1) We have audited the attached Balance Sheet of Shree Vaani Sugars and
 Industries Limited as at March 31, 2004 and the related Profit and Loss
 Account for the year ended on that date annexed thereto and the cash
 flow statement for the year ended on that date. These financial
 statements are the responsibility of the management of the Company. Our
 responsibility is to express an opinion on these financial statements
 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 tinancial.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 of India, 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 appears from our examination of those
 books.
 
 c) The Balance Sheet and Profit and loss Account dealt with by this
 report are in agreement with the books of account.
 
 d) In our opinion, these financial statements have been prepared in
 compliance with the applicable accounting standards referred to in
 Section 211 (3C) of the Companies Act, 1956.
 
 e) Based on the representations made by all the Directors of the
 Company as on March 31, 2004 and taken on record by the Board of
 Directors of the Company and in accordance with the information and
 explanations as made available, the Directors of the Company do not,
 prima face, have any disqualification as referred to in Clause (g) of
 subsection (I) to Section 274 of the Companies Act, 1956.
 
 f) 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, 2004;
 
 (ii) in the case of the Profit and Loss Account, of the loss for the
 year ended on that date, and
 
 (iii) in the case of cash flow statement, of the cash flows for the
 year ended on that date.
 
                                               for C.RAMACHANDRAM & Co.,
                                                  Chartered Accountants.
                                                          C.RAMACHANDRAM
                                                                 Partner
                                                     Membership No:25834
 Place: HYDERABAD
 Date : 28.05.2004
 
 ANNEXURE TO AUDITORS REPORT
 
 1. (a) The Company has maintained fixed assets register. We are
 informed that the fixed assets register is being updated.
 
 (b) As explained to us the fixed assets have been physically verified
 by the management during the year in a phased periodical manner, which
 in our opinion is reasonable. However, the discrepancies between the
 book records and physical verification, if any, will be reconciled
 after updating work is completed.
 
 (c) In our opinion the Company has not disposed off substantial part of
 fixed assets during the year and the going concern status of the
 company is not affected.
 
 2. (a) As explained to us the inventories have been physically
 verified during the year by the management. In our opinion, 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 inventory
 followed by the management are reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) On the basis of our examination of the inventory records in our
 opinion the Company is maintaining proper records of inventory. The
 discrepancies noticed on physical verification of inventory as compared
 to book records were not material.
 
 3. a) The Company has taken loan from one party covered in the
 register maintained under section 301 of the Companies Act, 1956. The
 maximum amount involved during the year was Rs.Nil and the year end
 balance of loans taken from such party was Rs.5.00 lakhs. The Company
 has not given any loans to parties covered in the register maintained
 under section 301 of the Companies Act, 1956.
 
 b) In our opinion the rate of interest wherever applicable and other
 terms and conditions on which loans have been taken from Companies,
 firms or 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.
 
 c) In respect of loans taken by the company the principal amount is
 repayable on demand.
 
 d) There is no over due amounts in respect of loans taken by the
 Company.
 
 4. In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the company and the nature of its
 business with regard to purchases of inventory, fixed assets and with
 regard to the sale of goods. During the course of our audit, we have
 not observed any continuing failure to correct major weaknesses in
 internal controls.
 
 5. (a) In our opinion and according to the information and
 explanations given to us, the transactions that need to be entered into
 the register in pursuance of Section 301 of Act, 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 into the register in pursuance of Section 301 of
 the Act and exceeding the value of Rupees 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.
 
 6. The Company has not accepted any deposits from the public within
 the meaning of Sections 58A and 58AA of the Act and the rules framed
 there under:
 
 7. In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 8. We have broadly reviewed the books of accounts maintained by the
 Company In respect of manufacturing of sugar and generation of power
 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 may and
 maintained. We have not, however, made a detailed examination of the
 records with a view to determine whether they are accurate or complete.
 
 9. (a) The company is regular in depositing with appropriate
 authorities undisputed statutory dues including provident fund,
 investor education protection fund, employees state insurance, income
 tax, sales tax, wealth tax, custom duty, excise duty, cess and other
 material statutory dues applicable to it.
 
 b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of income tax, wealth tax, sales
 tax, customs duty, excise duty and cess were in arrears, as at
 31.03.2004 for a period of more than six months from the date they
 became payable.
 
 c) According to the information and explanations given to us, there are
 no dues of sales tax, income tax, customs duty, wealth tax, excise duty
 and cess which have not been deposited on account of any dispute.
 
 10. In our opinion, the accumulated losses of the Company are not more
 than 50% of its net worth. The Company has incurred Rs.11,94,498/-
 towards cash losses during the financial year covered by our audit and
 for the immediately preceding financial year the cash losses were
 Rs.8,96,79,948/-.
 
 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 financial institution or bank as at the
 balance sheet date.
 
 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.
 
 13. In our opinion, the company Is not a chit fund or a nidhi mutual
 benefit fund/society. Therefore, the provisions of clause 4(xiii) of
 the companies (Auditors Report) Order, 2003 are not applicable to the
 Company.
 
 14. In our opinion, the company is not dealing in or trading in shares,
 securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the Companies (Auditors Report) Order,
 2003 are not applicable to the Company.
 
 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.
 
 16. The Company has not raised any new term loans during the year. The
 term loans outstanding at the beginning of the year were applied for
 the purposes for which they were raised.
 
 17. According to the information and explanations given to us and on an
 overall examination of the balance sheet of the company, we report that
 no funds raised on short-term basis have been used for long-term
 investment. No long-term funds have been used to finance short-term
 assets except permanent working capital.
 
 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.
 
 19. The Company has not issued any debentures during the year.
 
 20. The Company has not raised any money by way of public issue during
 the year.
 
 21. In our opinion and according to the information and explanations
 given to us, no fraud on or by the Company has been noticed or reported
 during the year, that causes the financial statements to be materially
 misstated.
 
                                              for C. RAMACHANDRAM & CO.,
                                                   Chartered Accountants
                                                         C. RAMACHANDRAM
                                                                 Partner
                                                     Membership No:25834
 Place: HYDERABAD
 Date : 28.05.2004