1.  We have audited the attached Balance Sheet of The Andhra Pradesh
 Paper Mills Limited (''the Company'') as at 31st March, 2011, the Profit
 and Loss Account and the Cash Flow Statement for the year 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 have 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 set out in Note 3 of Schedule 20(3) of the financial statements,
 the Company has since the inception of Accounting Standard 22 on
 Accounting for Taxes on Income, recognized the deferred tax expense,
 which arises primarily from depreciation on tangible fixed assets on
 the basis of the currently applicable enacted Minimum Alternate Tax
 rate rather than the regular tax rates as specified by paragraph 21 of
 Accounting Standard 22.  The Company has challenged the provisions of
 Accounting Standard 22, insofar as it relates to the above matter and
 has accordingly filed a writ petition in June 2003 before the Andhra
 Pradesh High Court. The case has been subsequently transferred to
 Calcutta High Court. The writ petition has been admitted and is
 currently pending resolution. The quantification of the deferred tax
 liability, and consequential impact on the financial statement, which
 may arise due to the above, has been held in abeyance pending disposal
 of the writ petition.
 
 4.  As required by the Companies (Auditor''s Report) Order, 2003, as
 amended (''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'') we enclose in the Annexure a statement on the matters
 specified in paragraphs 4 and 5 of the said Order.
 
 5.  Further to our comments in the Annexure referred to 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 the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 d.  subject to our observation in paragraph 3 above, in our opinion,
 the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report comply with the accounting standards referred
 to in sub-section (3C) of Section 211 of the Act;
 
 e.  on the basis of written representations received from the directors
 as at 31st March, 2011, and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as at 31st March,
 2011 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Act; and
 
 f.  in our opinion and to the best of our information and according to
 the explanations given to us subject to our observation in paragraph 3
 above, the said accounts 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 31st March 2011;
 
 ii. in the case of the Profit and Loss Account, of the profit for the
 year ended on that date; and,
 
 iii. in case of the Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 The Annexure referred to in the auditors report to the members of The
 Andhra Pradesh Paper Mills Limited (''the Company'') on the financial
 statements for the year ended 31st March, 2011, we report that:
 
 i. a. The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets.
 
 b.  The Company has a regular programme of physical verification of its
 fixed assets by which all the fixed assets are verified in a phased
 manner over a period of three years. In our opinion, this periodicity
 of physical verification is reasonable having regard to the size of the
 Company and the nature of its assets. No material discrepancies were
 noticed on such verification.
 
 c.  Fixed assets disposed of during the year were not substantial, and
 therefore, do not affect the going concern assumption.
 
 ii. a. The inventories has been physically verified by the management
 during the year. In our opinion, the frequency of such verification is
 reasonable.
 
 b.  The procedures of the physical verification of inventories followed
 by the management are reasonable and adequate in relation to the size
 of the Company and the nature of its business.
 
 c.  The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between physical stocks and the
 book records were not material.
 
 iii. a. The Company has not granted any loans, secured or unsecured to
 Companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Consequently, clauses
 4(iii) (a) to 4 (iii) (d) of the Order are not applicable to the
 Company.
 
 b.  The Company has taken deposit from one party covered in the
 register maintained under Section 301 of the Companies Act, 1956. The
 maximum amount outstanding during the year was Rs.416,726 and the
 year-end balance of such deposit was Rs.416,726.
 
 c.  In our opinion, the rate of interest and other terms and conditions
 on which deposit have been taken from other party listed in the
 register maintained under Section 301 of the Companies Act, 1956 are
 not, prima facie, prejudicial to the interest of the Company.
 
 d. In the case of deposit taken from party listed in the register
 maintained under Section 301, the repayment of the principal and
 interest were not due during the year as per the terms stipulated in
 the agreement. Accordingly, paragraph 4(iii) (g) of the Order is not
 applicable.
 
 iv. In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventories and fixed assets and with regard to the sale
 of goods. The activities of the Company do not involve sale of
 services. We have not observed any major weakness in the internal
 control system during the course of the audit.
 
 v. a. In our opinion and according to the information and explanations
 given to us, the particulars of contracts or arrangements referred to
 in Section 301 of the Act have been entered in the register required to
 be maintained under that section.
 
 b. In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements referred to in (a) above and exceeding the value of Rs.5
 lakh with any party during the year have been made at prices which are
 reasonable having regard to prevailing market prices at the relevant
 time.
 
 vi. In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of Sections
 58A and 58AA of the Act and the Companies (Acceptance of Deposits)
 Rules, 1975 with regard to the deposits accepted from public.
 Accordingly, there have been no proceedings before the Company Law
 Board or National Company Law Tribunal or Reserve Bank of India or any
 Court or any other Tribunal in this matter and no order has been passed
 by any of the aforesaid authorities.
 
 vii. In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 viii. We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules prescribed by the Central Government for
 maintenance of cost records under Section 209(1)(d) of the Companies
 Act, 1956 in respect of products sold by the Company and are of the
 opinion that prima facie, the prescribed accounts and records have been
 made and maintained.  However, we have not made a detailed examination
 of the records.
 
 ix. a. According to the information and explanations given to us and on
 the basis of the examination of the records of the Company, amounts
 deducted/ accrued in books of account in respect of undisputed
 statutory dues including Provident Fund, Emplyees'' State Insurance,
 Income-tax, Sales- tax, Wealth tax, Customs duty, Excise duty, Investor
 Education and Protection Fund, Service tax, Cess and other material
 statutory dues have been regularly deposited during the year by the
 Company with the appropriate authorities.
 
 There were no dues on account of Cess under Section 441A of the Act
 since the date from which the aforesaid Section comes into force has
 not yet been notified by the Central Government.
 
 According to the information and explanations given to us, no
 undisputed amounts payable in respect of Provident Fund, Employees''
 State Insurance, Income-tax, Sales-tax, Wealth tax, Customs duty,
 Excise duty, Investor Education and Protection Fund, Service tax, Cess
 and other material statutory dues which were in arrears as at 31st
 March, 2011 for a period of more than six months from the date they
 became payable.
 
 b. According to the information and explanations given to us, the dues
 set out in Appendix 1 in respect of Income tax, Sales-tax, Service tax,
 Municipal tax and Excise duty have not been deposited with the
 appropriate authorities on account of disputes. According to the
 information and explanations given to us, there are no dues of Customs
 duty and Wealth tax which have not been deposited with the appropriate
 authorities on account of any dispute.
 
 x. The Company does not have any accumulated losses at the end of the
 financial year and has not incurred cash losses in the financial year
 and in the immediately preceding financial year.
 
 xi. In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to any
 bank or to any financial institutions. The Company did not have any
 outstanding debentures during the year.
 
 xii. The Company has not granted any loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 xiii. In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund or a nindhi/mutual benefit
 fund/society.
 
 xiv. According to the information and explanation given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments.
 
 xv. According to the information and explanations given to us, the
 Company has not given any guarantee for loans taken by others from
 banks or financial institutions.
 
 xvi. In our opinion and according to the information and explanations
 given to us, the term loans taken by the company have been applied for
 the purpose for which they were raised.
 
 xvii. According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that funds raised on short- term basis have not been used for long-term
 investment.
 
 xviii. The Company has not made any preferential allotment of shares to
 companies/firms/parties covered in the register maintained under
 Section 301 of the Act.
 
 xix. The Company did not have outstanding debentures during the year.
 
 xx. The Company has not raised any money by public issues during the
 year.
 
 xxi. According to the information and explanations given to us, no
 material fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
 
                                                   For B S R & Co.
 
                                            Chartered Accountants
 
                                  Firm''s Registration No. 101248W
 
                                                    Zubin Shekary
 
 Hyderabad                                                Partner
 
 4th May, 2011                              Membership No. 048814