We have audited the Balance Sheet and the Cash Row statement of Sri
 Chakra Cements Limited as at 31st March, 2006 and the Profit and Loss
 account for the year 2005-06 annexed thereto. 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.
 
 We conducted our audit in accordance with accounting standards
 generally accepted in India. Those Standards require that we plan and
 perform the audit to obtain reasonable assistance 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.
 
 1.  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 the paragraphs 4 and 5 of the said order.
 
 2.  Further to our comments in the Annexure referred to in paragraph 1
 above, we state 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 such
 books.
 
 c.  The Balance Sheet and the Profit and Loss Account referred to in
 this report are in agreement with the Books of account.
 
 d.  In our opinion, the Balance Sheet and Profit and Loss account dealt
 with by this report are in compliance with the Accounting Standards
 referred to in Section 211 (3C) of the Companies Act, 1956 except AS-6
 and AS-10 regarding non-provision of depreciation upto 31-3-2001 and
 over statement of fixed assets, AS-15 regarding non provision of
 liability in respect of gratuity and leave encashment liability, AS-2
 regarding valuation of WIP and AS-20 earnings per share which are not
 in accordance with the prescribed accounting standards and generally
 accepted accounting principles.
 
 e.  Reference is invited to Note No. 16 regarding preparation of
 accounts on a going concern basis, inspite of huge accumulated losses,
 in view of the reasons given therein.
 
 f On the basis of written representations received from the Directors
 and placed on record, none of the Directors is disqualified as on 31st
 March, 2006 from being appointed as Directors of this Company under
 Section 274(1 )(g) of the Companies Act. 1956.
 
 g. In our opinion and to the best of our information and according to
 the explanations given to us. the said Balance Sheet and the Profit and
 Loss account subject to note no.9 regarding non-provision of lease
 rentals in respect, of 250 acres of land allotted to the Company, not
 quantified in the absence of a lease agreement, note no. 10 regarding
 non-provision of gratuity liability and liability towards leave
 encashment payable to employees, me amount where of is not quantised,
 note no.11 regarding non-provision of interest and other charges on
 Term Loans amounting to Rs. 250.95 lakhs, note no. 12 a & b regarding
 non-provision of interest on term loans and funded interest term loans
 given by banks amounting to Rs. 104.94 lakhs and interest on dealers
 deposits not quantified, note no. 13 regarding non-provision of
 depreciation on Plant A Machinery and Electrical Equipment to an extent
 of Rs.76O.76 lakhs, upto 31-3-20O1 and overstatement of fixed assets by
 a like amount,non provision of Sales tax liability amounting to Rs.
 43.56 lakhs, non provision of fringe benefit tax liability amounting to
 Rs2.87laks, non accounting of deferred-tax assets of Rs. 423.9O lakhs
 for the current year note no. 14 regarding non-writing off of deferred
 revenue expenditure amounting-to Rs. 367.06 lakhs. Non- compliance with
 AS-2 Valuation of Inventories, due to absence of relevant details, non
 reconciliation of Service Tax, non-review of Capital Work in Progress
 items requiring adjustment, non reconciation of chit account, non
 confirmation of balances in Sundry Debtors accounts. Sundry Creditors
 accounts induding banks and financial institutions, the cumulative
 effect of which resulted in under statement of toss by a like amount to
 the extent quantified and note no. 17 regarding non-furnishing of
 information relating to dues to SSI, and read in conjunction with
 other notes thereon give the information required by the  % Companies
 Act, 1956 in the manner so required and give-a true and fair view, in
 confirmity with the accounting principles generally accepted in India.
 
 i) In so far as it relates to the Balance Sheet and the state of
 affairs of the Company as at 31st March. 2O06 and
 
 ii) In so far as it relates to the Profit and Loss account of the loss
 for the year ended on that date.
 
 ii) In case of cash flow statement of the cash flows for the year ended
 on that date.
 
 ANNEXURE TO THE AUDITORS REPORT:
 
 Re : Sri Chakra Cements Limited
 
 Referred to in paragraph 1 of our report of even date .
 
 1.  a. The Company has generaly maintained proper records showing full
 particulars including Quantitative details and situation of fixed
 assets.
 
 b.  All fixed assets have not been physically verified by the
 Management during the period but there is a regular programme of
 verification which in, our opinion, is reasonable having regard to the
 size of the Company and the nature of its assets. As informed, no
 material discrepancies were identified on such verification.
 
 c.  There was no substantial disposal of fixed assets during the
 period.
 
 2.  a. The management has conducted physical verification of inventory
 at reasonable intervals during the period.
 
 b.  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.  The Company is maintaining proper records of inventory and no
 material discrepancies were noticed on physical verification.
 
 3.  The Company has neither granted nor taken any loans, secured or
 unsecured to / from Companies, firms or other parties covered in the
 register maintained under Section 301 of the Companies Act 1956.
 
 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, for the purchase of inventory and fixed assets and for the
 sale of goods. During the course of our audit, no major weakness has
 been noticed in the internal controls in respect of these areas.
 
 5.  a. According to the information and explanations provided by the
 management, we are of the opinion that the transactions that need to be
 entered into the register maintained under Section 301 have been so
 entered.
 
 b. In our opinion and according to the information and explanation
 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 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, except sale of goods with two parties which in our
 opinion have not been made at prevailing market prices at the relevant
 time.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  In our opinion 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 pursuant to the order made by the Central Government for the
 maintenance of cost records under section 209 (1) (d) of the Companies
 Act, 1956 in respect of the products of the Company, and are of the
 opinion that primafacie, the prescribed accounts and records have been
 made and maintained.
 
 9.  a.  Undisputed statutory dues including, investor education and
 protection fund, income-tax, sales-tax, have not been regularly
 deposited with the appropriate authorities. However other Material
 Statutory dues viz Provident Fund, Employ- ees State Insurance dues,
 Excise Duty, have generally been paid regularly. The extent of arrears
 of outstanding statutory dues as at 31.08.2006 for a period of more
 than six months from the date they became payable is as under:
 
 Rs. in lakhs
 
 1. Income Tax (TDS)         5.67
 2. Sales Tax              413.27
 3.  Royalty & Cess        693.80
 
 b. According to the records of the Company and on the basis of the
 information and explanations given to us, the dues in respect of sales
 tax. Income tax, custom duty, wealth tax, excise duty, cess which have
 not been deposited on account of any dispute, are as under:
 
 Name of the         Nature of    Amount
 statute             dues         (Rs. in lakhs)
 
 Tamilnadu           Sales        42.89
 General             Tax
 Sales Tax Act
 
 Commissioner        Central      104.84
 of Customs &        Excise
 Central Excise
 
 Period to           Forum where
 which the           dispute is
 amt relates         pending
 
 1983                II Jr. Civil Judge,
                     Hyderabad
 
 1999                Office of the
   to                Commissioner of
 2005                Customs&Central
 
                     Excise, Guntur.
 
 10. The Company has accumulated losses to the extent of Rs.4222.77
 Lakhs at the end of the financial year which is more than fifty percent
 of its net worth and has incurred cash losses in the current and
 immediately proceeding financial year.
 
 11.  Based on our audit procedures and as per the information and
 explanations given by the management, we are of the opinion that the
 Company has continuously defaulted in repayment of dues to financial
 institutions and banks. The total amount under Secured Loans amounting
 to Rs. 4O21.44 Lakhs is in default for a period more than 10 years. The
 Company has not issued debentures. The Company has been registered with
 the BIFR and One Tune Settlement proposals with the Banks and
 Institutions have been submitted.
 
 12.  According to the information and explanations given to us and
 based on the documents and records produced to us, the Company has not
 granted 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.  According to the information and explanations given to us, the
 Company has not given guarantee for loans taken by others from bank or
 financial institutions.
 
 16.  Based on information and explanations given to us by the
 management, the Company did not take any term loans during the year.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the Balance Sheet arid Cash Row statement of
 the Company, we report that no funds raised on short term basis nave
 been used for long term investment.
 
 18.  The Company has not made preferential allotment of shares to
 parties and Companies covered in the register maintained under Section
 301 of the Companies Act, 1956.
 
 19.  The Company did not issue debentures during the year.
 
 20.  The Company has not raised money by Public Issue during the year.
 
 21.  Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given by the management, we report
 that no fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
 
                                                For Satyanarayana & Co.
                                                 Chartered Accountants
 
                                                      G.VENKATA RATNAM
 Place  : Hyderabad                                           Partner
 Date   : 31.08.2006