1. We have audited the attached Balance Sheet of VIDEOCON INTERNATIONAL
 LTD, as at 30th September, 2004. the Profit and Loss Account and the
 Cash Flow Statement of the Company 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 misstatements. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in 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 (Auditor's Report) Order, 2003 issued
 by the Central Government in terms of Section 227(4A) of the Companies
 Act, 1956, as amended by Companies (Auditor's Report) (Amendment)
 Order, 2004, and on the basis of such checks as considered appropriate
 and according to the information and explanations given to us during
 the course of the audit, we enclose in the Annexure hereto a statement
 on the matters specified in Paragraphs 4 and 5 of the said Order to the
 extent applicable.
 
 4. Further to our comments in the Annexure referred to in above
 paragraph, 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. Those books
 and proper returns adequate for the purpose of our audit have been
 received from branch offices at Dhaka, Bangladesh and Shenzen, China
 not visited by us.  The branch Auditor's Reports have been forwarded to
 us and have been appropriately dealt with.
 
 c) The Balance Sheet, the Profit and Loss Account and the Cash Flow
 Statement dealt with by the report are in agreement with the Books of
 Account and with the audited returns from the foreign branches of the
 Company;
 
 d) In our opinion, the Balance sheet, the Profit and Loss Account, and
 the Cash Flow Statement comply with the mandatory Accounting Standards
 referred to in Section 211(3C) of the Companies Act, 1956.
 
 e) According to the information and explanations given to us and en the
 basis of written representations received from the directors as on 30th
 September, 2004 of the Company and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 30 September, 2004 from being appointed as a director in terms of
 Section 274(1)(g) 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 read with the
 significant accounting policies and the notes thereon, give the
 information required by the Companies Act, 1956 in the manner so
 required and give a true and (air view in conformity with the accounting
 principles generally accepted in India:
 
 In the case of the Balance Sheet, of the state of affairs of the
 Company as at 30th September, 2004:
 
 (ii) In the case of the Profit and Loss Account, of the Profit for the
 year ended on that date; and
 
 (iii) In the case of the Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 For KADAM & CO.                            For KHANDELWAL JAIN & CO.
 Chartered Accountants                      Chartered Accountants
 U.S.KADAM                                  HIRANYA ASHAR
 Proprietor                                 Partner
 Membership No.: 31055                      Membership No.: 111092
 
 Place: Ahmednagar
 Date: February 25, 2005
 
 ANNEXURE TO THE AUDITORS' REPORT
 
 Statement referred to In paragraph 3 of the Auditors' Report of even
 date to the Members of VIDEOCON INTERNATIONAL LIMITED on the accounts
 for the year ended 30th September, 2004.
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situations of fixed
 assets.
 
 (b) As per the information and explanations given to us. physical
 verification of fixed assets has been carried out in terms of the
 phased programme of verification of its fixed assets adopted by the
 Company and no material discrepancies were noticed on such
 verification. In our opinion, the frequency of verification is
 reasonable, having regard to the size of the Company and nature of its
 business.
 
 (c) During the year the Company has not disposed off any
 substantial;ma)or part of fixed assets.
 
 (ii) (a) As per the information furnished, the inventories have been
 physically verified during the year by the management. In our opinion,
 having regard to the nature and location of stocks, the frequency of
 the physical verification is reasonable.
 
 (b) In our opinion and according to the information and explanations
 given to us, 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. In our
 opinion, discrepancies noticed on physical verification of stocks were
 not material in relation to the operations of the Company and the same
 have been properly dealt with in the books of account.
 
 (iii) (a) As per the information furnished, the Company has not granted
 or 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.
 
 (b) As the Company has not granted or 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, the
 Clauses (iii)(b),(c),(d),(e),(f) and (g) of the Order are not
 applicable.
 
 (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 and fixed assets and for the sale of goods and
 services. During the course of our audit, no major weakness has been
 noticed in the internal control systems.
 
 (v) (a) Based on the audit procedures applied by us and according to
 the information and explanations provided by the management, 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 in the
 register required to be maintained under that section.
 
 (b) In our opinion and according to the information and explanations
 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 have been made at prices which are reasonable
 having regard to prevailing market prices at the relevant time.
 
 (vi) The Company has not accepted any deposits from the public within
 the meaning of the provisions of Section 58A, 58AA or any other
 relevant provisions of the Companies Act, 1956 and rules framed there
 under.  Hence the Clause (vi) of the Order is not applicable.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with the size of the Company and the nature of its
 business.
 
 (viii) The Central Government has prescribed maintenance of the cost
 records under section 209(1)(d) of the Companies Act, 1956 in respect
 to the company's product. We have broadly reviewed the books of
 accounts and records maintained by the Company In this connection 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) According to the information and explanations given to us and
 the records examined by us. the Company is regular in depositing with
 appropriate authorities undisputed statutory dues including provident
 fund, investor education and protection fund, employees' state
 insurance, income-tax, sales-tax, wealth-tax, service tax, custom duty,
 excise-duty, cess and other statutory dues wherever applicable.
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of income-tax, sales-tax,
 wealth-tax, service tax, custom duty, excise-duty, cess were in arrears
 as at 30th September, 2004 for a period of more than six months from
 the date they became payable.
 
 (c) According to the records of the Company, the dues of sale tax,
 income-tax, customs, wealth-tax, service tax, excise duty, cess which
 have not been deposited on account of disputes and the forum where the
 dispute is pending are as under:
 
 Nature of the   Nature of       Amount  Forum where dispute is pending
 Statute         the Dues                              
 
 1. Customs Act  Custom Duty     13,634,169   Asst. Commissioner of
                 Custom Penalty  11,850,000   Customs.High Court      
 
 2. Central 
    Excise Act   Excise Duty      4,926,187   CEGAT Commissioner
                 Demand         174,653,561   Commissioner
                                    822,522   (Appeals)
                                  9,560,689   Divisional Commissioner
                                    565,205   Joint Commissioner      
 
 3. Sales 
    Tax Act      Sales Tax 
                 Demands        143,570,697   Dy.Commissioner (Appeals)
                                 51,388,289   Appellate Tribunal 
                                              High court
                                  6,525,420                    
 
 (x) There are no accumulated losses of the Company as on 30th
 September, 2004. The Company has not incurred any cash losses during
 the financial year covered by our audit and the immediately preceding
 financial year.
 
 (xi) Based on our audit procedures and the information and explanations
 given by the management, we are of the opinion that the company has not
 defaulted in repayment of dues to a financial institution, bank or
 debenture holders.
 
 (xii) Based on our examination of the records and the Information and
 explanations given to us. the Company has not granted any loans and/or
 advances on the basis of security by way of pledge of shares,
 debentures and other securities.
 
 (xiii) In our opinion, the Company is not a Chit fund Company or
 nidhi/mutual benefit fund/society. Therefore, the Clause (xiii) of the
 Order is not applicable to the company.
 
 (xiv) The Company has maintained proper records of transactions and
 contracts in respect of dealing and trading in shares, securities,
 debentures and other investments and that timely entries have generally
 been made therein. All shares, debentures and other securities have
 been held by the Company in its own name except to the extent of the
 exemption granted under Section 49 of the Companies Act, 1956 and save
 for certain shares which are either lodged for transfer or held with
 valid transfer forms.
 
 (xv) According to the information and explanations given to us, the
 terms and conditions of guarantees given by the Company for loans taken
 by others from bank or financial institutions are, in our opinion,
 prima facie, not prejudicial to the interest of the Company.
 
 (xvi) According to the information and explanations given to us, the
 term loans raised during the year have been applied for the purpose for
 which they were raised.
 
 (xvii) On the basis of overall examination of the Balance Sheet of the
 Company, we observed that. the Company has not used funds raised on
 short term basis for long term investments.
 
 (xviii) According to the information and explanation given to us, the
 Company has not made any preferential allotment of shares during the
 year to parties and companies covered in the register maintained under
 section 301 of the Companies Act, 1956.
 
 (xix) According to the information and explanation given to us.
 securities have been created in respect of secured debentures issued,
 except for secured debentures amounting to Rs.451 Million.
 
 (xx) The Company has not raised any money by public issues during the
 year covered by our report
 
 (xxi) As per the information and explanations given to us. no fraud on
 or by the Company has been noticed or reported during the year.
 
 For KADAM & CO.                            For KHANDELWAL JAIN & CO.
 Chartered Accountants                      Chartered Accountants
 
 U.S.KADAM                                  HIRANYA ASHAR
 Proprietor                                 Partner
 Membership No. : 31055                     Membership No.: 111092
 
 Place: Ahmednagar
 Date : February 25,2005