1.  We have audited the attached Balance Sheet of VST Industries
 Limited (the Company), as at 31st March, 2011, the related Profit and
 Loss Account and the Cash Flow Statement for the year ended on that
 date annexed thereto, which we have signed under reference to this
 report. 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.
 
 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 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) Order, 2003, as
 amended by the Companies (Auditors Report) (Amendment) Order, 2004
 (together the Order) issued by the Central Government of India in
 terms of sub-section (4A) of Section 227 of The Companies Act, 1956
 of India (the Act) and on the basis of such checks of the books and
 records of the Company as we considered appropriate and according to
 the information and explanations given to us, we give in the Annexure a
 statement on the matters specified in paragraphs 4 and 5 of the 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, 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, Profit and Loss Account and Cash
 Flow Statement dealt with by this report comply with the accounting
 standards referred to in sub-section (3C) of Section 211 of the Act;
 
 (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, 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 Act;
 
 (f) In our opinion and to the best of our information and according to
 the explanations given to us, the said financial statements together
 with the notes thereon and attached thereto give in the prescribed
 manner the information required by the Act 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 31st March, 2011;
 
 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 for the
 year ended on that date.
 
 ANNEXURE TO THE AUDITORS REPORT
 
 [Referred to in paragraph 3 of the Auditors Report of even date to the
 Members of VST Industries Limited on the financial statements as at and
 for the year ended 31st March, 2011.]
 
 1.  (a) The Company is maintaining proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) The fixed assets of the Company are physically verified by the
 management according to a phased programme designed to cover all the
 items over a period of three years, which in our opinion, is reasonable
 having regard to the size of the Company and the nature of its assets.
 Pursuant to the programme, a portion of the fixed assets of the Company
 has been physically verified by the management during the year and no
 material discrepancies between the book records and the physical
 inventory have been noticed.
 
 (c) In our opinion, and according to the information and explanations
 given to us, a substantial part of fixed assets has not been disposed
 off by the Company during the year.
 
 2.  (a) The inventory of the Company has been physically verified by
 the management during the year. In our opinion, the frequency of
 verification is reasonable.
 
 (b) In our opinion, 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 not granted any loans, secured or unsecured, to
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Act.
 
 (b) The Company has not taken any loans, secured or unsecured, from
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Act.
 
 4.  In our opinion and according to the information and explanations
 given to us, having regard to the explanation that certain items of
 fixed assets purchased are of special nature for which suitable
 alternative sources do not exist for obtaining comparative quotations,
 there is an adequate internal control system commensurate
 
 with the size of the Company and the nature of its business, for the
 purchase of inventory, fixed assets and for the sale of goods. Further
 on the basis of our examination of the books and records of the Company
 and according to the information and explanations given to us, we have
 neither come across nor have been informed of any continuing failure to
 correct major weaknesses in the aforesaid internal control system.
 
 5.  According to the information and explanations given to us, there
 have been no contracts or arrangements referred to in Section 301 of
 the Act, during the year to be entered in the register required to be
 maintained under that section. Accordingly, commenting on transactions
 made in pursuance of such contracts or arrangements does not arise.
 
 6.  In our opinion and according to the information and explanations
 given to us, the Company has complied with the provisions of Sections
 58A and 58AA and other relevant provisions of the Act and the Companies
 (Acceptance of Deposits) Rules, 1975 with regard to the deposits
 accepted from the public. According to the information and explanations
 given to us, no Order has been passed by the Company Law Board or
 National Company Law Tribunal or Reserve Bank of India or any Court or
 any other tribunal on the Company in respect of the aforesaid deposits.
 
 7.  In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 8.  The Central Government of India has not prescribed the maintenance
 of cost records under clause (d) of sub- section (1) of Section 209 of
 the Act for any of the products of the Company.
 
 9.  (a) According to the information and explanations given to us and
 the records of the Company examined by us, in our opinion, the Company
 is regular in depositing the 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, cess and other material statutory dues as
 applicable with the appropriate authorities.
 
 (b) According to the information and explanations given to us and the
 records of the Company examined by us, the particulars of dues of
 income tax, sales tax, wealth tax, service tax, customs duty, excise
 duty and cess, which have not been deposited on account of a dispute
 (without considering cases wherein the disputed dues have been
 deposited under protest) are as follows:
 
 Name of the   Nature of dues    Amount         period to which
 Statue                          Rs. in Lakhs   amount relates
 
 The Central 
 Excise        Excise duty on 
 Act, 1944     Printed             129.14        April 1996 to
               Gay Wrappers                      March 2002
 
                                   177.61        April 2002 
                                                 September 2010
 
              Service tax credit     2.48        February 2008 
              ineligibility                      July 2008
 
                                     3.01        April 2008 
 
              Excise Duty            1.31        April 2005
                                                 March 2010
 
                                  1029.54        January 2005 
                                                 November 2009
 
 Andhra 
 Pradesh      Sales tax dues        14.39        1999-2000 
 General      relating to  
 Sales        dispute on
 Tax Act, 
 1957 
 
 Income 
 Tax Act,     Income tax           344.05        1998-1999 
 Court        relating to
 1961         disallowance of 
              claims 
 
 
 Name of the statue     Forum where the dispute is pending
 
 The Central Excise     Honble Supreme Court of India
 Act, 1944
 
                        Same grounds as the above
                        matter pending at Honble
                        Supreme Court of India
 
                        Tribunal
 
                        Tribunal
 
                        Commissioner (Appeal)
 
                        Order received on April 06,
                        2011 - Appeal yet to be filed
 
 Andhra Pradesh         Sales Tax Appellate Tribunal
 General Sales
 Tax Act, 1957
 
 Income Tax Act,        Honble High Court
 1961                   of Andhra Pradesh
 
 10.  The Company has no accumulated losses as at 31st March, 2011, and
 it has not incurred any cash losses in the financial year ended on that
 date or in the immediately preceding financial year.
 
 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. The Company
 has not issued any debentures during the year.
 
 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.  The provisions of any special statute applicable to chit
 fund/nidhi/mutual benefit fund/societies are not applicable to the
 Company.
 
 14.  In our opinion, the Company is not a dealer or trader in shares,
 securities, debentures and other investments.
 
 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 obtained any term loans.
 
 17.  On the basis of an overall examination of the Balance Sheet of the
 Company, in our opinion and according to the information and
 explanations given to us, there are
 
 no funds raised on a short-term basis which have been used for
 long-term investment.
 
 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 public issues during the
 year.
 
 21.  During the course of our examination of the books and records of
 the Company, carried out in accordance with the generally accepted
 auditing practices in India, and according to the information and
 explanations given to us, we have neither come across any instance of
 fraud on or by the Company, noticed or reported during the year, nor
 have we been informed of such case by the management.
 
 
 
                                                  For LOVELOCK & LEWES
                                   Firms Registration Number: 301056E
                                                 Chartered Accountants
 
                                                     N. K. VARADARAJAN
                                                               Partner
                                                  Membership No. 90196
 
 Hyderabad, 13th April, 2011.