Hindalco Industries Ltd

TO THE SHAREHOLDERS

We have audited the attached balance sheet of HINDALCO INDUSTRIES LIMITED as at31^st March, 2010 and also the profit and loss account and the cash flowstatement for the year ended on that date. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our Audit.

We conducted our audit in accordance with auditing standards generally accepted inIndia. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

As required by the Companies (Auditor’s report) Order, 2003, as amended by theCompanies (Auditor’s Report)(Amendment) Order, 2004 issued by the Central Governmentof India in terms of Sub-Section (4A) of Section 227 of the Companies Act, 1956, weenclose as Annexure, a statement on the matters specified in the paragraphs 4 and 5 of thesaid order.

Further to our comments in the Annexure referred above, we report that:

1) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purpose of our audit;

2) In our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;

3) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;

4) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in Sub-Section(3C) of Section 211 of the Companies Act,1956.

5) On the basis of the written representations received from the directors as on 31^stMarch, 2010 and taken on record by the Board of Directors, we report that none of theDirectors is disqualified as on 31^st March, 2010 from being appointed as aDirector in terms of Clause (g) of Sub-Section (1) of Section 274 of the Companies Act,1956;

6) Without qualifying our opinion, attention is drawn to the following :-

As referred in Note no 20 of Schedule 19, the Company has partially adopted AccountingStandard (AS) 30 on Financial Instruments : Recognition and Measurement, in so far as itrelates to derivative accounting, from 1^st April, 2009. Accordingly, net lossarising on fair valuation of outstanding derivatives as on 1^st April, 2009amounting to Rs. 230.58 crores (net of deferred tax of Rs.118.73 crores) has been adjustedagainst general reserve following transitional provisions. Accounting for all derivativesfrom 1^st April, 2009 have been done as prescribed under the AS. Accordingly,net gain / (loss) of Rs. (236.12) crores , Rs. 167.75 crores and Rs. 246.09 crores for theyear ended 31^st March, 2010 have been included under Sales and Raw MaterialsConsumed & Other Expenses (in Manufacturing and Other Expenses), respectively, withconsequential impact on profit for the year ended 31^st March,2010.

In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read together with significant accounting policies inSchedule 19 and notes appearing thereon give the information required by the CompaniesAct, 1956 (as amended) in the manner so required and give a true and fair view inconformity with the accounting principles generally accepted in India;

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

(b) In the case of the Profit and Loss Account, of the Profit for the year ended onthat date; and

(c) In the case of Cash Flow Statement, of the Cash Flows for the year ended on thatdate.

ANNEXURE TO THE AUDITORS’ REPORT

I (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of Fixed Assets.

(b) Fixed Assets have been physically verified by the management according to a phasedprogram designated to cover all items over a period of three years which in our opinionis, reasonable having regard to size of the Company and the nature of its assets. Pursuantto the program, certain fixed assets have been physically verified by the managementduring the year and no material discrepancies between book record and physical inventoryhas been noticed.

(c) No substantial part of fixed assets has been disposed of during the year, which hasbearing on the going concern assumption.

II (a) Physical verification of inventory, (except stocks in transit and stocks lyingwith third parties, confirmation for which has been obtained) have been conducted atreasonable intervals during the year by the management/ outside agencies.

(b) In our opinion, the procedures of physical verification of inventory followed bythe management are reasonable and adequate in relation to the size of the Company andnature of its business.

(c) The Company has maintained proper records of inventory. No material discrepancieswere noticed on physical verification.

III (a) The Company has not granted any loans, secured or unsecured to companies, firmsor other parties listed in the register maintained under Section 301 of the Companies Act,1956.

(b) The Company has not taken any loans, secured or unsecured from companies, firms orother parties listed in the register maintained under Section 301 of the Companies Act,1956.

IV On the basis of checks carried out during the course of audit and as perexplanations given to us, we are of the opinion that there are adequate internal controlprocedures commensurate with the size of the Company and the nature of its business; forthe purchase of inventory and fixed assets and for the sale of goods and services. Duringthe course of our audit, no major weakness has been noticed or reported in the internalcontrols.

V In our opinion and according to the information and explanations given to us, thereare no contracts or arrangements referred to in Section 301 of the Companies Act, 1956,particulars of which needs to be entered into register maintained under Section 301 of theAct. Accordingly, clause 4(v)(b) of the Order is not applicable.

VI The Directives issued by the Reserve Bank of India and the provisions of Sections58A and 58AA and other relevant provisions of the Companies Act, 1956 and the rules framedthere-under have been complied with in respect of deposits accepted from the public. Wehave been informed that, no order has been passed by Company Law Board or National CompanyLaw Tribunal or Reserve Bank of India or any other Court or Tribunal in this regard.

VII The Company has an internal audit system, which in our opinion is commensurate withthe size and nature of the business.

VIII The Company has maintained proper cost records as prescribed by Central Governmentunder Section 209 (1) (d) of the Companies Act, 1956 for the products of the Company butno detailed examination of such records has been carried out by us.

IX (a) According to the information and explanations given to us and on the basis ofour examination of the books of account, the Company is generally regular in depositingundisputed statutory dues including Provident Fund, Investor Education and ProtectionFund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax,Customs Duty, Excise Duty, Cess and other statutory dues with the appropriate authorities.According to the information and explanations given to us no undisputed statutory dues asabove were outstanding as at 31st March, 2010 for a period of more than 6 months from thedate they became payable.

(b) According to the information and explanations given to us, the dues of Sales Tax,Income Tax, Customs Duty, Wealth Tax, Excise Duty, Service Tax and Cess which have notbeen deposited on account of any dispute and the forum where the dispute is pending as on31^st March 2010 are as under:

X The Company does not have any accumulated losses and has not incurred cash losses inthe current financial year and in the immediately preceding financial year.

XI The Company has not defaulted in repayment of dues to Financial Institutions orBanks or Debenture holders.

XII According to the information and explanations given to us, the Company has notgranted any loans or advances on the basis of security by way of pledge of Shares,Debentures and other Securities.

XIII The Company is not a chit fund or a nidhi/mutual benefit fund/ society.

XIV The Company is not in the business of dealing or trading in shares. The Company hasmaintained proper records of transactions and contracts in respect of Shares, Securities,Debentures and other Investments and timely entries have been made therein. The Shares,Securities, Debentures and other Investments have been held by the Company, in its ownname except to the extent of exemption, granted under Section 49 of the Companies Act,1956.

XV In our opinion and according to the information and explanations given to us, theterms and conditions on which the Company has given corporate guarantees for loans takenby its Subsidiaries and Joint Ventures from Banks and Financial Institutions (includingforeign banks) are not prima facie prejudicial to the interest of the Company.

XVI Based on information and explanations given to us by the management, term loanswere applied for the purpose for which the loans were obtained though unutilized fundswhich were not required for immediate use for capital expenditure have been temporarilyinvested in mutual funds / bank deposit.

XVII According to the information and explanations given to us and on the basis of ouroverall examination of the Balance Sheet and Cash Flow Statement, we report that no fundsraised on short term basis have been used for long term investment of the Company.

XVIII During the year under audit, the Company has not made any preferential allotmentof Shares to parties and Companies covered under register maintained under Section 301 ofthe Companies Act 1956.

XIX During the year under audit, the Company has neither issued any debentures nor anydebentures were outstanding at the year end.

XX The Company has not raised any money by Public Issues during the year. However, theCompany has raised Rs. 2,790.10 crores through Qualified Institutions Placement("QIP") by allotting 213,147,391 Equity Shares at a price of Rs. 130.90 pershare and has disclosed the end use of money received from QIP in note no.16 (b) ofSchedule 19 on notes on accounts and the same has been verified by us.

XXI During the course of our examination of the books and records of the Company,carried out in accordance with the Generally Accepted Auditing Practice 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 cases by the management.