Kwality Dairy (India) Ltd

To the Members of

KWALITY DAIRY (INDIA) LIMITED

We have audited the attached Balance Sheet of Kwality Dairy (India)Limited , as at 31stMarch, 2010 and also the Profit and Loss Account for the year ended on that date annexedthereto. These financial statements are the responsibility of the Company's management.Our responsibility is to express an opinion on these financial statements based on ouraudit.

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 the Companies(Auditor's report) amendment Order 2004 issued by the Central Government of India in termsof sub- section (4A) of Section 227 of the Companies Act, 1956, and on the basis of suchchecks of the books and records as we considered appropriate and according to theinformation and explanation given to us , we set out in the Annexure a statement on thematters specified in Paragraphs 4 and 5 of the said Order to the extent applicable to theCompany.

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

(i) We have obtained all the information and explanations, which to 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 appears from our examination of those books;

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

(iv) In our opinion, the Balance Sheet and the Profit and Loss Account dealt with bythis report comply with the Accounting Standards referred to in sub-section (3C) ofSection 211 of the Companies Act, 1956;

(v) On the basis of written representations received from the directors, as on 31stMarch, 2010 and 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 clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information and according to theexplanations given to us, the said accounts give the information required by the CompaniesAct, 1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

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

b) in the case of the Profit and Loss Account of the Profit for the year ended on thatdate.

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

ANNEXURE TO THE AUDITOR'S REPORT OF KWALITY DAIRY (INDIA) LIMITED FOR THE YEAR ENDED31ST MARCH 2010

1.a) The Company has generally maintained proper records showing full particularsincluding quantitative details and situation of fixed assets.

1.b) All the assets have not been physically verified by the management during the yearbut there is a regular programme of verification of its fixed assets in a phased mannerwhich, in our opinion, is reasonable having regard to the size of the Company and thenature of its assets. No material discrepancies were noticed on such verification.

1c) During the year, the Company has not disposed off a substantial part of the fixedassets. Based on the information and explanation given by the management and on the basisof audit procedures performed by us, we are of the opinion that the sale of the fixedassets, if any, has not affected the going concern status of the Company.

2 The inventory has been physically verified during the year by the management. In ouropinion, the frequency of verification is reasonable.

2a) 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.

2b) 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.

3a) The Company has not granted loans, secured or unsecured , to companies firms orother parties listed in the register maintained under section 301 of the Companies Act,1956.

3b) The Company has taken unsecured loans from two companies covered in the registermaintained under section 301 of the Companies Act 1956. The maximum amount involved duringthe year and year end balances of such loans aggregates to 4500.00 lacs. Besides thecompany has also received amounts under current account from three companies covered inthe Register maintainer under section 301 of the Companies Act, 1956. The maximum amountinvolved during the year 3387.80 Lacs and year end balances of amount received from suchcompanies were Nil.

3c) The Company had taken interest free loans from the parties covered in the registermaintained under section 301 of the Companies Act,1956. In our opinion and according tothe information and explanation given to us, the terms and conditions on which abovementioned loans have been taken from companies, firms or other parties listed in theregisters maintained under Section 301 of the Companies Act, 1956, are not, prima facie,prejudicial to the interest of the Company.

3d) The Company is regular in repaying the principal amounts as stipulated and has beenregular in the payment of Interest wherever agreed.

3e) There is no overdue amount of loans received from companies, firms or other partiescovered in the register maintained under Section 301 of the Companies Act, 1956.

4 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 and fixed assets and for thesale of goods and services. During the course of our audit, we have not observed anycontinuing failure to correct major weaknesses in the internal control systems.

5a) 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 particulars ofcontracts or arrangements that need to be entered into the register maintained underSection 301 of the Companies Act, 1956 have been so entered.

5b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of contracts or arrangements entered in the registermaintained under Section 301 of the Companies Act, 1956, there are transactions referredto in above (a) above did not exceed the value of Rupees Five Lac in respect of any partyduring the year.

6 In our opinion and according to the information and explanations given to us, theCompany has not accepted any deposits covered by the provisions of Sections 58A and 58AAor any other relevant provisions of the Companies Act, 1956 and the Companies (Acceptanceof Deposits) Rules, 1975 and hence the provisions of clause 4 (vi) of the Companies(Auditor's Report) Order, 2003 are not applicable to the Company.

7. In our opinion, the Company has an internal audit system commensurate with the sizeand nature of its business. We recommend the enlargement of scope of work and frequency ofinternal audit of the Company.

8. We have broadly reviewed the books of accounts maintained by the company in respectof products where, pursuant to the Rules made by the Central Government of India , themaintenance of cost records has been prescribed under clause (d) of sub-section 209 of theCompanies Act , 1956 and are of opinion that prima facie, prescribed accounts and recordshave been maintained. We have not, however carried out a detailed examination of the same.

9a). According to the records of the Company examined by us, the Company has beengenerally regular in depositing with appropriate authorities undisputed statutory duesincluding, investor educations protection fund, employees' state insurance, sales tax,Vat, wealth tax, service tax, custom duty, excise duty, cess and other statutory dueswith appropriate authorities. There have been delays in depositing undisputed AdvanceIncome Tax and the amount outstanding as at the last day of the financial year for aperiod exceeding six months from the date they become payable , amounts to 467.65Lacs(prev year 206.38 Lacs) . There were no dues during the year towards Investor Educationand Protection Fund and Excise Duty.

9b). According to the records of the Company examined by us and according to theinformation and explanations given to us, there are no dues of income-tax, sales tax,wealth tax, service tax, custom duty, excise duty and cess which have not been depositedon account of any dispute, except

10. The company has no accumulated losses at the end of the financial year and it hasnot incurred any cash losses in the current and immediately preceding financial year.

11. Based on our audit procedures and in our opinion and according to the informationand explanations given by the management, except for some delays in few cases the Companyhas not defaulted in repayment of dues to banks and financial institutions. The companyhas not issued any debenture.

12 As the Company has not granted any loans and advances on the basis of security byway of pledge of shares, debentures and other securities the provisions of clause 4 (xii)of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

13 In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund /society, hence the provisions of clause 4 (xiii) of the Companies (Auditor's Report)Order, 2003 are not applicable to the Company.

14. According to the information and explanation given to us , the company is notdealing in or trading in shares, securities, debentures and other investments. Accordinglythe provisions of clause (xiv) of paragraph 4 of the Companies (Auditor's Report) order2003 ( as amended) are not applicable to the Company.

15. According to the information and explanation given to us , the Company has notgiven any guarantee for loans taken by others from bank or financial institutions.

16 In our opinion and according to the information and explanations furnished to us,the term loans have been applied for the purpose for which they were obtained.

17. According to the information and explanations given to us and on an overallexamination of the Balance Sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investment.

18. The Company has not made preferential allotment of shares to parties and companiescovered in the register maintained under Section 301 of the Companies Act, 1956.

19. As the Company has not issued any debentures the provisions of clause 4 (xix) ofthe Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

20 As the Company has not raised any money by public issue the provisions relating toend use thereof as per clause 4 (xx) of the Companies (Auditor's Report) Order, 2003 arenot applicable to the Company.

21. Based upon the audit procedures performed and according to the information andexplanations given by the management, we report that no fraud on or by the Company hasbeen noticed or reported during the course of our audit.