1.  We have audited the attached Balance Sheet of The Lakshmi Mills
 Company Limited, as at March 31, 2012, the Statement of Profit and Loss
 and the Cash Flow Statement of the Company for the year ended on that
 dated annexed thereto. These financial statements are the
 responsibility of the management of the company. Our responsibility is
 to express an opinion on these financial statements based on our audit.
 
 2.  We conducted our audit in accordance with generally accepted
 auditing standards in India. These Standards require that we plan and
 perform the audit to obtain reasonable assurance whether the financial
 statements are prepared, in all material respects, in accordance with
 an identified financial reporting framework and are free of material
 misstatements. 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 statements presentation.  We believe that our audit
 provides a reasonable basis for our opinion.
 
 3.  As required by the Companies (Auditor''s Report) Order, 2003
 issued by the Central Government of India in terms of section 227 (4A)
 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 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 purpose 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, the Statement of Profit and Loss and the Cash
 Flow Statement dealt with by this report are prepared in accordance
 with the Accounting Standards referred to in section 211 (3C) of the
 Companies Act, 1956.
 
 (d) In our opinion, the Balance Sheet, the Statement of Profit and Loss
 and the Cash Flow Statement dealt with by this report are in agreement
 with the books of account.
 
 (e) On the basis of written representations received from the directors
 of the Company, as at 31st March 2012 and taken on record by the Board
 of Directors, we report that 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 Companies Act,
 1956.
 
 5.  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 March 31, 2012;
 
 (b) in the case of the Statement of Profit and 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 of the
 company for the year ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 (Referred to in our report of even date)
 
 i.  In respect of fixed assets:
 
 a.  The Company has maintained proper records showing full particulars,
 including quantitative details and situations of fixed assets.
 
 b.  Some of the fixed assets were physically verified during the year
 by the management in accordance with the programme of verification,
 which in our opinion provides for physical verification of all the
 fixed assets at reasonable intervals. According to the information and
 explanations given to us no material discrepancies were noticed on such
 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 disposals has, in our opinion not affected the going concern
 status of the Company.
 
 ii.  In respect of its inventories:
 
 a.  As explained to us, inventories were physically verified during the
 year by the management at reasonable intervals.
 
 b.  In our opinion and according to the information and explanations
 given to us, the procedure of physical verification of inventories
 followed by the management were reasonable and adequate in relation to
 the size of the Company and nature of its business.
 
 c.  In our opinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories and no material discrepancies were noticed on physical
 verification.
 
 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 Companies Act, 1956 and
 hence the provisions of clauses 4 (iii) (b) to (d), (f) & (g) of the
 Companies (Auditor''s Report) Order, 2003 are not applicable.
 
 iv.  In our opinion and according to the information and explanations
 given to us, there are adequate internal control systems commensurate
 with the size of the Company and nature of its business for the
 purchase of inventory and fixed assets and for the sale of the goods
 and services. During the course of the audit, we have not observed any
 continuing failure to correct major weaknesses in internal control.
 
 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 Section
 301 that needed to be entered into the register maintained under the
 said section have been so entered.
 
 b.  In our opinion and according to explanations given to us, the
 transactions made in pursuance of such contracts or arrangements have
 been made at prices which are reasonable having regard to the
 prevailing market prices at the relevant time.
 
 vi.  In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of Section
 58A and 58AA or any other relevant provisions of the Companies Act,
 1956 and the Companies (Acceptance of Deposit) Rules, 1975 with regards
 to the deposits accepted from the public.
 
 vii. In our opinion, the internal audit functions carried out during
 the year by Independent Chartered Accountants appointed by the
 management have been commensurate with the size and nature of its
 business.
 
 viii.  We have broadly reviewed the books of account and records
 maintained by the Company relating to the manufacture of textiles
 pursuant to the order made by the Central Government for the
 maintenance of cost records under section 209 (1) (d) of the Companies
 Act 1956 and are of the opinion that prime facie prescribed accounts
 and records have been made and maintained. We have, however, not made a
 detailed examination of the records with a view to determining whether
 they are accurate or complete.
 
 ix.  In respect of Statutory dues:
 
 a..  According to the information and explanations given to us, the
 Company has generally been regular in depositing undisputed statutory
 dues, including Provident Fund, Investor Education and Protection Fund,
 Employees'' State Insurance, Income Tax, Sales Tax, Wealth Tax,
 Service Tax, Custom Duty, Excise duty, Cess and any other material
 statutory dues with the appropriate authorities during the year. There
 are no undisputed statutory dues which are outstanding for more than
 six months as at the Balance Sheet date.
 
 b.  According to the information and explanations given to us details
 of disputed tax which have not been deposited as on 31.3.2012 on
 account of any dispute are given below:
 
 Name of the 
 Statute                      Amount    Period to 
                                        which        Forum where 
                                                     dispute is
                                                     pending
              Nature of Dues  Rs In 
                              Lakhs     the amount 
                                        relates
 
 Excise Act 
 1944 /       Service Tax      2.95     1997 - 99    High Court
 
 Service Tax 
 Act          Excise Duty      1.61     1995 - 96    High Court
 
              Cenvat           2.79     2004 - 05    Deputy Commissioner
                                                     -Coimbatore
 
              Cenvat           1.36     2007 - 08    Asst. Commissioner
                                                     -Kovilpatti
 
 x.  The company has incurred a cash loss of Rs. 1260.07 lakhs during
 the financial year covered by our audit and .  a cash loss of Rs. Nil
 in the immediately preceding financial year. The accumulated losses at
 the end of the year is Rs. 627.98 lakhs.
 
 xi.  On the basis of our audit procedures, in our opinion and according
 to the information and explanations given to us the Company has not
 defaulted in the payment of dues to financial institutions and Banks,
 except two term loan installments to banks amounting to Rs. 117.50
 lakhs and Rs. 22.00 lakhs respectively which were due and outstanding
 as on 31st March, 2012 and were since repaid before the date of our
 report.
 
 xii. The company has not granted loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 Hence the provisions of this clause 4 (xii) of the Companies
 (Auditor''s Report) Order, 2003 are not applicable.
 
 xiii.  The company is not a chit fund or Nidhi mutual benefit
 fund/society. Therefore, the provisions of clause 4 (xiii) of the
 Companies (Auditor''s Report) Order, 2003 are not applicable.
 
 xiv. The company is not dealing in or trading in shares, securities,
 debentures and other investments. Hence 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 company has not given any guarantee for loans taken by
 others from Banks and Financial Institutions during the year.
 
 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, prime facie, applied by the Company during
 the year for the purpose for which the loans were obtained, other than
 temporary deployment pending application.
 
 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, prime facie, not been used during the
 year for long term investment.
 
 xviii The provisions of clause 4 (xviii) (xix) and (xx) of the
 Companies (Auditor''s Report) Order 2003 are not applicable since the
 Company has not issued any shares or debentures during the year.
 
 xix 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 Subbachar & Srinivasan 
 
                                          Firm Registration No. 004083S 
 
                                                  Chartered Accountants 
 
                                                       T.S.V. Rajagopal
 
 Coimbatore                                                     Partner
 
 30th May 2012                                    Membership No. 200380