Nagarjuna Fertilizers & Chemicals Ltd Merged Auditor Reports

The Members of

Nagarjuna Fertilizers and Chemicals Limited

1. We have audited the attached balance sheet of Nagarjuna Fertilizers and Chemicals Limited as at March 31, 2012, the statement of profit and loss for the year ended on that date and the cash flow statement for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the company’s management. Our responsibility 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 accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (‘CARO’) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. Without qualifying our opinion, we draw attention to the following notes to the financial statements:

a) Note 1 regarding drawing up of financial statements incorporating necessary entries/adjustments as envisaged in the Composite Scheme of Arrangement and Amalgamation as detailed in the said note.

b) Note No 19.1 regarding accounting of subsidy under Group Concession Scheme based on the latest notified rates under NPS III with adjustment of input price escalation as detailed in the said note.

5. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

i) We have obtained all the information and explanations, which to the best of our knowledge 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 the company so far as appears from our examination of those books;

iii) The balance sheet, statement of profit and loss and cash flow statement dealt with by this report are in agreement with the books of account;

iv) In our opinion, the balance sheet, statement of profit and Loss and cash flow statement dealt with by this report are in compliance with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

v) In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with notes and significant accounting policies thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity 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 March 31, 2012;

b) in the case of the statement of profit and loss , of the profit for the year ended on that date; and

c) in the case of the cash flow statement, of the cash flows for the year ended on that date.

6. On the basis of written representations received from the directors, as on March 31, 2012 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

(Referred to in paragraph 3 of our report of even date)

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

b) According to the information and explanations given to us, the fixed assets have been physically verified by the management during the year in accordance with programme of verification, which in our opinion, is reasonable having regard to the size of the Company and the nature of the assets. According to the information and explanations given to us, the discrepancies noticed on such verification were not material and have been properly dealt with in the books of account.

c) The fixed assets disposed off during the year, in our opinion, does not constitute substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

ii) a) Physical verification of inventories at plants and ware houses has been conducted by the management at reasonable intervals during the year. In our opinion, having regard to nature of business and location of stocks, the frequency of verification is reasonable.

b) In our opinion and according to the information and explanations given to us, the procedures followed by the management for physical verification of inventories are reasonable and adequate in relation to the size of the company and nature of its business.

c) In our opinion, the company is maintaining proper records of inventories. According to information and explanations given to us, the discrepancies noticed on verification between physical stocks and book records were not material in relation to the operations of the Company and the same have been properly dealt with in the books of account.

iii) a) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly sub clauses (b), (c) and (d) of clause (iii) of this Order are not applicable.

b) According to the information and explanations given to us, the Company has not taken any loan, secured or unsecured from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly paragraphs (iii) (e), (f) and (g) of clause (iii) of CARO are not applicable.

iv) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the company and the nature of its business with regard to purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system.

v) a) In our opinion and according to the information and explanations given to us, all the contracts or arrangements that need to be entered in the register maintained under section 301 of the Act have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rs. 5 Lakhs in respect of any party during the year have been made at prices which are, prima facie, reasonable having regard to the prevailing market prices wherever available at the relevant time.

vi) In our opinion and according to the information and explanations given to us, the Company has complied with the directives issued by Reserve Bank of India and provisions of Section 58A and 58AA or any other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules 1975 with regard to deposits accepted from the public. According to the information and explanations given to us, the Company has complied with the orders passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal on the Company in respect of the aforesaid deposits.

vii) The internal audit of the Company has been conducted by internal audit department. In our opinion, the scope and coverage of Internal Audit is commensurate with the size of the Company and nature of its business.

viii) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for maintenance of cost records prescribed under Section 209(1) (d) of the Companies Act, 1956, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.

ix) a) According to the information and explanations given to us, the company is regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and any other material statutory dues applicable to it with the appropriate authorities during the year.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of the aforesaid dues were outstanding as at March 31, 2012 for a period of more than six months from the date they became payable.

c) According to the information and explanations given to us, there are no dues of Sales tax / income tax / custom tax / wealth tax / service tax / excise duty / Cess which have not been deposited on account of any dispute.

x) The company does not have accumulated losses and has not incurred any cash losses during the financial year covered by our audit and in the immediately preceding financial year.

xi) According to information and explanations given to us, the company has not defaulted in repayment of dues to Financial Institutions, Banks and debenture holders.

xii) According to the information and explanations given to us, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, the provisions of para 4 (xii) of CARO are not applicable to the Company.

xiii) In our opinion, the company is not a Chit fund/ Nidhi/ Mutual benefit fund/ Society. Accordingly, the provisions of para 4 (xiv) of CARO are not applicable to the Company.

xiv) In our opinion and according to the information and explanations given to us, the company does not deal or trade in shares, securities, debentures and other investments. Accordingly, the provisions of para 4 (xiv) of CARO are not applicable to the Company.

xv) According to the information and explanations given to us, the company during the year has not given any guarantee for loans taken by others from banks or financial institutions.

xvi) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, term loans availed by the company were, prima facie, applied by the Company during the year for the purposes for which they were obtained.

xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, funds raised on short –term basis have, prima facie, not been used for long – term investment.

xviii) According to the information and explanations given to us, the Company has not made preferential allotment of shares except equity shares allotted in pursuance of approved Scheme of Arrangement and Amalgamation (refer note 1 to the financial statements) during the year to parties and companies covered in the register maintained under section 301 of the Companies Act, 1956.

xix) According to the information and explanations given to us and the records examined by us, securities / charges have been created in respect of debentures issued and term loans taken from banks, financial institutions and others both for Rupee loan and Foreign currency loans.

xx) During the year covered by our audit, the company has not raised any money by public issues.

xxi) To the best of our knowledge and belief and according to information and explanations given to us, no fraud on or by the company was noticed or reported during the year.