Andhra Pradesh Paper Mills

1.  We have audited the attached Balance Sheet of The Andhra Pradesh
 Paper Mills Limited as at 31st March, 2008, the Profit and Loss Account
 and also the Cash Flow Statement for the year ended on that date
 annexed thereto. These financial statements are the responsibility of
 the Companys 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 auditing standards
 generally accepted in India. These 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 (Auditors Report) Order, 2003 issued
 by the Central Government of India in terms of sub-section (4A) of
 Section 227 of The Companies Act, 1956 of India (the Act) and on the
 basis of such checks as we considered appropriate and according to the
 information and explanations given to us, we set out in the Annexure a
 statement on the matters specified in paragraphs 4 and 5 of the said
 Order.
 
 4.  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 such
 books.
 
 c.  The Balance Sheet and Profit and Loss Account dealt with by this
 report are in agreement with the books of account.
 
 d.  In our opinion, the Balance Sheet and Profit and Loss Account dealt
 with by this report comply with the accounting standards referred to in
 sub-section (3C) of Section 211 of the Companies Act, 1956 with the
 exception of Accounting Standard 22, on Accounting for Taxes on
 Income, referred to in Note No.7 of Schedule 19 (II).
 
 e.  In our opinion and to the best of our information and according to
 the explanations given to us, subject to not fully providing for
 deferred tax liability in accordance with Accounting Standard 22 issued
 by the Institute of Chartered Accountants of India, referred to in Note
 No. 7 of Schedule 19 (II), the said accounts give the information
 required by the Companies Act, 1956, in the manner so for 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 2008;
 
 ii. in the case of the Profit and Loss Account, of the profit for the
 year ended on that date;
 
 iii. in case of the Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 f.  On the basis of written representations received from the Directors
 as on 31st March, 2008 and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st March,
 2008 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Act.
 
 ANNEXURE TO THE AUDITORS REPORT 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.  The fixed assets have been physically verified by the management
 during the year in accordance with a phased programme of verification
 which, in our opinion, is reasonable having regard to the size of the
 Company and the nature of its assets.  According to the information
 furnished to us, no material discrepancies have been noticed on such
 verification.
 
 c.  The fixed assets disposed off by the Company during the year do not
 form a substantial part thereof.
 
 ii. a. Physical verification of inventory has been conducted during the
 year by the management at reasonable intervals.
 
 b.  The procedures of physical verification of inventory followed by
 the management are reasonable and 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 opinion that the Company is maintaining proper records of
 inventory. The discrepancies noticed on such verification between the
 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 to whom the provisions of Section 301
 of the Companies Act, 1956 apply. Accordingly sub clauses (b), (c) and
 (d) of clause (iii) of paragraph 4 of the Order are not applicable.
 
 b. The Company has not taken any loans, secured or unsecured from
 companies, firms, or other parties to whom the provisions of Section
 301 of the Companies Act apply. Accordingly, sub clauses (f), (g) and
 (h) of clause (iii) of paragraph 4 of the Order are not applicable.
 
 iv. In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business with regard to purchase of inventory, fixed assets and sale of
 goods and services. During the course of our audit, no major weakness
 has been noticed in the internal controls.
 
 v. a. According to the information and explanations given to us, we are
 of the opinion that the transactions that need to be entered into the
 register maintained under Section 301 of the Companies Act, 1956 have
 been so entered.
 
 b. In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the Register maintained under Section 301 of
 the Companies Act, 1956 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 Companies Act, 1956 and the Companies (Acceptance
 of Deposits) Rules, 1975 with regard to the deposits accepted from
 public. No order has been passed by the Company Law Board or National
 Company Law Tribunal or Reserve Bank of India or any court or any
 tribunal.
 
 vii. In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 viii. We have broadly reviewed the books of account relating to
 materials, labour and other items of cost maintained by the company
 pursuant to the Rules made by the Central Government for the
 maintenance of cost records under Section 209(1) (d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained.
 
 ix. a. According to the records of the company, the company is regular
 in depositing with appropriate authorities undisputed statutory dues
 including provident fund, investor education and protection fund,
 employees state insurance, income tax, sales tax, wealth tax, custom
 duty, excise duty, service tax, cess, and other material statutory dues
 applicable to it.
 
 b.  According to the information and explanations given to us, no
 undisputed amounts payable in respect of income tax, wealth tax, sales
 tax, customs duty, excise duty, service tax and cess were in arrears as
 at 31st March 2008 for a period of more than six months from the date
 they became payable.
 
 c.  As at 31st March 2008, there have been no disputed dues, which have
 not been deposited with the respective authorities in respect of income
 tax, wealth tax, excise duty, service tax and cess, except disputed
 excise duty and service tax under Central Excise Act of Rs.109.86 lakhs
 pending before the Appellate Commissioner, Customs and Central Excise,
 Rs.269.75 lakhs pending before the Customs, Central Excise and Service
 Tax Appellate Tribunal and Rs.57.68 lakhs pending before Honble High
 Court of Andhra Pradesh, disputed sales tax under Andhra Pradesh
 General Sales Tax Act and Central Sales Tax Act of Rs.15.13 lakhs
 pending before the Appellate Deputy Commissioner, Rs.60.59 lakhs
 pending before the Sales-tax Appellate Tribunal and Rs.132.67 lakhs
 pending before the Andhra Pradesh High Court.
 
 x. The Company has no accumulated losses and has not incurred cash
 losses during the financial year covered by our audit and the
 immediately preceding financial year.
 
 xi. In oar opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 financial institutions, banks or debentureholders.
 
 xii. The Company has not granted any loans or advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 Accordingly the provisions of clause (xii) of paragraph 4 of the Order
 are not applicable.
 
 xiii. In our opinion, the Company is not a chit fund or a nidhi/mutual
 benefit fund/society. Accordingly, the provisions of clause (xiii) of
 paragraph 4 of the Order are not applicable to the Company.
 
 xiv. In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other instruments.  Accordingly, the
 provisions of clause (xiv) of paragraph 4 of the Order are not
 applicable to the Company.
 
 xv. The Company has not given any guarantees for loans taken by others
 from banks or financial institutions.  Accordingly, the provisions of
 clause (xv) of paragraph 4 of the Order are not applicable to the
 Company.
 
 xvi. In our opinion, the term loans have been applied for the purposes
 for which they were raised.
 
 xvii. According to the information and explanations given to us and on
 overall examination of the Balance Sheet of the Company, we report that
 no funds raised on short term basis have been used for long term
 investment.
 
 xviii.During the year the Company has made a preferential allotment of
 19,13,875 equity shares to a party covered in the register maintained
 under Section 301 of the Act and report that the price at which the
 said shares have been issued is not prejudicial to the interest of the
 Company.
 
 xix. The Company has created securities in respect of secured
 debentures in earlier years. There are no debentures outstanding at the
 year end.
 
 xx. During the year, the Company has not raised any money by way of
 public issue. Accordingly, the provisions of clause (xx) of paragraph 4
 of the Order are not applicable to the Company.
 
 xxi. According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 course of our audit.
 
                                                    For Brahmayya & Co.,
                                                   Chartered Accountants
 
                                                         C.V. Ramana Rao
 Secunderabad                                                    Partner
 12th May, 2008                                    Membership No. 018545