Nagarjuna Construction Co.

1.  We have audited the attached Balance Sheet of Nagarjuna
 Construction Company Limited as at March 31, 2009, the Profit and Loss
 Account for the year ended on that date and the Cash Flow Statement for
 the year ended on that date both annexed thereto in which are
 incorporated the returns from Oman and Nepal branches and certain Joint
 Ventures (the Branches) audited by other auditors. 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 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 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 (Auditors Report) Order, 2003 (CARO)
 issued by the Central Government of India in terms of sub-section (4A)
 of section 227 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 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 it appears from our
 examination of those books and proper returns adequate for the purposes
 of our audit have been received from the Branches not visited by us.
 The Branch Auditors Reports have been forwarded to us and appropriately
 dealt with;
 
 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
 and with the audited returns from the Branches;
 
 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
 Companies Act, 1956;
 
 e) 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 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, 2009;
 
 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.
 
 5. On the basis of written representations received from the directors,
 as on March 31, 2009 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on March 31,2009
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956.
 
 Annexure to the Auditors Report
 
 (Referred to in paragraph 3 of our report of even date)
 
 i) In respect of its fixed assets:
 
 a) The Company has maintained proper records showing full particulars,
 including quantitative details and situation of its fixed assets.
 
 b) A major portion of the fixed assets have been 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 having regard to the
 size of the Company and the nature of its assets. According to the
 information and explanations given to us, the discrepancies noticed on
 such verification were not material and have been properly dealt with
 in the books of account.
 
 c) The fixed assets disposed off during the year, in our opinion, do
 not constitute substantial part of the fixed assets of the Company and
 such disposal has, in our opinion, not affected the going concern
 status of the Company,
 
 ii) In respect of its inventories:
 
 a) According to the information and explanations given to us, the
 Management has physically verified the inventory during the year. In
 our opinion, having regard to the nature of business and location of
 stocks, the frequency of 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 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, The discrepancies noticed on verification between the
 physical stocks and the book records were not material and have been
 properly dealt in the books of account,
 
 iii) a) According to the information and explanations given to us, the
 Company has granted secured or unsecured loans repayable as per the
 terms, to seven parties covered in the Register maintained under
 Section 301 of the Companies Act, 1956. The maximum amount involved
 during the year was Rs. 3,120.71 million and the year end balance of
 the loans granted to such parties was Rs. 3,096.45 million.
 
 b) In our opinion and according to the information given to us, the
 terms and conditions of such loans are prima facie not prejudicial to
 the interests of the Company.
 
 c) The receipts of principal amounts and interest have been regular
 during the year,
 
 d) There is no overdue amount in respect of inter corporate loans.
 
 e) According to the information and explanations given to us, the
 Company has taken loans, secured or unsecured from Companies, firms or
 other parties covered in the Register maintained under section 301 of
 the Companies Act, 1956. The maximum amount involved during the year
 was Rs. 3 million and the year end balance of the loans taken from such
 parties was Rs. NIL.
 
 f) In our opinion and according to the information given to us, the
 terms and conditions of such loans are prima facie not prejudicial to
 the interest of the Company,
 
 g) The payment of principal amounts and interest have been regular
 during the year.
 
 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 for the
 purchase of inventory and fixed assets and for services and we have not
 observed any continuing failure to correct major weaknesses in such
 internal controls,
 
 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 in section
 301 that need to be entered in to the register, maintained under the
 said section have been so entered.
 
 b) In our opinion, the transactions (excluding loans reported under
 paragraph (iii) above) exceeding the
 
 value of Rs. 5 lakhs in respect of any party during the year have been
 made at prices which are prima facie reasonable having regard to the
 prevailing market prices at the relevant time, where such market prices
 are available.
 
 vi) In our opinion and according to the information and explanations
 given to us, the Company has not accepted any deposits from the public.
 Accordingly, the provisions of para 4(vi) of CARO are not applicable to
 the Company.
 
 vii) In our opinion, the internal audit functions carried out during
 the year by firms of Chartered Accountants appointed by the management
 have been commensurate with the size of the company and the nature of
 its business.
 
 viii) In our opinion and according to the information and explanations
 given to us, the Central Government has not prescribed the maintenance
 of cost records for any of the products or activity of the company.
 
 ix) In respect of statutory dues:
 
 a) According to the information and explanations given to us, the
 Company has been generally regular in depositing undisputed statutory
 dues including Provident Fund, Investor Education and Protection Fund,
 Employees State Insurance, Income Tax, Wealth Tax, Sales Tax, Service
 Tax, Custom Duty, Excise Duty, Cess and any other material statutory
 dues applicable to it with the appropriate authorities during the year.
 
 b) According to the information and explanations given to us, details
 of disputed sales tax, income tax, customs duty, service tax, excise
 duty and cess which have not been deposited as on March 31, 2009 on
 account of any dispute are given below:
 
 Name of statute    Nature of dues        Rupees in Million
 
 APGST Act, 1957     Sales Tax               3.25
                     Sales Tax              17.32
                     Sales Tax               1.23
                     Sales Tax               5.93
                     Sales Tax               2.36
                     Sales Tax               2.49
                     Sales Tax              14.27
 Uttar Pradesh       Sales tax               0.52
 Trade Tax Act, 1948
 Tamil Nadu General  Sales Tax               0.26
 Sales Tax Act, 1959
 Delhi Sales Tax 
 on VAT              Sales Tax               1.49
 The Central Excise 
 Act, 1944           Excise Duty            28.23
 Finance Act, 1994   Service Tax            34.62
 Finance Act, 1994   Service Tax           151.50
 Indian Income Act, 
 1961                Income Tax             10.85
                     Income Tax             58,92
 
 Period to which the     Forum where
 amount relates          dispute is pending
 
 1994-95                 Honble High Court of
                         Andhra Pradesh
 
 1998-99                 Sales Tax Appellate Tribunal
 1999-00                 Sales Tax Appellate Tribunal
 2000-01                 Sales Tax Appellate Tribunal
 2001 -02                Sales Tax Appellate Tribunal
 2002-03                 Sales Tax Appellate Tribunal
 2003-04                 Sales Tax Appellate Tribunal
 2001-02                 Joint Commissioner (Appeals)
 1994-96                 Sales Tax Appellate Tribunal
 2005-07                 Additional Commissioner of
                         Sales Tax (Appeals)
 2000-01                 CESTAT, Bangalore
 2005-06                 Honble High Court of
                         Andhra Pradesh
 2005-07                 CESTAT, Bangalore
 2004-05                 Commissioner of Income Tax
                         (Appeals)
 2005-06                 Commissioner of Income Tax
                         (Appeals)
 
 x) The Company does not have accumulated losses and has not incurred
 cash losses during the financial year covered by our audit and the
 immediately preceding financial year,
 
 xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to
 financial institutions and banks.
 
 xii) In our opinion and 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 and debentures and other
 securities.  Accordingly, the provisions of para 4(xii) of the CARO are
 not applicable to the Company,
 
 xiii) In our opinion, the Company is not a Chit Fund or a Nidhi or
 Mutual Benefit Fund/Society, Accordingly, the provisions of para
 4(xiii) of the CARO are not applicable to the Company.
 
 xiv) In our opinion and according to the information and explanations
 given to us, the Company does not deal or trade in shares, securities,
 debentures and other investments. Accordingly, the provisions of para
 4(xiv) of the CARO are not applicable to the Company.
 
 xv) 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 and financial institutions
 are not prima facie prejudicial to the interests of the Company.
 
 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, prima facie, applied by the Company during
 the year for the purposes for which the loans were obtained.
 
 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, prima facie, not been used for
 long-term investment.
 
 xviii)According to the information and explanations given to us, the
 Company has not made preferential allotment of share during the year to
 parties and companies covered in the register maintained under Section
 301 of the Companies Act, 1956,
 
 xix) According to the information and explanations given to us, and
 records examined by us, securities/ charges have been created in
 respect of debentures issued,
 
 xx) During the year covered by our audit report, the company has not
 raised any money by public issues,
 
 xxi) 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 M. Bhaskara Rao & Co.                for Deloitte Haskins & Sells
 Chartered Accountants                           Chartered Accountants
 
 M. Bhaskara Rao                                         P. R. Ramesh
 Partner                                                      Partner
 Membership No. 5176                             Membership No. 70928
 Hyderabad, May 28, 2009                         Mumbai, May 28, 2009