1.  We have audited the attached Balance Sheet of Kalyani Steels
 Limited (the Company) as at 31st March, 2012 and the related
 Statement of Profit and Loss and Cash Flow Statement for the year ended
 on that date annexed thereto, which we have signed under reference to
 this report. 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 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 required by the Companies (Auditor''s Report) Order, 2003, as
 amended by the Companies (Auditor''s 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 considered appropriate and according to
 the information and explanations given to us, we give in the Annexure a
 statement on the matters specified in paragraphs 4 and 5 of the Order.
 
 4.  Further to our comments in the Annexure referred to in paragraph 3
 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, Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (d) In our opinion, the Balance Sheet, Statement of Profit and Loss 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 on 31st March, 2012 and taken on record by the Board of
 Directors, none of the directors is disqualified as on 31st March, 2012
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Act;
 
 (f) In our opinion and to the best of our information and according to
 the explanations given to us, the said financial statements together
 with the notes thereon and attached thereto give, in the prescribed
 manner, the information required by the Act, 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, 2012;
 
 (ii) in the case of the Statement of Profit and Loss, of the profit for
 the year ended on that date; and
 
 (iii) in the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT :
 
 Referred to in paragraph 3 of the Auditors'' Report of even date to the
 members of KALYANI STEELS LIMITED on the financial statements as of and
 for the year ended 31st March, 2012
 
 1.  (a) The Company is maintaining proper records showing full
 particulars, including quantitative details and situation, of fixed 
 assets.
 
 (b) The fixed assets are physically verified by the Management
 according to a phased programmer designed to cover all the items 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 assets.
 Pursuant to the programmer, a portion of the fixed assets has been
 physically verified by the Management during the year and no material
 discrepancies between the book records and the physical inventory have
 been noticed.
 
 (c) In our opinion, and according to the information and explanations
 given to us, a substantial part of fixed assets has not been disposed
 off by the Company during the year.
 
 2.  (a) The inventory has been physically verified by the Management
 during the year. In respect of inventory lying with third parties, 
 these have substantially been confirmed by them. In our opinion, the 
 frequency of verification is reasonable.
 
 (b) In our opinion, 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 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 were not material.
 
 3.  (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 Act.
 
 (b) The Company has not taken any loans, secured or unsecured, from
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Act.
 
 4.  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 for the
 purchase of inventory and fixed assets and for the sale of goods and
 services. Further, on the basis of our examination of the books and
 records of the Company and according to the information and
 explanations given to us, we have neither come across, nor have been
 informed of, any continuing failure to correct major weaknesses in the
 aforesaid internal control system.
 
 5.  According to the information and explanations given to us, there
 have been no contracts or arrangements referred to in Section 301 of
 the Act during the year to be entered in the register required to be
 maintained under that Section.  Accordingly, the question of commenting
 on transactions made in pursuance of such contracts or arrangements
 does not arise.
 
 6.  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 or any other relevant provisions of the Act and the
 ''Companies (Acceptance of Deposits) Rules, 1975'' with regard to the
 deposits accepted from the public. According to the information and
 explanations given to us, 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 other Tribunal on the Company in respect of the aforesaid
 deposits.
 
 7.  In our opinion, the Company has an internal audit system
 commensurate with its size and the nature of its business.
 
 8.  We have broadly reviewed the books of account maintained by the
 Company in respect of products where, pursuant to the rules made by the
 Central Government of India, the maintenance of cost records has been
 prescribed under clause (d) of sub-section (1) of Section 209 of the
 Act, and 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) According to the information and explanations given to us and
 the records of the Company examined by us, in our opinion, the Company 
 is regular in depositing the undisputed statutory dues, including 
 provident fund, investor education and protection fund, employees'' 
 state insurance, income tax, sales tax, wealth tax, service tax, customs 
 duty, excise duty and other material statutory dues, as applicable, with 
 the appropriate authorities.
 
 (b) According to the information and explanations given to us and the
 records of the Company examined by us, the particulars of dues of
 income tax, sales tax, wealth tax, service tax, customs duty and excise
 duty as at 31st March, 2012 which have not been deposited on account of
 a dispute, are as follows :
 
 Name of the    Nature of dues       Amount    Period to    Forum where
 Statute                               (Rs)    which the    the dispute is
                                               amount 
                                               relates      pending
 
 Sales Tax             -                -         -            -
 
 Income Tax            -                -         -            -
 
 Wealth Tax            -                -         -            -
 
 Service Tax    Demand received for   1,182,269 2005-06     Tribunal
                various cases.
 
 Customs Duty          -                -          -           -
 
 10.  The Company has no accumulated losses as at 31st March, 2012 and
 it has not incurred any cash losses in the financial year ended on that
 date or in the immediately preceding financial year.
 
 11.  According to the records of the Company examined by us and the
 information and explanation given to us, the Company has not defaulted
 in repayment of dues to any financial institution or bank or debenture
 holders as at the balance sheet date.
 
 12.  The Company has not granted any loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 13.  In our opinion, the Company has maintained proper records of
 transactions and contracts relating to dealing or trading in shares,
 securities, debentures and other investments during the year and timely
 entries have been made therein. Further, such securities have been held
 by the Company in its own name.
 
 14.  In our opinion, and 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 during the year.
 
 15.  In our opinion, and according to the information and explanations
 given to us, the term loans have been applied, on an overall basis, for
 the purposes for which they were obtained.
 
 16.  On the basis of an overall examination of the balance sheet of the
 Company, in our opinion, and according to the information and
 explanations given to us, there are no funds raised on a short-term
 basis which have been used for long-term investment.
 
 17.  The Company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under Section
 301 of the Act during the year.
 
 18.  The Company has created security / charge in respect of debentures
 outstanding at the year-end. The details of security are disclosed in
 Note 4 to the Financial Statements.
 
 19.  The Company has not raised any money by public issues during the
 year.
 
 20.  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 the information and
 explanations given to us, we have neither come across any instance of
 material fraud on or by the Company, noticed or reported during the
 year, nor have we been informed of any such case by the Management.
 
 21.  Considering the nature of the business, Clause (xiii) of paragraph
 4 of the Companies (Auditor''s Report) Order, 2003, as amended by the
 Companies (Auditor''s Report) (Amendment) Order, 2004, is not applicable
 in the case of the Company for the current year, hence in our opinion
 there is no matter which arises to be reported in the aforesaid Clause
 of the Order.
 
                                                       For Dalal & Shah 
                                           Firm Registration No.102021W
                                                  Chartered Accountants
 
                                                             Anish Amin
 
 Pune                                                           Partner
 
 26th May, 2012                                     Membership No.40451