1.  We have audited the attached balance sheet of NAGARJUNA AGRICHEM
 LIMITED as at 31st March, 2011, the Profit and Loss account and also
 the cash flow statement for the year ended on that date, annexed
 thereto. 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 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) Order, (Amendment) 2004
 issued by the Central Government in terms of sub-section (4A) of
 Section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matter specified in paragraphs 4 and 5 of the said
 Order.
 
 4.  Further to our comments in the Annexure referred to 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 our
 audit:
 
 ii) 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 applicable
 accounting standards referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956;
 
 v) On the basis of written representations received from the directors,
 as on 31st March, 2011 and, taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st March,
 2011 from being appointed as a director in terms of clause (g) of
 sub-section (1) of Section 274 of the Companies Act, 1956;
 
 vi) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read with Significant
 Accounting Policies, note no. 20 regarding reconciliation of unclaimed
 dividend account and other 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:
 
 i) in the case of the balance sheet, of the state of affairs of the
 company as at 31st March, 2011;
 
 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 THE AUDITOR''S 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) Fixed assets have been physically verified by the management during
 the year based on a phased programme of verifying all the assets 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 fixed assets. No
 material discrepancies were noticed on physical verification.
 
 c) According to the information and explanations given to us, the
 company has not disposed off substantial part of fixed assets and
 hence, reporting on the going concern status in this regard does not
 arise.
 
 ii) a) Physical verification of inventories has been conducted during
 the year by the management. In.  our opinion, the frequency of the
 verification is reasonable.
 
 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 are reasonable and adequate in relation to
 the size of the company and nature of its business.
 
 c) In our opinion, the company is maintaining proper records of
 inventories and based on the information and explanations given to us,
 discrepancies noticed on physical verification were not material in
 relation to the operations of the company and the same have been
 properly dealt with in the books of account.
 
 iii) a) According to the information and explanations given to us, the
 company has not granted any loan, secured or unsecured to companies,
 firms or other parties covered in the register maintained under Section
 301 of the Companies Act, 1956. Accordingly, sub clauses (b), (c) and
 (d) of clause (iii) of this Order are not applicable.
 
 e) According to the information and explanations given to us, 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, sub clauses (f) and (g) of
 clause (iii) of this Order 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 the nature of its business with regard
 to purchase of inventory and fixed assets and for the sale of goods and
 services. In our opinion and according to the information and
 explanations given to us, there is no continuing failure to correct
 major weaknesses in internal control system.
 
 v) a) In our opinion and according to the information and explanations
 given to us, and based on the representations made by the management,
 there are no contracts or arrangements that need to be entered in the
 register maintained under Section 301 of the Act. Accordingly, sub
 clause (b) of clause (v) of this Order is not applicable to the Company
 for the current year.
 
 vi) The company has not accepted any deposits from public.
 
 vii) During the year under report, the internal audit of the company
 has been conducted by Firms of Chartered Accountants. In our opinion
 the scope and coverage of internal audit is commensurate with the size
 of the company and nature of its business.
 
 viii) On the basis of records produced to us, we are of the opinion
 that, prima facie, the cost records and accounts prescribed by the
 Central Government under Section 209(l)(d) of the Companies Act, 1956,
 have been maintained. However, we are not required to and, have not
 carried out any detailed examination of such accounts and records.
 
 ix) a) According to the records of the company, 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, Custom Duty, Excise
 Duty, Cess and other applicable statutory dues with the appropriate
 authorities. According to the information and explanations given to us,
 there are no arrears of statutory dues as at 31st March, 2011 which are
 outstanding for a period of more than six months from the date they
 became payable.
 
 b) According to the information and explanations given to us, there are
 no dues of Income Tax / Sales Tax / Wealth Tax / Service Tax / Custom
 Duty / Excise Duty / Cess which have not been deposited on account of
 any dispute except as stated below:
 
 NAME
 OF THE     NATURE OF DUES
 STATUTE 
 
 Income     Disputed tax on disallowance of R&D     
 Tax        expenditure in AY 2007-08 
                     
            Disputed tax on disallowance of R & D   
            expenditure in AY 2008-09  
             
 Excise     Interest on differential duty paid      
 Duty       on supplementary invoices after 
            finalization of cost data of the 
            goods cleared to the sister concern 
            - April 2004 to March 2005 & April 
            2005 to Octobter 2005)
 
            Irregular availment of Cenvat credit of      
            4% SAD against DEPB and Target plus             
            schemes - July 2006 to March 2007
 
 
            Interests on differential duty paid       
            on supplementary invoices after finalization 
            of cost data of the goods cleared to the 
            sister concern - April 2005 to February 2006
 
            Irregular availment of Cenvat credit                
            on inputs(welding electrodes) for the period 
            from January 2007 to November 2007
 
 Service    Interest and Penalty on Service Tax paid          
 Tax        on Goods Transport Agencies payment 
            for the period from October 2005 to 
            February 2006
  
 
 NAME            AMOUNT   FORUM WHERE DISPUTE IS
 OF THE     (Rs. Lakhs)   PENDING
 STATUTE
 
 Income           59.83   Commissioner of Income Tax
 Tax                      (Appeals), Hyderabad
 
                  30.67   Commissioner of Income Tax
                          (Appeals), Hyderabad
 
 Excise            8.13   CESTAT, Bangalore
 Duty      
                  12.14   Additional Commissioner
                          (Appeals), Visakhapatnam
 
                   4.15   CESTAT, Bangalore
 
                   0.41   CESTAT, Bangalore
 
 Service           3.39   CESTAT, Bangalore
 Tax
 
 x) The company has no accumulated losses as at 31st March, 2011. The
 company has not incurred any cash losses in the financial year under
 report and in the immediately preceding financial year.
 
 xi) According to the information and explanations given to us, the
 company has not defaulted in repayment of dues to a financial
 institution, banks.
 
 xii) 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, debentures and other securities.
 
 xiii) The company is not a Chit Fund / Nidhi / Mutual Benefit Fund /
 Society. Therefore, the provisions of clause 4(xiii) of this Order are
 not applicable.
 
 xiv) The company is not dealing in or trading in shares, securities,
 debentures and other investments.  Accordingly, the provisions of
 clause 4(xiv) of this Order are not applicable.
 
 xv) In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the company has given
 guarantee for finances taken by others in the course of business are
 not prejudicial to the interests of the company.
 
 xvi) Term loans were applied for the purpose for which the loans were
 obtained.
 
 xvii) 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 short term basis
 which have been used for long term investment.
 
 xviii) During the year under report 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 not issued any debentures.
 
 xx) The company has not raised any money by public issue during the
 year.
 
 xxi) In accordance with the information and explanations given to us
 and, on our examination of books and records, no fraud on or by the
 company has been noticed or reported during the year.
 
                                       for M.BHASKARA RAO & CO.,
                                       Chartered Accountants
                                      (Firm Registration No: 00459 S)
 
                                       (V. RAGHUNANDAN)
                                       Partner
                                       Membership No. 26255
 
 Place: Hyderabad 
 Date: 11th May, 2011