Bhagyanagar India

I.  We have audited the attached Balance Sheet of Bhagyanagar India
 Limited as at 31st March 2009 and the related Profit and Loss account
 and Cash Flow Statement for the period ended on that date annexed
 thereto, which we have signed under reference to this report. These
 Financial Statements are the responsibility of the Companys
 Management. Our responsibility expresses an opinion on theses financial
 statements based on our audit.
 
 II.  We have conducted our audit in accordance with the auditing and
 assurance standards generally accepted in India. The Standard requires
 that we plan and perform the audit to obtain reasonable assurance about
 whether the financial statements are free of material misstatement. An
 audit also includes examining on a test basis, evidence supporting the
 amounts and disclosures in financial statements. An audit 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.
 
 III.  As required by the Companies (Auditors Report) Order 2003, as
 amended by Companies (Auditors Report)(Amendment) Order, 2004
 (together the Order), 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 of the books and
 records of the Company as we consider appropriate and according to the
 information and explanations given to us, we give below a statement on
 the matters specified in the said Order.
 
 1. a. The Company is maintaining proper records showing full
 particulars including quantitative details of Fixed assets.
 
 1. b. Fixed Assets are not physically verified during the year but
 there is a regular programme of verification which, in our opinion, is
 reasonable having regard to the size of the Company and nature of its
 assets.
 
 1.  c.  In our opinion and according to the information and
 explanations given to us, a substantial part of fixed assets has not
 been disposed of during the period.
 
 2.  a The Inventory has been physically verified during the year by the
 management. In Our opinion, the frequency of verification is
 reasonable.  2. b The Procedures of 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.
 
 2.  c On the basis of our examination of inventory records, in our
 opinion, the Company is maintaining proper records of inventory. The
 discrepancies noticed on physical verification of inventory as compared
 to book records are not material.
 
 3.  a The Company has granted Loans to 6 (Six)
 
 Companies covered under section 301 of the Act. The maximum amount
 involved during the year was Rs.50.83 Crores (Rupees Fifty Crores
 Eighty three Lacs) and the year end balance of loans granted to such
 parties was Rs. 50.83 Crores (Fifty Crores Eighty Three Lacs).
 
 3. b In our opinion, the rate of interest and other terms and
 conditions of such loans are not, prima facie, prejudicial to the
 interest of the company.
 
 3. c The parties have repaid the principal amounts as stipulated and
 have also been regular in the payment of Interest to the Company.
 
 3. d There is no overdue amount in excess of Rs. 1 Lakh in respect of
 loans granted to Companies, firms or other parties listed in the
 register maintained under Section 301 of the Act.
 
 3. e The Company has not taken any loans whether secured or Unsecured
 from the parties covered in the register maintained under Section 301
 of the Act, hence we are not required to report on sub-clauses e, f & g
 of paragraph 4(3) of the order.
 
 4.  In our opinion and according to the information and explanations
 given to us, there exists an adequate internal control system
 commensurate with the size of the company and the nature of its
 business with regard to purchase of inventory, fixed assets and with
 regards to the sale of goods and services. During the course of our
 audit, we have not observed any continuing failure to correct major
 weakness in internal control system of the company.
 
 5.  a.  According to the information and explanations given to us, we
 are of the opinion that the particulars of all contracts or
 arrangements that need to be entered into the register maintained under
 sections 301 of the Act, have been so entered.
 
 5.  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 Act, and exceeding the value of rupees five lakhs in
 respect of any party during the year have been made at prices which are
 reasonable having regards to prevailing market prices at the relevant
 time.  However we are unable to comment on certain transaction for
 specialised items for which comparative prices are not available due to
 the peculiar nature of goods & transactions.
 
 6.  The Company has not accepted any deposits which fall under section
 58A and 58AA and other relevant provisions of the Act, and the
 Companies (Acceptance of Deposit) Rules, 1975 with regard to the
 deposits from the public.  Hence we have not reported on the reporting
 requirements of clause 6 of Paragraph 4 of the order.
 
 7.  In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 8.  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(l)(d) of the Act, and we
 are of the opinion that prima facie the prescribed accounts and records
 have been made and maintained. We have not, however, made a detailed
 examination of the records with a view to determine whether they are
 accurate or complete.
 
 9.  a.  The Company is regular in depositing with
 
 - appropriate authorities undisputed statutory dues including provident
 fund, investor education protection fund, employees state insurance,
 income tax, sales tax, wealth tax, service tax, customs duty, excise
 duty and other material statutory dues applicable to it.  9. b.
 According to the information and explanation given to us and the
 records of the company produced before us and examined by us, there are
 no dues of
 
 Name of     Nature of    Amount under  Periods to which    Forum where
 statute     dues         dispute not   the amount          the disputeis
                          yet deposited relates             pending
 
 Andhra
 Pradesh     APGST Tax    Rs. 3.81 Lacs   1994-95           Sales Tax
 General 
 Sales                                                      Appellate 
                                                            Tribunal
 Tax Act                                                    Hyderabad
              CST         Rs 1.85 Lacs    2004-05           Appellate
                                                            Dy.Commsny
                                                            Panjagutta
             Entry tax    Rs. 0.81 Lacs   2005-06             - do -
             AP- VAT      Rs 5.07 Lacs    2005-06             - do -
 Central
 Excise      Levy of 
             Duty on      Rs. 240.07 
                          Lacs            2004-05           Supreme.
 and Customs 
 Act                      certain 
                                          products  
                                          Inch Penalty     Court of 
                                                           India
                                                           and 
                                                           Interest
 
 wealth tax, service tax, excise duty, customs duty and Cess, which have
 not been deposited on account of any dispute.  The particulars of Sales
 tax and Excise / Customs duty, as at 31st March 2009, which has not
 been deposited on account of dispute, are as follows.
 
 10.  The Company has no accumulated losses at the end of the financial
 year and has not incurred cash losses in the current and immediately
 preceding financial year.
 
 11.  In our opinion and according to the information and explanation
 given to us, the company has not defaulted in repayment of dues to a
 financial institution, bank or debenture holders.
 
 12.  We are of the opinion that the company has maintained adequate
 records where the company has granted loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 13.  In our opinion, the company is not a Chit Fund or a Nidhi/Mutual
 benefit fund/ Society.  Therefore the provisions of clause 4(xiii) of
 the order are not applicable to the company.
 
 14.  In our opinion, the company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly, the
 provisions of the clause 4(xiv) of the order are not applicable to the
 company.
 
 15.  According to the information and explanation given to us, the
 company has not given guarantees for loans taken by others from bank or
 financial institutions, the terms and conditions whereof in our opinion
 are prima- facie prejudicial to the interest of the company.
 
 16.  Based on information and explanation given to us by the
 management, term loans were applied for the purpose for which the loans
 were obtained.
 
 17.  According to the information and explanation given to us and an
 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.
 
 18.  The company has not made preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Companies Act, 1956.
 
 19.  The company has not issued any debentures during the year. Hence
 the question of creation of charge does not arise.
 
 20.  The company has not raised any money by public issue during the
 period.
 
 21.  During the course of our examination of the books and records of
 the company, carried out in accordance with the generally accepted
 auditing practices in India, and according to information and
 explanation given to us, we have neither come across any instance of
 material fraud on or by the company, noticed or reported during the
 period nor have we been informed of such case by the management.
 
 IV. Further to our comments 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 as far as appears from 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 comply with the accounting
 standards referred to the sub- Section (3C) of Section 211 of the Act.
 
 e.  The notification for levy of deposit of Cess U/s. 441A of the Act
 has not yet been issued in the official Gazette; hence in our opinion
 this clause is not applicable to the company.
 
 f.  On the basis of written representations received from the
 Directors, as on 31st March 2009 and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 31st March 2009 from being appointed as a Director in terms of clause
 (g) of sub- section (1) of Section 274 of the Act.
 
 g.  Without qualifying, we invite the attention of stakeholders to
 
 i. Note No 3, Schedule 20B, Notes to Accounts - Unsecured Loans -
 Foreign Currency convertible bonds, wherein the management has stated
 that liability of payment of premium / interest on the bonds being
 contingent, the ultimate out come of that mater could not be determined
 and no provision for the interest liability has been made on that
 account. Similarly no Reserve for redemption of the bonds have been
 made in the accounts.
 
 ii. Note No 14 to 17 wherein the impact of adoption of the Notification
 of Ministry of Company Affairs with respect to Accounting Standard 11 -
 The effects of changes in Foreign Exchange Rates - (The Companies
 Accounting Standard Rules - 2006), issued on 31st day of March 2009.
 
 h.  In our opinion and to the best of our information and according to
 the explanations given to use, 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 balance sheet, of the state of affairs of the
 company as at 31st March 2009;
 
 ii.  in the case of profit and loss account.  the profit for the year
 ended on that date; and
 
 iii.  in the case of cash flow statements, of the cash flows for the
 year on that date.
 
 
                                                      For Sekhar & Co
                                                Chartered Accountants
 
                                                           G. Ganesh
 Place : Secu-nderabad                                       Partner
 Date  : June 26, 2009                                   M.No.211704