AUDITOR'S REPORT

We have audited the attached Balance Sheet of Hyderabad Unit of Hindustan Cables Limited as at March
31, 2006 and the Profit and Loss Account for the year ended on that date annexed thereto both of which
we have signed under reference to this report. 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. We have conducted our audit in accordance with generally accepted auditing standards in
India. These Standards require that we plan and perform the audit to obtain reasonable assurance 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 statements. We believe that our audit provides a reasonable basis for our
opinion. As required by the Companies (Auditor's Report) Order, 2003, issued by the Central
Government of India in terms of section 227 (4A) of 'The Companies Act, 1956', of India (the
‘Act’) and on the basis of such checks as we considered appropriate and according to the
information and explanations given to us, we set out in the Annexure a statement on the matters
specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure
referred to in paragraph 3 above, we report that: 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. 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. The Balance Sheet and Profit
and Loss Account dealt with by this report are prepared in accordance with the Accounting
Standards referred to in section 211 (3C) of the Companies Act, 1956. The Balance Sheet and
Profit and Loss Account dealt with by this report are in agreement with the books of account.

Attention is invited to the following:

No documentary evidence was produced for verification of unsecured loans, secured loans and
basis of correctness and allocation of non-plan loan received on account of Voluntary Retirement
Scheme (VRS) and grant towards implementation of VRS to the unit. As per the information and
explanations received, details regarding the above documents are available only at the Central
Office hence they were not verified. Confirmation of balances under sundry debtors, loans and
advances and current liabilities not having been obtained, reconciliation of such balances not
having been made we are unable to express our opinion on the adequacy of the provision for
doubtful debtors and doubtful advances and the consequent effect on the financial statements is
not ascertainable. Bad and doubtful debts amounting to Rs. 5933 lakhs, outstanding for a very
long period for which no provision has been made in the accounts by the unit, thereby loss for
the year and accumulated losses are understated and sundry debtors and current assets are
overstated to the extent of Rs.5933 lakhs. Bad and doubtful loans and advances amounting to
Rs.783.46 (towards advance to suppliers Rs.760.04 lakhs and claims recoverable other Rs.23.42
lakhs) outstanding and unreconciled for a very long period for which no provision has been made
in the accounts by the Unit, thereby loss for the year and accumulated losses are understated
and loans and advances and current assets are overstated to the extent of Rs.783.46 lakhs.
Company has not done physical verification of the inventory during the year and no provision has
been made for non moving/ slow moving/ obsolescence of the same and the consequent effect
of the non provision for inventory on the financial statements is not ascertainable. Documentary
evidence has not been provided regarding situation and carrying physical verification of inventory
of work-in-progress amounting to Rs. 861.76 lakhs and we are unable to express our opinion on
the value of work-in-progress and the consequent effect on the financial statements is not
ascertainable. As required by the Accounting Standard (AS 28) “Impairment of Assets” issued by
the Institute of Chartered Accountants of India, the unit has not carried out the assessment of
impairment of assets and impairment loss, if any, has to be ascertained. In our opinion, and to
the best of our information and according to the explanations given to us, the said financial
statements read with the significant accounting policies and the notes thereon and subject to our
comments in Para 4(e) supra, comply with the accounting standards referred to in section 211
(3C) of the Companies Act, 1956, give in the prescribed manner the information required by the
Act, and also give a true and fair 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
March 31,2006. in the case of the Profit and Loss Account, of the loss for the year ended on that
date.

Partner
For and on behalf of
Place: Hyderabad xxxxxxxxxxxxxxxxxxx
Date : May 30, 2006 Chartered Accountants
ANNEXURE TO THE AUDITOR'S REPORT

(Referred to in paragraph 3 of our report of even date)

The Unit has maintained proper records to show full particulars including quantitative details and
situation of its fixed assets and the fixed assets register is not being updated. A
Substantial portion of fixed assets have been physically verified by the management during the
year and this revealed no material discrepancies. The Company has not disposed off any fixed
assets during the year. (a) As explained to us, physical verification of inventory have not been
conducted by the management during the year. (b) As physical verification of inventory not been
conducted, we are unable to express our opinion on the reasonableness and adequacy of
procedures of physical verification of inventory followed by the management. (c) In our opinion
and according to the information and explanations given to us, the Unit is maintaining proper
records of inventory. Since no physical verification of the inventory conducted by the
management, we are unable to express our opinion about the discrepancies, if any. (a)
According to the information and explanation given to us, this being the unit of the company,
has neither directly granted nor taken any loans, secured or unsecured to/from companies, firms
or other parties covered in the register maintained under section 301 of the Act. Accordingly,
sub-clause (b), (c), (d), (e), (f) and (g) are not applicable. In our opinion and according to the
information and explanation given to us, there is an adequate internal control procedure
commensurate with the size of the Company and the nature of its business, with regard to
purchase of inventory, fixed assets and sale of goods. During the course of our audit, we have
not observed any continuing failure to correct major weakness in internal controls. Based on the
audit procedures applied by us and according to the information and explanations provided by
the management, there are no transactions that need to be entered into the register maintained
under section 301 of the Companies Act, 1956 sub clause (b) is not applicable. The Unit has not
accepted any deposits from the public within the meaning of section 58A and 58 AA of the
Companies Act, 1956 and the rules framed there under. As per the information and explanation
given to us and on the basis of our evaluation, the internal audit system of the unit does not
commensurate with the size of the unit and the nature of its business and needs to be
strengthened. We have broadly reviewed the books of account maintained by the unit pursuant
to rules made by the Central Government for maintenance of cost records under section 209 (1)
(d) of the Companies Act, 1956. We are of the opinion that prima facie the prescribed accounts
and records have been made and maintained. However, we have not made detailed examination
of these records with a view to determining whether they are accurate or complete. (a) The unit
is regular in not depositing undisputed statutory dues including Provident Fund, Income-tax,
Service tax, and any other statutory dues with the appropriate authorities. According to the
information and explanation given to us, the following are the undisputed amounts outstanding
in respect of above were due for more than six months from the date they became payable.

Nature of Dues Rs. In Lakhs

Provident Fund
Employees’ State Insurance
Income Tax
Sales Tax
Professional Tax
Custom Duty
Gratuity
Property Tax

(b) According to the records of the unit, Sales Tax, Income Tax, Customs Duty, Wealth tax,
Excise duty and Cess which have not been deposited on account of dispute are given below:

Period to which
Forum where Rs. In
Name of Statute the amount
dispute is pending Lakhs
relates
Central Excise Act 1998 CESTAT 41.32
Central Excise Act 1999 CESTAT 30.42

The accumulated losses of the unit at the end of the financial year have exceeded its net worth
and the unit has incurred cash losses during the financial year covered by out audit and the
immediately preceding financial year. The Unit has defaulted in repayment of dues to financial
institutions, banks and debenture bond holders. We are unable to determine the amounts of
default for want of information. The Unit has not granted loans and advances on the basis of
security by way of pledge of shares, debentures and other securities and hence 4(xii) of
Companies (Auditor’s Report) Order, 2003 is not applicable. The Unit is not dealing or trading in
shares, securities, debentures and other investments and hence 4(xiv) of Companies (Auditor’s
Report) Order, 2003 is not applicable. The Unit has not given any guarantee for loans taken by
others from banks or financial institutions and hence 4(xv) of Companies (Auditor’s Report)
Order, 2003 is not applicable. The Unit has not taken any terms loans and hence 4(xvi) of
Companies (Auditor’s Report) Order, 2003 is not applicable. According to the information and
explanations given to us and on an overall examination of the Balance sheet of the company, we
report that no funds raised by the unit on short term basis have been used for long term
investment. The Unit has not issued any type of shares in the current year and hence 4(xviii) of
Companies (Auditor’s Report) Order, 2003 is not applicable. As per the information and
explanations given to us, the documentary evidence regarding creation of securities in respect of
debentures issued are available only at the Central Office hence they were not verified. The Unit
has not come out with any public issue and hence 4(xx) of Companies (Auditor’s Report) Order,
2003 is not applicable. In terms of the information and explanations given to us and the books
and records examined by us in the normal course of audit and to the best of our knowledge and
belief, we state that during the year under audit, the company has not noticed or reported any
fraud on or by the company.

Partner
For and on behalf of
Place: Hyderabad xxxxxxxxxxxxxxxxxxx
Date : May 30, 2006 Chartered Accountants