Grasim Industries Ltd

TO THE MEMBERS OF GRASIM INDUSTRIES LIMITED

1. We have audited the attached Balance Sheet of GRASIM INDUSTRIES LIMITED("the Company") as at 31st March, 2010, the Profit and Loss Account and the CashFlow Statement of the Company for the year ended on that date, both annexed thereto, inwhich are incorporated the Returns from the Vikram Woolens Division, audited by the Branchauditor. These financial statements are the responsibility of the Company’sManagement. Our responsibility is to express an opinion on these financial statementsbased on our audit.

2. We conducted our audit in accordance with the auditing standards generally acceptedin India. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatements. Anaudit includes examining, on a test basis, evidence supporting the amounts and thedisclosures in the financial statements. An audit also includes assessing the accountingprinciples used and the significant estimates made by the Management, as well asevaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued bythe Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give inthe Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat:

(i) we have obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit;

(ii) in our opinion, proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books and proper returnsadequate for the purposes of our audit have been received from the Division audited bybranch auditor; whose report has been forwarded to us and has been dealt with by us inpreparing this report;

(iii) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account and the audited BranchReturns;

(iv) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement dealt with by this report are in compliance with the Accounting Standardsreferred to in Section 211(3C) of the Companies Act, 1956;

(v) in our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act, 1956 inthe manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2010;

(b) in the case of the Profit and Loss Account, of the profit of the Company for theyear ended on that date and

(c) in the case of the Cash Flow Statement, of the cash flows of the Company for theyear ended on that date.

5. On the basis of the written representations received from the Directors as on 31stMarch, 2010 taken on record by the Board of Directors, we report that none of theDirectors is disqualified as on 31st March, 2010 from being appointed as a director interms of Section 274(1)(g) of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS’ REPORT

(Referred to in paragraph 3 of our report of even date)

(i) Having regard to the nature of the Company’s business/activities/results,clauses (x) regarding cash loss incurred by the Company, (xiii) regarding chit fund, nidhi/ mutual benefit fund / societies and (xiv) regarding dealing or trading in shares,securities, debentures and other investments, of CARO are not applicable.

(ii) In respect of its fixed assets:

(a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of the fixed assets.

(b) The fixed assets were physically verified during the year by the Management inaccordance with a programme of verification, which in our opinion, provides for physicalverification of all the fixed assets at reasonable intervals. According to the informationand explanations given to us, no material discrepancies were noticed on such verification

(c) The Company has transferred a substantial part of fixed assets during the yearunder the Schemes of Arrangement under Sections 391 to 394 of the Companies Act, 1956 fordemerger of its cement business on 1st October, 2009 into its subsidiary company SamruddhiCement Limited made effective on 18th May, 2010 and for sale of its sponge iron uniteffective on 22nd May, 2009. Such transfers have, in our opinion, not affected the goingconcern status of the Company.

(iii) In respect of its inventory:

(a) As explained to us, the inventories were physically verified during the year by theManagement except stocks lying with third parties for which confirmations have beenobtained. In our opinion the frequency of verification is reasonable.

(b) In our opinion and according to the information and explanation given to us, theprocedures of physical verification of inventories followed by the Management werereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) In our opinion and according to the information and explanations given to us, theCompany has maintained proper records of its inventories and no material discrepancieswere noticed on physical verification.

(iv) The Company has neither granted nor taken any loans, secured or unsecured, to /from companies, firms or other parties listed in the Register maintained under Section 301of the Companies Act, 1956.

(v) In our opinion and according to the information and explanations given to us, thereis an adequate internal control system commensurate with the size of the Company and thenature of its business with regard to purchases of inventory and fixed assets and the saleof goods and services. During the course of our audit, we have not observed any majorweakness in such internal control system.

(vi) To the best of our knowledge and belief and according to the information andexplanations given to us, there were no contracts or arrangements that needed to beentered in the Register maintained under Section 301 of the Companies Act, 1956.

(vii) According to the information and explanations given to us, the Company has notaccepted any deposit from the public in terms of the provisions of Sections 58A and 58AAor any other relevant provisions of the Companies Act, 1956.

(viii) In our opinion, the Company has an adequate internal audit system commensuratewith the size and the nature of the Company’s business.

(ix) We have broadly reviewed the books of account maintained by the Company pursuantto the rules made by the Central Government for the maintenance of cost records underSection 209(1)(d) of the Companies Act, 1956 in respect of the Company’s products towhich the said rules are applicable and are of the opinion that prima facie the prescribedaccounts and records have been made and maintained. We have, however, not made a detailedexamination of the records with a view to determining whether they are accurate orcomplete. To the best of our knowledge and according to the information and explanationsgiven to us, the Central Government has not prescribed the maintenance of cost records forany other product of the Company.

(x) According to the information and explanations given to us in respect of statutorydues:

(a) The Company has generally been regular in depositing undisputed dues, includingProvident Fund, Investor Education and Protection Fund, Employees’ State Insurance,Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and othermaterial statutory dues applicable to it with the appropriate authorities.

(b) There were no undisputed amounts payable in respect of above mentioned statutorydues in arrears as at 31st March, 2010 for a period of more than six months from the datethey became payable.

(c) Details of dues of Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty,Excise Duty and Cess, to the extent applicable, which have not been deposited as on 31stMarch, 2010 on account of disputes and the forum where the dispute is pending are givenbelow:

(xi) In our opinion and according to the information and explanations given to us, theCompany has not defaulted in the repayment of dues to banks, financial institutions anddebenture holders during the year.

(xii) In our opinion and according to the information and explanations given to us, theCompany has not granted loans and advances on the basis of security by way of pledge ofshares, debentures and other securities.

(xiii) In our opinion and according to the information and explanation given to us, theterms and conditions of the guarantees given by the Company for loans taken by others frombanks and financial institutions are not prima facie prejudicial to the interests of theCompany.

(xiv) In our opinion and according to the information and explanations given to us, theterm loans have been applied for the purposes for which they were obtained.

(xv) In our opinion and according to the information and explanations given to us andon an overall examination of the Balance Sheet, we report that funds raised on short-termbasis have not been used for long term investment.

(xvi) According to the information and explanations given to us, during the periodcovered by our audit report, the Company has not made any preferential allotment of sharesto parties and companies covered in the Register maintained under Section 301 of theCompanies Act, 1956.

(xvii) According to the information and explanations given to us, during the periodcovered by our audit report, the Company had issued 2000 debentures of Rs. 10,00,000 each.The Company has created security in respect of the debentures issued.

(xviii) According to the information and explanations given to us, the Company has notraised any money by way of public issue during the year.

(xix) During the course of our examination of the books and records of the company,carried out in accordance with the generally accepted auditing practices in India, andaccording to the information and explanations given to us, we have neither come across anyinstance of fraud on or by the Company, noticed or reported during the year nor have webeen informed of such case by the management.