Kakatiya Cement Sugar & Industries Ltd

To

The Members of

Kakatiya Cement Sugar & Industries Limited., Hyderabad.

We have audited the attached Balance Sheet of M/s. Kakatiya Cement Sugar &Industries Limited, as at 31st March, 2011 and the Profit & Loss Account for theyear ended on that date annexed thereto and Cash Flow Statement for the year ended on thatdate. These financial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion 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 statements presentation. We believe that our audit provides a reasonable basisfor our opinion.

1. As required by the Companies (Auditors Report) Order, 2003 issued by the CentralGovernment in terms of Section 227(4A) of the Companies Act, 1956, we enclose in theannexure hereto a statement on the matters specified in paragraphs 4 and 5 of the saidorder.

2. Further to our Comments in the annexure referred to in paragraph 1 above, we reportthat

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, the Company has kept proper books of account as required by law, sofar as appears from our examination of those books.

c. The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account.

d. 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, to the extent applicable, except thatthe provision for gratuity has been arrived on accrual basis and leave encashment on cashbasis instead of actuarial valuation (Refer Note.1 (vii) of Schedule XII).

e. On the basis of written representations received from the Directors of the company,as on 31st March, 2011 and taken on record by the board of directors, wherever applicablewe report that none of the directors is disqualified as at 31st March, 2011 from beingappointed as a director of the Company in terms of clause (g) of sub-section (1) Section274 of the Companies Act, 1956.

f. In our opinion, and to the best of our information and according to the explanationsgiven to us, the said financial statements read together with the significant AccountingPolicies and other notes there on give the information required by the Companies Act,1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

i) In the case of the Balance Sheet, of the State of Affairs of the Company as at 31stMarch, 2011;

ii) In the case of the Profit & 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 for the year ended onthat date.

ANNEXURE TO THE AUDITORS' REPORT

(Statement referred to in paragraph 1 of our Report of even date)

i) a) The company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.

b) The management has physically verified most of the fixed assets of the company andno material discrepancies were noticed on such physical verification.

c) No substantial part of the fixed assets has been disposed off during the year.

ii) a) The inventory has been physically verified during the year by the management. Inour opinion, the frequency of verification is reasonable.

b) The procedures of physical verification of inventories followed by the managementare reasonable 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 inventory, we are of the opinionthat the company is maintaining proper records of inventory. The discrepancies noticed onverification between the physical stocks and the book records were not material.

iii) a) The company has taken unsecured loans from persons listed in the registermaintained under Section 301. Maximum outstanding during the year was Rs. 2.30crores andclosing outstanding is Rs. 2.30 crores. The Company has not granted loans to Companies,firms etc., listed in the register maintained under Section 301 of the Act.

b) The terms and conditions of loan taken are prima facie not prejudicial to theinterest of the company.

iv) In our opinion and according to the information and explanations given to us, thereare adequate internal control procedures commensurate with the size of the company and thenature of its business with regard to purchase of inventory, fixed assets and with regardto the sale of goods. During the course of our audit, no major weakness has been noticedin the internal controls.

v) a) Based on the audit procedures applied by us and according to the information andexplanations provided by the management, we are of the opinion that the transactions thatneed to be entered into the register maintained under section 301 have been so entered.

b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements with companies, firms or otherparties listed in the Register maintained under Section 301 of the Act do not exceed Rs. 5lakhs in value, and the transactions made are at the prices which are reasonable andhaving regard to the prevailing market prices at the relevant time.

vi) The company has complied with the provisions of Sections 58A and 58AA of theCompanies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard tothe deposits accepted from the public.

vii) The company has an internal audit system commensurate with the size and nature ofits business.

viii) The company, in our opinion and according to the information and explanationsgiven to us, has made and maintained accounts and records prescribed by the CentralGovernment under section 209(1)(d) of the Companies Act, 1956 in respect of cement andpower divisions. We have not examined the contents of these accounts and records.

ix) a) According to the records of the company, the company is regular in depositingwith appropriate authorities undisputed statutory dues including provident fund, investoreducation and protection fund, income-tax, sales-tax, wealth-tax, custom duty,excise-duty, service tax, Cess and other statutory dues applicable to it and there were noarrears of outstanding statutory dues as at the last day of the financial year concernedfor a period of more than six months from the date they became payable.

b) According to the information and explanations given to us the following are theparticulars of disputed dues and amounts not paid thereon on account of sales tax, incometax and Central Excise:

x) The company has no accumulated losses and it has not incurred any cash losses in thefinancial year ended on that date or in the immediately preceding financial year.

xi) The company has not defaulted in repayment of dues to financial institutions, banksor debenture holders.

xii) During the year, the company has not granted loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.

xiii) The company is not a chit fund or a nidhi or mutual benefit fund/society.Therefore, the provisions of clause 4 (xiii) of the Companies (Auditor's Report) Order,2003 are not applicable to the company.

xiv) The company is not a dealer or trader in shares, securities, debentures and otherinvestment.

xv) The company has not given any guarantee for loans taken by others from banks orfinancial institutions.

xvi) According to the information and explanations given to us, the term loans wereapplied for the purpose for which they were obtained.

xvii) According to the information and explanations given to us and on an overallexamination of the cash flow statement and the Balance Sheet of the Company, in ouropinion the funds raised on short term basis have prima facie not been used for long terminvestment.

xviii) According to the information and explanations given to us, during the year theCompany has not made preferential allotment of shares to parties and companies covered inthe register maintained under Section 301 of the Companies Act, 1956.

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

xx) According to the information and explanations given to us, the Company has notraised any money by way of public issue during the year. Accordingly, the provisions ofclause 4 (xx) of the Companies (Auditor's Report) Order, 2003 are not applicable to thecompany.

xxi) During the course of audit, based upon the audit procedures performed andinformation and explanations given by the management, no instance of fraud on or by thecompany has been noticed or reported during the course of our audit.