KNR Constructions

1. We have audited the attached Balance Sheet of KNR Constructions
 Limited as at March 31, 2008 ,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. 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 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 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 issued
 by the Central 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 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 it appears from our examination of those
 books ;
 
 c) the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with die books of account;
 
 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 Com-
 panies Act, 1956;
 
 e) in our opinion and to die best of our information and according to
 the explanations given to us, die 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, 2008 ;
 
 (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, 2008 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on March 31, 2008
 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 die 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 taken loans secured or unsecured from Companies, firms or
 other parties 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. However interest is provided on these
 transactions @12% p.a as approved by the Board. In the absence of
 agreements for these loans, the terms and conditions, their impact on
 the interests of the Company cannot be ascertained.
 
 c) In the absence of agreements , as the transactions were made on an
 account basis ,the regularity of payment of principal and interest dose
 not arise.
 
 d) In the absence of specific agreements for these transactions, the
 question of over dues does not arise for these transactions.
 
 iv) In our opinion and according to the information and explanations
 given to us, the company has formal 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.
 
 v i) 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 (Auditors
 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, the frequency of internal audit reporting needs to be
 increased.
 
 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 activity 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, Investor Education and Protection 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 income tax, wealth
 tax, customs duty, excise duty and cess which were in arrears as at
 March 31, 2008 for a period of more than six months from the date they
 became payable. The undisputed amounts payable for more than 6 months
 are given below:
 
 Entry Tax - Rs. 75,43,916/-
 
 c) The disputed statutory dues that have not been deposited on account
 of matters pending before appropriate authorities are as under:
 
 Name of statue                Nature of dues        Amount in Rs.
 
 Income Tax Act, 1961           Income Tax               4,455,450
 
 Andhra Pradesh                 Sales Tax                5,659,364
 
                                Sales Tax Act, 1957      7,800,285
 
                                                         2,881,789
 
 Period to which            Forum where
 the amount relates         dispute is pending
 
 FY 2002-03                 Appellate Tribunal,
                            Hyderabad
 
 FY 2000-01                 Sales Tax Tribunal,
 
 FY 1999-00                 Hyderabad
 FY 1998-99
 
 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 (Auditors 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 (Auditors 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 (Auditors 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 loans 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 (Auditors Report) Order, 2003 are
 not applicable to the Company.
 
 xx) The monies raised during the year by way of Initial Public Offering
 have been used as per the terms of prospectus.
 
 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
 
                                                Sd/-
 
                                         C. Sukumar Babu
 Place : Hyderabad                           Partner
 Date  : 30-08-2008                     M.No: 200/24293