1.  We have audited the attached balance sheet of DCM Shriram
 Industries Limited (the Company) as at March 31, 2011, the Profit and
 loss account and the cash flow statement of the Company for the year
 ended on that date, both 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 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 misstatements. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and the disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and the signifcant 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 (Auditors Report) Order, 2003 (CARO)
 issued by the Central Government of India in terms of section 227(4A)
 of the Companies Act, 1956, we give in the Annexure a statement on the
 matters specifed in paragraphs 4 and 5 of the said Order.
 
 4.  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 it appears from our examination of
 those books;
 
 iii) the balance sheet, the Profit and loss account and the cash flow
 statement dealt with by this report are in agreement with the books of
 account;
 
 iv) in our opinion, the balance sheet, the Profit and loss account and
 the cash flow statement dealt with by this report are in compliance with
 the accounting standards referred to in section 211(3C) of the
 Companies Act, 1956;
 
 v) without qualifying our opinion, we draw attention to note 16 of
 schedule 11 relating to accounting for cane purchase liability for
 sugar season 2007-08 at Rs. 110 per quintal instead of State Advised
 Price of Rs. 125 per quintal fxed by the Uttar Pradesh State
 Government. Pending completion of legal proceedings in the matter, the
 effect thereof on these accounts cannot be determined at this stage.
 
 vi) various issues arisen/arising out of the reorganisation arrangement
 will be settled and accounted for as and when the liabilities/Benefits
 are fnally determined. The effect of these cannot be determined at this
 stage (refer to note 2 (b) of Schedule 11).
 
 The matter referred to in paragraph (vi) to the extent covered here
 above was also subject matter of qualifcation in our audit report on
 the financial statements for the year ended March 31, 2010.
 
 Subject to the foregoing, in our opinion and to the best of our
 information and according to the explanations given to us, the said
 accounts 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, 2011;
 
 b) in the case of the Profit and loss account, of the loss of the
 Company 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.
 
 5 On the basis of written representations received from the directors
 as on March 31, 2011 and taken on record by the Board of Directors, we
 report that none of the directors is disqualifed as on March 31, 2011
 from being appointed as a director in terms of section 274(1 )(g) of
 the Companies Act, 1956.
 
 ANNEXURE TO THE AUDITORS REPORT
 (Referred to in paragraph 3 of our report of even date)
 
 Having regard to the nature of the Companys business / activities /
 result, clause (xiii) of CARO is not applicable.
 
 (i) In respect of its fxed assets:
 
 (a) The Company has maintained proper records showing full particulars,
 including quantitative details and situation of fxed assets.
 
 (b) As explained to us, the Company has a programme of physically
 verifying all its fxed assets over a period of three years, which in
 our opinion is reasonable having regard to the size of the Company and
 the nature of its fxed assets. In accordance with this programme, some
 of the fxed assets were physically verifed by the management during the
 year. The discrepancies noticed on such verifcation between the
 physical balances and the fxed assets records were not material and
 have been properly dealt with in the books of account.
 
 (c) The fxed assets disposed off during the year, in our opinion, do
 not constitute a substantial part of the fxed assets of the Company and
 such disposal has, in our opinion, not affected the going concern
 status of the Company.
 
 (ii) In respect of its inventory:
 
 (a) As explained to us, the inventories were physically verifed during
 the year by the management at reasonable intervals.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verifcation of inventories
 followed by the management were reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) In our opinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories. The discrepancies noticed on physical verifcation of
 inventories as compared to book records were not material and have been
 properly dealt with in the books of account.
 
 (iii) (a) According to the information and explanations given to us,
 the Company has not granted any loan, secured or unsecured to
 companies, frms and other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956 (hereinafter referred to
 as the Act). For this purpose, the Company has taken the view that the
 transactions which are subjected to the provisions of section 299(6) of
 the Act are not required to be entered in this register.
 Notwithstanding the Companys views regarding the provisions of section
 299(6) of the Act, in respect of the loan granted by the Company to a
 promoted company as per the Scheme of Rehabilitation approved by Board
 for Industrial and Financial Reconstruction (BIFR) in earlier years,
 the maximum amount outstanding during the year and the year-end balance
 was Rs. 541.94 lacs.
 
 (b) In our opinion and according to the information and explanations
 given to us and also in view of the rehabilitation scheme sanctioned by
 the Board for Industrial and Financial Reconstruction
 
 (BIFR) on May 24, 2007, in respect of the concerned promoted company,
 the rate of interest and other terms and conditions of loan granted by
 the Company, as referred to in para (iii)(a) above are not, prima
 facie, prejudicial to the interest of the Company.
 
 (c) As per the information and explanations given to us and also as per
 Rehabilitation Scheme sanctioned by the BIFR, in respect of the
 concerned promoted company, the receipts of principal amount and
 interest has been as per stipulation.
 
 (d) As per the information and explanations given to us and records of
 the Company, there are no overdue amounts in respect of above loan, and
 interest thereon.
 
 (e) According to the information and explanations given to us, the
 Company has during the year not taken any loans, secured or unsecured
 from companies, frms and other parties covered in the register
 maintained under section 301 of the Act. Accordingly, paragraphs (f)
 and (g) of the Companies (Auditors Report) Order, 2003 (hereinafter
 referred to as the CARO) are 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 the purchase of inventories and fxed assets and 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) According to the information and explanations given to us, during
 the year, the particulars of contracts / arrangements referred to in
 section 301 of the Act have been entered in the register required to be
 maintained under that section. For this purpose, the Company has taken
 the view that the transactions which are subjected to the provisions of
 section 299(6) of the Act are not required to be entered in this
 register. Notwithstanding the Companys views regarding the provisions
 of section 299(6) of the Act, in respect of certain transactions,
 exceeding the value of Rs. 5 lacs entered into with such party during
 the year have been made at prices which are prima facie 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 directives issued by the
 Reserve Bank of India and the provisions of section 58A and section
 58AA of the Companies Act, 1956 or any other relevant provisions of the
 Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules,
 1975 with regard to the deposits accepted from public.  According to
 the information and explanations given to us, no order under the
 aforesaid sections has been 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.
 
 (vii) In our opinion, the internal audit functions carried out during
 the year by frms of Chartered Accountants appointed by the management
 have been commensurate with the size of the Company and the 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 the
 maintenance of cost records 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. We have, however,
 not made a detailed examination of the records with a view to determine
 whether they are accurate or complete.
 
 (ix) According to the information and explanations given to us and the
 records of the Company examined by us in respect of statutory dues:
 
 (a) The Company has been regular in depositing undisputed dues,
 including investor education and protection fund, employees state
 insurance, income-tax, wealth tax, service tax, customs duty, excise
 duty, cess, entry tax, purchase tax and other material statutory dues
 applicable to it and generally been regular in depositing dues in case
 of tax deducted at source, sales tax and provident fund with the
 appropriate authorities. There were no undisputed statutory dues
 outstanding for a period of more than six months from the date they
 become payable as at the year end.
 
 (b) Details of dues of excise duty, customs duty, income-tax and sales
 tax matters which have not been deposited as on March 31, 2011 by the
 Company on account of disputes are given below:
 
 S. Name of the  Nature of  Amount  Amount  Period to 
                                               which     Forum where
                                                         dispute is
 No. Statute        dues   involved  paid   the amount    pending
                            (Rs. 
                              lacs)  under    relates 
                                             (various
                                     protest   years 
                                              covering
                                      (Rs. 
                                      lacs)  the period)
 
 1 Central       Excise Duty   1.84     -       1981-82   Assistant 
                                                          Commissioner
   Excise Laws                21.90     -     June ‘05 to Joint 
                                                          Commissioner
                                              December ‘07
                              20.00     -     March ‘86 to High Court
                                              December ‘89
 
                 Modvat
                 Credit       31.79     -       1995-96,   Commissioner 
                                                          (Appeals)
                                              November 
                                               ‘04 to
                                              December ‘08
 
                Service Tax  216.85     -      2001-02 to  Customs, 
                                                           Excise & 
                                                           Service
                                               2005-06     Tax Appellate
                                                           Tribunal
                               1.44     -    January‘08 to Deputy 
                                                           Commissioner
                                              October ‘08
 
                               4.28     -    December09 to Assistant 
                                                           Commissioner,
                                             December10   Central
                                                           Excise & 
                                                           Customs
 
 2 Customs Law Customs Duty  143.16     -       2006-07    Commissioner 
                                                           (Appeals),
                                                           Customs Duty
 
 3 Income Tax  Income Tax    193.40   193.40    2005-06    Commissioner
                                                           of Income
   Act, 1961                                               Tax (Appeals)
 
 4 Sales Tax   Sales Tax       1.68     0.43    2008-10    Joint 
                                                           Commissioner
   Laws                                                   (Appeals), 
                                                           Commercial Tax
 
                               0.44     0.44    2006-07 &  Deputy 
                                                           Commissioner,
 
                                                2009-10    Commercial Tax
 
                               1.79        -    2009-10    Additional 
                                                           Commissioner
 
                Purchase Tax  10.76     9.59    2001-02    Tax Board
 
 * amount as per demand orders including interest and penalty wherever
 indicated in the demand.
 
 Further, in respect of following matters, the concerned authority is in
 appeal against favourable orders received by the Company:
 
 S. Name of the  Nature of  Amount   Period to 
                                     which the  Forum where department
 No. Statute       dues    involved   amount 
                                     relates     has preferred appeal
                          (Rs. lacs) (various 
                                       years
                                     covering 
                                    the period)
 
 1 Central       Excise 
                 duty        27.25    2003-08  Customs, Excise & Service
   Excise Laws                                 Tax Appellate Tribunal
 
                              3.54    1998-99  High Court
 
                              1.00    1994     Commissioner (Appeals)
 
                 Modvat 
                 Credit      15.15    1995-96  High Court
 
                 Service Tax  4.25    2004-08  Customs, Excise & Service
                                               Tax Appellate Tribunal
 
 2 Customs Law   Customs 
                 Duty       560.28    2000-01  High Court
 
 3 Sales Tax Laws Sales Tax 151.35   1976-2002 High Court
 
                             65.00    2000-01  Supreme Court of India
 
                              2.42   2006-07 & 
                                      2008-09  Commercial Tax Tribunal
 
 We have been further informed that there are no dues in respect of
 wealth tax and cess which have not been deposited on account of any
 dispute.
 
 (x) The Company does not have accumulated losses at the end of the
 financial year ended March 31, 2011. Further, the company has not
 incurred any cash losses during the financial year ended March 31, 2011
 and in the immediately preceding financial year ended March 31, 2010.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in the repayment of dues to
 banks, financial institutions and debenture holders during the year.
 
 (xii) As the Company has not granted any loans and advances on the
 basis of security by way of pledge of shares, debentures and other
 securities, paragraph 4(xii) of the CARO is not applicable.
 
 (xiii) As the Company is not dealing or trading in shares, securities,
 debentures and other investments, paragraph 4(xiv) of the CARO is not
 applicable.
 
 (xiv) According to the information and explanations given to us, the
 Company has not given any guarantees during the year for loans taken by
 others from banks or financial institutions.
 
 (xv) In our opinion and according to the information and explanations
 given to us, the term loans taken during the year have been applied for
 the purposes for which they were obtained.
 
 (xvi) In our opinion and according to the information and explanations
 given to us and on an overall examination of the balance sheet, we
 report that funds raised on short term basis have not been used for
 long term investments.
 
 (xvii) As the Company has not made any preferential allotment during
 the year, paragraph 4(xviii) of the CARO is not applicable.
 
 (xviii) The Company has not issued any debentures during the year.
 
 (xix) The Company has not raised money by way of public issue during
 the year.
 
 (xx) To the best of our knowledge and according to the information and
 explanations given to us by the management, no fraud by the Company has
 been noticed or reported during the year and with respect to fraud on
 the Company during the year, there was a fraudulent withdrawl of Rs. 35
 lacs from a bank account of the Company by a third party which has
 subsequently been credited to the Companys account by the concerned
 bank before the year end.
 
 
                                              For A. F. Ferguson & Co.
 
                                                Chartered Accountants
 
                                            (Registration No. 112066W)
 
                                                      Manjula Banerji
 
 Place : New Delhi                                            Partner
 
 Date : 30.5.2011                              (Membership No. 086423)