1.  We have audited the attached Balance Sheet of STRIDES ARCOLAB
 LIMITED (the Company) as at December 31, 2011, the Profit and Loss
 Account and the Cash Flow Statement of the Company for the year ended
 on that date, both 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 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 the disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and the significant estimates
 made by the Management, as well as evaluating the overall financial
 statement presentation. We believe that our audit provides a reasonable
 basis for our opinion.
 
 3.  The Company has early adopted Accounting Standard (AS) 30
 ''Financial Instruments: Recognition and Measurement'', AS 31 ''Financial
 Instruments: Presentation'' and AS 32 ''Financial Instruments:
 Disclosure'', to the extent such standards do not conflict with the
 standards notified under section 211(3C) of the Companies Act. Pursuant
 to the above, the Foreign Currency Convertible Bonds (FCCBs or Bonds)
 issued by the Company have been segregated into two components
 comprising (a) option component which represents the value of the
 conversion option given to the FCCB-holders to convert the bonds into
 equity shares of the Company and (b) debt component which represents
 the debt to be redeemed in the absence of conversion option being
 exercised by FCCB-holder, net of issuance costs. The debt component has
 been recognised and measured at amortised cost and the fair value of
 the option component has been determined using a valuation model and a
 credit of Rs 188.85 Million has been recognised in the Profit & Loss
 Account for the year ended December 31, 2011, being the change in the
 fair value of embedded option during the year.
 
 4.  We draw attention to Note B 5 of Schedule P regarding the
 accounting for the Scheme of Arrangement (the Scheme) between the
 Company, some of its subsidiaries and their respective shareholders
 under section 391 to 394 and the other provisions of the Companies Act,
 1956, which has been approved by the Hon''ble High Court of Bombay. In
 accordance with the Scheme:
 
 (a) Investments in a subsidiary has been fair valued in prior years and
 the resultant surplus over the previously carried book values,
 amounting to Rs 5,856.20 Million, has been credited to Reserve for
 Business Restructure instead of such assets being recorded at
 historical costs as required by Accounting Standard 13 ''Accounting for
 investments''.
 
 (b) Certain expenses (net) amounting to Rs 480.79 Million has been
 debited to the Reserve for Business Restructure, instead of being
 charged to the Profit and Loss Account as required by Accounting
 Standard 5 ''Net profit or Loss for the Period, Prior Period Items''.
 
 5.  As required by the Companies (Auditor''s Report) Order, 2003 (CARO)
 issued by the Central Government in terms of Section 227(4A) of the
 Companies Act, 1956, we give in the Annexure a statement on the matters
 specified in paragraphs 4 and 5 of the said Order.
 
 6.  Further to our comments in the Annexure referred to in paragraph 5
 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 it appears from our examination of
 those books;
 
 (iii) 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;
 
 (iv) subject to our comments in paragraph 4 above and read with our
 comments in paragraph 3 above, in our opinion, the Balance Sheet, the
 Profit and Loss Account and the Cash Flow Statement dealt with by this
 report are in compliance with the Accounting Standards referred to in
 Section 211(3C) of the Companies Act, 1956;
 
 (v) 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 read
 with our comments in paragraph 4 above, 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 December 31, 2011;
 
 (b) in the case of the Profit and Loss Account, of the profit of the
 Company for the year ended on that date; and
 
 (c) in the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 7.  On the basis of the written representations received from the
 Directors as on December 31, 2011 taken on record by the Board of
 Directors, we report that none of the Directors is disqualified as on
 December 31, 2011 from being appointed as a director in terms of
 Section 274(1)(g) of the Companies Act, 1956.
 
 Annexure to the Auditors'' Report
 
 (Referred to in paragraph 5 of our report of even date)
 
 (i) Having regard to the nature of the Company''s business / activities
 /result, clauses iii (b) to (d), (f) and (g), vi, xii, xiii, xiv, xix &
 xx of CARO are not applicable.
 
 (ii) In respect of its fixed assets:
 
 (a) The Company has maintained proper records showing full particulars,
 including quantitative details and situation of the fixed assets.
 
 (b) The fixed assets were physically verified during the year by the
 Management in accordance with a regular programme of verification
 which, in our opinion, provides for physical verification of all the
 fixed assets at reasonable intervals. According to the information and
 explanation given to us, no material discrepancies were noticed on such
 verification.
 
 (c) The fixed assets disposed off during the year, in our opinion, do
 not constitute a substantial part of the fixed assets of the Company
 and such disposal has, in our opinion, not affected the going concern
 status of the Company.
 
 (iii) In respect of its inventory:
 
 (a) As explained to us, the inventories were physically verified during
 the year by the Management at reasonable intervals.
 
 (b) In our opinion and according to the information and explanation
 given to us, the procedures of physical verification of inventories
 followed by the Management were reasonable and adequate in relation to
 the size of the Company and the nature of its business.
 
 (c) In our opinion and according to the information and explanations
 given to us, the Company has maintained proper records of its
 inventories and no material discrepancies were noticed on physical
 verification.
 
 (iv) The Company has neither granted nor taken any loans, secured or
 unsecured, to / from companies, firms or other parties listed in the
 Register maintained under Section 301 of the Companies Act, 1956.
 
 (v) In our opinion and according to the information and explanations
 given to us, having regard to the explanations that some of the items
 purchased are of special nature and suitable alternative sources are
 not readily available for obtaining comparable quotations, there is an
 adequate internal control system commensurate with the size of the
 Company and the nature of its business with regard to purchases of
 inventory and fixed assets and the sale of goods and services. During
 the course of our audit, we have not observed any major weakness in
 such internal control system.
 
 (vi) In respect of contracts or arrangements entered in the Register
 maintained in pursuance of Section 301 of the Companies Act, 1956, to
 the best of our knowledge and belief and according to the information
 and explanations given to us:
 
 (a) The particulars of contracts or arrangements referred to Section
 301 that needed to be entered in the Register maintained under the said
 Section have been so entered.
 
 (b) In our opinion and having regard to our comments in paragraph (v)
 above, with regard to purchases of certain items of inventory which are
 of a specialised nature for which comparative quotes are not available,
 transactions made in pursuance of such contracts or arrangements, in
 excess of Rs 5 Lakhs in respect of any party, have been made at prices
 which are, prima facie, reasonable having regard to the prevailing
 market prices at the relevant time.
 
 (vii) In our opinion, the Company has an internal audit system which is
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules made by the Central Government for the
 maintenance of cost records under Section 209(1)(d) of the Companies
 Act, 1956 and are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained. We have, however,
 not made a detailed examination of the records with a view to
 determining whether they are accurate or complete.
 
 (ix) According to the information and explanations given to us in
 respect of statutory dues:
 
 (a) The Company has generally been regular in depositing undisputed
 dues, including Investor Education and Protection Fund, Income-tax,
 Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and
 other material statutory dues applicable to it with the appropriate
 authorites except in the case of Provident Fund and Employees'' State
 Insurance dues, where there have been delays.
 
 (b) There were no undisputed amounts payable in respect of Income Tax,
 Wealth Tax, Custom Duty, Excise Duty, Cess and other material statutory
 dues in arrears as at December 31, 2011 for a period of more than six
 months from the date they became payable except Employees State
 Insurance dues amounting to Rs 189,478. These dues have been remitted in
 January 2012.
 
 (c) Details of dues of Income-tax, Sales Tax, Wealth Tax, Service Tax,
 Custom Duty, Excise Duty and Cess which have not been deposited as on
 December 31, 2011 on account of disputes are given below:
 
 Name of 
 statute    Nature of     Amount    Period to 
                                    which the     Forum where dispute is
            the dues     (Rs In 
                          Million)  amount 
                                    relates       pending
 
 The 
 Income - 
 tax 
 Act, 1961  Income Tax     109.76   AY 2007-08    Income Tax Appellate
                                                  Tribunal
 
 The 
 Income - 
 tax 
 Act, 1961  Income Tax     598.70   AY 2008-09    Dispute Resolution 
                                                  Panel
 
 The 
 Karnataka 
 Value 
 Added      Sales Tax        1.29   FY 2006-07    Deputy Commissioner of
 Tax Act, 
 2003                                             Commercial Taxes
 
 The 
 Central 
 Excise
 Act, 1944  Excise duty      3.86   August 2005   Customs and Excise
                                                  Service Tax Appellate 
                                                  Tribunal
 
 (x) The Company does not have accumulated losses at the end of the
 financial year and has not incurred cash losses during the year and in
 the immediately preceding financial year.
 
 (xi) In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in the repayment of dues to
 banks and financial institutions during the year.
 
 (xii) In our opinion and according to the information and explanations
 given to us, the terms and conditions of the guarantees given by the
 Company for loans taken by wholly owned subsidiary companies from banks
 and financial institutions, are not prima facie prejudicial to the
 interests of the Company.
 
 (xiii) In our opinion and according to the information and explanations
 given to us, the term loans have been applied for the purposes for
 which they were obtained, other than temporary deployment pending
 application.
 
 (xiv) In our opinion and according to the information and explanations
 given to us and on an overall examination of the Balance Sheet, we
 report that funds raised on short-term basis have not been used during
 the year for long-term investment.
 
 (xv) 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.
 
 (xvi) To the best of our knowledge and according to the information and
 explanations given to us, no fraud by the Company and no fraud on the
 Company has been noticed or reported during the year.
 
 
                                           For DELOITTE HASKINS & SELLS
 
                                                  Chartered Accountants 
 
                                                Registration No.008072S
 
                                                              V. BALAJI
 
                                                                Partner
 
                                                   Membership No.203685
 Mumbai,
 
 February 27, 2012