Hero MotoCorp Ltd

To The Members Of

Hero Honda Motors Limited

1. We have audited the attached Balance Sheet of HERO HONDA MOTORS LIMITED("the Company") as at March 31, 2011, the Profit and Loss Account and the CashFlow Statement of the Company for the year ended on that date, both annexed thereto. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based 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 enclosein the Annexure a statement on the matters specified in paragraphs 4 and 5 of the saidOrder.

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

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

(b) 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;

(c) 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;

(d) 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;

(e) 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:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as atMarch 31, 2011;

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

(iii) 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 March31, 2011 and taken on record by the Board of Directors, none of the Directors isdisqualified as on March 31, 2011 from being appointed as a director in terms of Section274(1)(g) of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS’ REPORT

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

Having regard to the nature of the Company’s business/ activities/result, clauses4(x) and (xiii) of Companies (Auditor’s Report) Order, 2003 (hereinafter referred toas the Order) are not applicable.

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

(b) As explained to us, the Company has a programme of physically verifying all of itsfixed assets over a period of three years and in accordance therewith, physicalverification of certain fixed assets of the Company was carried out during the year. Inour opinion, the frequency of physical verification is reasonable having regard to thesize of the Company and nature of its fixed assets. The discrepancies noticed on suchverification were not material and have been properly dealt with in the books of account.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute asubstantial part of the fixed assets of the Company and such disposal has, in our opinion,not affected the going concern status of the Company.

(ii) (a) During the year, the inventories have been physically verified by themanagement except for inventories lying with third parties at the end of the year forwhich confirmations have been obtained in most of the cases. In our opinion, the frequencyof verification is reasonable.

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

(c) On the basis of our examination of the records of inventories, we are of theopinion that the Company has maintained proper records of inventories. The discrepanciesnoticed on physical verification of inventories as compared to book records were notmaterial and have been properly dealt with in the books of account.

(iii) (a) According to the information and explanations given to us, the Company has,during the year, not granted any loan, secured or unsecured to companies, firms and otherparties covered in the register maintained under Section 301 of the Companies Act, 1956,other than unsecured loans aggregating Rs. 465 crores granted to a Company covered in theregister maintained under Section 301 of the Companies Act, 1956. The maximum amount dueduring the year was Rs. 155 crores and the year end balance of loans granted was Rs. 20crores.

(b) In our opinion and according to the information and explanations given to us, therate of interest and other terms and conditions of the loans granted by the Company, asreferred to in paragraph 4(iii) (a) above, are, prima-facie, not prejudicial to theinterest of the Company.

(c) According to the information and explanations given to us, the party to whom theloans have been granted by the Company, as referred to in paragraph 4(iii)(a) above, hasbeen regular in repayment of principal amount as stipulated and has been regular inpayment of interest.

(d) According to the information and explanations given to us, there are no overdueamounts in respect of the loans granted as referred to in paragraph 4(iii) (a) above andinterest thereon.

(e) According to the information and explanations given to us, the Company has duringthe year not taken any loans, secured or unsecured from companies, firms and other partiescovered in the register maintained under Section 301 of the Companies Act, 1956.Accordingly, paragraph 4(iii)(f) and (g) of the Order are not applicable.

(iv) In our opinion and according to information and explanations given to us, havingregard to the explanations that some of the items purchased are of special nature andsuitable alternatives sources are not readily available for obtaining comparablequotations, there is an adequate internal control system commensurate with the size of theCompany and the nature of its business with regard to the purchases of inventories andfixed assets and for the sale of goods and services. During the course of our audit, wehave not observed any major weakness in such internal control system.

(v) In respect of contracts or arrangements entered in the Register maintained inpursuance of Section 301 of the Companies Act, 1956, to the best of our knowledge andbelief and according to the information and explanations given to us:

(a) The particulars of contracts or arrangements referred to in Section 301 that needto be entered in the Register maintained under the said Section have been so entered.

(b) Where each of such transaction is in excess of Rs. 5 lakhs in respect of anyparty, the transactions have been made at prices which are prima facie reasonable havingregard to the prevailing market prices at the relevant time except in respect of certainpurchases for which comparable quotations are not available and in respect of which we areunable to comment.

(vi) The Company has not accepted any deposits from the public, paragraph 4(vi) of theOrder is not applicable.

(vii) In our opinion, the internal audit function carried out during the year by firmsof Chartered Accountants appointed by the Management, have been commensurate with the sizeof the Company and the nature of its business.

(viii) 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 and are of the opinion that, prima-facie, theprescribed accounts and records have been made and maintained. We have, however, not madea detailed examination of records with a view to determining whether they are accurate orcomplete.

(ix) (a) According to the information and explanations given to us and the records ofthe Company examined by us, the Company has been regular in depositing undisputedstatutory dues including provident fund, investor education and protection fund,employees’ state insurance, income-tax, sales tax, wealth tax, customs duty, exciseduty, cess, value added tax, Haryana local area development tax and other materialstatutory dues applicable to it with the appropriate authorities other than delays indeposit of service tax. We are informed that there are no undisputed statutory dues as atthe year end outstanding for a period of more than six months from the date they becamepayable.

(b) According to the information and explanations given to us and the records of theCompany examined by us, there are no disputed dues in respect of sales tax, wealth tax,customs duty, and cess which have not been deposited. The following are the particulars ofexcise duty, service tax and income-tax dues not deposited / deposited under protest bythe Company on account of disputes as at March 31, 2011:

* Amount as per demand orders including interest and penalty wherever indicated in theorder.

** Balance of unpaid amount has been stayed.

The following matters have been decided in favour of the Company but the department haspreferred appeals at higher levels:

(x) According to the records of the Company examined by us and on the basis ofinformation and explanations given to us, the Company has not defaulted in repayment ofdues to banks during the year. The Company has not taken any loans from financialinstitutions and has not issued debentures during the year.

(xi) In our opinion and according to the information and explanations given to us, theCompany has not granted any loans and advances during the year on the basis of security byway of pledge of shares, debentures and other securities.

(xii) In our opinion and according to the information and explanations given to us, theCompany is not dealing or trading in shares, securities, debentures and other investments.

(xiii) According to the information and explanations given to us, the Company has notgiven any guarantees during the year for loans taken by others from banks or financialinstitutions.

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

(xv) According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we report that, short term funds have notbeen used to finance long term investments.

(xvi) The Company has not made any preferential allotment of shares during the year.

(xvii) The Company has not issued any debentures during the year.

(xviii) The Company has not raised any money by way of public issue during the year.

(xix) To the best of our knowledge and according to the information and explanationsgiven to us, no fraud by the Company and no material fraud on the Company has been noticedor reported during the year.