Blue Star Ltd

The Directors are pleased to present their 64th Annual Report and the Audited Accountsfor the year ended March 31, 2012.

SUMMARISED FINANCIAL RESULTS

DIVIDEND

The Directors have proposed a dividend of Rs.1.00 per equity share. The dividend willabsorb Rs.10.45 crores including Corporate Dividend Tax.

OPERATING PERFORMANCE

Total Revenue of the Company was Rs.2724.59 crores for the year ended March 31, 2012compared to Rs.2892.91 crores in the previous year. Operating Profit Before Interest,Depreciation and Tax declined from Rs.282.58 crores to Rs.13.25 crores.

The sharp decline in Operating Profit was largely caused by a combination of factors inthe Electro Mechanical Projects business in Segment 1. These included a slowdown inexecution of projects due to delays in collections from customers; inflationary costover-runs and erosion of gross margins on fixed price contracts; and higher expected costsfor completion of ongoing projects. In accordance with Accounting Standard AS7, all thesecost increases were absorbed in the accounts for 2011-12, resulting in losses and reducedrevenues.

In the Cooling Products segment, while top-line growth was favourable, margins wereunder pressure due to higher input costs and significant increases in fuel and freightcosts. Consequently, the segment result was marginally lower. The Professional Electronicsand Industrial Systems business was also affected by the general business slowdown.

FINANCIAL PERFORMANCE

Finance costs increased sharply from Rs.24.36 crores to Rs.70.25 crores. This waspartly due to higher interest on increased borrowings. In addition, there was asignificant foreign exchange loss and cost of forward cover of Rs.36.67 crores.Profit/(Loss) After Tax was a disappointing Rs.(89.15) crores compared to Rs.155 crores inthe previous year.

EXPORT & FOREIGN EXCHANGE EARNINGS

Foreign exchange inflow for the year, including commission income, was Rs.149.5 crorescompared to Rs.160.3 crores for the previous year. Foreign exchange outflow for the yearwas Rs.544.4 crores as compared to Rs.561.5 crores in the previous year.

SUBSIDIARY COMPANY

During the year, the Company made a further investment of Rs.19.52 crores in the sharesof the wholly owned subsidiary, Blue Star Electro-Mechanical Limited.

CONSOLIDATED RESULTS

The Annual Report also includes the Consolidated Financial Statements of the Company.This incorporates the results of the Company’s wholly owned subsidiary, Blue StarElectro-Mechanical Ltd and its share in the results of its joint venture companies andassociate company. The consolidated results for the year show a Total Revenue ofRs.2843.03 crores compared to the previous year’s Rs.3012.59 crores and a Net Loss ofRs.105.10 crores versus Profit After Tax of Rs.160.96 crores in the previous year. Interms of the general permission granted by the Ministry of Corporate Affairs vide Generalcircular no.2/2011, the Accounts of the subsidiary have not been attached with theaccounts of the holding company. Any member desirous of obtaining the same will beprovided with a copy thereof upon making a request to the Company.

AUDITORS

M/s S R Batliboi & Associates, Chartered Accountants, retire as Auditors of theCompany at the forthcoming Annual General Meeting and have given their consent forre-appointment. As required under the provisions of section 224 of the Companies Act,1956, the Company has obtained a written certificate from M/s S R Batliboi &Associates, Chartered Accountants, to the effect that their appointment, if made, would bein conformity with the limits specified in the said section.

In compliance with the provisions of Section 233B of the Companies Act, 1956 and withthe prior approval of the Central Government, M/s ABK & Associates, Cost Accountants(Regn. No. 036) were appointed as Cost Auditors to conduct audit of cost records forairconditioners for the financial year 2011-12. The Cost Audit Report for the financialyear 2010-11 which was due to be filed with the Ministry of Corporate Affairs within 180days from the close of the financial year (i.e. dt: 27.9.2011) was filed on 27.8.2011.

Vide an order of the MCA issued under Notification No.52/26/CAB-2010 dated 24.1.2012,the MCA has covered a number of industries, under automatic Cost Audit with effect fromthe financial year commencing on or after 1.4.2012. Accordingly, M/s ABK & Associates,Cost Accountants have been appointed as the Cost Auditor of the Company to conduct thecost audit of all the manufactured products of the Company, viz. airconditioning andrefrigeration equipment, packaged airconditioners, industrial packaged chillers, airhandling units and airconditioners manufactured by the Company for the financial yearending March 31, 2013, upon the remuneration and terms and conditions as may be mutuallyagreed between the Company and M/s ABK & Associates.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors hereby inform the members that the Audited Accounts for the financialyear ended March 31, 2012 are in full conformity with the requirement of the CompaniesAct, 1956. These financial results have been audited by the statutory auditors M/s S RBatliboi & Associates, Chartered Accountants. The Directors further confirm that:

1) In the preparation of the Annual Accounts, the applicable accounting standards havebeen followed.

2) The accounting policies are consistently applied and reasonable, prudent judgmentand estimates are made so as to give a true and fair view of the state of affairs of theCompany at the end of the financial year and of the profits of the Company for thatperiod.

3) The Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for providing and detecting fraud and other irregularities.

4) The Directors have prepared the Annual Accounts on a going concern basis.

DIRECTORS

With effect from April 1, 2012, Mr Ashok M Advani relinquished his position ofExecutive Chairman and Wholetime Director and continues as Chairman. Mr Suneel M Advanirelinquished his position of Managing Director with effect from April 1, 2012 and ispresently the Executive Vice Chairman of the Company.

Mr Satish Jamdar and Mr Pradeep Mallick will retire from the Board by rotation andbeing eligible, offer themselves for re-election.

EMPLOYEES

The number of permanent employees decreased from 2825 at the end of the previous yearto 2785 as at March 31, 2012.

DISCLOSURE OF PARTICULARS

Information as per Section 217(1)(e) of the Companies Act, 1956, read with the rulesmade thereunder relating to conservation of energy, technology absorption, foreignexchange earnings and outgo are given in Annexure A forming part of this report.Particulars of employees as required under Section 217(2A) of the Companies Act,1956, readwith the Companies (Particulars of Employees) Rules, 1975, as amended, form part of thisreport. However, in pursuance of Section 219(1) (b) of the Companies Act,1956, this reportis being sent to all the shareholders of the Company "excluding" the aforesaidinformation. The said particulars will be made available for inspection at the RegisteredOffice of the Company. Members interested in obtaining such particulars may write to theCompany Secretary at the Registered Office of the Company. A Management Discussion andAnalysis Report, as required under Clause 49 of the Listing Agreement is publishedseparately in this Annual Report.

ANNEXURE TO DIRECTORS’ REPORT - A

Information pursuant to Companies (Disclosure of particulars in the Report of the Boardof Directors), Rules 1988.

a) Energy conservation measures taken:

The Company believes that energy is vital for economic growth and social development,and must therefore be conserved and used judiciously.

Even though energy does not constitute a major cost factor in the Company’smanufacturing facilities, during the year under review, several initiatives wereundertaken to reduce energy consumption. The Company has a certified Energy-Conservationaudit team, which also helps customers in identifying and addressing their energyconservation plans. Accordingly, the Company has taken the following measures for energyconservation:

Himachal Plant

• Natural Wind Turbo Ventilator was installed. This provides for perfectventilation and is the ideal solution for emitting hot air, smoke, gas etc. It works onfree wind energy (consumes zero electric power) and helps in keeping the environmentclean. Durable, high in performance and low on maintenance, this is a totallyweather-proof installation that reduces the inside temperature by 3-5C.

• Transparent FRP sheets were installed on the roof to enable plenty of naturaldaylight during working hours, thus increasing the lux level and reducing the use of highbay lights.

• Insulated the roof using a layer of glass wool below the pre-coated G.I sheets,thus reducing the working area temperature by 5-6C and saving energy.

• Water level sensors were installed to control the water level in the overheadtanks automatically, thereby reducing water wastage and energy consumption of pumps.

• Installed energy meters in all sections to record, monitor and control the dailyelectricity demand and plan efficient energy consumption.

• Use of inverters with motors for assembly line conveyors and fabrication shopmachinery to improve power factor.

Wada Plant

• Installed 400 KVAR real time power factor control panel with harmonics filter toimprove power factor.

• Modified design of manifold on vacuum pump for scroll chiller to reduceevacuation time and power consumption.

• Installed VRF Airconditioning System in office block for energy efficiency.

• Installed VFD for AHU, cooling tower and pumps in new screw chiller test set tosave energy.

• Reduced use of DG power for running the R&D labs.

• Installed low flow faucets in wash rooms and canteen to control waterconsumption.

Dadra Plant

• Designed air compressor operating system, based on past compressed airconsumption pattern, thereby reducing energy consumption.

• Installed VFD for pre-treatment pump to conserve energy.

• Optimized diesel flow by modifying the burner nozzle in paint shop oven, savingsignificant amount of diesel.

• Introduced energy efficient CNC punching machine.

• Installed the innovative and energy saving Turbocor chiller in PD lab.

• Redesigned coil leak testing tank, thereby saving water.

• Cooling tower logic was modified using temperature controller to reduce fanmotor operation, saving energy.

b) Additional investments and proposals, if any, being implemented for reduction ofconsumption of energy:

• Installation of servo controlled stabiliser for the lighting load to reduceenergy consumption.

• Installation of VFD for 50 HP motor to save energy.

• Installation of delta to star controller for HP compressor to reduce energyconsumption.

• Installation of flat belts in place of V belts to save energy.

• Installation of LED lights working on inverter to save on lighting load. c)Impact of measures taken:

Reduction in production cost through savings in electrical and fuel consumption.

a) Specific areas in which R&D carried out by the Company:

The Company continued to invest in R&D infrastructure and manpower to keep pacewith technological developments, mainly in the areas of energy efficient products andeco-friendly refrigerants.

The R&D Department has been restructured and reorganised. Manpower has beenincreased by 70%. R&D now follows a Stage-Gate Process, which is in line withinternational practices. The R&D Facility has received an approved status from DSIR(Department of Scientific & Industrial Research).

During the year, a complete range of window and split airconditioners for roomairconditioning applications was developed, to comply with the enhanced energy efficiencyrequirements of the BEE Labelling Programme. Apart from the conventional roomairconditioners, wall-mounted units with Inverter technology were introduced. These unitsare 30 to 40% more efficient than conventional room airconditioners.

A complete new range of cost-effective screw chillers was developed to compete withinternational suppliers. Ultra high efficiency chillers were developed using oil-freetechnology. These have been AHRI certified and are 25% more efficient than conventionalchillers.

b) Benefits derived as a result of the above R&D:

The development of new products has helped the Company to keep abreast with marketdemand and current technologies, in order to improve market share.

c) Future plan of action:

The Company will continue to invest in infrastructure, additional manpower as well asrestructuring and upgrading the R&D function. The Company intends to get a fewselected products certified from international agencies, and prepare to meet thelegislative requirements on the energy labelling and HCFC phase-out programmes. TheCompany also proposes to introduce new technologies for heat exchangers.

d) Expenditure on R&D:

a) Efforts made towards technology absorption, adaptation and innovation:

Efforts continued in strengthening the R&D facilities in order to provide acomprehensive range of products complying with the legislative requirements and to suitmarket needs. This also enabled widening export opportunities, import substitution andadaptation of imported technology to suit the Indian market. Training was imparted totechnical staff as an ongoing process.

b) Benefits derived as a result of the above efforts:

Availability of energy efficient, environment friendly airconditioning systems andequipment; wider range of products; improved quality and product designs; and costreduction were amongst the benefits derived.

c) Information regarding imported technology:

No technologies were imported during the past five financial years.

MAJOR ITEMS OF FOREIGN EXCHANGE EARNINGS AND OUTGO

a) Activities relating to exports, initiatives taken to increase exports, developmentof new export markets for products and services and export plans:

Discussed in detail in the ‘Management Discussion and Analysis’ Report.

b) Total foreign exchange used and earned: