-term results, not paying enough attention to important long-term strategic decisions that might adversely affect short-term profits.
These days, mergers and acquisitions have become popular in the West. Big financial operators like hedge funds, private equity investors and leveraged buyout operators look for vulnerable corporate targets to acquire. If they succeed in acquiring a company, a major corporate shakeup often follows including downsizing, sale of assets and financial restructuring. Sometimes, such drastic surgery is necessary for the survival of weak companies, but too often, the acquirers are more interested in making quick money for themselves rather than reviving the Company. Innocent employees and other stakeholders in the acquired company are often the victims in this financial game.
In other parts of the world, public shareholders don’t have the same rights. So entrenched managements usually ignore them and carry on as usual, even if their company is not performing well. This is obviously not in the best interests of the company or its shareholders because there are conflicts of interest between different stakeholders.
Where do your Board of Directors and corporate management stand on this important issue?
We understand and accept our responsibility to enhance shareholder wealth, but we take a broader approach than what usually prevails in the West. We believe that the long-term growth and health of the Company should be our first responsibility, and not the short-term share price. With a strategic view of the Company’s future, we are able to make the necessary investments in fixed assets, technology, human resources and better business processes to achieve our strategic objectives. We have seen that when we achieve sustainable profitable corporate growth, the stock market recognizes the good performance and this is reflected in healthy increases in the share price and shareholder wealth.
Employees: I have always acknowledged that a major reason for your Company's business success is the tremendous competence and motivation of our employees and their commitment to the Company. Even though we may not be the highest paying employers, most Blue Starites feel a sense of pride and belonging in the Company. They appreciate the open, fair treatment, the performance-based meritocracy, the opportunities to acquire new skills and to grow professionally. They understand that their future depends on the performance and prospects for their Company. And they see rewards in the form of individual and group performance-linked incentives and a companywide profit sharing scheme. All this creates a strong bond between the Company and its employees.
Business Partners: Blue Star's dealer network is a major strength in our channel businesses. Dealers are extended arms of the Company, responsible for quickly and efficiently responding to customer needs all over the country. Their success ensures our success. So we invest in strengthening our dealers in a number of ways. These include providing them with quality products to sell, backed by technical and sales support; a fair compensation structure to ensure that they make a reasonable profit for their good work; technical training for their staff and managerial training for the owner. Dealers reciprocate with strong sales performance that keep us at the forefront in the market.
Society: The term Corporate Social Responsibility (CSR) has now acquired broad acceptance in Indian business circles. Last year, I had touched on a different approach to CSR and talked about our focus on energy efficiency and environment friendly refrigerants. Those efforts continue, but Blue Star’s growing presence in the Corporate world reinforces our belief that we must do more to give back to Society some of what we have gained. We have begun work on identifying worthwhile social projects to support and will progressively move in that direction.
Clearly, the concept of enhancing stakeholder value makes logical sense. The simple idea that when the Company does well, all the stakeholders benefit, has universal appeal. But to make the idea work well in practice requires the active involvement of 2 stakeholder groups – employees and business partners. Blue Star spells out its responsibilities and works seriously to meet them. In return, we also have clear expectations from employees and business partners of the Company. In other words, there are reciprocal responsibilities that are clearly understood and accepted by both parties.
In the final analysis, the proof of the pudding is in the eating. What has been Blue Star’s experience with enhancing stakeholder value? In recent years, we have had a very positive experience. Corporate performance has been extremely good and the financial rewards to our stakeholder have been well appreciated. An intangible benefit we see is that success has brought about a wonderful feeling of confidence and boosted morale throughout the organisation. And, with success, the relationships with our stakeholders have become even stronger.
My speech this afternoon has acknowledged the important role played by customers, shareholders, employees and business partners. My genuine thanks to all stakeholders for being such important contributors to Blue Star’s success. I must also express my gratitude to my colleagues on the Board for their unstinted support and wise counsel.
August 3, 2007