1.  We have audited the attached Balance Sheet of Vallabh Steels
 Limited, (the company) as at 31st March 2011, the Profit and Loss
 Account and also the Cash Flow Statement 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 misstatements. 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) (Amendment) Order,
 2004 (the order) issued by the Central Government of India in terms
 of sub-section (4A) of section 227 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:
 
 (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, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account;
 
 (d) In our opinion, the Balance Sheet, the Profit and Loss account and
 the Cash Flow Statement dealt with by this report comply with the
 accounting standards referred to in section 211 (3C) of the Companies
 Act, 1956;
 
 (e) On the basis of written representations received from the directors
 as on 31st March 2011 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on 31st March 2011
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of 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 financial statements read
 together with the significant accounting policies and 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 conformity with
 the accounting principles generally accepted in India:
 
 i) In the case of Balance Sheet of the state of affairs of the Company
 as at 31st March, 2011, ii) In the case of Profit & Loss Account of the
 Profit 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.
 
 ANNEXURE TO THE AUDITORS'' REPORT
 
 Referred to in paragraph 3 of our report of even date
 
 (i) (a) The company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As explained to us, most of the fixed assets have been physically
 verified by the management during the year in a phased manner, which in
 our opinion is reasonable having regard to the size of the company. No
 material discrepancies were noticed on such verification.
 
 (c) The company has not disposed off a substantial part of its fixed
 assets during the year.
 
 (ii) (a) According to information and explanations given to us,
 physical verification of inventories has been conducted at reasonable
 intervals by the management during the year.
 
 (b) In our opinion, 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 is maintaining proper records of its inventory. As
 explained to us, the discrepancies noticed on physical verification
 were not material. The discrepancies noticed have been properly dealt
 with in the books of account.
 
 (iii) (a) According to the information and explanations given to us,
 the company has not granted any loan, secured or unsecured, to
 companies, firms or other parties covered in the register maintained
 under section 301 of the Companies Act, 1956.  Hence clause (iii)-(b),
 (c) and (d) of the order are not applicable.  b) The company has taken
 loans from some parties listed in the register maintained under section
 301 of the Companies Act, 1956. In our opinion, the terms and
 conditions of the loans are not prima facie prejudicial to the
 interests of the company.
 
 (iv) In our opinion, based on our observations and the information and
 explanations given to us, the company has in place an adequate internal
 control system commensurate with its size and the nature of its
 business, with regard to purchases of inventory, fixed assets and the
 sale of goods and services. During the course of our audit, we have not
 observed any continuing failure to correct major weaknesses in the
 internal control system.
 
 (v) (a) Based on 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 Companies Act, 1956 have been entered
 into the register maintained under that section.  
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions exceeding Rupees five lacs 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.
 
 (vii) In our opinion, the company has an internal audit system
 commensurate with the size and nature of its business.
 
 (viii) We have broadly reviewed the books of account and records
 maintained by the Company relating to the manufacture of pipe pursuant
 to the maintenance of cost records under clause (d)of subsection (1) of
 Section 209 of the Companies Act, 1956 as prescribed by the Central
 Government 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) (a) Undisputed statutory dues including provident fund, Investor
 education and protection fund, employees'' state insurance, income tax,
 sales tax, wealth tax, service tax, customs duty, excise duty and cess
 have generally been deposited by the company in time with the
 appropriate authorities. Based on our examination of the records of the
 company and information and explanations given to us, there were no
 arrears of undisputed statutory dues due as on 31st March 2011 that
 remained payable for more than six months from the date they became
 payable.
 
 (b) According to the information and explanations given to us, there
 are no disputed dues outstanding in the books of account for income tax
 / sales tax / wealth tax / service tax / custom duty / excise duty /
 cess.
 
 (x) The company does not have accumulated losses at the end of the
 financial year. The company has not incurred cash losses during the
 financial year covered by the audit 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 repayment of dues to a
 financial institution or banks or debenture holders.
 
 (xii) As explained 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. Therefore, the provisions of clause 4
 (xii) of the order are not applicable to the company.
 
 (xiii) The company is not a Chit Fund or a nidhi, mutual benefit
 fund/society.  Therefore, the provisions of clause 4 (xiii) of the
 order are not applicable to the company.
 
 (xiv) Based on the information and explanations given to us and the
 records of the company examined by us, the company is not dealing in or
 trading in shares, securities, debentures and other investments.
 Therefore, the provisions of clause 4 (xiv) of the order are not
 applicable to the company.
 
 (xv) Based on our examination of the records of the company and
 information and explanations given to us, the company has given a
 guarantee of Rs 4.00 crores for loans taken by Vardhman Industries Ltd
 from banks. In our opinion, the terms and conditions of the said
 guarantee are not prime facie prejudicial to the interests of the
 company.
 
 (xvi) In our opinion and according to the information and explanations
 given to us and on an overall examination, the term loans have been
 applied for the purpose for which the loans were obtained.
 
 (xvii) Based on the information and explanations given to us and on an
 overall examination of the balance sheet of the company, we report that
 funds raised on short-term basis have not been used for long-term
 investment.
 
 (xviii) According to the information and explanations given to us, 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.
 
 (xix) According to the information and explanations given to us, the
 company has not issued debentures during the year. Accordingly, the
 provisions of clause 4(xix) of the order are not applicable to the
 company.
 
 (xx) According to the information and explanations given to us, the
 company has not raised any money by way of public issue during the
 year. Accordingly the provisions of clause 4(xx) of the order are not
 applicable to the company.
 
 (xxi) According to the information and explanations given to us, and to
 the best of our knowledge and belief, no fraud on or by the company has
 been noticed or reported by the company during the year.
 
 
 
                                                  For RAJ GUPTA & CO.
 
                                               CHARTERED ACCOUNTANTS
 
                                                        FRN- 000203N
 
                                                                 Sd/- 
 Place : Ludhiana                                      (R. K. GUPTA) 
 Dated : 03.09.2011                                         PARTNER
 
                                                      M. No. 017039