Nestle India Ltd

TO THE MEMBERS OF NESTL INDIA LIMITED

1. We have audited the attached balance sheet of NESTL INDIA LIMITED ("theCompany") as at December 31, 2010, the profit and loss account and the cash flowstatement 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 atDecember 31, 2010;

(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 onDecember 31, 2010 taken on record by the Board of Directors, none of the directors isdisqualified as on December 31, 2010 from being appointed as a director in terms ofSection 274(1)(g) of the Companies Act, 1956.

ANNEXURE REFERRED TO IN PARAGRAPH ‘3’ OF THE AUDITORS’ REPORT TO THEMEMBERS OF NESTL INDIA LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2010.

(i) (a) The Company is maintaining proper records showing full particulars includingquantitative details and situation of fixed assets.

(b) In our opinion, the management has physically verified most of the fixed assets ofthe Company during the year at reasonable intervals, having regard to the size of theCompany and nature of its assets.

The discrepancies noticed on such verification were not material and have been properlydealt with in the books of account.

(c) In our opinion and according to the information and explanations given to us, theCompany has not disposed off a substantial part of its fixed assets during the year.

(ii) (a) During the year, the inventories have been physically verified by themanagement. In our opinion, the frequency of verification is reasonable.

(b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of stocks followed by the management are reasonableand adequate in relation to the size of the Company and the nature of its business.

(c) On the basis of our examination of the records of inventories, we are of theopinion that the Company is maintaining 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 loans, secured or unsecured to companies, firms or otherparties covered in the register maintained under section 301 of the Companies Act, 1956.Accordingly, paragraphs 4 (iii) (a), (b), (c) and (d) of the Companies (Auditor’sReport) Order, 2003 (hereinafter referred to as the Order) are not applicable.

(b) According to the information and explanations given to us, the Company has, duringthe year, not taken any loans, secured or unsecured from companies, firms or other partiescovered in the register maintained under section 301 of the Companies Act, 1956.

Accordingly, paragraphs 4 (iii) (e), (f) and (g) of the Order, are not applicable.

(iv) In our opinion and according to information and explanations given to us, thereare adequate internal control systems commensurate with the size of the Company and thenature of its business with regard to the purchase of inventories, fixed assets and withregard to sale of goods. There is no sale of services. Further, on the basis of ourexamination and according to the information and explanations given to us, no majorweaknesses in the aforesaid internal control system, has been noticed.

(v) (a) According to the information and explanations given to us, we are of theopinion that, the particulars of the contracts / arrangements referred to in Section 301of the Companies Act, 1956, were entered in the register required to be maintained underthat Section.

(b) 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 and exceeding the value of Rupeesfive lacs in respect of any party were made at prices which were reasonable having regardto prevailing market prices at the relevant times.

(vi) As, the Company has not accepted any deposits from the public, paragraph 4(vi) ofthe Order is not applicable. (vii) In our opinion, the Company has an internal auditsystem commensurate with its size and the nature of its business.

(viii) We have broadly reviewed the books of account maintained by the Company inrespect of products where, pursuant to the rules made by the Central Government, themaintenance of cost records have been prescribed under 209 (1) (d) of the Companies Act,1956 and are of the opinion that, prima facie, the prescribed accounts and records havebeen made and maintained. We have not, however, made a detailed examination of recordswith a view to determining whether they are accurate or complete.

(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 investor education and protection fund, employees’ stateinsurance, income-tax, wealth tax, custom duty, excise duty, provident fund, sales-tax,service tax, cess, professional tax and other material statutory dues applicable to itwith the appropriate authorities. We are informed that there are no undisputed statutorydues as at the year end, outstanding for a period of more than six months from the datethey became payable.

(b) According to the information and explanations given to us and the records of theCompany examined by us, there are no disputed dues of customs duty and wealth tax, whichhave not been deposited.

The details of disputed dues as at December 31, 2010 in respect of excise duty, salestax, service tax, cess and income-tax that have not been deposited by the Company, are asfollows:-

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

The following matters, which have been excluded from the table above, have been decidedin favour of the Company but the department has preferred appeals at higher levels. Thedetails are given below:-

(x) The Company does not have accumulated losses at the end of the financial yearDecember 31, 2010.

Further, the Company has not incurred cash losses during the financial year endedDecember 31, 2010 and in the immediately preceding financial year ended December 31, 2009.

(xi) 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.

(xii) The Company has not granted any loans and advances on the basis of security byway of pledge of shares, debentures and other securities, accordingly paragraph 4 (xii) ofthe Order is not applicable.

(xiii) The Company is not a chit fund / nidhi / mutual benefit fund / society to whichthe provisions of special statute relating to chit fund are applicable, accordinglyparagraph 4 (xiii) of the Order, is not applicable.

(xiv) As the Company is not dealing or trading in shares, securities, debentures andother investments, paragraph 4 (xiv) of the Order is not applicable.

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

(xvi) In our opinion and according to the information and explanations given to us, theCompany has not taken any term loans during the year.

(xvii) According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we report that, during the year, shortterm funds have not been used to finance long term investments.

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

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

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

(xxi) Based upon the audit procedures performed and information and explanations givenby the management, we report that no material fraud on or by the Company has been noticedor reported during the year ended December 31, 2010.