We have audited the attached Balance Sheet of MANDOVI PELLETS LIMITED
 as at March 31,2004 and also the Profit and Loss Account and the Cash
 Flow Statement of the Company for the year ended on that date, annexed
 thereto and report thereon as follows:
 
 1 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. These Standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements 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 the Management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 3 These financial statements have been prepared on the basis that the
 Company is a going concern although its accumulated losses exceed the
 aggregate of its paid up capital and reserves. The accounts do not
 include any adjustments relating to the recoverability and
 classification of the recorded asset amounts and classification of
 liabilities that might be necessary should the Company be unable to
 continue as a going concern. The Managements reasons for basing the
 accounts on the going concern assumption are the expected future
 benefits of modernisation/refurbishment, the continued support it has
 received from its Holding Company, the anticipated support from the
 State Government and changes in the economic scenario with the Company
 having entered into contracts for supply of pellets to overseas and
 domestic buyers. This has been elaborated in Note Nos. 5 and 11 in
 Schedule 9. We are unable to express our opinion as to whether or not
 the application of the going concern basis is appropriate in
 preparing the financial statements of the Company.
 
 4 As required by the Companies (Auditors Report) Order, 2003, issued
 by the Central Government in terms of Section 227 (4A) of the Companies
 Act, 1956, we give in the Annexure a statement on the matters specified
 in paragraphs 4 and 5 of the said Order, to the extent applicable to
 the Company.
 
 5 Further to our comments in the Annexure referred to in paragraph 4
 above:
 
 (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 the books of account;
 
 (d) subject to our comments in paragraph 3 above, the Balance Sheet,
 Profit and Loss Account and Cash Flow Statement dealt with by this
 report are in compliance with the Accounting Standards referred to in
 Section 211(3C) of the Companies Act, 1956;
 
 (e) subject to our comments in paragraph 3 above, 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 except as stated in note 12
 relating to disclosure of information in respect of amounts due to
 Small Scale Industrial Undertakings in Schedule 9 to the accounts
 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 31st March, 2004;
 
 (ii) in the case of the Profit and Loss Account, of the profit of the
 Company for the year ended on that date and
 
 (iii) in case of the Cash Flow Statement of the cash flows for the year
 ended on that date.
 
 (f) on the basis of written representations received from directors, as
 on 31st March 2004, and taken on record by the Board of Directors, we
 report that no director is disqualified from being appointed as
 Director of the Company under clause (g) of sub section (1) of section
 274 of the Companies Act, 1956;
 
                                              For S. B. BILLIMORIA & CO.
                                                   Chartered Accountants
                                                    Sanjiv V. Pitgaonkar
                                                                 Partner
                                                    Membership No. 39826
 Place: Mumbai,
 Date : 22nd June, 2004.
 
 ANNEXURE TO THE AUDITORSREPORT
 
 (Referred to In paragraph 4 of our report of even date)
 
 1 The nature of the Companys business/activities during the year is
 such that clauses (xiii) and (xiv) of paragraph 4 of the order are not
 applicable to the Company.
 
 2 In respect of its fixed assets:
 
 (a) The Company has maintained proper records showing full particulars,
 including quantitative details and situation of fixed assets.
 
 (b) Some of the fixed assets were physically verified during the year
 by the management in accordance with a 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) Assets disposed off by the Company during the year did not
 constitute a substantial part of its fixed assets.
 
 3 In respect of its inventories:
 
 (a) As explained to us, inventories of finished goods, raw materials
 and stores and spares of grinding media and coke breeze aggregating Rs.
 10,354,821 were not physically verified, as there were no movements
 consequent to stoppage of production activities.
 
 Other stores and spares 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 procedures of physical verification of inventories
 followed by the management were reasonable and adequate in relation to
 the size of the Company and the 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 in respect of
 inventories physically verified.
 
 4 The Company has not granted any loans, secured or unsecured, to any
 Company, firm or other parties covered in the register maintained under
 Section 301 of the Companies Act, 1956.
 
 In respect of loans taken by the Company from companies, firms or other
 parties covered in the register maintained under Section 301 of the
 Companies Act, 1956, according to the information and explanations
 given to us:
 
 (a) The Company has taken loans aggregating Rs.215,516,486 from one
 such Company during the year. At the year-end, the outstanding balance
 of these loans aggregated Rs. 504,008,199.
 
 (b) The rate of interest and other terms and conditions of the said
 loans are, in our opinion, prima facie, not prejudicial to the interest
 of the Company.
 
 11 The accumulated losses of the Company as at the end of the financial
 year have exceeded fifty per cent of Its net worth as at the end of the
 year. The Company has not incurred cash losses during the current
 financial year. However, the Company had suffered cash losses In the
 Immediately preceding financial year.
 
 12 The Company did not have any dues to financial institutions and
 banks that were outstanding as at the year-end. The Company has not
 issued debentures that were outstanding during the year.
 
 13 The Company has not granted loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 14 In our opinion and according to the information and explanations
 given to us, the Company has not given any guarantee in respect of
 loans taken by others from banks and financial institutions.
 
 15 To the best of our knowledge and belief and according to the
 information and explanations given to us, there was no term loan
 availed by the Company during the year.
 
 16 According to records examined by us and the information and
 explanations given to us, on an overall basis, funds raised on short
 term basis have, prima facie, not been used during the year for long
 term investment (fixed assets, etc,). Funds raised on call basis from
 its Holding Company have been utilised for repayment of long term
 debts.
 
 17 According to the information and explanations given to us, the
 Company has not made any preferential allotment of shares to parties
 and Companies covered in the Register maintained under Section 301 of
 the Companies Act, 1956 during the year.
 
 18 According to the information and explanations given to us and the
 records examined by us, the Company has not issued any debentures
 during the year.
 
 19 The Company has not raised any money by public issue during the
 year.
 
 20 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 S. B. BILLIMORIA & CO.
                                                   Chartered Accountants
                                                     Sanjiv V. Pugaonkar
                                                                 Partner
                                                    Membership No. 39826
 Place : Mumbai,
 Date : 22nd June, 2004.