1.  We have audited the attached Balance Sheet of ANDHRA CEMENTS
 LIMITED, as at June 30, 2011, the Profit and Loss Account and also the
 Cash Flow Statement for fifteen months period ended on that date
 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 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 the 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 (the
 Order) issued by the Central Government of India in terms of
 sub-section (4A) of Section 227 of the Companies Act, 1956 (the Act),
 and according to the information and explanation given to us and also
 on the basis of such checks as we considered appropriate, we enclose in
 the Annexure a statement on the matters specified in paragraphs 4 and 5
 of the said Order.
 
 4.  Attention is invited to note nos. 21(a)&(b) regarding non
 availability of confirmation/ reconciliation, etc. and
 non-ascertainment of adjustments with respect to advances, debtors,
 interest and other expenses/charges, liabilities, etc., Note no.
 23(a)&(b) regarding continuation of capitalisation of borrowing and
 other cost and non-ascertainment of effect for capital
 supplies/services pending completion of project, Note no 24 regarding
 non provision of employee and other personnel expenses during the
 period of disruption of production pending final settlement & related
 non-disclosure in note 39 and note 38 regarding continuation of
 recognition of Deferred Tax Asset realisation whereof as such cannot be
 commented upon.
 
 5.  Further to our comments in the Annexure referred to in Para 3 &
 Para 4 above, we report that:
 
 a.  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;
 
 b.  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.
 
 c.  The Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account.
 
 d.  In our opinion, the Balance Sheet, Profit and Loss Account and Cash
 Flow Statement dealt with by this report, subject to those referred to
 in Notes 23, 24, 38 and 39 of Schedule-“O”, comply with the Accounting
 Standards referred to in sub-section (3C) of Section 211 of the Act.
 
 e.  In respect of debentures and fixed deposits as stated in Note 31 of
 Schedule “O”, the Company has received a legal opinion that there is no
 default in the repayment of amount due to the debenture holders and
 deposit holders, for which reliance has been placed by us. In view of
 this, and on the basis of written representations received from the
 directors and taken on record by the Board of Directors, we report that
 none of the directors is disqualified as on June 30, 2011 from being
 appointed as a director in terms of clause (g) of sub-section (1) of
 Section 274 of the Act;
 
 f.  In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts, subject to Para 4
 above, impact whereof is presently not ascertainable and read together
 with other notes thereon give the information required by the Act, in
 the manner so required and give a true and fair view in conformity with
 the accounting principles generally accepted in India:
 
 i.  in the case of the Balance Sheet, of the state of affairs of the
 Company as at June 30, 2011.
 
 ii. in the case of the Profit and Loss Account, of the loss for the
 period ended on that date; and
 
 iii. in the case of the Cash Flow Statement, of the cash flows for the
 period ended on that date.
 
 ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE
 
 i. a. According to the information and explanations furnished to us,
 the Company has not updated its records of fixed assets with
 particulars including quantitative details and situation of its fixed
 assets.
 
 b.  We are informed by the company’s management that it follows the
 practice of physical verification of its Fixed Assets once in a period
 of three years which, in our opinion is reasonable and adequate in
 relation to the nature and location of the Fixed Assets. However, as
 stated in Note no. 21(a)(ii) of Schedule ‘O’, no such physical
 verification of its assets was conducted by the management during the
 period and accordingly discrepancies, if any, arising there from are
 presently not ascertainable.
 
 c.  According to the information and explanation given to us, during
 the period, the Company has not disposed off any part of its fixed
 assets.
 
 ii. a. According to the information and explanations furnished to us,
 the company has physically verified its inventories except for stores &
 spares. In respect of certain materials stored in heaps, such
 verification has been done on the basis of volumetric measurement. In
 our opinion, except in respect of stores and spares which have not been
 verified as stated in Note no. 21(a)(iii) of Schedule ‘O’, the
 frequency of verification is reasonable.
 
 b.  In our opinion, the procedures of physical verification of
 inventories need to be strengthened to make these being reasonable and
 adequate in relation to the size of the Company and the nature of its
 business.
 
 c.  According to the information furnished to us, the Company is
 maintaining proper records of its inventory and the discrepancies
 noticed on verification during audit, to the extent carried out between
 the physical stocks and the book records were not material, and have
 been properly dealt with in the books of account.
 
 iii. a. According to the information and explanations furnished to us,
 the Company has not granted any loans to companies, firms or other
 parties covered by the register maintained under Section 301 of the
 Act, and consequently reporting under sub- clauses (b), (c) and (d) of
 clause 4(iii) of the Order is not applicable to the Company.
 
 b.  The Company has taken unsecured loans and advances from five
 companies covered in the register maintained under section 301 of the
 Act. The maximum amount involved during the year and outstanding
 balance of loans taken from such companies was Rs.4230.02 lacs.
 
 c.  In our opinion, based on the information and explanations given to
 us, the rate of interest, where applicable, and other terms and
 conditions on which the loans have been taken from companies listed in
 the register maintained under section 301 of the Act are not, prima
 facie, prejudicial to the interests of the Company.
 
 d.  According to the information and explanations furnished to us, no
 terms have been stipulated with regard to repayment of the principal
 and interest on the loans taken by the Company and are repayable on
 demand. We have been explained that no such demand has been made with
 respect to the principal amount and as such requirement on commenting
 on regularity in this respect is not applicable. However, the Company
 has not been regular in repayment of interest.
 
 iv. In our opinion and according to the information and explanations
 given to us, except during the period of disruption of operation as
 stated in Note no.20 of Schedule ‘O’, there exists an adequate internal
 control system commensurate with the size of the company and the nature
 of its business with regard to purchases of inventory, fixed assets and
 with regard to the sale of goods and services. During the course of our
 audit, we have neither observed nor have been informed of any
 continuing failure to correct major weaknesses in internal control
 system of the company.
 
 v. According to the information and explanations given to us and as per
 the record of the company, there is no transaction that needs to be
 entered, in the registered maintained under section 301 of the Act.
 Accordingly, the provisions of clause 4(v)(b) of the Order is not
 applicable to the Company.
 
 vi. The Company has not accepted any deposit from public during the
 period. In respect of deposits accepted in earlier years and lying
 unclaimed, it has not complied with the provisions of section 58A and
 58AA of the Act and Companies (Acceptance of Deposits) Rules, 1975
 including maintenance of liquid assets and filing Annual Return in
 these respect. The BIFR in its Modified Rehabilitation Scheme dated
 21st July 2008 directed the fixed deposits holders to accept the
 outstanding principal amount, in four annual installments, on interest
 free basis and payments as claimed by the depositors are accordingly
 made. Thereby, according to the information furnished to us, no other
 Order has been passed on the company by the Company Law Board or any
 other authorities for non-compliance with the provisions of Sections
 58A and 58AA of the Act.
 
 vii. As explained, due to disruption in operation, no internal audit
 has been carried out during the period.
 
 viii. The company has maintained the books of account and records
 pursuant to the rules made by the Central Government for the
 maintenance of Cost Records under section 209 (1) (d) of the Act and we
 are of the opinion that prima facie the prescribed accounts and records
 have been made and maintained during the period in which production was
 done. However, we have not carried out any detailed examination of such
 records with a view to determine whether they are accurate or complete.
 
 ix. a. According to the information and explanations given to us, the
 Company has not been generally regular in depositing with the
 appropriate authorities undisputed statutory dues including provident
 fund, investor education and protection fund, income-tax, sales-tax,
 wealth tax, service tax, custom duty, excise duty, and any other
 statutory dues applicable to it.
 
 b. According to the information and explanations given to us,
 undisputed amounts payable in respect of income tax deducted/ collected
 at source and cess thereon, value added tax, work contract tax,
 provident fund, sales-tax, and excise duty, which were in arrears, as
 at June 30, 2011 for a period of more than six months from the date
 they became payable are as under:
 
 c. According to information and explanations given to us, the following
 dues of sales tax, customs duty, excise duty, service tax which have
 not been deposited by the Company on account of any dispute
 
 x. According to the information and explanations furnished to us by the
 Company and without considering the effect of matters dealt with in
 Para 4 of the said report impact whereof not being ascertainable,
 accumulated losses of the company are not more than fifty percent of
 its net worth.  Further, the Company has incurred cash losses during
 the period covered by our report but did not incur cash losses in the
 immediately preceding financial year.
 
 xi. Based on the examination of the books of account and other related
 records and according to the information and explanations given to us,
 14 instances of delays were noted in repayment of dues to financial
 institutions ranging from 157 days to 194 days with amounts varying
 from Rs.166.34 lacs to Rs.1075.28 lacs and 14 instances of delays were
 noted in repayment of dues to debenture holders ranging from 65 days to
 201 days with amounts varying from Rs.38.84 lacs to Rs.191.74 lacs.
 
 xii. In our opinion and according to the information and explanations
 given to us, the Company has not granted loans and advances on the
 basis of security by way of pledge of shares, debentures and other
 securities.
 
 xiii. In our opinion, the company is not a chit fund or a midi /mutual
 benefit fund/ society.  Therefore the provisions of clause 4 (xiii) of
 the Order are not applicable to the company.
 
 xiv. According to the information and explanations given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments. Accordingly, the provisions of clause 4 (xiv) of
 the Order are not applicable to the company.
 
 xv. According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from bank
 or financial institutions.
 
 xvi. In our opinion, and according to the information and explanations
 given to us, the Company has not raised any fresh term loans during the
 period.
 
 xvii. According to the information and explanations given to us and on
 an overall examination of the Balance Sheet of the Company without
 considering the effect of matters dealt with in Para 4 of our report
 impact whereof not being ascertainable, we report that funds
 aggregating to Rs.10380.06 lacs raised on a short-term basis have been
 used for long-term investment i.e. funding of capital work in progress
 and its losses.
 
 xviii. The Company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under Section
 301 of the Act during the year. Accordingly, the provisions of clause 4
 (xviii) of the Order are not applicable to the company.
 
 xix. The Company has not issued any debentures during the year.
 Accordingly, the provisions of clause 4 (xix) of the Order are not
 applicable to the company.
 
 xx. The Company has not raised any money through a public issue during
 the period.  Equity shares have been issued during the period against
 conversion of Rs.1679.30 lacs fallen due for payment to the lenders.
 
 xxi. During the course of our examination of the books and records of
 the Company, carried out in accordance with generally accepted auditing
 practices in India and according to the information and explanations
 given to us, we have neither come across any incidence of fraud on or
 by the Company nor have we been informed of such cases by the
 management.
 
 For LODHA & CO.                          For CHATURVEDI & PARTNERS
 Chartered Accountants                     Chartered Accountants
 Firm Registration No.301051E            Firm Registration No.307068E
 
 K.SOMESWARA RAO                           R N CHATURVEDI
 Membership No.052061                    Membership No.092087
 Partner                                     Partner
 
 Place: Hyderabad                        Place : New Delhi
 
 Date :27.11.2011                        Date :27.11.2011