1) We have audited the attached Balance Sheet of MRF Limited as at 30th
 September, 2011, and also the Profit and Loss Account and the Cash Flow
 Statement for the year ended on that date.  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 prepared, in all material respects, in
 accordance with an identified financial reporting framework and are
 free of material misstatement. An audit includes examining, on a test
 basis, evidence supporting the amounts and the 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
 issued by the Central Government of India in terms of Section 227 (4A)
 of Companies Act, 1 956 and according to the information and
 explanations given to us during the course of the audit and on the
 basis of such checks as were considered appropriate, 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:
 
 i) we have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of
 audit;
 
 i) 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;
 
 iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the Books of Account;
 
 iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash
 Flow Statement dealt with by this report comply with the requirements
 of the Accounting Standards referred to in sub-section (3C) of Section
 211 of the Companies Act, 1 956;
 
 v) on the basis of the written representations received from the
 directors as on 30th September, 2011 and taken on record by the Board
 of Directors, we report that none of the directors is disqualified as
 on 30th September, 2011 from being appointed as a director in terms of
 clause (g) of sub-section (1) of Section 274 of the Companies Act, 1
 956; and
 
 vi) in our op in ion and to the best of our information and according
 to the explanations given to us, the said accounts, read with note 1 -R
 in the notes forming part of the accounts, in respect of change in
 accounting policy relating to depreciation and read together with the
 other notes thereon, give the information required by the Companies
 Act, 1956 in the manner so required and also 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 30th September, 2011;
 
 b) in the case of the Profit and Loss Account, of the profit for the
 year ended on that date, and
 
 c) i n the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 (Referred to in Paragraph 3 of our Report of even date)
 
 i) a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets;
 
 b) As explained to us, the fixed assets have been physically verified
 by the management, at reasonable intervals, in accordance with a phased
 programme of verification, which in our opinion, is reasonable,
 considering the size of the Company and the nature of its assets. No
 material discrepancies were noticed on such physical verification;
 
 c) The Company has not disposed of any substantial part of its fixed
 assets so as to affect its going concern status.
 
 i) a) The inventory has been physically verified by the management
 during the year at reasonable intervals, except for materials lying
 with third parties, where confirmations are obtained;
 
 b) The procedures of physical verification of the inventory followed by
 the management are, in our opinion, reasonable and adequate in relation
 to the size of the Company and nature of its business;
 
 c) The Company has maintained proper records of inventory. The
 discrepancies noticed on physical verification of inventory as compared
 to book records were not material.
 
 iii) 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 Companies Act, 1956. Accordingly, clauses
 4(iii) (b) to (d) of the Order are not applicable.
 
 b) The Company has not taken any loans, secured or unsecured from
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly, clauses
 4(iii) (f) and (g) of the Order are not applicable.
 
 iv) In our opinion and according to the information and explanation
 given to us, there are adequate internal control systems commensurate
 with the size of the Company and the nature of its business with regard
 to purchase of inventory, fixed assets and for the sale of goods and
 services. During the course of our audit, we have not observed any
 continuing failure to correct major weaknesses in internal control
 system.
 
 v) a) Based on the audit procedures applied by us and according to the
 information, explanations and representations given to us, we are of
 the opinion that particulars of contracts or arrangements referred to
 in Section 301 of the Companies Act, 1956 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 contracts or
 arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956 exceeding the value of rupees five lacs in
 respect of any party during the year have been made at prices which are
 reasonable having regard to prevailing market prices at that time.
 
 vi) The Company has complied with the directives issued by the Reserve
 Bank of India and provisions of Section 58A, 58AA and other relevant
 provisions of the Companies Act, 1 956 and the rules formed there under
 with regard to deposits accepted from the Public. No order has been
 passed by the Company Law Board or National Company Law Tribunal or
 Reserve Bank of India or any Court or any other Tribunal in this
 regard.
 
 vii) In our opinion, the Company has an adequate internal audit system
 commensurate with its size and nature of its business.
 
 viii) We have broadly reviewed the Books of Account maintained by the
 Company as prescribed by the Central Government for maintenance of cost
 records under Section 209(1 )(d) of the Companies Act, 1 956 and are of
 the opinion that prima- facie the prescribed accounts and records have
 been made and maintained. However, we have not carried out a detailed
 examination of the accounts and records.
 
 ix) a) According to the information and explanations given to us, the
 Company is 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,
 Customs Duty, Excise Duty, Cess and other statutory dues with
 appropriate authorities. According to the information and explanations
 given to us, there are no undisputed amounts payable in respect of such
 statutory dues which have remained outstanding as at 30th September,
 2011 for a period of more than six months from the date they became
 payable;
 
 b) According to the information and explanations given to us, the
 details of disputed sales-tax, customs duty, excise duty and income-tax
 which have not been deposited as at 30th September, 2011 on account of
 any dispute, are as under:
 
 Statute and 
 nature of       Financial
                 year to          Forum where             Rs
 dues            which the 
                 matter           the dispute is        crore
                 pertains           pending
 
 Central
 Sales Tax Act,
 1956 & VAT Laws
 
 Sales tax/VAT 
 and             2002-03           Appellate            0.09
 penalty                           Commissioner
 
                 1992-93, 1994-95, Appellate            2.07
 
                 1995-96, 
                 1997-98 to        Tribunal
                 2004-05 & 
                 2006-08
 
                 1993-94 & 
                 1996-97           High Court           0.37
 
                 1996-97, 
                 2000-01 to        Supreme              0.54
 
                 2002-03           Court
 
 Customs 
 Act, 1962
 
 Customs 
 Duty and        2003-04           Appellate            0.16
 penalty                           Tribunal
 
                 1992-93 to 
                 1994-95           High Court          74.89
 
 Central
 Excise Act,
 1944
 
 Excise
 duty and        1997-98, 
                 1998-99 &         Appellate            0.09
 penalty         2006-07           Commissioner
 
                 1993-94, 
                 1996-97 to        Appellate            4.49
                 2005-06           Tribunal
 
                 2001-02           Supreme              0.06
                                   Court
 
 Income 
 Tax, 1961
 
 Income Tax      2002-03 to 
                 2005-06           Appellate           21.38
                 & 2008-09         Commissioner
 
 Andhra 
 Pradesh
 Electricity 
 Regulatory
 Commission
 
 Cess on own 
 power           2003-04 to 
                 2010-11           High Court           4.43
 
 Fuel 
 Surcharge       2008-09           High Court           2.53
 
 x) The Company has no accumulated losses at the end of the financial
 year and has not incurred cash losses in the current financial year and
 in the immediately preceding financial year.
 
 xi) The Company has not defaulted in repayment of its dues to banks and
 debenture holders.
 
 xii) The Company has not granted any loans or advances on the basis of
 security by way of pledge of shares, debentures or other securities.
 
 xiii) The provisions of any special statute applicable to Chit Fund, N
 id hi or Mutual Benefit Fund/Societies are not applicable to the
 Company.
 
 xiv) The Company is not dealing or trading in shares, securities,
 debentures or other investments. Accordingly, requirements of Clause
 4(xiv) of the said Order are not applicable to the Company.
 
 xv) 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.
 
 xvi) On the basis of the records examined by us, and relying on the
 information compiled by the Company for correlating the funds raised to
 the end use of term loans, the Company has, prima-facie, applied the
 term loans for the purposes for which they were obtained.
 
 xvii) According to the information and explanation given to us and on
 an overall examination of the Balance Sheet of the Company, we report
 that no funds raised on short term basis have been used for long term
 investments.
 
 xviii) 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.
 
 xix) The Company has during the year issued 9.07% and 1 0.09% Secured
 Redeemable Non-Convertible debentures amounting to Rs 200 crore and Rs
 500 crore respectively, each having a Face Value of Rs 10,00,000/-. The
 Company has created security in respect of the debentures issued.
 
 xx) The Company has not raised any money by way of public ssues during
 the year. Hence the requirements of clause 4(xx) of the said Order are
 not applicable to the Company.
 
 xxi) On the basis of our examination and according to the nformation
 and explanations given to us, considering the size of the Company and
 nature of its business, no fraud, on or by the Company, has been
 noticed or reported during the year.
 
 For Sastri & Shah                          For M. M. Nissim and Co.
 
 Chartered Accountants                        Chartered Accountants
 
 Firm Regn. No. 003643S                      Firm Regn. No. 107122W
 
 C.Sri Ram                                             N. Kashinath
 
 Partner                                                    Partner
 
 Mem. No. 005897                                     Mem. No. 36490
 
 Chennai, Dated 29th November, 2011