1.  We have audited the attached Balance Sheet of KNR Constructions
 Limited as at March 31, 2011, the Profit and Loss Account for the year
 ended on that date and the Cash Flow Statement for the year ended on
 that date both annexed thereto, in which are incorporated the returns
 from Dubai branch (“the Branches”) audited by other auditors. 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 check 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 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 (Auditor''s Report) Order, 2003 (CARO)
 issued by the Government of India in terms of sub- section (4A) of
 section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified 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:
 
 a) we have obtained all 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 it appears from our examination of those
 books and proper returns, adequate for the purposes of our audit have
 been received from the branches not visited by us. The Branch Auditors
 Reports have been forwarded to us and appropriately dealt with;
 
 c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of accounts
 and with the audited returns from the Branches;
 
 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 in sub-section (3C) of section 211 of the
 Companies Act, 1956;
 
 e) 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:
 
 (i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2011 ;
 
 (ii) in the case of the Profit and Loss Account, 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.
 
 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 disqualified as on March 31, 2011
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956.
 
 Annexure to the Auditors'' Report
 (Referred to in Paragraph 3 of our Report of even date)
 
 i) In respect of its fixed assets
 
 a) The Company has maintained proper records showing full particulars,
 including quantitative details and situation of its fixed assets on the
 basis of available information.
 
 b) As explained to us, all the fixed assets have been physically
 verified by the management during the year in a phased periodical
 manner, 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 physical verification.
 
 c) The fixed assets disposed off during the year in our opinion, do not
 constitute a substantial part of the fixed 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 inventories
 
 a) According to the information and explanations given to us, the
 Management has physically verified the inventory during the year. In
 our opinion, having regard to the nature of business and location of
 stocks, the frequency of verification is reasonable.
 
 b) In our opinion and according to the information and explanations
 given to us, 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
 
 c) In our pinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories. The discrepancies noticed on verification between the
 physical stocks and the 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 granted unsecured loans to Companies covered in the
 Register maintained under Section 301 of the Companies Act, 1956. There
 are companies under the same management as defined under Sub-section
 (1-B) of section 370 of the Companies Act, 1956.
 
 b) There are no specific agreements for these transactions and were
 made on account basis. In the absence of agreements for these loans,
 the terms and conditions, their impact on the interests of the Company
 cannot be ascertained.
 
 c) The Company has given advances / loans to its wholly owned
 subsidiaries (including foreign companies) during the year. In respect
 of the said advances / loans, the maximum amount outstanding at any
 time during the year is Rs.181.54 lakhs and the year end balance is
 Rs.181.54 lakhs.
 
 d) In the absence of agreements, the transactions were made on an
 on-account basis and hence the question of regularity of payment of
 principal and interest dose not arise.
 
 e) In the absence of specific agreements for these transactions, the
 question of over- dues does not arise for these transactions.
 
 f) The Company has taken unsecured loans during the year from other
 parties covered in the Register maintained under Section 301 of the
 Companies Act, 1956. There are no specific agreements for these
 transactions and were made on an on- account basis. In the absence of
 agreements, the transactions were made on an on-account basis and hence
 the regularity of payment of principal and interest dose not arise.
 
 iv) In our opinion and according to the information and explanations
 given to us, the company has internal control system commensurate with
 its size and the nature of its business for the purchase of inventory
 and fixed assets.
 
 v) In respect of contracts or arrangements entered in the register
 maintained in pursuance of section 301 of the Companies Act, 1956 to
 the best of our knowledge and belief and according to the information
 and explanations given to us:
 
 a) the Particulars of contracts or arrangements referred to in section
 301 that needs to be entered into the register maintained under the
 said section have been so entered.
 
 b) in our opinion , the transactions ( excluding loans reported under
 paragraph(iii) above) exceeding the value of Rs.5 lakhs in respect of
 any party during the year have been made at prices which are prima
 facie reasonable having regard to the prevailing market prices at the
 relevant time where such market prices are available.
 
 vi) In our opinion and according to the information and explanations
 given to us, the Company has not accepted any deposits from the public.
 Accordingly, the provisions of clause 4(vi) of the Companies (Auditor''s
 Report) Order, 2003 are not applicable to the Company.
 
 vii) In our opinion, the internal audit functions carried out during
 the year by a firm of Chartered Accountants appointed by the management
 have been commensurate with the size of the Company and the nature of
 its business.
 
 viii) In our opinion and according to the information and explanations
 given to us, the Central Government has not prescribed the maintenance
 of cost records for any of the products or activities of the company.
 
 ix) In respect of statutory dues:
 
 a) According to the Information and explanations given to us, the
 Company has been generally regular in depositing undisputed statutory
 dues including Provident Fund, Employees State Insurance, Income Tax,
 Wealth Tax, Sales Tax, Service Tax, Custom Duty, Excise Duty, Cess and
 any other material statutory dues applicable to it with the appropriate
 authorities during the year.
 
 b) According to the Information and explanations given to us, there
 were no undisputed amounts payable in respect of wealth tax, customs
 duty, excise duty and cess which were in arrears as at March 31, 2011
 for a period of more than six months from the date they became payable,
 expect Income Tax dues amounting to Rs. 44.56 lakhs relating to the
 financial year 2002-03.
 
 c) The disputed statutory dues that have not been deposited on account
 of matters pending before appropriate authorities are as under:
 
 Name of statute         Nature of dues      Rupees in lakhs
 
 Income Tax Act, 1961    Income Tax               13.52
 
                         Income Tax             2096.70
 
                         Income Tax              223.37
 
 Andhra Pradesh          Sales Tax                21.39 
 Sales Tax Act, 1957
 
 Andhra Pradesh          VAT                     323.92 
 Value Added 
 Tax Act, 2005
 
                         VAT                     503.67
              
 Karnataka               VAT                     100.00 
 Value Added 
 Tax Act, 2005
 
                         VAT                      30.52
 
                         VAT                      81.52
 
                         VAT                      12.16
 
 Name of statute         Period to which         Forum where
                         the amount relates      dispute is pending
 
 Income Tax Act, 1961    F.Y 2005-06             Deputy Commissioner of
                                                 Income Tax , Circle
                                                 2(1), Hyderabad
 
                         F.Y 2006-07             Commissioner of Income
                                                 Tax (Appeals) – III,
                                                 Hyderabad
 
                         F.Y 2007-08             Commissioner of Income
                                                 Tax (Appeals) – III,
                                                 Hyderabad
 
 Andhra Pradesh          F.Y 2000-01             Sales Tax Tribunal,
 Sales Tax Act, 1957                             General Hyderabad
 
 Andhra Pradesh          F.Y 2008-09             Appellate Deputy
 Value Added                                     Commissioner (CT), 
 Tax Act, 2005                                   Punjagutta Division,
                                                 Hyderabad
 
                         F.Y 2009-10             Appellate Deputy
                                                 Commissioner (CT), 
                                                 Punjagutta Division, 
                                                 Hyderabad
 
 Karnataka               F.Y 2005-06             Joint Commissioner of
 Value Added                                     Commercial Taxes,
 Tax Act, 2005                                   (Appeals), Bangalore.
 
                         F.Y 2006-07             Joint Commissioner of
                                                 Commercial Taxes,
                                                 (Appeals), Bangalore.
 
                         F.Y 2008-09             Joint Commissioner of
                                                 Commercial Taxes, 
                                                 (Appeals), Bangalore.
 
                         F.Y 2009-10             Joint Commissioner of
                                                 Commercial Taxes, 
                                                 (Appeals), Bangalore.
 
 Note: Company has given bank guarantees for Rs 241.63 lakhs to the
 Karnataka State Government against disputed demands.
 
 x) The Company does not have accumulated losses and has not incurred
 cash losses during the financial year covered by our audit and 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
 financial institutions and banks.
 
 xii) In our opinion and according to the information and explanations
 given to us, the Company has not granted any loans and advances on the
 basis of security by way of pledge of shares and debentures and other
 securities. Accordingly, the provisions of clause 4(xii) of the
 Companies (Auditor''s Report) Order, 2003 are not applicable to the
 Company
 
 xiii) In our opinion, the Company is not a Chit Fund or a Nidhi or
 Mutual Benefit Fund/Society. Accordingly, the provisions of clause
 4(xiii) of the Companies (Auditor''s Report) Order, 2003 are not
 applicable to the Company.
 
 xiv) In our opinion and according to the information and explanations
 given to us, the Company does not deal or trade in shares, securities,
 debentures and other investments. Accordingly, the provisions of clause
 4(xiv) of the Companies (Auditor''s Report) Order, 2003 are not
 applicable to the Company.
 
 xv) In our opinion and according to the information and explanations
 given to us, the terms and conditions of the guarantees given by the
 Company for loans taken by others from banks and financial institutions
 are not prima facie prejudicial to the interests of the Company.
 
 xvi) To the best of our knowledge and belief and according to the
 information and explanations given to us, in our opinion, term loans
 availed by the Company were prima facie applied by the Company during
 the year for the purposes for which the same were obtained.
 
 xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, funds
 raised on short-term basis have, prima facie, not been used for
 long-term investment.
 
 xviii) According to the information and explanations given to us, the
 Company has not made preferential allotment of shares or warrants
 during the year to a company covered in the register maintained under
 section 301 of the Companies Act, 1956.
 
 xix) According to the information and explanations given to us, no
 debentures have been issued by the Company. Accordingly the provisions
 of clause 4(xix) of the Companies (Auditor''s Report) Order, 2003 are
 not applicable to the Company.
 
 xx) During the year covered by our audit report, the company has not
 raised any money by public issues.
 
 xxi) To the best of our knowledge and belief and according to the
 information and explanations given to us, no fraud on or by the Company
 was noticed or reported during the year.
 
 
                                         For Sukumar Babu & Co
                                         Chartered Accountants 
                                         (ICAI Registration No.004188S)
 
                                         Sd/-
                                         C. Sukumar Babu
                                         Partner
                                         M.No: 200/24293
 
 Place: Hyderabad 
 Date : 08-08-2011