Somany Ceramics Ltd

To

The members of

Somany Ceramics Limited

We have audited the attached Balance Sheet of Somany Ceramics Limited as at 31stMarch, 2011, the Profit & Loss Account and also the Cash Flow Statement for the yearended on that date annexed thereto. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express an opinion on thesefinancial 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.

We report that:

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 appears from our examination of those books;

c) The Balance Sheet, Profit & 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 & 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;

e) On the basis of written representations received from the Directors of the Companyand taken on record by the Board of Directors, we report that none of the directors of theCompany is disqualified as on 31st March, 2011 from being appointed as a Director in termsof clause (g) of sub section (1) of section 274 of the Companies Act, 1956;

f) Attention is invited to note no. 7 of schedule 17 of notes to accounts regardinginvestment, outstanding overdue debtors and advances to a Joint Venture Company, provisionfor dimunition in the value of investment and recovery of outstanding debtors/advances hasnot been considered by the management for the reasons stated in the said note.

In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read together with notes thereon, give the informationrequired by the Companies Act, 1956 in the manner so required and give a true and fairview in conformity with the accounting principles generally accepted in India:

a) in the case of Balance Sheet, of the state of affairs of the Company as at 31stMarch, 2011;

b) in the case of Profit & Loss Account, of the profit of the Company for the yearended on that date; and

c) in the case of Cash Flow Statement, of the cash flows of the Company for the yearended on that date.

g) As required by the Companies (Auditor’s Report) Order, 2003 (The Order) (asamended) issued by the Central Government of India in terms of Section 227(4A) of theCompanies Act, 1956 (The Act), on the matters specified in paragraphs 4 and 5 of the saidOrder, We further report that:

1. (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of fixed assets except in case of certain locationswhere records are in process of updation/compilation.

(b) As per the information and explanations given to us, certain fixed assets have beenphysically verified by the management according to a regular programme of periodicverification in a phased manner which in our opinion is reasonable having regard to thesize of the Company and nature of fixed assets. The discrepancies noticed on such physicalverification were not material.

(c) As per records and information and explanations given to us, no substantial part offixed assets has been disposed off during the year.

2. (a) As per the information and explanations given to us, the inventories (exceptstocks with third parties and in transit) have been physically verified by the managementat reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventory 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 inventory, we are of the opinionthat the Company is maintaining proper records of inventory (in respect of process stockrecords are updated after physical verification). The discrepancies noticed on suchphysical verification of inventory as compared to book records were not material whichhave been properly dealt with.

3A. (a) As per the information and records made available, the Company has not grantedany loans, secured or unsecured, to companies, firms or other parties except to onecompany covered in the register maintained under section 301 of the Act. The maximumamount involved during the year and the closing balance is ` 4,349,654 and ` 2,000,000respectively.

(b) In our opinion, the rate of interest and other terms and condition of loan grantedare not prima facie prejudicial to the interest of the Company.

(c) In accordance with the information and explanations given to us in respect of theaforesaid loans, there is no as such stipulated schedule for recovery of principal andinterest and the same are recovered on demand.

B (a) As per the information and records made available, the Company has not taken anyloans secured or unsecured from companies, firms or other parties except from twocompanies covered in the register maintained under section 301 of the Act. The maximumamount involved during the year is ` 13,800,000 and the year end balance of such loans are` 5,430,006.

(b) In our opinion, the rate of interest and other terms and conditions of loans takenare not prima facie prejudicial to the interest of the Company.

(c) In accordance with the information and explanations given to us in respect of theaforesaid loans, there in no as such stipulated schedule for repayment of principal andinterest and the same are repayable on demand.

4. In our opinion and according to the information and explanations given to us, havingregard to the explanations that certain items purchased/sold are of special nature forwhich, as explained, suitable alternatives sources do not exist for obtaining comparativequotations, taking into consideration the quality, usage and such other factors, there areadequate internal control systems (read with note no. 8 & 18 of schedule 17)commensurate with the size of the Company and nature of its business with regard topurchase of inventory, fixed assets and for the sale of goods. Further on the basis ofexamination of the books and records of the Company, carried out in accordance with thegenerally accepted auditing principles in India, and according to the information andexplanation given, we have neither come across nor have we been informed of any instanceof major weakness in internal control systems of the Company.

5. (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 particulars ofcontracts or arrangements referred to in section 301 of the Act have been entered in theregister required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, thetransactions made in pursuance of such contracts or arrangements (exceeding the value of `5 lacs in respect of any party during the financial year) have been made at prices whichare generally reasonable having regard to prevailing market prices at the relevant time.

6. In our opinion and according to the information and explanations given to us, theCompany has not accepted any deposits from the public within the meaning of section 58Aand 58AA or any other relevant provisions of the Act and rules framed there under. We havebeen informed that no order has been passed by Company Law Board or National Company LawTribunal or Reserve Bank of India or any Court or any other Tribunal in this regard.

7. In our opinion, the Company has an internal audit system commensurate with the sizeand nature of its business.

8. As per the information and explanations given to us, the Central Government has notprescribed for maintenance of the cost records under section 209(1) (d) of the Act for theproducts of the Company.

9. (a) According to the records and information made available to us, the Company isgenerally regular in depositing with appropriate authorities undisputed statutory duesincluding provident fund, investor education and protection fund, employees’ stateinsurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty, cessand other material statutory dues to the extent applicable to it and there are noundisputed statutory dues payable for a period of more than six months from the date theybecame payable as at 31st March, 2011 except service tax and tax deducted at sourceamounting to ` 13,007 and ` 63,456 respectively. However, the said amount has been paidafter Balance Sheet date along with interest.

(b) According to the records and information and explanations given to us, there are nodues in respect of income tax, wealth tax, service tax, custom duty, excise duty and cessthat have not been deposited with appropriate authorities on account of disputes and thedues in respect of customs duty, excise duty, service tax and sales tax that have not beendeposited with appropriate authorities on account of disputes and the forum where thedispute is pending are as given below:

* Excluding penalty if any (Refer note no. 3(A) of Schedule 17 of Notes to Accounts)

10. The Company does not have accumulated losses as at the end of the financial yearand has not incurred cash losses in the current financial year and in the immediatelypreceding financial year.

11. Based on our audit procedures and on the information and explanations given by themanagement, the Company has not defaulted in repayment of dues to financial institution,banks or debenture holders.

12. According to the information and explanations given to us, the Company has notgranted any loans and/or advances on the basis of security by way of pledge of shares,debentures and other securities.

13. Clause 4 (xiii) of the Order is not applicable to the Company as the Company is nota chit fund or a nidhi/mutual benefit fund/society.

14. In our opinion, the Company is not dealing in or trading in shares, securities,debentures and other investments.

15. According to the information and explanations given to us, the terms and conditionson which Company has given guarantee aggregating to ` 50,400,000 for loans taken by othersfrom banks and financial institutions, are not prima facie prejudicial to the interest ofthe Company.

16. According to the information and explanations given to us, the term loans wereapplied for the purposes for which the loans were obtained.

17. On an overall examination of the financial statements of the Company and on thebasis of information and explanations given to us, we are of the opinion that the Companyhas not used funds raised on short-term basis for long-term investment.

18. According to the information and explanations given to us, the Company has not madeany preferential allotment of shares to any parties and companies covered in the registermaintained under Section 301 of the Act during the year.

19. On the basis of the records made available to us, the Company has no debenturesoutstanding during the year.

20. The Company has not raised any money through public issue during the year.

21. During the course of our examination of the books and records of the Companycarried out in accordance with the auditing standards generally accepted in India, we haveneither come across any material instance of fraud on or by the Company, noticed orreported during the year nor we have been informed of such case by the management.

For Lodha & Co.

Chartered Accountants

Firm Registration No. 301051E

N. K. Lodha

Partner

M.No. 85155

Place: New Delhi

Dated: 28^th May, 2011