1.  We have audited the attached Balance Sheet of REGENCY CERAMICS
 LIMITED, HYDERABAD (A.P) 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 in para 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 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, the 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, the statement of Profit and Loss
 and Cash Flow Statement dealt with by this report comply with the
 Accounting Standards referred to in Section 211 (3C) of the Companies
 Act, 1956.
 
 v) On the basis of written representations received from the Directors
 as on 31st March, 2012 and taken on record by the Board of Directors,
 we report that none of the Directors is disqualified as on 31st March,
 2012 from being appointed as a Director in terms of clause (g) of
 sub-section (1) of Section 274 of the Companies Act, 1956.
 
 vi) a) Manufacturing operations of the Company were stopped due to
 riots, strike and
 
 malicious damage at factory with effect from 27th January, 2012. The
 condition of the fixed assets and the realisable value could not be
 estimated. The machinery and building were insured / covered under
 replacement policies. These assets are disclosed at book value after
 providing depreciation on account of efflux of time.
 
 b) During the year the Company has not provided for its liability
 towards gratuity and leave encashment in accordance to AS-15
 Employee Benifits”. Since the Company could not compute the
 liability in the absence of complete records, we are unable to comment
 upon the impact of non-provision of additional loss of the Company for
 the year and on the current liabilities as at 31.03.2012.
 
 c) There are no confirmatory letters in respect of debtors, creditors
 and the loans and advances.
 
 d) The loss of materials at the factory, Yanam based on the panchanama
 of Customs and Central Excise were estimated at Rs. 1742.03 lakhs. The
 same is transferred to Claims receivable account pending acceptance
 by insurance company.
 
 vii) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read together with the
 notes thereon subject to para vi above, 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 the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2012;
 
 b) In the case of the statement of Profit and Loss, of the Loss of the
 Company for the year ended on that date, and
 
 c) In the case of the Cash Flow Statement, of the cash flows for the
 year ended on that date.
 
 ANNEXURE REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE
 
 i) a) The Company has maintained proper records showing full
 articulars, including quantitative details and situation of fixed
 assets.
 
 b) /4s explained to us, the management could not verify physically the
 fixed assets situated at Yanam, due to riots, strike and malicious
 damage.
 
 c) During the year the Company has not disposed off any fixed assets
 and hence, it has not affected the going concern status of the Company.
 
 ii) Physical verification of inventory has been conducted in the
 presence of officials of Customs and Central Excise. The loss of
 materials in the riots, strike and malicious damage was estimated and
 claimed with Insurance Company.
 
 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.
 
 b) In view of our comment in paragraph 3(a) above III (b),(c) & (d) of
 the aforesaid order are not applicable to the Company.
 
 e) During the year, the Company has taken unsecured loans from a party
 covered in the register maintained under section 301 of the Companies
 Act, 1956 and the maximum amount involved during the year was Rs.1.55
 Crore.
 
 f) In our opinion the rate of interest and other terms and conditions
 on which loans have been taken from the other parties listed in the
 register maintained under section 301 of the Companies Act, 1956 are
 not prima facie prejudicial to the interest of the Company.
 
 g) The Company is regular in payment of the principal amount and
 interest thereon as stipulated.
 
 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, fixed assets and with regard to sale of
 goods. Further, on the basis of our examination of the books and
 records 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 internal control system.
 
 v) a) According to the information and explanations given to us, we are
 of the opinion that the particulars of contracts or arrangements
 referred to in Section 301 of the Act have been entered in the register
 required to be maintained under that Section; and
 
 b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of such contracts or
 arrangements have been made at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 vi) The Company has not accepted any deposits from the public. Hence,
 the provisions of Sections 58A, 58AA and other relevant provisions of
 the Companies Act, 1956 and the Companies (Acceptance of Deposits)
 Rules, 1975 are not applicable.
 
 vii) In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 viii) Maintenance of cost records has been prescribed by the Central
 Government under clause(d) of sub-section (1) of section 209(1)(d) of
 the Act. We were informed that the cost records got damaged in the
 riots, strike and malicious damage. In the absence of records we are
 unable to comment on cost records.
 
 ix) a) According to the records of the Company, the Company is regular
 in depositing with appropriate authorities undisputed statutory dues
 including Investor Education and Protection Fund, Wealth Tax, Customs
 Duty and other material statutory dues applicable to the Company.
 
 b) According to the information and explanations given to us, the
 Company is not regular in depositing with appropriate authorities,
 undisputed dues in respect of Sales Tax of Rs. 21.25 lakhs, CST of Rs.
 29.10 lakhs, VAT Rs. 5.66 lakhs, PGST Rs. 1.67 lakhs, Service Tax Rs.
 27.91 lakhs, Provident Fund of Rs. 5.83 lakhs and ESI Rs. 0.29 lakhs
 outstanding as at 31st March, 2012 for a period of more than six months
 from the date it became payable.
 
 c) According to the records of the Company and the information and
 explanations given to us, the dues of Service Tax / Income-Tax / Taxes
 which have not been deposited on account of any dispute are as follows.
 
 Nature of      Amount      Period to        which Forum where
 dues          (Rs. in 
                lakhs)      the amount 
                            relates          dispute is pending
 
 Service Tax    35.04        2006-2007       CESTAT, Bangalore
 
 Income Tax    101.17        2003-2004       Income Tax Appellate 
                                             Tribunal
 
 Municipal Tax  32.35        1998-2007       Yanam Municipality
 
 x) The Company has accumulated losses at the end of the financial year.
 It has incurred cash losses in the financial year under report and
 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
 banks.
 
 xii) 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 neither a chit fund nor a nidhi mutual benefit
 fund/society. Therefore, the provisions of clause 4(xiii) of the above
 referred Order are not applicable to the company.
 
 xiv) The company is not dealing in or trading in shares, securities,
 debentures and other investments. Accordingly, the provisions of clause
 4(xiv) of the above referred Order are not applicable to the company.
 
 xv) The company has not given any guarantee for loans taken by others
 from banks or financial institutions.
 
 xvi) The Term Loans were applied for the purpose for which the loans
 were obtained.
 
 xvii) According to the information and explanations given to us and on
 all overall examination of the balance sheet of the company funds
 raised on short-term basis have not been used for long-term investment.
 
 xviii) 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 Act.  Accordingly the provisions of
 clause 4(xviii) of the order are not applicable to the Company.
 
 xix) Since no Debentures were issued during the year, clause No.XIX of
 the said Order is not applicable.
 
 xx) During the year the company has not raised money by public issues.
 
 xxi) According to the information and explanations given to us, no
 fraud on or by the company has been noticed or reported during the
 year.
 
                                          for Brahmayya & Co.,
 
                                       Chartered Accountants 
 
                               Firm Registration No. 000513S
 
 Place : Hyderabad                                   K S Rao
 
 Date : 09-11-2012                                   Partner
 
                                      Membership No. : 15850