1.  We have audited the attached Balance Sheet of KIRLOSKAR FERROUS
 INDUSTRIES LIMITED (the Company) as at 31st March, 2011 and the
 related Profit and Loss Account and also the Cash Flow Statement of the
 Company 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 conducted our audit in accordance with 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 (Auditors Report) Order, 2003 [as
 amended by Companies (Auditors Report) (Amendment) Order, 2004] issued
 by the Central Government of India in terms of sub-section (4A) of
 Section 227 of the Companies Act, 1956 (“the Act”), we enclose in the
 Annexure a statement on the matters specified in paragraph 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 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;
 
 (iii) The Balance Sheet, Profit and Loss Account and Cash Flow
 Statement dealt with by this report are in agreement with the Books of
 Account;
 
 (iv) 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 in sub-section (3C) of Section 211 of
 the Companies Act, 1956;
 
 (v) On the basis of the written representations received from the
 Directors as on 31st March, 2011, and taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 31st March, 2011 from being appointed as a Director in terms of clause
 (g) of sub-section (1) of Section 274 of the Companies Act, 1956; and
 
 (vi) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts, read together with the
 notes thereon, 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 31st March, 2011:
 
 (b) In the case of the Profit and Loss Account of the profit 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.
 
 ANNEXURE TO THE AUDITORS REPORT
 
 STATEMENT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE TO THE
 MEMBERS OF KIRLOSKAR FERROUS INDUSTRIES LIMITED ON THE FINANCIAL
 STATEMENTS FOR THE YEAR ENDED 31st MARCH, 2011.
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As informed to us, the fixed assets have been physically verified
 by the Management at reasonable intervals. In our opinion, this
 periodicity of physical verification is reasonable having regard to the
 size of the Company and the nature of its assets. The discrepancies
 noticed on such verification were not material and have been properly
 dealt with in the Books of Account.
 
 (c) Fixed assets disposed off during the year were not substantial and
 therefore do not affect the going concern assumption.
 
 (ii) (a) The inventory was physically verified during the year by the
 Management. In our opinion, the frequency of verification is
 reasonable. Stocks lying with third parties at the year-end have been
 confirmed.
 
 (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) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 the book records were not material.
 
 (iii) The Company has neither granted nor taken any loans, secured or
 unsecured, to/ from companies, firms or other parties covered in the
 register maintained under Section 301 of the Act. Consequently clauses
 (iii)(b), (iii)(c), (iii)(d), (iii)(f) and (iii)(g) of paragraph 4 of
 the Order are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there were adequate internal control system commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of audit, we have not observed any
 continuing failure to correct major weaknesses in internal control
 system.
 
 (v) (a) In our opinion and according to the information and
 explanations given to us, the particulars of contracts or arrangements
 referred to in Section 301 of the Act have been entered in the register
 required to be maintained under that section.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of such contracts or
 arrangements and exceeding Rs. five lakhs in respect of any party
 during the period have been made at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 (vi) The Company has not accepted deposits from public and hence the
 provisions of Clause (vi) are not applicable.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) 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.
 
 (ix) (a) The Company has generally been regular in depositing
 undisputed dues, including Provident Fund, Investor Education and
 Protection Fund, Employees State Insurance, Income Tax, Value Added
 Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other
 material statutory dues, applicable to it with the appropriate
 authorities.
 
 According to information and explanation given to us, no undisputed
 amounts payable in respect of statutory dues were in arrears, as at
 31st March, 2011 for a period of more than six months from the date
 they became payable.
 
 (b) According to information and explanation given to us, there are
 amounts of Excise Duty, Value Added Tax, Service Tax , Electricity Tax
 and Income Tax which have not been deposited on account of dispute as
 listed below:
 
 Name of the statute   Nature of the dues                    Amount
                                                             (Rs.)
 
 The Central Excise    Interest on refund                   341,496
 Act,1944
 
 The Central Excise    Duty on pattern development           342,06
 Act,1944
 
 The Central Excise    Cenvat credit utilised for         7,585,734
 Act,1944              payment of Service Tax
 
 The Central Excise    Penalty on excise duty               100,000
 Act,1944
 
 The Central Excise    Interest /Penalty on               3,127,237
 Act,1944              undervaluation
 
 The Central Excise    Refund of Cenvat                     714,462
 Act,1944
 
 The Central Excise    Cenvat Credit availed on             598,069
 Act,1944              Electrodes
 
 The Central Excise    Cenvat Credit availed on           9,933,307
 Act,1944              Structural Steels
 
 The Central Excise    Cenvat Credit on input               438,687
 Act,1944              services
 
 The Karnataka         Interest on refund                   211,311
 VAT Act,2003
 
 The Karnataka         Electricity Tax on captive           604,782
 Electricity Act,      generation & Consumption 
 
 Income tax Act,       Minimum Alternate Tax              5,181,762
 1961 
 
 Income tax Act,       Income Tax                         8,057,910
 1961
 
 Name of the statute   Forum where dispute is pending
 
 The Central Excise    Assistant Commissioner of Central Excise
 Act, 1944
 
 The Central Excise    CESTAT, Bangalore
 Act, 1944
 
 The Central Excise    Commissioner of Central Excise
 Act, 1944
 
 The Central Excise    CESTAT,Bangalore
 Act, 1944
 
 The Central Excise    CESTAT,Mumbai
 Act, 1944
 
 The Central Excise    The Honourable High Court of Mumbai
 Act, 1944
 
 The Central Excise    Assistant Commissioner, Central Excise
 Act, 1944
 
 The Central Excise    Joint /Asst. Commissioner, 
 Act, 1944             Central Excise, Belgaum
 
 The Central Excise    Deputy Commissioner, Central Excise, Bellary
 Act, 1944
 
 The Karnataka VAT     Joint Commissioner of Commercial Taxes,
 Act, 2003             Davangere
 
 The Karnataka         Honble High Court of Karnataka
 Electricity Act,
 
 Income tax Act,       Income Tax Appellate Tribunal, Pune
 1961
 
 Income tax Act,       Income Tax Appellate Tribunal, Pune
 1961
 
 
 (x) The Company does not have any accumulated losses at the end of the
 financial year and has not incurred cash losses in the current
 financial year and in the immediately preceding financial year.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to its
 bankers. The Company did not have any outstanding debentures or any
 outstanding loans from financial institution during the year.
 
 (xii) The Company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund or a nidhi/ mutual benefit
 fund/ society.
 
 (xiv) According to information and explanation given to us, the Company
 is not dealing in or trading in shares, securities, debentures.
 However, the Company had made investments in mutual funds for which
 proper records have been maintained of the transactions and contracts
 and timely entries have been made therein.
 
 (xv) As informed to us, the Company has not given guarantees for loans
 taken by others from banks or financial institutions.
 
 (xvi) In our opinion, the term loans have been applied for the purpose
 for which they were raised.
 
 (xvii) According to information and explanation given to us, we report
 that no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii) According to information and explanation given to us, the
 Company has not made any preferential allotment of any shares to
 parties and companies covered under Section 301 of the Companies Act,
 1956.
 
 (xix) Since the Company has not issued any debentures during the year,
 para 4(xix) of the order regarding creation of security is not
 applicable.
 
 (xx) The Company has not made any public issue to raise money.
 
 (xxi) According to information and explanation given to us, no fraud on
 or by the Company has been noticed or reported during the course of our
 audit.
 
                                              For M/s P. G. BHAGWAT
 
                                              Chartered Accountants
                                      Firm Registration No. 101118W
 
                                                          S.B.Pagad 
                                                            Partner 
                                              Membership No. 206124
 
 Pune : 26th April, 2011