1.  Report on the Financial Statements

 We have audited the accompanying financial statements of ELECTROSTEEL
 STEELS LIMITED ('the Company'), which comprises the Balance Sheet as at
 March 31, 2013, the Statement of Profit & Loss and the Cash Flow
 Statement for the year then ended (in which are incorporated the
 accounts of the representative office at China), and a summary of
 significant accounting policies and other explanatory information.

 2.  Management's Responsibility for the Financial Statements

 Management is responsible for the preparation of these financial
 statements that give a true and fair view of the financial position,
 financial performance and cash flows of the Company in accordance with
 the Accounting Standards referred to in sub-section (3C) oi section 211
 of the Companies Act, 1956 ('the Act'). This responsibility includes
 the design, implementation and maintenance of internal control relevant
 to the preparation and presentation of the financial statements that
 give a true and fair view and are free from material misstatement,
 whether due to fraud or error.

 3.  Auditor's Responsibility

 Our responsibility is to express an opinion on these financial
 statements based on our audit. We conducted our audit in accordance
 with the Standards on Auditing issued by the Institute of Chartered
 Accountants of India.  Those Standards require that we comply with
 ethical requirements and plan and perform the audit to obtain
 reasonable assurance about whether the financial statements are free
 from material misstatement.

 An audit involves performing procedures to obtain audit evidence about
 the amounts and disclosures in the financial statements. The procedures
 selected depend on the auditor's judgment, including the assessment of
 the risks of material misstatement of the financial statements, whether
 due to fraud or error. In making those risk assessments, the auditor
 considers internal control relevant to the Company's preparation and
 fair presentation of the financial statements in order to design audit
 procedures that are appropriate in the circumstances. An audit also
 includes evaluating the appropriateness of accounting policies used and
 the reasonableness of the accounting estimates made by management, as
 well as evaluating the overall presentation of the financial
 statements.

 We believe that the audit evidence we have obtained is sufficient and
 appropriate to provide a basis for our audit opinion.

 4.  Opinion

 In our opinion, and to the best of our information and according to the
 explanations given to us, the financial statements 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:

 (a) in the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31,2013;

 (b) in the case of the Statement of Profit & Loss, of the loss 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.  Report on Other Legal and Regulatory Requirements

 5.1 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 Act, we give in the Annexure a statement on the
 matters specified in paragraphs 4 and 5 of the Order.

 5.2 As required by section 227(3) of the Act, we reportthat:

 (i) We have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purpose of our
 audit;

 (ii) 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 and proper returns adequate for the purposes of our audit
 have been received from the representative office;

 (iii) The Balance Sheet, Statement of Profit & Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;

 (iv) In our opinion, the Balance Sheet, Statement of Profit & Loss and
 Cash Flow Statement comply with the Accounting Standards referred to in
 Sub-Section (3C) of section 211 of the Act;

 (v) On the basis of written representations received from the Directors
 as on March 31, 2013, and taken on record by the Board of-Directors,
 none of the Directors is disqualified as on March 31, 2013, from being
 appointed as a Director in terms of clause (g) of Sub-Section (1) of
 Section 274 of the Act;

 (vi) Since the Central Government has not issued any notification as to
 the rate at which the cess is to be paid under 441A of the Act nor has
 it issued any rules under the said section, prescribing the manner in
 which such cess is to be paid, no cess is due and payable by the
 Company.

 (vii) We have relied upon the management's representation relating to
 the disclosures in the financial statements regarding (a) segment
 reporting (Note 27); (b) related party disclosures (Note 28); (c) dues
 to Micro, Small & Medium Enterprises (Note 33) and (d) reconciliation
 and confirmation of balance of trade payables and loans and advances
 (Note 37).

 ANNEXURETOTHE AUDITORS'REPORT

 Referred to in paragraph 5 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) As explained to us, all the fixed assets have not been physically
 verified by the management 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. No material
 discrepancies were noticed on such verification.

 (c) As per the information and explanations given to us, the Company
 has not disposed off a substantial part of fixed assets duringthe
 period so as to affect its going concern status.

 (ii) (a) As informed to us,'a part of the inventory has been physically
 verified by the management during the year.  In our opinion, the
 frequency of such verification is reasonable.

 (b) As per the information given to us, the procedures of physical
 verification of inventories followed by the management, in our opinion,
 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. As
 explained to us, the discrepancies noticed on verification between the
 physical stocks and the book records were not material and the same
 have been properly dealt with in the books of account.

 (iii) According to the information and explanations given to us, the
 Company has neither granted nor taken any loan secured or unsecured
 to/from companies, firms or parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly, paragraph
 4(iii) of the Companies (Auditors' Report) Order, 2003 is 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 for'the purchase of inventory, fixed assets and with regard to
 sale of goods. During the course of our audit, we have neither observed
 nor have been informed of any major weaknesses in the said internal
 control system.

 (v) (a) According to the information and explanations given to us, we
 are of the opinion that the transactions that need to be entered in 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 such contracts or
 arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956 and exceeding the value of rupees five lacs in
 respect of any party during the period under audit, have been made at
 prices which are reasonable having regard to the prevailing market
 prices at the relevant time.

 (vi) No deposits within the meaning of Section 58A, 58AA or any other
 relevant provisions of the Companies Act, 1956 and the rules framed
 there under have been accepted by the Company.

 (vii) The Company has an internal audit system commensurate with the
 size and nature of the Company.

 (viii) As informed to us, the Company has made and maintained cost
 records as prescribed by the Central Government under Section 209(1
 )(d) of the Act. We have not made a detailed examination of such
 records.  However, we have broadly reviewed the records maintained and
 are of the opinion, that prima facie, the prescribed accounts and
 records have been maintained. The Cost Auditor has yet to complete the
 audit as prescribed & submit his report.

 (ix) (a) According to the records of the Company examined by us, in our
 opinion, the Company is regular in depositing with the 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,
 cess and other material statutory dues applicable to it.

 According to the information and explanations given to us, no
 undisputed amounts payable in respect of statutory dues as aforesaid
 were outstanding, as at 31 st March 2013 for a period of more than six
 months from the date they became payable.

 (x) In our opinion, the accumulated losses of the Company are not more
 than fifty percent of its net worth. The Company has incurred cash loss
 during the financial year covered by our audit and also in the
 immediately preceding financial year.

 (xi) As per our audit procedures and according to the information and
 explanations given to us, the Company has defaulted in repayment of
 dues to financial institutions and banks during the year and the
 defaults existing at the Balance Sheet date are as below:

 Nature of Dues Period of default Amount (Rs in Lacs)

 Senior Debt March 2013 Installment 13,353.42

 Sub-Debt March 2013 Installment 1,919.67

 External Commercial Borrowings March 2013 Installment 2,119.24

 Interest on Term Loans (*) JanuarytoMarch2013 15,159.04

 (*) Rs 5,008.09 lacs since repaid.

 (xii) 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) The Company is not a chit fund or a nidhi/mutual benefit
 fund/society.

 (xiv) In our opinion and according to the information and explanations
 given to us, the Company is not a dealer or trader 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 orfinancial institutions during the period under audit.

 (xvi) According to the information and explanations given to us, in our
 opinion, the term loans raised were, prima facie, either utilized for
 the purposes for which they were obtained and repayment of such loans
 or pending utilization, been temporarily invested in Mutual Funds and
 Term Deposits with Banks. However, repayment of installments of term
 loan aggregating to Rs 15,273.09 lacs as per the terms and conditions
 of the Securitization Loan availed by the Company, is yet to be made.

 (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 short term funds amounting to Rs 9,561.72 lacs consisting of
 short-term borrowings and increase in current liabilities have been
 used for long-term investment - project implementation.

 (xviii) The Company has made preferential allotment of shares for Rs
 15,200.00 lacs during the year to a company covered in the Register
 maintained under Section 301 of the Act. In our opinion and according
 to the information and explanations given to us, the price at which
 such shares have been issued are prima facie not prejudicial to the
 interest of the Company.

 (xix) TheCompanyhasnotissuedanydebenturesduringtheperiod underaudit.

 (xx) The Company has not raised any money by public issue during the
 period underaudit.

 (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 year.

                        B Chhawchharia & Co.

                        Firm Registration No.: 305123E 

                        Chartered Accountants

                        Vikram Dhanania

 Place : Kolkata        Partner

 Date : May 6, 2013     Membership No. 060568