Lanco Infratech

1.  We have audited the attached Balance Sheet of Lanco Infratech
 Limited, as at March 31, 2008, and the related Profit and Loss Account
 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 management of Lanco
 Infratech Limited. 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,
 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 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 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 the 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 Act;
 
 (e) On the basis of written representations received from the
 directors, as on March 31, 2008 and taken on record by the Board of
 Directors, 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 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 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.
 
 ANNEXURE TO AUDITORS’ REPORT
 
 [Referred to in paragraph 3 of the Auditors’ Report of even date to the
 members of Lanco Infratech Limited on the financial statements for the
 year ended March 31, 2008]
 
 1.  (a) The Company is in the process of updating 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 program 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 program, the fixed assets have 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 the 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 except for certain construction and project related
 materials issued to subcontractor on receipt. In respect of
 construction and project work in progress the same has been verified
 with reference to independent valuer’s report.
 
 (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 had taken an unsecured loan, from a company covered in
 the register maintained under Section 301 of the Act. The maximum
 amount involved during the year and the year-end balance of such loan
 aggregate to Rs. 200,000,000.
 
 (c) In our opinion, the rate of interest and other terms and conditions
 of such loan are not prima facie prejudicial to the interest of the
 Company.
 
 (d) In respect of the aforesaid loan, the principal amount has not
 fallen due for repayment as per the stipulation and the Company is
 regular in payment of interest.
 
 4.  In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system with regard
 to fixed assets and the sale of goods and services. With respect to
 purchase of inventory, the existing internal control system needs to be
 strengthened, to commensurate with the size of the Company and the
 nature of its business. 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.  (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 the value of Rupees Five Lakhs in respect of
 a party during the year, have been made at prices which are reasonable
 having regard to the prevailing market prices at the relevant time in
 respect of a loan and as regards transactions of services, due to the
 special nature, for which alternative quotations are not possible,
 commenting on the reasonableness of such prices having regard to the
 prevailing market prices is not feasible.
 
 6.  The Company has not accepted any deposits from the public within
 the meaning of Sections 58A and 58AA of the Act and the rules framed
 thereunder.
 
 7.  In our opinion, the Company has an internal audit system
 commensurate with its size and 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 generally regular in depositing the undisputed statutory dues
 including provident fund (other than provident fund pertaining to
 Contract works), investor education and protection fund, employees’
 state insurance, income tax (other than short fall in the estimation
 and remittance of advance tax), sales tax, wealth tax, service tax,
 works contract tax, customs duty, Cess and other material statutory
 dues as applicable with the appropriate authorities. In respect of a
 few sub- contractors, in the absence of details and evidence of
 payments, we are unable to comment on whether the statutory dues
 pertaining to contract work performed by them, have been deposited
 regularly or not.
 
 (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 and sales-tax as at March 31, 2008 which have not been
 deposited on account of a dispute, are as follows -
 
 Name of the statute             Nature of          Amount in
                                 dues               Million of Rs.
 
 The Income Tax Act,             Income               2.00
 1961                            Tax
 
 The Income Tax Act,             Income              10.99
 1961                            Tax
 
 Andhra Pradesh General          Sales Tax            0.84
 Sales Tax Act, 1956
 
 Andhra Pradesh General          Sales Tax            0.06
 Sales Tax Act, 1956
 
 Andhra Pradesh Tax on Entry     Entry                0.19
 of Goods Act, 2001              Tax
 
 Period to which the amount    Forum where the dispute is pending
                               relates
 
 Assessment Year 2003-04       High Court of Andhra Pradesh
 
 Assessment Year 2004-05       Commissioner of Income Tax (Appeals)
 
 Financial Year 2000-01        The Sales Tax Appellate Tribunal,
                               Hyderabad
 
 Financial Year 2001-02        The Sales Tax Appellate Tribunal,
                               Hyderabad
 
 Financial Year 2007-08        The Sales Tax Appellate Tribunal,
                               Hyderabad
 
 10.  The Company has no accumulated losses as at March 31, 2008 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.  The provisions of any special statute applicable to chit fund/
 nidhi/mutual benefit fund/societies are not applicable to the company.
 
 14.  In our opinion, the Company is not a dealer or trader in shares,
 securities, debentures and other investments.
 
 15.  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 or financial institutions
 during the year, are not prejudicial to the interest of the Company.
 
 16.  In our opinion, and according to the information and explanations
 given to us, on an overall basis, the term loans have been applied for
 the purposes for which they were obtained.
 
 17.  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.
 
 18.  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.
 
 19.  The Company has not issued any debentures.
 
 20.  The management has disclosed the end use of money raised by public
 issues (Refer Note 2 of Schedule 18) and the same has been verified by
 us.
 
 21.  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
 fraud on or by the Company, noticed or reported during the year, nor
 have we been informed of such case by the management.
 
 22.  The other clauses, (iii) (b), (iii) (c), (iii) (d) of paragraph 4
 of the Companies (Auditor’s Report) Order 2003 as amended by the
 Companies (Auditor’s Report) (Amendment) Order, 2004 are not applicable
 in the case of the Company for the current year, since in our opinion
 there is no matter which arises to be reported in the aforesaid order.
 
                                                     P. Ramakrishna
                                                            Partner
                                            Membership Number 22795
 
                                               For and on behalf of
 Place : Hyderabad                                 Price Waterhouse
 Date  : May 29, 2008                         Chartered Accountants