1.  We have audited the attached Balance Sheet of Phillips Carbon Black
 limited (the Company) as at 31st March, 2011, 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
 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) (Amendment) Order, 2004
 (together the Order) issued by the Central Government of India in
 terms of sublsection (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 further report that:
 
 3.1 (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation, of fixed
 assets.
 
 3.1 (b) The fixed assets are physically verified by the Management
 according to a phased programme 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 programme, a portion of the fixed assets has been
 physically verified by the Management during the year and no material
 discrepancies between the book records and the physical inventory have
 been noticed.
 
 3.1 (c) In our opinion and according to the information and
 
 explanations given to us, a substantial part of fixed assets has not
 been disposed of by the Company during the year.
 
 3.2 (a) The inventory (excluding stocks with third parties) has been
 
 physically verified by the Management during the year. In respect of
 inventory lying with third parties, these have substantially been
 confirmed by them. In our opinion, the frequency of verification is
 reasonable.
 
 3.2 (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.
 
 3.2 (c) On the basis of our examination of the inventory records,
 
 in our opinion, the Company has maintained proper records of inventory.
 The discrepancies noticed on physical verification of inventory as
 compared to book records were not material.
 
 3.3 (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.
 
 3.3 (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 Act.
 
 3.4. In our opinion and according to the information and explanations
 
 given to us, there is an adequate internal control system commensurate
 with the size of the Company and the nature of its business for the
 purchase of inventory, fixed assets and for the sale of goods and
 services. 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.
 
 3.5. (a) In our opinion and according to the information and
 explanations given to us, the particulars of contracts and arrangements
 referred to in Section 301 of the Act have been entered in the register
 required to be maintained under that section.
 
 3.5 (b) In our opinion and according to the information and
 
 explanation given to us, the transactions made in pursuance of such
 contracts or arrangements and exceeding the value of Rs Five lakhs in
 respect of any party during the year have been made at prices which are
 reasonable having regard to the prevailing market prices at the
 relevant time.
 
 3.6 The Company has not accepted during the year any deposits from the
 public within the meaning of Sections 58A and 58AA of the Act and the
 rules framed there under.
 
 3.7 In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 3.8 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 sublsection (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.
 
 3.9 (a) According to the information and explanations given to us
 
 and the records of the Company examined by us, in our opinion, the
 Company has been regular in depositing during the year the undisputed
 statutory dues including provident fund, investor education and
 protection fund, employees'' state insurance, incomeltax, salesltax,
 wealth tax, service tax, customs duty, excise duty, cess and other
 material statutory dues as applicable with the appropriate authorities.
 
 3.9. (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, sales tax, wealth tax, service tax, customs duty, excise
 duty and cess as at 31st March 2011, as applicable, which have not been
 deposited on account of a dispute, are as follows:
 
 Name of the       Nature of the Dues   Amount       Forum where the 
                                                     dipute
 Statute                             (Rs. in lakhs)  is pending
 
 Central Sales   Central Sales Tax       443.29      Taxation Tribunal
 
 Tax Act, 1956   Central Sales Tax      688.61 #     Appellate and 
                                                     Revision Board
 
 W. B. Sales     Sales Tax               22.51       Taxation Tribunal
 
 Tax Act, 1994   Sales Tax              106.71##     Appellate and 
                                                     Revision Board
 
 W. B. Value 
 Added           Value Added Tax        69.57        Taxation Tribunal
 
 Tax Act, 2003   Value Added Tax        31.60        Appellate and 
                                                     Revision Board
 
                Excise Duty            187.19        Commissioner 
                                                     (Appeals) 
 Central Excise
 Act, 1944      Excise Dut            2363.54*      Customs, Excise & 
                                                    Service
 
                                                    Tax Appellate 
                                                    Tribunal (CESTAT)
 
               Excise Duty              1.37**      High Court, Kerala
 
 Customs Act, 
 1962          Customs Duty            15.28        Commissioner 
                                                    (Appeals)
 
               Customs Duty            24.40        Customs, Excise & 
                                                    Service
 
                                                    Tax Appellate 
                                                    Tribunal (CESTAT)
 
 # Stay orders in respect of disputed dues to the extent of Rs.612.48
 lakhs have been obtained by the Company
 
 ## Stay orders in respect of disputed dues to the extent of Rs.105.62
 lakhs have been obtained by the Company
 
 * Stay order in respect of disputed dues to the extent of Rs.177.17
 lakhs has been obtained by the Company
 
 ** Stay order in respect of the disputed dues have been obtained by the
 company.
 
 3.10 The Company has no accumulated losses as at 31st March, 2011 and
 it has not incurred any cash losses in the financial year ended on that
 date or in the immediately preceding financial year.
 
 3.11 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 bank as at the balance sheet date. The
 Company did not have any outstanding to debenture holders or financial
 institution as at the beginning of the year, nor did it obtain any such
 loans during the year.
 
 3.12 The Company has not granted any loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 3.13 The provisions of any special statute applicable to chit fund /
 nidhi / mutual benefit fund/ societies are not applicable to the
 Company.
 
 3.14 In our opinion, the Company is not a dealer or trader in shares,
 securities, debentures and other investments.
 
 3.15 In our opinion and according to the information and explanations
 given to us, the Company has not given any guarantee for loans taken by
 others from banks or financial institutions during the year.
 
 3.16 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.
 
 3.17 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 shortlterm
 basis which have been used for longlterm investment.
 
 3.18 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.
 
 3.19 The Company has no debentures outstanding at the Year- end.
 
 3.20 The Company has not raised any money by public issues during the
 year.
 
 3.21 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.
 
 4.  Further to our comments 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, the Profit and loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 (d) In our opinion, the Balance Sheet, the Profit and loss Account and
 the Cash Flow Statement dealt with by this report comply with the
 accounting standards referred to in sublsection (3C) of Section 211 of
 the Act;
 
 (e) On the basis of written representations received from the
 directors, and taken on record by the Board of Directors, none of the
 directors is disqualified as on 31st March 2011 from being appointed as
 a director in terms of clause (g) of sublsection (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 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.
 
                                              For PRICE WATERHOUSE 
                                  Firm Registration Number 301112E 
                                            Chartered Accountants.
 
                                                            P. lAW
 Kolkata                                                   Partner
 3rd May, 2011                              (Membership no. 51790)