We have audited the accompanying financial statements of M/s. BALAJI INDUSTRIAL CORPORATION LIMITED ("the Company"), which comprise the Balance Sheet as at March 31, 2014, Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

II. Management's Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 ("the Act"), (which continues to be applicable in respect of section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs) and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

III. Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Standards on Auditing issued by the Institute of Chartered Accountants of India. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

IV. Basis for Qualified Opinion

a) In respect of 9 accounts in various banks in the name of the Company, it has been represented that they are inoperative throughout the year. However, no bank statements / confirmation of balances were produced to us and hence we are unable to comment on the transaction, if any, passed through these accounts.

b) In respect Corporate Guarantees given in earlier years by the Company on behalf of Other Bodies Corporate, liability has devolved on the Company and recall notices have been served for Principle of Rs. 1,512.00 lakhs (P.Y. Rs.. 1,512.00 lakhs) and unquantified interest thereon. However, no provision is made in the Books for such liability and such non-provision is against the fundamental accounting principles of accrual, prudence and conservatism as per Accounting Standard-1 issued by the ICAI and also referred in section 211 (3C) of the Companies Act.

V. Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements give the information required by the Act in the manner so required and 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 March 31, 2014;

(b) in the case of the Statement of Profit and Loss, of the PROFIT for the year ended on that date; and

(c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

VI. Emphasis of Matter

We draw attention to Note No. 33 to the Financial Statements which state that the Company is in the process of creating a charge as required under Companies Act, 1956, for it's land and buildings situated at Nellore for secured loans availed by the Company. Our opinion is not qualified in respect of this matter.

VII. Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditor's 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 Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 purpose 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, Statement of Profit and Loss and Cash Flow Statement dealt with by this Report are in agreement with the Books of Account;

d. Except for the effects / possible effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the Balance Sheet, Statement of Profit and Loss and Cash Flow Statement 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 March 31,2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31,2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act.

ANNEXURE TO THE INDEPENDENT AUDITORS' REPORT OF BALAJI INDUSTRIAL CORPORATION LIMITED (Referred to in paragraph 1 under 'Report on Other Legal and Regulatory Requirements' section of our report of even date)

Based on the information and explanations furnished to us and the books and records examined by us in the normal course of our audit, we report that to the best of our knowledge and belief:

i) In respect of its Fixed Assets:

(a) The Company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets.

(b) During the year, as per the program of physical verification of all its assets located at different places, the fixed assets have been physically verified in a phased periodical manner by the management, which in our opinion is reasonable having regard to the size of the Company and nature of its assets. As explained to us, no material discrepancies have been noticed on such verification.

(c) No fixed assets were disposed off during the year so as to affect the going concern status of the Company.

ii) In respect of inventories of finished goods, work in process, raw materials, stores and spares:

(a) The Inventories have been physically verified by the management during the year. In our opinion the frequency of verification is reasonable.

(b) 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 inventories. The discrepancies noticed on verification between the physical stock and the book records were not material and the same have been properly dealt with in the Books of Account.

iii) In respect of loans, secured or unsecured, from / to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956:

(a) The Company had taken unsecured loans from five parties covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount of loan involved during the year was '. 3373.27 lakhs and the year-end balance of loans taken from such parties was Rs.. 1985.52 lakhs.

(b) In our opinion, although the Company has taken interest-free loans from five parties, the other terms and conditions on which loans have been taken from companies or other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the Company

(c) During the year, the Company has not granted any loan to any party referred above nor any such loans were outstanding at the end of the year.

(d) Such loan is interest free and is without any terms for repayment and the same, in our opinion, is not prejudicial to the interests of the Company.

(e) In the absence of any terms, we are unable to comment on the regularity of repayment of principal amount and payment of interest.

iv) In respect of internal control procedures:

(a) The internal control system for sale of goods, purchase of fixed assets and services rendered by the Company are adequate and commensurate with the size of the Company and the nature of its business.

(b) The internal control system for purchase of stores, raw materials, plant & machinery, equipments and other assets, are adequate and commensurate with its size and nature of its business.

v) In respect of transactions that need to be entered into a register in pursuance of section 301 of the Companies Act:

(a) There are no contracts or arrangements during the year that need to be entered in the register.

vi) In respect of public deposits:

(a) The Company has not accepted any deposits from the public. Therefore, the provisions of section 58A and 58AA of the Companies Act, 1956 and Companies (Acceptance of Deposits) Rules, 1975, are not applicable to the Company.

vii) In respect of internal audit system:

(a) In our opinion, the Company has an internal audit system commensurate with its size and the nature of its business.

viii) In respect of cost records:

(a) According to the information and explanations given to us, the Central Government has prescribed maintenance of cost records under section 209 (1) (d) of the Companies Act 1956, for steel products of the Company. We have broadly reviewed such records and are of the opinion that prima facie, the prescribed accounts have been made and maintained in general.

ix) In respect of statutory dues:

(a) The Company has been generally regular in depositing undisputed dues of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess, and other applicable statutory dues with the appropriate authorities during the year.

(b) Dues relating to Sales Tax/Excise Duty/Cess/Service Tax/Income Tax, which have not been deposited on account of disputes with the related authorities, are stated in the table below:

Name of the      Period to      Amount      Forum where the 
Statute          which the   Rs. In Lakhs   dispute is pending
                 amount 
                 relates

Sales Tax        1993-94         3.95       A.P. High Court

Sales Tax        1994-95         6.15       A.P. High Court

Sales Tax        1999-00         5.39       STAT

Sales Tax 
(Paramount)      1993-94        17.20       A.P. High Court

Income tax       1999-00         8.28       C.I.T. (Appeals)

Income tax       2000-01        61.27       C.I.T. (Appeals)

Income tax       1996-97       192.33       A.P. High Court

Income tax       1997-98        23.67       A.P. High Court

Central Excise   1997-98       146.45       A.P. High Court

Central Excise   1998-99         2.13       A.P. High Court

a) The Company's accumulated losses as at March 31,2014, as adjusted after taking into account the qualifications in the audit report to the extent the qualifications, are quantified are more than 50% of its net worth. The Company has incurred cash losses during the financial year ended on that date and in the immediately preceding financial year.

xi) in respect of repayment of dues to banks, financial institutions and debentures holders:

a) The Company has not defaulted in repayment of certain dues to financial institutions, banks and debenture holders.

xii) In respect of loans on the basis of security by way of pledge of shares, debentures and other securities:

a) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In respect of applicability of any special statutes:

a) The Company is not a chit fund / nidhi / mutual benefit fund / society.

xiv) In respect of dealing in shares, securities, debentures and other investments:

a) The Company has not dealt / traded in shares, securities and debentures and other investments during the year.

xv) In respect of guarantees given for loans taken by others from banks or financial institutions:

a) The company has given guarantees for loan taken by others from banks or financial institutions and in our opinion the terms and conditions were not prejudicial to the interests of the company at the time when such guarantees were given.

xvi) In respect of utilization of term loans:

a) The Company has not raised any term loans from banks and / or financial institutions during the year.

xvii) In respect of utilization of funds raised on short-term basis:

a) On the basis of overall examination of the Balance Sheet of the Company, there are no funds raised on a short term basis which have been used for long term investment.

xviii) In respect of preferential allotment of shares:

a) According to the information and explanations given to us, during the period covered by our audit report, 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) In respect of security and charge created against debentures:

a) The Company has not issued any debentures during the year.

xx) In respect of public issues:

a) The Company has not raised any money by way of public issues during the year.

xxi) In respect of frauds:

a) In our opinion and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the period that causes the financial statements to be materially misstated.

For M/s. P.A. REDDY & CO                    For M/s. CNGSN & ASSOCIATES
Chartered Accountants                       Chartered Accountants
Regn No.007368S                             Regn No.004915S

P. ASHOK REDDY                              C N GANGADARAN
Partner                                     Partner
Membership No: 023202                       Membership No: 011205