1.  We have audited the attached Balance Sheet of Premier Explosives
 Limited as at 31st March, 2012, the Statement of Profit and Loss 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 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 (Auditors'' Report) Order, 2003 issued
 by the Central Government of India in terms of section 227(4A) 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 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 purpose 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
 these books.
 
 iii) The Balance Sheet, Statement of Profit and Loss and Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account.
 
 iv) In our opinion, the Balance Sheet, Statement of Profit and Loss and
 Cash Flow Statement dealt with by this report comply with the
 Accounting Standards referred in section 211 (3C) of the Companies Act,
 1956 to the extent applicable except in respect of the following:
 
 We draw the attention of the members to note no. 31.2.16 of Notes on
 accounts regarding nondisclosure of company''s share of assets,
 liabilities, income and expenses in the Joint ventures in view of
 non-availability of audited / unaudited accounts of Joint ventures.
 
 v) On the basis of the written representations received from the
 directors, as on 31.03.2012, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 31 st March, 2012 from being appointed as 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 in conjunction
 with the notes and accounting policies 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:
 
 a) in the case of Balance Sheet, of the state of affairs of the company
 as at 31st March, 2012;
 
 b) in the case of Statement of Profit and Loss, of the profit for the
 year ended on that date; and
 
 c) in the case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 Annexure referred to in Paragraph 3 of Auditors'' Report of even date on
 the accounts of Premier Explosives Limited for the year ended 31st
 March 2012
 
 1.  (a) The company has maintained proper records showing full
 particulars including quantitative details except situation of fixed
 assets.
 
 (b) As explained to us, the fixed assets have been physically verified
 by the management according to the phased programme designed to cover
 all the fixed assets on rotation basis. In respect of fixed assets
 verified according to this programme, which is considered reasonable,
 no material discrepancies were noticed on such verification.  As
 regards capital works in-progress, the same will be verified by the
 management on completion of assets.
 
 (c) The company has not disposed off substantial part of fixed assets
 during the year, which affect the going concern assumption.
 
 2.  (a) As explained to us, the stock of stores, spare parts, raw
 materials and finished goods of the company have been physically
 verified at frequent intervals during the year by the management except
 stocks lying with outside warehouses which have been verified with
 reference to certificates and other relevant documents where available.
 
 (b) 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) The company has maintained proper records of inventories and the
 discrepancies noticed on physical verification of stocks as compared to
 book records, which in our opinion were not material, have been
 properly dealt with in the books of account.
 
 3.  (a) The company had granted unsecured loans to associate company
 and rent deposit to a company, listed in the register maintained under
 section 301 of the Companies Act, 1956. The balance as on 31st March,
 2012 and the maximum amount involved during the year were Rs.
 3,57,88,632/- and Rs.3,88,66,784/- respectively.
 
 (b) In our opinion the terms and conditions of unsecured loans and
 advances given to the parties listed in the register maintained under
 section 301 of the Companies Act, 1956 are not prima facie prejudicial
 to the interests of the company.
 
 (c) The company is regular in receipt of principal amounts as
 stipulated and re-stipulated and has been regular in receipt of
 interest.
 
 (d) The company has taken unsecured loans from eight parties listed in
 the register maintained under section 301 of the Companies Act, 1956.
 The balance as on 31st March, 2012 and the maximum amount involved
 during the year were Rs. 1,96,51,000/- and Rs. 2,52,51,000/-
 respectively.
 
 (e) In our opinion the rate of interest and other terms and conditions
 of unsecured loans taken from the parties listed in the register
 maintained under section 301 of the Companies Act, 1956 are not prima
 facie prejudicial to the interests of the company.
 
 (f) The company is regular in repaying the principal amounts as
 stipulated and has been regular in the payment of interest.
 
 4.  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, 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 with regard to purchase of inventory, fixed assets and for the
 sale of goods and services.
 
 5.  (a) According to the information and explanations given to us and
 as confirmed by the President (Finance) and Company Secretary of the
 company, we are of the opinion that the contracts or arrangements that
 need to be entered into the register maintained under section 301 of
 the Companies Act, 1956 have been so entered.
 
 (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 and exceeding the value of Rs. 5,00,000/- in
 respect of each party have been made at prices which are reasonable
 having regard to prevailing market prices at the relevant time.
 
 6.  According to the information and explanations given to us, the
 company has generally complied with the directives issued by the
 Reserve Bank of India and provisions of section 58A and 58AA or any
 other relevant provisions of the Companies Act, 1956 and the rules
 framed there under where applicable.  We are informed that, 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.
 
 7.  In our opinion and according to the explanations given to us, the
 company has an internal audit system commensurate with the size and
 nature of its business.
 
 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 sub-section (1) of section 209 of the 
 Act and are of the opinion that prima facie, the prescribed accounts 
 and records have been maintained and are being made up. We have not, 
 however, made a detailed examination of the records with a view to 
 determine whether they are accurate or complete.
 
 9.  (a) According to the records of the company and as per the
 information and explanations given to us, the company is 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, Customs
 duty, Excise Duty, Cess and other material statutory dues applicable to
 it with appropriate authorities and in respect of these statutory dues,
 there are no outstanding dues as on 31.03.2012 which are outstanding
 for a period of more than six months from the date they became payable.
 
 (b) According to the records of the company and as per the information
 and explanations given to us, there are no dues of Customs Duty, Income
 Tax, Wealth Tax, Service Tax, Excise Duty and Cess which have not been
 deposited on account of dispute as on 31.03.2012, except Central Sales
 Tax, the details of which are as given below:
 
 Name of the Statute : Central Sales Tax
 
 Nature of the dues : Tax payable on
 completion of assessment
 
 Year to which it relates : 2007-08
 
 Amount : Rs.1,51,30,507/-
 
 Forum where dispute is : Honourable pending High Court of
 
 Andhra Pradesh
 
 10.  As per the information and explanations given to us and on an
 overall examination of the financial statements of the company for the
 current and immediately preceding financial year, we report that the
 company does not have any accumulated losses at the end of the current
 financial year nor incurred cash losses in the current and immediately
 preceding financial year.
 
 11.  During the year the company has not defaulted in repayment of dues
 to financial institutions, bank and debenture holders.
 
 12.  As per 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 to anybody during
 the year.
 
 13.  In our opinion, as the company is not a chit fund or a nidhi or
 mutual benefit fund or society, the provisions of clause 4 (xiii) of
 the Companies (Auditors'' Report) Order, 2003 are not applicable to the
 company for this year.
 
 14.  According to the information and explanations given to us, the
 company is not dealing or trading in shares, securities, debentures and
 other investments.
 
 15.  In our opinion, the terms and conditions on which the company has
 given guarantees for the loans taken by others from banks or financial
 institutions are not prejudicial to the interests of the company.
 
 16.  In our opinion, as the company has not taken any term loans, the
 provision of clause of (xvi) of the Companies (Auditors'' Report) Order,
 2003 are not applicable to the company for this year.
 
 17.  As per the information and explanations given to us and on an
 overall examination of the balance sheet of the company, we report that
 the funds raised on short term basis have not been used for long term
 investments.
 
 18.  As per the information and explanations given to us, during the
 year 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.
 
 19.  As per the information and explanations given to us, the company
 has not issued any debentures during the year, which requires the
 creation of security or charge.
 
 20.  During the year the company has not made any public issues for
 which the management has to disclose the end use of money raised
 through that public issue.
 
 21 During the course of our examination of the books and records of the
 company carried out in accordance with the generally accepted practices
 in India and according to the information and explanations given to us
 we have neither come across an 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.
 
                                    For P. V. R. K. Nageswara Rao & Co.,
 
                                                  Chartered Accountants
 
                                    Firm''s Registration Number: 002283S
 
                                              P. V. R. K. Nageswara Rao
 
 Hyderabad                                                     Partner
 
 23.05.2012                                        Membership No. 18840