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Notes to Accounts of Dr. Reddy's Laboratories Ltd.

Mar 31, 2014

1.1: CONTINGENT LIABILITIES AND COMMITMENTS

- PARTICULARS AS AT AS AT 31 MARCH 2013

Contingent liabilities: Guarantees:

(a) Issued by the Company on behalf of subsidiaries, associates and Hoint ventures 13,836 16,274

Claims against the Company not acknowledged as debts in respect of: -

(a) Income tax matters, under dispute 1,264 446

(b) Excise matters (including service tax), under dispute 633 301

(c) Sales tax matters, under dispute 319 379

(d) DPCO matters

The Company has received demands for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 for few of its products which are being contested. Based on its best estimate, the Company has made a provision for the potential liability related to the overcharged amount including the interest thereon and believes that the possibility of any liability that may arise on account of penalty on this demand is not probable. In the event the Company is unsuccessful in its litigation in the Supreme Court, it will be required to remit the sale proceeds in excess of the noti ed selling prices to the Government of India with interest and including penalties, if any, which amounts are not readily ascertainable.

(e) Fuel surcharge adjustment

The Andhra Pradesh Electricity Regulatory Commission (the A PERC) has passed various orders approving the levy of Fuel Surcharge AdHustment (F SA) charges for the period from 1 April 2008 to 31 March 2013 by power distribution companies from all the consumers of electricity in the state of Andhra Pradesh, India. The Company led separate H rits of Mandamus before the H igh Court of Andhra Pradesh (the 0 igh Court) challenging and Buestioning the validity and legality of this levy of FSA charges by the APERC for various periods.

The Company, after taking into account all of the available information and legal provisions, has recorded an amount of Rs. 215 as the potential liability towards FSA charges. The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA charges for the period from 1BApriH2008 to 31EMarchH2013 is approximately Rs. 473. As of 31HMarchH2014, the Company has paid, under protest, an amount of Rs. 267 demanded by the power distribution companies as part of monthly electricity bills. The Company remains exposed to additional nancial liability should the orders passed by the APERC be upheld by the Courts.

(f) Land pollution

The Indian Council for Environmental Legal Action led a writ in 1989 under Article 32 of the Constitution of India against the En ion of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollarum areas of Medak district of Andhra Pradesh. The Company has been named in the list of polluting industries. In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollarum and Jeedimetla areas for discharging ef uents which damaged the farmers’ agricultural land. The compensation was xed at Rs. 0.0013 per acre for dry land and Rs. 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of Rs. 3. The Company believes that the possibility of additional liability is remote. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (N GT) Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT

(g) Water pollution and air pollution

During the three months ended 31 December 2011, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (A PP Control Board) to show cause as to why action should not be initiated against them for violations under the Indian H ater Pollution Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of all new products at the Company’s manufacturing facilities in Hyderabad, India without obtaining a C onsent for Establishment, (ii) cease manufacturing products at such facilities in excess of certain Buantities speci ed by the APP Control Board and (iii) furnish a bank guarantee (similar to a letter of credit) to assure compliance with the APP Control Board’s orders. The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (t he APP Appellate Board). The APP Appellate Board on the basis of a report of a fact- nding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-LiBuid Discharge (Z LD) facilities and otherwise found no fault with the Company (on certain conditions). The APP Appellate Board’s decision was challenged by one of the petitioners in the National Green Tribunal and the matter is currently pending before it.

Separately, the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a noti cation in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subEect to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the noti cation directed pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to point of generation

In September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index issued a noti cation that re- imposed a moratorium on expansion of industries in certain areas where some of the Company’s manufacturing facilities are located. This noti cation overrides the Andhra Pradesh Government’s noti cation that conditionally permitted expansion

(h) Assessable value of products supplied by a vendor to the Company

During the year ended 31 March 2003, the Central Excise Authorities of India (t he Central Excise Authorities) issued a demand notice to a vendor of the Company regarding the assessable value of products supplied by this vendor to the Company. The Company has been named as a co-defendant in this demand notice. The Central Excise Authorities demanded payment of Rs. 176 from the vendor, including penalties of Rs. 90. Through the same notice, the Central Excise Authorities issued a penalty claim of Rs. 70 against the Company. During the year ended 31 March 2005, the Central Excise Authorities issued an additional notice to this vendor demanding Rs. 226 from the vendor, including a penalty of Rs. 51. Through the same notice, the Central Excise Authorities issued a penalty claim of Rs. 7 against the Company. Furthermore, during the year ended 31 March 2006, the Central Excise Authorities issued an additional notice to this vendor demanding Rs. 34. The Company led appeals against these notices with the Customs, Excise and Service Tax Appellate Tribunal (the C ESTAT). In October 2006, the CESTAT passed an order in favour of the Company setting aside all of the above demand notices. In July 2007, the Central Excise Authorities appealed against CESTAT’s order in the Supreme Court of India, New Delhi. The matter is pending in the Supreme Court of India, New Delhi

1.2: RELATED PARTY DISCLOSURES

1. Dr. Reddy’s Laboratories Inc., BSA;

2. Dr. Reddy’s Laboratories International SA, Switzerland

3. Dr. Reddy’s Laboratories Lousiana LLC, BSA;

4. Dr. Reddy’s Laboratories Romania SRL, Romania;

5. Dr. Reddy’s Laboratories SA, Switzerland

6. Dr. Reddy’s New Zealand Limited, New Zealand

7. Dr. Reddy’s Pharma SEZ Limited, India;

8. Dr. Reddy’s Singapore PTE Limited, Singapore (from 22 October 2013)

9. Dr. Reddy’s Srl, Italy (formerly Jet Generici Srl)

10. Dr. Reddy’s Laboratories New York, Inc., BSA;

11. Dr. Reddy’s Laboratories Canada Inc., Canada (from 29 August 2013);

12. Dr. Reddy’s Laboratories (BH) Limited, ffl

13. Dr. Reddy’s Laboratories ILAC TICARET Limited SIRBETI, Turkey (till 04 December 2012);

14. Dr. Reddy’s Laboratories Tennessee LLC, BSA;

15. Dr. Reddy’s Laboratories LLC, Ukraine;

16. Dr. Reddy’s Venezuela C.A., Venezuela;

17. DRL Impex Limited, India;

18. Eurobridge Consulting B.V., Netherlands

19. Idea2Enterprises (India) Private Limited, India;

20. Industrias Bu imicas Falcon de Mexico S.A. de C.V, Mexico;

21. I-Ven Pharma Capital Limited, India (under liquidation);

22. Lacock Holdings Limited, Cyprus;

23. OctoPlus Development B.V, Netherlands (from 15 February 2013);

24. OctoPlus N.V, Netherlands (from 15 February 2013);

25. OctoPlus PolyActive Sciences B.V, Netherlands (from 15 February 2013);

26. OctoPlus Sciences B.V, Netherlands (from 15 February 2013);

27. OctoPlus Technologies B.V, Netherlands (from 15 February 2013);

28. OctoShare B.V, Netherlands (from 15 February 2013);

29. OOO Alfa, Russia (till 16 July 2012);

30. OOO Dr. Reddy’s Laboratories Limited, Russia;

31. OOO DRS LLC, Russia;

32. Promius Pharma LLC, BSA;

33. Reddy Antilles N.V, Netherlands

34. Reddy Specialities GmbH, Germany (formerly Reddy beta GmbH);

35. Reddy Cheminor S.A., France (under liquidation);

36. Reddy Holding GmbH, Germany;

37. Reddy Netherlands B.V, Netherlands;

38. Reddy Pharma Iberia SA, Spain

39. Reddy Pharma Italia S.p.A, Italy;

40. Reddy Pharmaceuticals Hong Hong Limited, Hong Hong (till 19 October 2012 );

41. Reddy BS Therapeutics Inc., BS A; (till 03 July 2013 ) and

42. Trigenesis Therapeutics Inc., HS A (till 04 December 2012).

Joint ventures

Bu nshan Rotam Reddy Pharmaceutical Company Limited (R eddy Bunshan), Enterprise over which the Company exercises Boint control with other Boint venture China partners and holds 51.33% of eBuity shares

Enterprise over which the Company’s step down subsidiary exercises Boint control DRANBLLC, BSA (from 9 July 2012) with other Boint venture partner and holds 50% of eBuity shares

b. List of other related parties with whom transactions have taken place during the current and/or previous year:

Dr. Reddy’s Research Foundation Enterprise over which the principal shareholders have signi cant in uence

Dr. Reddys Institute of Life Sciences Enterprise over which principal shareholders have signi cant in uence

Ecologic Chemicals Limited Enterprise controlled by principal shareholders

Stamlo Bot els Private Limited Enterprise controlled by principal shareholders

Green Park Bot els and Resorts Limited Enterprise controlled by relative of a director

B S amraByam Mother of Vice Chairman and Managing Director

G Anuradha Spouse of Chairman and Chief Executive Of cer

Deepti Reddy Spouse of Vice Chairman and Managing Director

G. Mallika Reddy Daughter of Chairman and Chief Executive Of cer

G V SanBana Reddy Daughter of Chairman and Chief Executive Of cer

Dr. Reddy’s Foundation Enterprise where principal shareholders are trustees

Pudami Educational Society Enterprise where principal shareholders are trustees

A. R. Life Sciences Private Limited* Enterprise in which relative of a director has signi cant in uence

A.R. Life Sciences Private Limited (A RLS) was a related party of the Company only for the year ended 31 March 2013. Accordingly transactions with ARLS for the year ended 31 March 2014 are not considered for reporting in the related party transactions summary.

c. List of Bey Man agement Personnel of the Company G V Prasad (whole-time director);

B Satish Reddy (whole-time director);

AbhiBit MukherBe;

Alok Sonig

Dr. Amit Biswas;

Dr. R Ananthanarayanan

Dr. Cartikeya Reddy;

Dr. Chandrasekhar Sripada;

Dr. Raghav Chari;

Dr. BVS Ram Rao;

M V Ramana;

Samiran Das;

Saumen Chakraborty;

Bman g Vohra; and

Late Dr. B AnBi Reddy (whole-time director till 15 March 2013)


Mar 31, 2013

1.1: COMMITMENTS AND CONTINGENT LIABILITIES

AS AT AS AT 31 MARCH 2013 31 MARCH 2012

Contingent liabilities:

Guarantees:

(a) Issued by the Company on behalf of subsidiaries, associates and joint ventures 16,274 17,039

Claims against the Company not acknowledged as debts in respect of:

(a) Income tax matters, pending decisions on various appeals made by the Company and by the Department 446 432

(b) Excise matters (including service tax), under dispute 301 250

(c) Sales tax matters, under dispute 379 237

(d) The Company has received demand for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 for few of its products which are being contested. Based on its best estimate, the Company has made a provision in its books of account towards the potential liability related to the principal and interest amount demanded under the aforesaid order and believes that possibility of any liability that may arise on account of penalty on this demand is not likely.

(e) The Andhra Pradesh Electricity Regulatory Commission (the "APERC") has passed various orders approving the levy of Fuel Surcharge Adjustment ("FSA") charges for the period from 1 April 2008 to 31 December 2012 by power distribution companies from all the consumers of electricity in the state of Andhra Pradesh, India. The Company filed separate Writs of Mandamus before the High Court of Andhra Pradesh (the "High Court") challenging and questioning the validity and legality of this levy of FSA charges by the APERC for various periods.

The Company, after taking into account all of the available information and legal provisions, has recorded an amount of RS. 233 as the potential liability towards FSA charges. The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA charges for the period from 1 April 2008 to 31 December 2012 is approximately RS. 473. As of 31 March 2013, the Company paid, under protest, an amount of RS. 84 demanded by the power distribution companies as part of monthly electricity bills. The Company remains exposed to additional financial liability should the orders passed by the APERC be upheld by the Courts.

(f) The Company, along-with many other pharmaceutical companies in Andhra Pradesh, has received various notices from the Andhra Pradesh Pollution Control Board (the "APP Control Board) to show cause as to why action should not be initiated against it for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of all new products at the Company''s manufacturing facilities in Hyderabad, India without obtaining a "Consent for Establishment", (ii) not manufacture products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee (similar to a letter of credit) totalling to RS.12.5.

The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the "APP Appellate Board"). The APP Appellate Board first stayed the APP Control Board orders and subsequently modified the orders, permitting the Company to file applications for Consents for Establishment and to increase the quantities of existing products which could be manufactured beyond that permitted by the APP Control Board, while requiring the Company not to manufacture new products at the specified facilities without the permission of the APP Control Board. The APP Appellate Board also reduced the total value of the Company''s bank guarantee required by the APP Control Board to RS. 6.25.

The APP Appellate Board passed its order on 20 October 2012 in favour of the Company and observed that pollution load has to be determined on the basis of the level of effluents after treatment, and not at the time of generation. The APP Appellate Board set a three month time frame for the state government to make a decision on the proposal made by the pharmaceutical manufacturing industry to reconsider the state executive orders with respect to a ban on manufacture of pharmaceutical products beyond the approved quantities. The state government has not yet issued its decision.

The APP Control Board issued further notices on 6 December 2012 and 28 February 2013 to the Company seeking certain clarifications regarding the list of products, pollution (water and air) and compliance with Consent for Operation and Consent for Establishment pertaining to Company''s four active pharmaceutical ingredients manufacturing units. After submission of necessary clarifications by the Company, the APP Control Board forfeited the bank guarantee amounting to RS. 1 for two of the Company''s units while releasing the bank guarantee of RS. 0.25 for third unit. Further, the APP Control Board directed the Company to furnish an additional bank guarantee of RS. 8 for the aforesaid two units. The Company is in the process of challenging the orders of APP Control Board before the Appellate Authority.

(g) Additionally, the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except as discussed above, the Company does not believe that there are any such contingent liabilities that are expected to have any material adverse effect on its financial statements.

1.2: RELATED PARTY DISCLOSURES

a. List of all subsidiaries and other related parties with whom transactions have taken place during the current and previous year: Subsidiaries including step down subsidiaries

1. Aurigene Discovery Technologies (Malaysia) Sdn Bhd;

2. Aurigene Discovery Technologies Inc., USA;

3. Aurigene Discovery Technologies Limited, India;

4. beta Institut gemeinnutzige GmbH, Germany (formerly beta institute fur sozialmedizinische Forschung und Entwicklung GmbH);

5. betapharm Arzneimittel GmbH, Germany;

6. Cheminor Investments Limited, India;

7. Chienna B.V., Netherlands (from 15 February 2013);

8. Chirotech Technology Limited, UK;

9. Dr. Reddy''s Bio-sciences Limited, India;

10. Dr. Reddy''s Farmaceutica Do Brasil Ltda., Brazil;

11. Dr. Reddy''s Laboratories (Australia) Pty. Limited, Australia;

12. Dr. Reddy''s Laboratories (EU) Limited, UK;

13. Dr. Reddy''s Laboratories (Proprietary) Limited, South Africa;

14. Dr. Reddy''s Laboratories Inc., USA;

15. Dr. Reddy''s Laboratories International SA, Switzerland;

16. Dr. Reddy''s Laboratories Lousiana LLC, USA;

17. Dr. Reddy''s Laboratories Romania SRL, Romania;

18. Dr. Reddy''s Laboratories SA, Switzerland;

19. Dr. Reddy''s New Zealand Limited, New Zealand (formerly Affordable Health Care Limited);

20. Dr. Reddy''s Pharma SEZ Limited, India;

21. Dr. Reddy''s Srl, Italy (formerly Jet Generici Srl);

22. Dr. Reddy''s Laboratories New York, Inc., USA (from 24 May 2011);

23. Dr. Reddy''s Laboratories (Canada) Inc., Canada (till 20 September 2012);

24. Dr. Reddy''s Laboratories (UK) Limited, UK;

25. Dr. Reddy''s Laboratories ILAC TICARET Limited SIRKETI, Turkey (till 04 December 2012);

26. Dr. Reddy''s Laboratories Tennessee LLC, USA;

27. Dr. Reddy''s Laboratories LLC, Ukraine (from 11 May 2011);

28. Dr. Reddy''s Venezuela C.A., Venezuela;

29. DRL Impex Limited, India (formerly DRL Investments Limited);

30. Eurobridge Consulting B.V., Netherlands;

31. Idea2Enterprises (India) Private Limited, India;

32. Industrias Quimicas Falcon de Mexico, S.A. de.C.V, Mexico;

33. I-Ven Pharma Capital Limited, India;

34. Lacock Holdings Limited, Cyprus;

35. OctoPlus Development B.V., Netherlands (from 15 February 2013);

36. OctoPlus N.V., Netherlands (from 15 February 2013);

37. OctoPlus PolyActive Sciences B.V., Netherlands (from 15 February 2013);

38. OctoPlus Sciences B.V., Netherlands (from 15 February 2013);

39. OctoPlus Technologies B.V., Netherlands (from 15 February 2013);

40. OctoShare B.V., Netherlands (from 15 February 2013);

41. OOO Alfa, Russia (formerly OOO JV Reddy Biomed Limited) (till 16 July 2012);

42. OOO Dr. Reddy''s Laboratories Limited, Russia;

43. OOO DRS LLC, Russia;

44. Promius Pharma LLC, USA (formerly Reddy Pharmaceuticals LLC);

45. Reddy Antilles N.V., Netherlands;

46. Reddy beta GmbH, Germany (formerly beta Healthcare Solutions GmbH);

47. Reddy Cheminor S.A., France;

48. Reddy Holding GmbH, Germany;

49. Reddy Netherlands B.V., Netherlands;

50. Reddy Pharma Iberia SA, Spain;

51. Reddy Pharma Italia S.p.A., Italy;

52. Reddy Pharmaceuticals Hong Kong Limited, Hong Kong (till 19 October 2012);

53. Reddy US Therapeutics Inc., USA; and

54. Trigenesis Therapeutics Inc., USA (till 04 December 2012).

Associates

Macred India Private Limited, India (from 19 July 2010 till 24 February 2012)

Enterprise in which the Company holds 20% of equity shares

Joint ventures

- Kunshan Rotam Reddy Pharmaceutical Company Limited ("Reddy Kunshan"), China

Enterprise over which the Company exercises joint control with other joint venture partners and holds 51.33% of equity shares

DRANU LLC, USA (from 9 July 2012) Enterprise over which the Company''s step-down subsidiary exercises joint control with other joint venture partner and holds 50% of equity shares

Enterprises where principal shareholders have control or significant influence ("Significant interest entities")

Dr. Reddy''s Research Foundation Enterprise over which the principal shareholders have significant influence Dr. Reddy''s Institute of Life Sciences (formerly Institute of Life Enterprise over which principal shareholders have significant influence Sciences)

- Ecologic Technologies Limited Enterprise over which principal shareholders have significant influence

- Ecologic Chemicals Limited (Subsidiary of Ecologic Technologies Subsidiary of enterprise over which principal shareholders have significant influence Limited)

- Stamlo Hotels Private Limited Enterprise controlled by principal shareholders Others

- Green Park Hotels and Resorts Limited (formerly Diana Hotels Enterprise owned by relative of a director Limited)

K Samrajyam Spouse of former Chairman (Late Dr. K Anji Reddy)

- G Anuradha Spouse of Chairman and Chief Executive Officer

- Deepti Reddy Spouse of Vice Chairman and Managing Director

Dr. Reddy''s Foundation (Formerly Dr. Reddy''s Foundation for Enterprise where principal shareholders are trustees

Human and Social development)

A. R. Life Sciences Private Limited Enterprise in which relative of a director has significant influence

List of key Management Personnel of the Company

Late Dr. K Anji Reddy (whole-time director till 15 March 2013);

- G V Prasad (whole-time director);

- K Satish Reddy (whole-time director);

- Abhijit Mukherjee;

Dr. Amit Biswas;

Dr. R Ananthanarayanan;

Dr. Cartikeya Reddy;

Dr. Raghav Chari;

- M V Ramana;

- Samiran Das;

- Saumen Chakraborty; and Umang Vohra.

1.3: INTEREST IN JOINT VENTURE

The Company has 51.33 percent interest in Kunshan Rotam Reddy Pharmaceutical Co. Limited (KRRP), a joint venture in China. KRRP is engaged in manufacturing and marketing of active pharmaceutical ingredients and intermediates and formulations in China. The contractual arrangement between shareholders of KRRP indicates joint control as the minority shareholders, along with the Company, have significant participating rights such that they jointly control the operations of KRRP

The aggregate amount of assets, liabilities, income and expenses related to the Company''s share in KRRP as at and for the year ended 31 March 2013 are given below:

1.4: EMpLOYEE STOCK OpTION Scheme

Dr. Reddy''s Employees Stock Option Plan 2002 (the DRL2002 Plan):The Company instituted the DRL 2002 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). Under the Scheme, the Compensation Committee of the Board (''the Committee'') shall administer the Scheme and grant stock options to eligible directors and employees of the Company and its subsidiaries. The Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined on the date of the grant. The options issued under the DRL 2002 plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

The DRL 2002 Plan was amended on 28 July 2004 at the Annual General Meeting of shareholders to provide for stock options grants in two categories:

Category A: 1,721,700 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 573,778 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the par value of the underlying equity shares (i.e., RS. 5/- per option).

The DRL 2002 Plan was further amended on 27 July 2005 at the Annual General Meeting of shareholders to provide for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,995,478 stock options out of the total of 2,295,478 reserved for grant of options having exercise price equal to the par value of the underlying equity shares (i.e., RS. 5/- per option).

The fair market value of a share on each grant date falling under Category A above is defined as the average closing price (after adjustment of Bonus issue) for 30 days prior to the grant, in the stock exchange where there was highest trading volume during that period. Notwithstanding the foregoing, the Compensation Committee may, after getting the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

As the number of shares that an individual employee is entitled to receive and the price of the option are known at the grant date, the scheme is considered as a fixed grant.

In the case of termination of employment, all unvested options would stand cancelled. Options that have vested but have not been exercised can be exercised within the time prescribed under each option agreement by the Committee or if no time limit is prescribed, within three months of the date of employment termination, failing which they would stand cancelled.

The term of the DRL 2002 plan expired on 29 January 2012. Consequently, the Board of Directors of the Company, based on the recommendation of the Compensation Committee, resolved to extend the term of the DRL 2002 plan for a period of 10 years with effect from 29 January 2012, subject to the approval of shareholders. A resolution to this effect was approved by the shareholders at the Company''s Annual General Meeting held on 20 July 2012.

During the current year, the Company under the DRL 2002 Plan has issued 335,1 10 Category B options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

Dr. Reddy''s Employees ADR Stock Option Plan 2007 ("the DRL 2007 Plan"): The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2005. The DRL 2007 Plan came into effect on approval of the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). Under the DRL 2007 Plan, the Compensation Committee of the Board (the "Compensation Committee") shall administer the DRL 2007 Plan and grant stock options to eligible employees of the Company and its subsidiaries. The Compensation Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of the grant. The options issued under the DRL 2007 plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

During the current year, the Company under the DRL 2007 Plan has issued 58,140 options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

1.5: HEDGES OF FOREIGN CURRENCY RISK AND DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, British pounds sterling, Russian roubles and Euros, and foreign currency debt in U.S. dollars, Russian roubles and Euros.

The Company uses forward contracts, option contracts and currency swap contracts (derivatives) to mitigate its risk of changes in foreign currency exchange rates. Further, the Company also uses non derivative financial instruments as part of its foreign currency exposure risk mitigation strategy.

Hedges of highly probable forecasted transactions

The Company classifies its derivative contracts that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded as part of reserves and surplus within the Company''s "hedging reserve", and re-classified in the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion is immediately recorded in the statement of profit and loss.

The Company also designates certain non derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for the hedge of foreign currency risk associated with highly probable forecasted transactions and, accordingly, applies cash flow hedge accounting for such relationships. Re-measurement gain/loss on such non derivative financial liabilities is recorded as part of reserves and surplus within the Company''s "hedging reserve", and re-classified in the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions.

In respect of the aforesaid hedges of highly probable forecasted transactions, the Company has recorded, in reserves and surplus, a net profit of RS. 405 and a net loss of RS. 28 for the year ended 31 March 2013 and 2012, respectively. The Company also recorded, as part of revenue, a net loss of RS. 352 and RS. 344 during the years ended 31 March 2013 and 2012, respectively.

The net carrying amount of the Company''s "hedging reserve" was a gain of RS. 402 as at 31 March 2013, as compared to a loss of RS. 3 as at 31 March 2012.

Hedges of recognised assets and liabilities

Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts as well as the foreign exchange gains and losses relating to the monetary items are recognised as part of foreign exchange gains and losses.

Fair values of foreign exchange derivative contracts are determined under the Modified Black Scholes technique by using inputs from market observable data and other relevant terms of the contract with counter parties which are banks or financial institutions.

In respect of the aforesaid foreign exchange derivative contracts and the ineffective portion of the derivative contracts designated as cash flow hedges, the Company has recorded, as part of foreign exchange gains and losses, a net gain of RS. 158 and a net loss of RS. 1,582 for the year ended 31 March 2013 and 2012, respectively.

1.6: FINANCIAL RISK MANAGEMENT

The Company''s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company''s primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company''s risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company''s activities. The Board of Directors and the Audit Committee are responsible for overseeing Company''s risk assessment and management policies and processes.

a. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company''s receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Trade receivables

The Company''s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country, in which the customer operates, also has an influence on credit risk assessment. As at 31 March 2013 and 31 March 2012 the maximum exposure to credit risk in relation to trade and other receivables is RS. 29,639 and RS. 19,435 respectively (net of allowances).

Trade receivables that are neither past due nor impaired

Trade receivables amounting to RS. 23,557 and RS. 16,684 were neither past due nor impaired as at 31 March 2013 and 31 March 2012 respectively.

Trade receivables that are past due but not impaired

b. Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company''s reputation.

As at 31 March 2013 and 2012, the Company had unutilized credit limits from banks of RS. 20,364 and RS. 14,290, respectively.

As at 31 March 2013, the Company had working capital of RS. 25,522 including cash and bank balances of RS. 9,191 and current investments of RS. 1,966. As at 31 March 2012, the Company had working capital of RS. 18,614 including cash and bank balances of RS. 8,490 and current investments of RS. 2,070.

The table below provides details regarding the contractual maturities of significant financial liabilities (other than provisions for employee benefits expense which have been disclosed in Note 2.5, obligations under Bonus Debentures which have been disclosed in Note 2.40 and finance leases which have been disclosed in Note 2.44).

c. Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument may fluctuate because of change in market prices. Market risk may arise as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk-sensitive instruments. Market risk is attributable to all market risk-sensitive financial instruments including foreign currency receivables and payables and long term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company''s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

Foreign exchange risk

The Company''s exchange risk arises from its foreign operations, foreign currency revenues and expenses (primarily in U.S. dollars, British pounds sterling, Roubles and Euros) and foreign currency borrowings (in U.S. dollars, Euros and Roubles). A significant portion of the Company''s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company''s financial performance gets adversely impacted. The exchange rate between the Indian rupee and these foreign currencies has fluctuated substantially in recent periods and may continue to fluctuate substantially in the future. Consequently, the Company uses derivative financial instruments, such as foreign exchange forward, option and swap contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.

The details in respect of the outstanding foreign exchange forward, option and swap contracts are given in Note 2.35 above.

In respect of the Company''s derivative contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately RS. 2,219 / (1,751) increase/(decrease) in the Company''s hedging reserve and an approximately RS. 1,642 / (1,640) increase/(decrease) in the Company''s net profit as at 31 March 2013.

In respect of the Company''s derivative contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately RS. Nil increase/decrease in the Company''s hedging reserve and an approximately RS. 3,870 increase/decrease in the Company''s net profit as at 31 March 2012.

Interest rate risk

As at 31 March 2013 and 31 March 2012, the Company had foreign currency loans of RS. 8,104 carrying a floating interest rate of LIBOR plus 50-125 bps and RS. 6,665 carrying a floating interest rate of LIBOR plus 100-150 bps, respectively. Since these are short-term loans, the Company does not foresee any significant interest rate risk. A 10% increase or decrease in the floating interest rate component (i.e LIBOR) of the Company''s short-term borrowings would result in an insignificant impact on its net profit.

The Company''s investments in time deposits with banks and short-term liquid mutual funds are for short durations, and therefore do not expose the Company to significant interest rate risk.

Commodity rate risk

Exposure to market risk with respect to commodity prices primarily arises from the Company''s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fluctuate significantly over short periods of time. The prices of the Company''s raw materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Company''s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company''s operating expenses. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. The Company has historically not entered into any material derivative financial instruments or futures contracts to hedge exposure to fluctuations in commodity prices.

1.7: EMpLOYEE BENEFIT pLANS

1.7.1 Gratuity Plan of Dr. Reddy''s Laboratories Lmited

In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit plan (the "Gratuity Plan") covering certain categories of employees in India. The Gratuity Plan provides a lump sum payment to vested employees at retirement or termination of employment. The amount of payment is based on the respective employee''s last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy''s Laboratories Gratuity Fund (the "Gratuity Fund"). Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are primarily invested in Indian government bonds and corporate debt securities. A small portion of the fund is also invested in Indian equities.

1.7.2 Compensated Leave of Absence

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilized compensated absences and utilize it in future periods or receive cash in lieu thereof as per Company policy. The Company records an obligation for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this benefit was RS. 331 and RS. 241 as at 31 March 2013 and 2012 respectively.

1.8: DIVIDEND REMITTANCE IN FOREIGN CURRENCY

The Company does not make any direct remittances of dividends in foreign currencies to American Depository Receipts (ADRs) holders. The Company remits the equivalent of the dividends payable to the ADR holders in Indian Rupees to the custodian, which is the registered shareholder on record for all owners of the Company''s ADRs. The custodian purchases the foreign currencies and remits it to the depository bank which inturn remits the dividends to the ADR holders.

1.9: SETTLEMENT AGREEMENT WITH NORDION

During March 2013, the Company entered into an agreement with Nordion Inc., (formerly known as MDS Inc.) to settle its ongoing litigation for alleged breach of service obligations by Nordion Inc. during the years 2000 to 2004. As part of the settlement, the Company received a total amount of RS. 1,220 (USD 22.5 million) from Nordion, out of which RS. 108 (USD 2 million) is towards reimbursement of research and development cost and the same is recorded as reduction in such cost. The balance RS. 1,112 (USD 20.5 million) is towards ''lost profits'' and the same is recorded as part of other operating revenue.

1.10: ISSuANCE OF BONuS DEBENTuRES

The Company had, on 24 March 2011, allotted 1,015,516,392, 9.25% Unsecured Redeemable Non convertible Bonus Debentures aggregating to RS. 5,078. The interest is payable at the end of 12, 24 and 36 months from the initial date of issuance. The bonus debentures are redeemable at the end of 36 months from the initial date of issuance. These debentures have been listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

As per the requirements of the Companies Act, 1956, the Company created a Debenture Redemption Reserve aggregating to RS. 1,712 and RS. 867 as at 31 March 2013 and 31 March 2012 respectively.

(a) Includes gross block of RS. 6 and accumulated depreciation of RS. 4 towards transfers from non research and development to research and development fixed assets during the year.

(b) Includes gross block of RS. 14 and accumulated depreciation of RS. 8 towards transfers from research and development to non research and development fixed assets during the year.

1.11: pROVISION FOR Other Than TEMpORARY DIMINuTION IN The VALuE OF Long TERM INVESTMENTS

For the year ended 31 March 2013:

Investment in Trigenesis Therapeutics Inc.

Following the Company''s decision to discontinue its research and development on terbinafine nail lacquer, the Company assessed the recoverability of money invested in its subsidiary, Trigenesis Therapeutics Inc. and has created a provision of RS. 222 for diminution in the value of long term investments for the year ended 31 March 2013.

For the year ended 31 March 2012:

Investment in Lacock Holdings Limited

Investments include an investment of RS. 16,146 in Lacock Holdings Limited, Cyprus (''Lacock''), a wholly-owned subsidiary of the Company. The Company participates in the German generics business through step-down subsidiaries of Lacock, i.e. Reddy Holdings GmbH and betapharm Arzneimittel GmbH (''betapharm'').

There have been significant changes in the German generics market such as decrease in the reference prices of products, increase in discounts offered to State Healthcare Insurance ("SHI") funds, and announcement of a large competitive bidding sale process from several SHI funds in Germany, and more recently in the current year with the reference price cuts and announcement of large sales tender from other key SHI funds.

In view of the above, management has reassessed the value attributable to its investment in Lacock and based on future cash flows expected from the business (in Lacock), believes that there is a decline, other than temporary, in the value of investment. Accordingly, an amount of RS. 2,100 has been recorded as provision for diminution in the value of investment for the year ended 31 March 2012.

Investment in Kunshan Rotam Reddy Pharmaceutical Co. Limited

An amount of RS. 175 representing a provision created in earlier years for decline in the long-term investment in Kunshan Rotam Reddy Pharmaceutical Co. Limited, a joint venture company, was reversed during the year ended 31 March 2012 owing to its improved business performance.

1.12: Segment Information

In accordance with AS-17 "Segment Reporting", segment information has been given in the consolidated financial statements of Dr. Reddy''s Laboratories Limited and therefore no separate disclosure on segment information is given in these financial statements.

1.13: FINANCE LEASE

The Company has taken vehicles and other assets on finance lease. The future minimum lease payments and their present values as at 31 March 2013 are as follows:

1.14: OpERATING LEASE

The Company has taken vehicles on non cancellable operating lease. The total future minimum lease payments under this non cancellable lease are as follows:

Lease rentals on the said lease amounting to RS. 60 (previous year: RS. 51) has been charged to the statement of profit and loss. Lease rent under cancellable operating leases amounts to RS. 249 (previous year: RS. 157).

1.15: COMpARATIVE FIGuRES

Previous year''s figures have been regrouped / reclassified wherever necessary, to conform to current year''s classification.


Mar 31, 2012

(a) Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of Rs 5/- per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. During the year ended 31 March 2012, the amount of per share dividend recognized as distributions to equity shareholders is Rs 13.75 (31 March 2011: Rs 11.25).

(b) 654,156 (previous year : 718,161) stock options are outstanding to be issued by the Company on exercise of the vested stock options in accordance with the terms of exercise under the "Dr. Reddy's Employees Stock Option Plan, 2002" and 117,899 (previous year : 124,559) stock options are outstanding to be issued by the Company on exercise of the vested stock options in accordance with the terms of exercise under the "Dr. Reddy's Employees ADR Stock Option Plan 2007".

(c) Represents 200 (previous year: 200) equity shares of Rs 5/- each, amount paid-up Rs 500/- (rounded off in millions in the note above) forfeited due to non-payment of allotment money.

(d) The foreign currency translation reserve comprises exchange difference on loans and advances that in substance form part of net investment in Lacock Holdings Limited, Cyprus (Lacock) (till 23 August 2011) and Industrias Quimicas Falcon de Mexico, S.A.de.C.V (Mexico), non-integral foreign operations as defined in Accounting Standard (AS) - 11 (Revised 2003) on "Accounting for the Effects of Changes in foreign Exchange Rates". These exchange differences will be recognised in the statement of profit and loss in the event of disposal of such net investments.

(e) Finance lease obligations represent present value of minimum lease rentals payable for the vehicles leased by the Company. Amount is repayable in monthly instalment, with the last instalments due on 15 September 2013.

(f) Bonus debentures are redeemable at the end of 36 months from the initial date of issuance (24 March 2011). The interest is payable at the end of 12, 24 and 36 months from the initial date of issuance. (refer note 2.40)

(g) Sales tax deferment loan is repayable in 10 instalments, with the last instalment due on 31 March 2019.

(h) Packing Credit loans for the current year comprised of Foreign Currency Packing Credit loans carrying interest rates of LIBOR plus 100 -150 bps or fixed rate of 2.21%-3.06% per annum and are repayable within 1 to 6 months from the date of drawdown. Packing Credit loans for the previous year comprised of Foreign Currency Packing Credit loans carrying interest rates of LIBOR plus 52 - 80 bps or fixed rate of interest of 1.120% - 2.085% per annum and are repayable within 1 to 6 months from the date of drawdown. Further, previous year loans included a Rupee packing credit loan taken from State Bank of India carrying interest rate of 8.75% per annum with a term of 6 months.

(i) Bank overdraft is Nil for current year. Bank overdraft in the previous year was on current accounts with various banks carrying interest rates of 10.50% to 12.00% per annum.

* Unclaimed amounts are transferred to Investor Protection and Education Fund after seven years from the due date.

(j) Finance lease obligations represent present value of minimum lease rentals payable before 31 March 2013 for the vehicles and other assets leased by the Company.

(k) The figures reflected for Sales tax deferment loan are for instalments payable before 31 March 2013.

(l) The principal amount paid and that remaining unpaid as at 31 March 2012 in respect of enterprises covered under the "Micro, Small and Medium Enterprises Development Act, 2006" (MSMDA) are Rs 3,405 (previous year: Rs 2,215) and Rs 1 (previous year: Rs 218) respectively. The interest amount computed based on the provisions under Section 16 of the MSMDA Rs 0.03 (previous year: Rs 12) is remaining unpaid as of 31 March 2012. The interest that remained unpaid as at 31 March 2011 was paid to the extent of Rs 12 during the current year.

(m) The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act is Rs Nil (previous year: Rs Nil).

(n) The list of undertakings covered under MSMDA was determined by the Company on the basis of information available with the Company and has been relied upon by the auditors.

(o) In respect of shares of State Bank of India, the share certificates were misplaced during transfer/lost in transit. The Company has initiated necessary legal action at the appropriate courts.

(p) Shares held in Kunshan Rotam Reddy Pharmaceutical Co. Limited, China (Reddy Kunshan), OOO JV Reddy Biomed Limited, Russia, OOO Dr. Reddy's Laboratories Limited, Russia, Dr.Reddy's Laboratories ILAC TICARET Limited SIRKETI, Turkey and Biomed Russia Limited, Russia are not denominated in number of shares as per the laws of the respective countries.

(q) Represents equity shares of Dr.Reddy's Laboratories ILAC TICARET Limited SIRKETI, Turkey amounting to Rs 161 thousands (previous year: Rs 161 thousands) (rounded off in millions in the note above).

(r) Represents 20,250 (previous year: 20,000) equity shares of Rs 10/- each of Shivalik Solid Waste Management Limited, India amounting to Rs 202 thousands (previous year: Rs 200 thousands) (rounded off in millions in the note above).

(s) Represents Nil (previous year: 9,999) ordinary shares of Macred India Private Limited, India amounting to Rs Nil (previous year: Rs 100 thousands) (rounded off in millions in the note above). During the previous year ended 31 March 2011, the Company had sold 80% of its stake in Macred India Private Limited and accordingly was classified as an associate. Further, during the current year ended 31 March 2012, the Company has sold the balance 20% stake in Macred India Private Limited.

(t) During the previous year ended 31 March 2011, the Company had converted its advance to Dr. Reddy's Farmaceutica Do Brasil Ltda, Brazil to equity and a corresponding provision of Rs 499 for decline other than temporary, in the value of long term investment. Further, the Company had provided Rs 58 for decline other than temporary, in the value of investment of Reddy Pharmaceuticals Hong Kong Limited, Hong Kong and Rs 2 had been written off on dissolution of partnership in Globe Enterprises, India.

(v) During the current year ended 31 March 2012, there have been certain significant changes in the German generics market which are likely to cause an adverse impact on the price realization of some of the company's products. Pursuant to such adverse market developments, the Company has created a provision of Rs 2,100 for diminution, other than temporary, in value of long term investments in Lacock Holdings Limited, a wholly owned subsidiary of the company. Further, an amount of Rs 175 representing a provision created in earlier years for decline in the long-term investment in Kunshan Rotam Reddy Pharmaceutical Co. Limited, a joint venture company, was reversed owing to its improved business performance.

1. : COMMITMENTS AND CONTINGENT LIABILITIES

AS AT AS AT 31 MARCH 2012 31 MARCH 2011

i) Commitments / contingent liabilities:

(a) Guarantees issued by banks 154 119

(b) Guarantees issued by the Company on behalf of subsidiaries, associates and joint venture 17,039 11,070

(c) Letters of credit outstanding 714 437

(d) Contingent consideration payable in respect of subsidiaries acquired - 12

ii) Claims against the Company not acknowledged as debts in respect of:

(a) Income tax matters, pending decisions on various appeals made by the Company and by the Department 432 431

(b) Excise matters (including service tax), under dispute 250 127

(c) Custom matters, under dispute - 97

(d) Sales tax matters, under dispute 237 170

(e) The Company has received demand for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 for few of its products which are being contested. Based on its best estimate, the Company has made a provision in its books of accounts towards the potential liability related to the principal and interest amount demanded under the aforesaid order and believes that possibility of any liability that may arise on account of penalty on this demand is remote.

2. : RELATED PARTY DISCLOSURES

a. Related parties where control exists or where significant influence exists and with whom transactions have taken place during the current and previous year:

Subsidiaries including step down subsidiaries

1. DRL Investments Limited, India;

2. Reddy Pharmaceuticals Hong Kong Limited, Hong Kong;

3. OOO Alfa, Russia (formerly OOO JV Reddy Biomed Limited);

4. Reddy Antilles N.V, Netherlands;

5. Reddy Netherlands BV, Netherlands;

6. Reddy US Therapeutics Inc., USA;

7. Dr. Reddy's Laboratories Inc., USA;

8. Reddy Cheminor S.A., France;

9. Dr. Reddy's Farmaceutica Do brasil Ltda., brazil;

10. Cheminor Investments Limited, India;

11. Aurigene Discovery Technologies Limited, India;

12. Aurigene Discovery Technologies Inc., USA;

13. Dr. Reddy's Laboratories (EU) Limited, UK;

14. Dr. Reddy's Laboratories (UK) Limited, UK;

15. Dr. Reddy's Laboratories (Proprietary) Limited, South Africa;

16. OOO Dr. Reddy's Laboratories Limited, Russia;

17. Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC, USA);

18. Dr. Reddy's bio-sciences Limited, India;

19. Globe Enterprises (a partnership firm in India) (dissolved on 1 July 2010);

20. Trigenesis Therapeutics Inc., USA;

21. Industrias Quimicas Falcon de Mexico, SA.de.C.V, Mexico;

22. betapharm Arzneimittel GmbH, Germany;

23. beta Healthcare Solutions GmbH, Germany;

24. beta institute fur sozialmedizinische Forschung und Entwicklung GmbH, Germany;

25. Reddy Holding GmbH, Germany;

26. Lacock Holdings Limited, Cyprus;

27. Reddy Pharma Iberia SA, Spain;

28. Reddy Pharma Italia SPA, Italy;

29. Dr. Reddy's Laboratories (Australia) Pty. Limited, Australia;

30. Dr. Reddy's Laboratories SA, Switzerland;

31. Eurobridge Consulting B.V, Netherlands;

32. OOO DRS LLC, Russia;

33. Aurigene Discovery Technologies (Malaysia) Sdn Bhd;

34. Dr. Reddy's New Zealand Limited, New Zealand (formerly Affordable Health Care Limited);

35. Dr. Reddy's Laboratories ILAC TICARET Limited SIRKETI, Turkey;

36. Dr. Reddy's SRL, Italy (formerly Jet Generici SRL);

37. Dr. Reddy's Laboratories Lousiana LLC, USA;

38. Chirotech Technology Limited, UK;

39. Dr. Reddy's Pharma SEZ Limited, India;

40. Dr. Reddy's Laboratories International SA, Switzerland;

41. Idea2Enterprises (India) Private Limited, India (from 30 June 2010);

42. Dr. Reddy's Laboratories Romania SRL, Romania (from 7 June 2010);

43. I-Ven Pharma Capital Limited, India (from 6 October 2010);

44. Dr. Reddy's Laboratories Tennessee, LLC, USA (from 7 October 2010);

45. Dr. Reddy's Venezuela, C.A., Venezuela (from 20 October 2010);

46. Macred India Private Limited, India (till 18 July 2010);

47. Dr. Reddy's Laboratories (Canada) Inc, Canada (from 11 June 2010)

48. Dr. Reddy's Laboratories New York, Inc, USA (from 24 May 2011); and

49. Dr. Reddy's Laboratories, LLC Ukraine (from 11 May 2011)

3. EMPLOYEE STOCK OPTION SCHEME

Dr. Reddy's Employees Stock Option Plan-2002 (the DRL 2002 Plan): The Company instituted the DRL 2002 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). Under the Scheme, the Compensation Committee of the Board ('the Committee') shall administer the Scheme and grant stock options to eligible directors and employees of the Company and its subsidiaries. The Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for the options issued on the date of the grant. The options issued under the DRL 2002 plan vests in periods ranging between one and four years and generally have a maximum contractual term of five years.

The DRL 2002 Plan was amended on 28 July 2004 at the Annual General Meeting of shareholders to provide for stock options grants in two categories:

Category A: 1,721,700 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

category B: 573,778 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the par value of the underlying equity shares (i.e., Rs 5/- per option).

The DRL 2002 Plan was further amended on 27 July 2005 at the Annual General Meeting of shareholders to provide for stock option grants in two categories:

category a: 300,000 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

category B: 1,995,478 stock options out of the total of 2,295,478 reserved for grant of options having exercise price equal to the par value of the underlying equity shares (i.e., Rs 5/- per option).

The fair market value of a share on each grant date falling under Category A above is defined as the average closing price (after adjustment of Bonus issue) for 30 days prior to the grant, in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Compensation Committee may, after getting the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

As the number of shares that an individual employee is entitled to receive and the price of the option are known at the grant date, the scheme is considered as a fixed grant.

In the case of termination of employment, all unvested options would stand cancelled. Options that have vested but have not been exercised can be exercised within the time prescribed under each option agreement by the Committee or if no time limit is prescribed, within three months of the date of employment termination, failing which they would stand cancelled.

During the current year, the Company under the DRL 2002 Plan has issued 262,520 category B options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2005. The DRL 2007 Plan came into effect on approval of the board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). Under the DRL 2007 Plan, the Compensation Committee of the Board (the "Compensation Committee") shall administer the DRL 2007 Plan and grant stock options to eligible employees of the Company and its subsidiaries. The Compensation Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of the grant. The options issued under the DRL 2007 plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

During the current year, the Company under the DRL 2007 Plan has issued 56,060 options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

4. : hedges of foreign currency risks and derivative financial instruments

The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, british pound sterling, Russian roubles and Euros, and foreign currency debt in U.S. dollars, Russian roubles and Euros.

The Company uses forward contracts and option contracts (derivatives) to mitigate its risk of changes in foreign currency exchange rates. Further, the Company uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy.

During the previous year ended 31 March 2011, the Company adopted the Accounting Standard (AS)-32 "Financial Instruments: Disclosures" as issued by ICAI, to the extent that the adoption does not conflict with existing mandatory accounting standards and other authoritative pronouncements, Company law and other regulatory requirements. The objective of this standard is to provide information relating to various financial instruments that the Company holds along with the nature and extent of risks arising from financial instruments to which the Company is exposed to. Further, the standard requires disclosure for the risk management strategies that management adopts to address the specific risk factors to the extent they are considered to be material.

Hedges of highly probable forecasted transactions

The Company classifies its derivative contracts that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded as part of reserves and surplus within the Company's "hedging reserve", and re-classified in the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion is immediately recorded in the statement of profit and loss.

The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for the hedge of foreign currency risk associated with highly probable forecasted transactions and, accordingly, applies cash flow hedge accounting for such relationships. Re-measurement gain / loss on such non-derivative financial liabilities is recorded as part of reserves and surplus within the Company's "hedging reserve", and re-classified in the statement of profit and loss as revenue in the period corresponding to the occurrence of the forecasted transactions.

In respect of the aforesaid hedges of highly probable forecasted transactions, the Company has recorded, in reserves and surplus, a net loss of Rs 28 and a net loss of Rs 242 for the years ended 31 March 2012 and 2011, respectively. The Company also recorded, as part of revenue, a net loss of Rs 344 and a net gain of Rs 263 during the years ended 31 March 2012 and 2011, respectively.

The net carrying amount of the Company's "hedging reserve" was a loss of Rs 3 as at 31 March 2012, as compared to a gain of Rs 25 as at 31 March 2011.

5. : HEDGES OF FOREIGN CURRENCY RiSKS AND DERIVATIVE FINANVIAL INSTRUMENTS (CONTINUED)

Hedges of recognized assets and liabilities

Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognized in the statement of profit and loss. The changes in fair value of such derivative contracts as well as the foreign exchange gains and losses relating to the monetary items are recognized as part of foreign exchange gains and losses.

Fair values of foreign exchange derivative contracts are determined under the Black Scholes Merton technique by using inputs from market observable data and other relevant terms of the contract with counter parties which are banks or financial institutions.

In respect of the aforesaid foreign exchange derivative contracts and the ineffective portion of the derivative contracts designated as cash flow hedges, the Company has recorded, as part of foreign exchange gains and losses, a net loss of Rs 1,582 and a net gain of Rs 858 for the year ended 31 March 2012 and 2011, respectively.

6. : FINANCIAL RISK MANAGEMENT

The Company's activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company's primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company's risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company's activities. The Board of Directors and the Audit Committee are responsible for overseeing Company's risk assessment and management policies and processes.

a. Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Trade and other receivables

The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country, in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. As at 31 March 2012 and 31 March 2011 the maximum exposure to credit risk in relation to trade and other receivables is Rs 19,435 and Rs 17,705 respectively (net of allowances).

Financial assets that are neither past due nor impaired

None of the Company's cash equivalents, including time deposits with banks, are past due or impaired. Trade receivables amounting to Rs 16,684 and Rs 14,196 were neither past due nor impaired as at 31 March 2012 and 31 March 2011 respectively.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and capital expansions; and the Company does not consider any significant exposure to credit risks associated with such financial assets.

b. Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company's reputation.

As at 31 March 2012 and 2011, the Company had unutilized credit limits from banks of Rs 14,290 and Rs 13,089, respectively.

As at 31 March 2012, the Company had working capital of Rs 18,614 including cash and bank balances of Rs 8,490 and current investments of Rs 2,070. As at 31 March 2011, the Company had working capital of Rs 10,490, including cash and bank balances of Rs 662.

Financial guarantees

Financial guarantees disclosed in Note 2.24 have been provided as counter corporate guarantees to financial institutions and banks that have extended credits and other financial assistance to the Company's subsidiaries. In this regard, the Company does not foresee any significant credit risk exposure.

c. Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument may fluctuate because of change in market prices. Market risk may arise as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk-sensitive instruments. Market risk is attributable to all market risk-sensitive financial instruments including foreign currency receivables and payables and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company's exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

Foreign exchange risk

The Company's exchange risk arises from its foreign operations, foreign currency revenues and expenses (primarily in U.S. dollars, british pound sterling and Euros) and foreign currency borrowings (in U.S. dollars, Euros and Roubles). A significant portion of the Company's revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company's financial performance gets adversely impacted. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. Consequently, the Company uses derivative financial instruments, such as foreign exchange forward and option contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.

The details in respect of the outstanding foreign exchange forward and option contracts are given in Note 2.35 above.

In respect of the Company's derivative contracts a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately Rs Nil increase/decrease in the Company's hedging reserve and an approximately Rs 3,870 increase/decrease in the Company's net profit as at 31 March 2012.

In respect of the Company's derivative contracts and non-derivative financial liabilities, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately Rs 349 increase/decrease in the Company's hedging reserve and an approximately Rs 1,014 increase/decrease in the Company's net profit as at 31 March 2011.

(1) Others includee currencies such as Russian roubles, British pound sterlings, Australian dollars, Venezuela bolivars, etc.

For the years ended 31 March 2012 and 2011, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies in the above mentioned financial assets/liabilities would affect the Company's net loss/profit by approximately Rs 652 and Rs 839 respectively.

Interest rate risk

As at 31 March 2012 and 31 March 2011, the Company had foreign currency loans of Rs 6,665 carrying a floating interest rate of LIBOR plus 100-150 bps and Rs 5,758 carrying a floating interest rate of LIBOR plus 52-80 bps respectively. Also as at 31 March 2011 the company had an INR loan of Rs 950 carrying an interest rate of 8.75%. Since these are short term loans, the Company does not consider any significant changes in the interest rates and hence, has not entered into any interest rate swaps to hedge its interest rate risk.

For the years ended 31 March 2012 and 2011, every 10% increase or decrease in the floating interest rate component (i.e. LIBOR) of its short-term loans from banks would affect the Company's net loss/profit by approximately Rs 5 and Rs 16, respectively.

The Company's investments in time deposits with banks and short-term liquid mutual funds are for short durations, and therefore do not expose the Company to significant interest rates risk.

Commodity rate risk

Exposure to market risk with respect to commodity prices primarily arises from the Company's purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fluctuate significantly over short periods of time. The prices of the Company's raw materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Company's active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company's operating expenses. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies. The Company has historically not entered into any derivative financial instruments or futures contracts to hedge exposure to fluctuations in commodity prices.

7. : EMPLOYEE BENEFIT PLANS

7.1 gratuity plan of dr. reddy's laboratories limited

In accordance with applicable Indian laws, the Company provides for gratuity, a defined benefit retirement plan (the "Gratuity Plan") covering certain categories of employees in India. The Gratuity Plan provides a lump sum payment to vested employees at retirement or termination of employment. The amount of payment is based on the respective employee's last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy's Laboratories Gratuity Fund (the "Gratuity Fund"). Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in specific securities as mandated by law and generally consist of federal and state government bonds and debt instruments of Indian government-owned corporations.

The following table sets out the status of the aforesaid funded gratuity plan as required under AS-15 (Revised):

8. LONG SERVIVE AWARD BENEFIT PLAN of DR. REDDY's LABORATORIES LIMITED

During the year ended March 31, 2010, the Company introduced a new post-employment unfunded defined benefit plan under which all eligible employees of the Company who have completed the specified service tenure with the Company would be eligible for a "Long Service Cash Award" at the time of their employment separation. The amount of such cash payment would be based on the respective employee's last drawn salary and the specified number of years of employment with the Company. Accordingly the Company has valued the liability through an independent actuary.

discount rate: The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations.

Salary Escalation rate: The estimate of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.

9. : DIVIDEND REMITTANCE IN FOREIGN CURRENCY

The Company does not make any direct remittances of dividends in foreign currencies to American Depository Shares (ADS) holders. The Company remits the equivalent of the dividends payable to the ADS holders in Indian Rupees to the depositary bank, which is the registered shareholder on record for all owners of the Company's ADS. The depositary bank purchases the foreign currencies and remits dividends to the ADS holders.

10. : RESEARCH AND DEVELOPMENT ARRANGEMENTS

I-VEN Pharma arrangement

During the year ended 31 March 2005, the Company had entered into an agreement with I-VEN Pharma Capital Limited ("I-VEN") for the joint development and commercialization of a portfolio of 36 generic drug products. As per the terms of the agreement, I-VEN has a right to fund up to 50% of the project costs (development, registration and legal costs) related to these products and the related U.S. Abbreviated New Drug Applications ("ANDA") filed or to be filed, subject to a maximum contribution of U.S.$ 56 millions. Upon successful commercialization of these products, the Company is required to pay I-VEN a royalty on net sales at agreed rates for a period of 5 years from the date of commercialization of each product.

As per the agreement, in April 2010 and upon successful achievement of certain performance milestones specified in the agreement (e.g. successful commercialization of a specified number of products, and achievement of specified sales milestones), I-VEN has a one-time right to require the Company to pay I-VEN a portfolio termination value amount for such portfolio of products. In the event I-VEN exercises this portfolio termination value option, then it will not be entitled to the sales-based royalty payment for the remaining contractual years.

The Company and I-VEN reached an agreement to settle the portfolio termination value option available to I-VEN at a consideration of Rs 2,680 to be paid by the Company.

On 1 October 2010, the Company, DRL Investments Limited (a wholly owned subsidiary of Dr. Reddy's) and I-VEN entered into an agreement regarding the medium of settlement for the portfolio termination value. Pursuant to such an arrangement, controlling interest in I-VEN was acquired by DRL Investments Limited; thereby making I-VEN a wholly owned subsidiary of the Company as of 1 October 2010. In connection with the transaction, the Company had advanced an amount of Rs 2,680 to DRL Investments Limited out of which an amount of Rs 2,549 is outstanding and disclosed as part of 'Long term loans and advances' as of 31 March 2012.

11. : ISSUANCE OF BONUS DEBENTURES

Pursuant to a scheme of arrangement sanctioned by the High Court of Andhra Pradesh, Hyderabad, India on 19 July 2010 and subsequent approval of the Reserve Bank of India (on 18 January 2011) and no-objection from the Indian income-tax authorities (on 1 February 2011), the Company had, on 24 March 2011, allotted 1,015,516,392, 9.25% Unsecured Redeemable Non-convertible Bonus Debentures (aggregating to Rs 5,078) in the ratio of 6 debentures of the face value of Rs 5 each fully paid up for every equity share of Rs 5 each held as on the record date i.e. 18 March 2011. The interest is payable at the end of 12, 24 and 36 months from the initial date of issuance. The bonus debentures are redeemable at the end of 36 months from the initial date of issuance. These debentures have been listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

In terms of the scheme, the Company delivered the aggregate value of the debentures to an on-shore escrow account of a merchant banker appointed by the Board of Directors. The merchant banker received the aforesaid amount in the escrow account for and on behalf of and in trust for the members entitled to receive the debentures as deemed dividend within the meaning of Section 2 (22) of the Income-tax Act, 1961. The merchant banker had also immediately following the receipt of funds in the escrow account, for and on behalf of the members, paid by way of subscription for allotment of the requisite number of debentures issued under the scheme.

During the previous year ended 31 March 2011, in terms of accounting treatment set out in the scheme, the issuance of the aforesaid debentures (with an aggregate face value of Rs 5,078) and the dividend distribution tax paid thereon (aggregating to Rs 843) had been reflected by transferring the corresponding amounts from the General Reserve of the Company and the costs associated in relation to the aforesaid scheme (primarily comprising directly attributable transaction costs aggregating to Rs 51) had been expensed along with a corresponding transfer from the General Reserve account.

Pursuant to the scheme and as per the requirements of the Companies Act, 1956, the Company has also created a Debenture Redemption Reserve aggregating to Rs 867 and Rs 19 as at 31 March 2012 and 31 March 2011 respectively.

12. : PROVISION FOR OTHER THAN TEMPORARY DIMINUTION IN THE VALUE OF LONG TERM INVESTMENTS

Investments include an investment of Rs 16,146 in Lacock Holdings Limited, Cyprus ('Lacock'), a wholly-owned subsidiary of the Company. The Company participates in the German generics business through step-down subsidiaries of Lacock, i.e. Reddy Holdings GmbH and betapharm Arzneimittel GmbH ('betapharm').

There have been significant changes in the German generics market such as decrease in the reference prices of products, increase in discounts offered to State Healthcare Insurance ("SHI") funds, and announcement of a large competitive bidding sale process from several SHI funds in Germany, and more recently in the current year with the reference price cuts and announcement of large sales tender from other key SHI funds.

In view of the above, Management has reassessed the value attributable to its investment in Lacock and based on future cash flows expected from the business (in Lacock), believes that there is a decline, other than temporary, in the value of investment. Accordingly, an amount of Rs 2,100 has been recorded as provision for diminution in the value of investment during the year ended 31 March 2012.

segment information

In accordance with AS-17 "Segment Reporting", segment information has been given in the consolidated financial statements of Dr. Reddy's Laboratories Limited and therefore no separate disclosure on segment information is given in these financial statements.

venezuela currency devaluation

The Company's Venezuela operations are conducted as an extension of the parent company. On 30 December 2010, the Foreign Exchange Administration Commission of Venezuela (commonly referred to as the "CADIVI') enacted a decree (exchange agreement No.14) to unify the official exchange rates at a single rate of 4.3 Venezuela Bolivars ("VEB") per U.S.$ by abolishing the preferential rate of 2.6 VEB per U.S.$ effective from 1 January 2011.

Further, on 13 January 2011, the CADIVI issued another decree to interpret the transitional requirements for the use of the new official exchange rate and described that if the following conditions were to be satisfied, the use of the pre-devaluation rate of 2.6 VEB per U.S.$ would be permissible:

- For fund repatriation - to the extent the CADIVI has issued approvals in the form of approvals of Autorizacion de Liquidacion de Divisas ('ALD') and which have been sent to and received by the Banco Central de Venezuela by 31 December 2010;

- For foreign currency acquisition - to the extent the CADIVI had issued an Authorization of Foreign Currency Acquisition ('AAD') by 31 December 2010 and the approval relates to imports for the health and food sectors or certain other specified purposes.

Based on the authorizations received by the Company, and in light of the above announcements, the Company believes that it is eligible for the usage of the preferential rate of 2.6 VEB per U.S.$ in relation to some of its monetary items denominated in VEB as on 31 March 2011. Accordingly, those monetary items in the Company's Venezuelan operations are translated into the reporting currency at the preferential rate of 2.6 VEB per U.S.$. as at 31 March 2011.

13. : COMPARATIVE FIGURES

On applicability of revised Schedule VI from current year, the Company has reclassified previous year figures to conform to this year's classification. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of the financial statements. However, it significantly impacts presentation and disclosures made in the financial statements, particularly presentation of Balance Sheet.


Mar 31, 2011

1. COMMITMENTS AND CONTINGENT LIABILITIES

as at as at

31 march 2011 31 march 2010

i) Commitments / contingent liabilities:

(a) Guarantees issued by banks 119 94

(b) Guarantees issued by the Company on behalf of subsidiaries, associates and joint venture 11,070 16,527

(c) Letters of credit outstanding 437 20

(d) Contingent consideration payable in respect of subsidiaries acquired 12 12

ii) Claims against the Company not acknowledged as debts in respect of:

(a) Income tax matters, pending decisions on various appeals made by the Company and by the 431 521

Department

(b) Excise matters (including service tax), under dispute 127 6

(c) Custom matters, under dispute 97 97

(d) Sales tax matters, under dispute 170 151

(e) The company has received demand for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 for few of its products which is being contested. The Company has provided fully against the potential liability in respect of the principal amount demanded and believes that possibility of any liability that may arise on account of interest (including accumulated demand to date approximately of Rs.167) and penalty on this demand is remote.

iii) Estimated amount of contracts remaining to be executed on capital account and not provided for (net 3,365 2,859 of advances)

iv) Commitment under Export Promotion Capital Goods (EPCG) scheme 9,054 3,835

v) The Company is also involved in other lawsuits, claims, investigations and proceedings, including patent and commercial matters, which arise in the ordinary course of business. However, there are no material claims on such cases.

2. RELATED PARTY DISCLOSURES

a. The related parties where control exists are the subsidiaries, step down subsidiaries, joint ventures and the partnership frms.

b. Related parties where control exists or where significant infuence exists and with whom transactions have taken place during the year: subsidiaries including step down subsidiaries DRL Investments Limited, India;

Reddy Pharmaceuticals Hong Kong Limited, Hong Kong;

OOO JV Reddy Biomed Limited, Russia;

Reddy Antilles NV, Netherlands;

Reddy Netherlands BV, Netherlands;

Reddy US Therapeutics Inc., USA;

Dr. Reddys Laboratories Inc., USA;

Reddy Cheminor SA, France;

Dr. Reddys Farmaceutica Do Brasil Ltda., Brazil;

Cheminor Investments Limited, India;

Aurigene Discovery Technologies Limited, India;

Aurigene Discovery Technologies Inc., USA;

Dr. Reddys Laboratories (EU) Limited, UK;

Dr. Reddys Laboratories (UK) Limited, UK;

Dr. Reddys Laboratories (Proprietary) Limited, South Africa;

OOO Dr. Reddys Laboratories Limited, Russia;

Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC, USA);

Dr. Reddys Bio-sciences Limited, India;

Globe Enterprises (a partnership frm in India) (dissolved on 1 July 2010);

Trigenesis Therapeutics Inc., USA;

Industrias Quimicas Falcon de Mexico, SA de CV, Mexico;

betapharm Arzneimittel GmbH, Germany;

beta Healthcare Solutions GmbH, Germany;

beta institute fur sozialmedizinische Forschung und Entwicklung GmbH, Germany;

Reddy Holding GmbH, Germany;

Lacock Holdings Limited, Cyprus;

Reddy Pharma Iberia SA, Spain;

Reddy Pharma Italia SPA, Italy;

Dr. Reddys Laboratories (Australia) Pty. Limited, Australia;

Dr. Reddys Laboratories SA, Switzerland;

Eurobridge Consulting BV, Netherlands;

OOO DRS LLC, Russia;

Aurigene Discovery Technologies (Malaysia) Sdn Bhd;

Dr. Reddys New Zealand Limited, New Zealand (formerly Affordable Health Care Limited);

Dr. Reddys Laboratories ILAC TICARET Limited SIRKETI, Turkey;

Dr. Reddys SRL, Italy (formerly Jet Generici SRL);

Dr. Reddys Laboratories Lousiana LLC, USA;

Chirotech Technology Limited, UK;

Dr. Reddys Pharma SEZ Limited, India (from 8 July 2009);

Dr. Reddys Laboratories International SA, Switzerland (from 24 March 2010);

Idea2Enterprises (India) Private Limited, India (from 30 June 2010);

Dr. Reddys Laboratories Romania SRL, Romania (from 7 June 2010);

I-VEN Pharma Capital Limited, India (from 6 October 2010);

Dr. Reddys Laboratories Tennessee, LLC, USA (from 7 October 2010);

Dr. Reddys Venezuela, CA, Venezuela (from 20 October 2010);

Macred India Private Limited, India (till 18 July 2010); and

Perlecan Pharma Private Limited, India (Amalgamated with the Company vide order dated 12 June 2009 by the High Court of Judicature, Andhra Pradesh, Hyderabad)

3. RELATED PARTY DISCLOSURES (CONTINUED)

associates

APR LLC, USA 100% Holding in class B equity shares

Macred India Private Limited, India (from 19 July 2010) 20% Holding in equity shares

Joint venture

Kunshan Rotam Reddy Pharmaceutical Company Limited Enterprise over which the Company exercises joint control with other

("Reddy Kunshan"), China joint venture partners and holds 51.33 % equity stake

enterprises where principal shareholders have control or significant infuence ("significant interest entities")

Dr. Reddys Research Foundation ("Research Foundation") Enterprise over which the principal shareholders have significant infuence

Dr. Reddys Holdings Limited Enterprise owned by principal shareholders

Institute of Life Sciences Enterprise over which principal shareholders have significant infuence

others

Green Park Hotels and Resorts Limited Enterprise owned by relative of a director

(formerly Diana Hotels Limited)

Ms. K Samrajyam Spouse of Chairman

Ms. G Anuradha Spouse of Vice Chairman and Chief Executive Officer

Ms. Deepti Reddy Spouse of Managing Director and Chief Operating Officer

Dr. Reddys Heritage Foundation Enterprise in which the Chairman is a director

Dr. Reddys Foundation for Human and Social development Enterprise where principal shareholders are trustees

S R Enterprises Enterprise in which relative of a director has significant infuence

K K Enterprises Enterprise in which relative of a director has significant infuence

A.R. Life Sciences Private Limited Enterprise in which relative of a director has significant infuence

Key management Personnel represented on the Board

Dr. K Anji Reddy Chairman

Mr. G V Prasad Vice Chairman and Chief Executive Officer

Mr. K Satish Reddy Managing Director and Chief Operating Officer

non-executive and independent directors on the Board

Dr. Omkar Goswami

Mr. Ravi Bhoothalingam

Mr. Anupam Puri

Dr. J P Moreau

Ms. Kalpana Morparia

Dr. Bruce L A Carter

Dr. Ashok Sekhar Ganguly

4. EMPLOYEE STOCK OPTION SCHEME

Dr. Reddys Employees Stock Option Plan-2002 (the DRL 2002 Plan): The Company instituted the DRL 2002 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). Under the Scheme, the Compensation Committee of the Board (the Committee) shall administer the Scheme and grant stock options to eligible directors and employees of the Company and its subsidiaries. The Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for the options issued on the date of the grant. The options issued under the DRL 2002 plan vests in periods ranging between one and four years and generally have a maximum contractual term of fve years.

The DRL 2002 Plan was amended on 28 July 2004 at the Annual General Meeting of shareholders to provide for stock options grants in two categories:

category a: 1,721,700 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

category B: 573,778 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

The DRL 2002 Plan was further amended on 27 July 2005 at the Annual General Meeting of shareholders to provide for stock option grants in two categories:

category a: 300,000 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

category B: 1,995,478 stock options out of the total of 2,295,478 reserved for grant of options having exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

The fair market value of a share on each grant date falling under Category A above is defned as the average closing price (after adjustment of Bonus issue) for 30 days prior to the grant, in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Compensation Committee may, after getting the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

As the number of shares that an individual employee is entitled to receive and the price of the option are known at the grant date, the scheme is considered as a fixed grant.

In the case of termination of employment, all non-vested options would stand cancelled. Options that have vested but have not been exercised can be exercised within the time prescribed under each option agreement by the Committee or if no time limit is prescribed, within three months of the date of employment termination, failing which they would stand cancelled.

During the current year, the Company under the DRL 2002 Plan has issued 284,070 options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

5. FINANCIAL INSTRUMENTS

During the year ended 31 March 2011, the Company adopted the Accounting Standard (AS)-32 "Financial Instruments: Disclosures" as issued by ICAI, to the extent that the adoption does not confict with existing mandatory accounting standards and other authoritative pronouncements, Company law and other regulatory requirements. The objective of this standard is to provide information relating to various financial instruments that the Company holds along with the nature and extent of risks arising from financial instruments to which the Company is exposed to. Further, the standard requires disclosure for the risk management strategies that management adopts to address the specifc risk factors to the extent they are considered to be material.

Cash flow hedges

The Company designates certain non-derivative financial liabilities and derivative financial instruments, denominated in foreign currencies, as hedges against foreign currency exposures associated with forecasted foreign currency sales transactions.

Exchange differences arising on re-measurement of such non-derivative liabilities and changes in the fair value of derivative hedging instruments designated as a cash fow hedges are recognized directly in hedging reserve and presented within reserves and surplus, to the extent that hedging relationship is considered effective. To the extent that the hedge is ineffective, changes in fair value are recognized in Profit and loss account. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in hedging reserve, remains there until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, then the balance in hedging reserve is recognized immediately in Profit and loss account. In other cases the amount recognized in hedging reserve is transferred to Profit and loss account in the same period that the hedged item affects Profit and loss account.

During the year 31 March 2011, the Company has designated certain non-derivative financial liabilities as hedging instruments for hedging of foreign currency risk associated with forecasted transactions and accordingly, has applied cash fow hedge accounting for such relationships. Consequently foreign exchange differences amounting to Rs. 25 arising on re-measurement of these non-derivative financial liabilities from their initial recognized value to the value in INR terms as at the reporting dates has been disclosed as part of Hedging reserve. The carrying value of these non-derivative financial liabilities amounts to Rs. 3,493 as at 31 March 2011 (as compared to Rs. Nil as at 31 March 2010), and has been disclosed as a part of "Unsecured Loans" in the Balance Sheet.

During the year 31 March 2010, the Company has designated foreign currency options as hedging instruments against foreign currency risk associated with forecasted transactions and accordingly, applies cash fow hedge accounting for such relationships. The changes in the fair value of these foreign currency options amounting to Rs. 267 have been disclosed as part of "Hedging reserve". The notional amount of the foreign currency options and fair value of these foreign currency options amounted to Rs. 8,082 and Rs. 295 as at 31 March 2010 respectively.

The ineffective portion of the cash fow hedges amounting to Rs. Nil and Rs. 28 have been recognised in the Profit and loss account for the year ended 31 March 2011 and 31 March 2010 respectively.

6. FINANCIAL INSTRUMENTS (CONTINUED)

In respect of foreign currency derivative contracts designated as cash fow hedges, the Company has transferred Rs. 263 and Rs. 75 from the hedging reserve into sales for the year ended 31 March 2011 and 31 March 2010 respectively.

Fair value hedges

The Company does not apply hedge accounting to certain derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized in Profit and loss account as part of foreign currency gains and losses.

The Company uses derivative financial instruments such as foreign exchange option contracts to mitigate the risk of changes in foreign exchange rates on trade receivables and certain other assets denominated in certain foreign currencies. The counterparty for these contracts is generally a bank or a financial institution.

The Company recognized a net foreign exchange gain on derivative financial instruments of Rs. 661 and Rs. 658 for the year ended 31 March 2011 and 31 March 2010 respectively. These amounts are included in other income.

Fair Value

Fair values of the foreign currency options are determined under the Black Scholes Merton technique by using inputs from market observable data and other relevant terms of the contract with counter parties which are banks or financial institutions.

7. FINANCIAL RISK MANAGEMENT

The Companys activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Companys primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Companys risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to refect changes in market conditions and the Companys activities. The Board of Directors and the Audit Committee is responsible for overseeing Companys risk assessment and management policies and processes.

a. credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companys receivables from customers. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Company grants credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments.

Trade and other receivables

The Companys exposure to credit risk is infuenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country, in which the customer operates, also has an infuence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business. As at 31 March 2011 and 31 March 2010 the maximum exposure to credit risk in relation to trade and other receivables is Rs. 17,705 and Rs. 10,605 respectively (net of allowances).

Financial assets that are neither past due nor impaired

None of the Companys cash equivalents, including time deposits with banks, are past due or impaired. Of the total trade receivables, Rs. 14,196 as at 31 March 2011 and Rs. 8,167 as at 31 March 2010 consists of customers balances which were neither past due nor impaired.

b. liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have suffcient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Companys reputation.

As at 31 March 2011 and 2010, the Company had unutilized credit limits from banks of Rs. 13,089 and Rs. 7,850, respectively.

As at 31 March 2011, the Company had working capital of Rs. 23,456 including cash and cash equivalents of Rs. 662 and current investments of Rs. 3. As at 31 March 2010, the Company had working capital of Rs. 14,604, including cash and cash equivalents of Rs. 3,680 and current investments of Rs. 3,577.

The table below provides details regarding the contractual maturities of significant financial liabilities (other than obligations under fnance leases which have been disclosed in Note 27 and Bonus Debentures which have been disclosed in Note 29).

c. market risk

Market risk is the risk of loss of future earnings or fair values or future cash flows that may result from a change in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, foreign currency exchange rates and other market changes that affect market risk- sensitive instruments. Market risk is attributable to all market risk-sensitive financial instruments including foreign currency receivables and payables and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Companys exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

Foreign exchange risk

The Companys exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in U.S. dollars, British pound sterling and euros) and foreign currency borrowings (in U.S. dollars and euros). A significant portion of the Companys revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Companys revenues measured in rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fuctuate substantially in the future. Consequently, the Company uses derivative financial instruments, such as foreign exchange forward and option contracts, to mitigate the risk of changes in foreign currency exchange rates in respect of its forecasted cash flows and trade receivables.

The details in respect of the outstanding foreign exchange forward and option contracts are given in Note 17 above.

In respect of the Companys forward, option contracts and non-derivative financial liabilities, a 10% decrease / increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately Rs. 349 increase / decrease in the Companys hedging reserve and an approximately Rs. 1,014 increase / decrease in the Companys net Profit as at 31 March 2011.

In respect of the Companys forward and option contracts, a 10% decrease / increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in an approximately Rs. 821 increase / decrease in the Companys hedging reserve and an approximately Rs. 745 increase / decrease in the Companys net Profit as at 31 March 2010.

8. DIVIDEND REMITTANCE IN FOREIGN CURRENCY

The Company does not make any direct remittances of dividends in foreign currencies to American Depository Shares (ADS) holders. The Company remits the equivalent of the dividends payable to the ADS holders in Indian Rupees to the depositary bank, which is the registered shareholder on record for all owners of the Companys ADS. The depositary bank purchases the foreign currencies and remits dividends to the ADS holders.

9. RESEARCH AND DEVELOPMENT ARRANGEMENTS

I-VEN Pharma arrangement

During the year ended 31 March 2005, the Company had entered into an agreement with I-VEN Pharma Capital Limited ("I-VEN") for the joint development and commercialization of a portfolio of 36 generic drug products. As per the terms of the agreement, I-VEN has a right to fund up to 50% of the project costs (development, registration and legal costs) related to these products and the related US Abbreviated New Drug Applications ("ANDA") fled or to be fled, subject to a maximum contribution of US$ 56 millions. Upon successful commercialization of these products, the Company is required to pay I-VEN a royalty on net sales at agreed rates for a period of 5 years from the date of commercialization of each product.

As per the agreement, in April 2010 and upon successful achievement of certain performance milestones specifed in the agreement (e.g. successful commercialization of a specifed number of products, and achievement of specifed sales milestones), I-VEN has a one-time right to require the Company to pay I-VEN a portfolio termination value amount for such portfolio of products. In the event I-VEN exercises this portfolio termination value option, then it will not be entitled to the sales- based royalty payment for the remaining contractual years.

The Company and I-VEN reached an agreement to settle the portfolio termination value option available to I-VEN at a consideration of Rs. 2,680 to be paid by the Company.

On 1 October 2010, the Company, DRL Investments Limited (a wholly owned subsidiary of Dr Reddys) and I-VEN entered into an agreement regarding the medium of settlement for the portfolio termination value. Pursuant to such arrangement, controlling interest in I-VEN has been acquired by DRL Investments Limited; thereby making I-VEN a wholly owned subsidiary of the Company as of 1 October 2010. In connection with the transaction, the Company has advanced an amount of Rs. 2,680 to DRL Investments Limited and which has been disclosed as part of loans and advances as of 31 March 2011.

10. SChEmE OF AmALgAmATION OF PERLECAN PhARmA PRIvATE LImITED wITh ThE COmPANy UNDER SECTION 391 AND 394 OF ThE COmPANIES ACT, 1956

In October 2008, the Board of Directors approved a scheme of amalgamation (the Scheme) of Perlecan Pharma Private Limited ("transferor Company") with the Company ("transferee Company") under section 391 and 394 of the Companies Act, 1956. In January 2009, the Company fled a petition for approvals of the Scheme with the Honble High Court of Andhra Pradesh (the Court). The Court approved the Scheme vide its order dated 12 June 2009 with the appointed date as 1 January 2006.

From the effective date, the authorised share capital of the transferor Company shall stand combined with the authorised share capital of the transferee Company. Upon the Scheme becoming fully effective, the authorised share capital of the Company would be Rs. 1,200 divided into 240,000,000 equity shares of Rs. 5/- each.

The amalgamation which was in the nature of a merger was accounted for as prescribed by the Accounting Standard 14 – Accounting for Amalgamation (hereinafter referred to as AS-14) and in accordance with the requirements of the approved Scheme in the previous year 2009-10.

Although the scheme of amalgamation required retrospective accounting from the period 1 January 2006, since the court approvals were received after the earlier year financial statements were authorised, the amalgamation was accounted in 2009-10 and in accounting for such amalgamation the net results of transactions of the transferor Company for the years ended 31 March 2006, 31 March 2007, 31 March 2008 and 31 March 2009 were included in 2009-10 financial statements of the Company as a single line item. The Profit and loss account of the Company for the aforesaid years would have been as disclosed below, had the effect of the Scheme been given in the respective years:

11. Investments include an equity investment of Rs. 16,146 (previous year: Rs. 15,428) in Lacock Holdings Limited, Cyprus (Lacock), a wholly-owned subsidiary of the Company. As at 31 March 2011, the Company has also extended advances aggregating to Rs. 3,687 (previous year: Rs. 3,640) to Lacock. The Company participates in the German generics business through step-down subsidiaries of Lacock, i.e. Reddy Holdings GmbH and betapharm Arzneimittel GmbH (betapharm).

Pursuant to the significant changes in the German generics market over the past 2 years, the Company had initiated various measures in the previous year to improve the Profitability. The German business has benefted from the positive growth arising out of the significant cost saving measures undertaken in the previous year. Further, the business had a steady growth in the tender driven market and is expected to continue this trend.

In view of the above, the Company believes that advances granted to Lacock would be recovered and there is no diminution other than temporary in the value of investment in Lacock as at 31st March 2011. Accordingly, the Companys advances to and investment in Lacock have been carried at cost.

12. SEGMENT INFORMATION

In accordance with AS-17 "Segment Reporting", segment information has been given in the consolidated financial statements of DRL and therefore no separate disclosure on segment information is given in these financial statements.

13. ISSUANCE OF BONUS DEBENTURES

Pursuant to a scheme of arrangement sanctioned by the High Court of Andhra Pradesh, Hyderabad, India on 19 July 2010 and subsequent approval of the Reserve Bank of India (on 18 January 2011) and no-objection from the Indian income-tax authorities (on 1 February 2011), the Company has, on 24 March 2011, allotted 1,015,516,392, 9.25% Unsecured Redeemable Non-convertible Bonus Debentures (aggregating to Rs. 5,078) in the ratio of 6 debentures of the face value of Rs. 5/- each fully paid up for every equity share ofRs. 5/- each held as on the record date i.e. 18 March 2011. The interest is payable at the end of 12, 24 and 36 months from the initial date of issuance. The bonus debentures are redeemable at the end of 36 months from the initial date of issuance. These debentures have been listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited

In terms of the scheme, the Company delivered the aggregate value of the debentures to an on-shore escrow account of a merchant banker appointed by the Board of Directors. The merchant banker received the aforesaid amount in the escrow account for and on behalf of and in trust for the members entitled to receive the debentures as deemed dividend within the meaning of section 2 (22) of the Income-tax Act, 1961. The merchant banker has also immediately following the receipt of funds in the escrow account, for and on behalf of the members, paid by way of subscription for allotment of the requisite number of debentures issued under the scheme

In terms of accounting treatment set out in the scheme, the issuance of the aforesaid debentures (with an aggregate face value of Rs. 5,078) and the dividend distribution tax paid thereon (aggregating to Rs. 843) have been refected by transferring the corresponding amounts from the General Reserve of the Company. The costs associated in relation to the aforesaid scheme (primarily comprising directly attributable transaction costs aggregating toRs. 51) have been expensed along with a corresponding transfer from the General Reserve account. Pursuant to the scheme and as per the requirements of the Companies Act, 1956, the Company has also created a Debenture Redemption Reserve aggregating to Rs. 19 for the year ended 31 March 2011

14. VENEZUELA CURRENCY DEVALUATION

The Companys Venezuela operations are conducted as an extension of the parent company. On 30 December 2010, the Foreign Exchange Administration Commission of Venezuela (commonly referred to as the "CADIVI") enacted a decree (exchange agreement No.14) to unify the offcial exchange rates at a single rate of 4.3 Venezuela Bolivars ("VEB") per US$ by abolishing the preferential rate of 2.6 VEB per US$ effective from 1 January 2011

Further, on 13 January 2011, the CADIVI issued another decree to interpret the transitional requirements for the use of the new offcial exchange rate and described that if the following conditions were to be satisfed, the use of the pre-devaluation rate of 2.6 VEB per US$ would be permissible

For fund repatriation - to the extent the CADIVI has issued approvals in the form of approvals of Autorización de Liquidación de Divisas (ALD) and which have been sent to and received by the Banco Central de Venezuela by 31 December 2010;

For foreign currency acquisition - to the extent the CADIVI had issued an Authorization of Foreign Currency Acquisition (AAD) by 31 December 2010 and the approval relates to imports for the health and food sectors or certain other specifed purposes.

Based on the authorizations received by the Company, and in light of the above announcements, the Company believes that it is eligible for the usage of the preferential rate of 2.6 VEB per US$ in relation to the total value of monetary items denominated in VEB as on 31 March 2011. Accordingly, all monetary items in the Companys Venezuelan operations are translated into the reporting currency at the preferential rate of 2.6 VEB per US$

15. COMPARATIVE FIGURES

Previous years fgures have been regrouped / reclassifed wherever necessary to conform to current years classifcation


Mar 31, 2010

1. RELATED PARTY DISCLOSURES

a. The related parties where control exists are the subsidiaries, step down subsidiaries, joint ventures and the partnership firms. There are no other parties over which the Company has control

b. Related parties where control exists or where significant influence exists and with whom transactions have taken place during the year

Subsidiaries including step down subsidiaries

- DRL Investments Limited, India;

- Reddy Pharmaceuticals Hong Kong Limited, Hong Kong;

- OOO JV Reddy Biomed Limited, Russia;

- Reddy Antilles N.V., Netherlands;

- Reddy Netherlands BV, Netherlands;

- Reddy US Therapeutics Inc., USA;

- Dr. Reddy’s Laboratories Inc., USA;

- Reddy Cheminor S.A., France;

- Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil;

- Cheminor Investments Limited, India;

- Aurigene Discovery Technologies Limited, India;

- Aurigene Discovery Technologies Inc., USA;

- Dr. Reddy’s Laboratories (EU) Limited, UK;

- Dr. Reddy’s Laboratories (UK) Limited, UK;

- Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa;

- OOO Dr. Reddy’s Laboratories Limited, Russia;

- Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC, USA);

- Dr. Reddy’s Bio-sciences Limited, India;

- Globe Enterprises (a partnership firm in India);

- Trigenesis Therapeutics Inc., USA;

- Industrias Quimicas Falcon de Mexico, SA.de.C.V., Mexico;

- betapharm Arzneimittel GmbH, Germany;

- beta Healthcare Solutions GmbH, Germany;

- beta institute fur sozialmedizinische Forschung und Entwicklung GmbH, Germany;

- Reddy Holding GmbH, Germany;

- Lacock Holdings Limited, Cyprus;

- Reddy Pharma Iberia SA, Spain;

- Reddy Pharma Italia SPA, Italy;

- Dr. Reddy’s Laboratories (Australia) Pty. Limited, Australia;

- Dr. Reddy’s Laboratories SA, Switzerland;

- Eurobridge Consulting B.V., Netherlands;

- OOO DRS LLC, Russia;

- Aurigene Discovery Technologies (Malaysia) Sdn Bhd;

- Dr. Reddy’s New Zealand Limited, New Zealand (formerly Affordable Health Care Limited)

- Macred India Private Limited, India;

- Dr. Reddy’s Laboratories ILAC TICARET Limited SIRKETI, Turkey;

- Dr. Reddy’s SRL, Italy (formerly Jet Generici SRL);

- Dr. Reddy’s Laboratories Lousiana LLC, USA;

- Chirotech Technology Limited, UK;

- Perlecan Pharma Private Limited, India (Amalgamated with the Company vide order dated June 12, 2009 by the High Court of Judicature, Andhra Pradesh, Hyderabad)

- Dr. Reddy’s Pharma SEZ Limited (from 8 July 2009); and

- Dr. Reddy’s Laboratories International SA, Switzerland (from 24 March 2010)

Associates

- APR LLC 100% Holding in class ‘B’ equity shares

Joint venture

- Kunshan Rotam Reddy Pharmaceutical Enterprise over which the Company exercises

Company Limited (“Reddy Kunshan”), China joint control with other joint venture partners and holds 51.33 % equity stake.

Enterprises where principal shareholders have control or significant influence (“Significant interest entities”)

- Dr. Reddy’s Research Foundation Enterprise over which the principal shareholders (“Research Foundation”) (“Research Foundation”) have significant influence

- Dr. Reddy’s Holdings Limited Enterprise owned by principal shareholders

- Institute of Life Sciences Enterprise over which principal shareholders have significant influence

Others

- Diana Hotels Limited Enterprise owned by relative of a director

- Ms. K Samrajyam Spouse of Chairman

- Ms. G Anuradha Spouse of Vice Chairman and Chief Executive Officer

- Ms. Deepti Reddy Spouse of Managing Director and Chief Operating Officer

- Dr. Reddy’s Heritage Foundation Enterprise in which the Chairman is a director

- Dr. Reddy’s Foundation for Human and Social development Enterprise where principal shareholders are trustees

- S R Enterprises Enterprise in which relative of a director has significant influence

- K K Enterprises Enterprise in which relative of a director has significant influence

- A. R. Life Sciences Private Limited Enterprise in which relative of a director has significant influence

Key Management Personnel represented on the Board

- Dr. K Anji Reddy Chairman

- Mr. G V Prasad Vice Chairman and Chief Executive Officer

- Mr. K Satish Reddy Managing Director and Chief Operating Officer

Non-Executive and Independent Directors on the Board

- Dr. Omkar Goswami

- Mr. Ravi Bhoothalingam

- Mr. Anupam Puri

- Dr. J P Moreau

- Ms. Kalpana Morparia

- Dr. Bruce L A Carter

- Dr. Ashok Sekhar Ganguly (from 23 October 2009)

2. EMPLOYEE STOCK OPTION SCHEME

Dr. Reddy’s Employees Stock Option Plan-2002 (the DRL 2002 Plan): The Company instituted the DRL 2002 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees of DRL and its subsidiaries and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). Under the Scheme, the Compensation Committee of the Board (‘the Committee’) shall administer the Scheme and grant stock options to eligible directors and employees of the Company and its subsidiaries. The Committee shall determine the employees eligible for receiving the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for the options issued on the date of the grant. The options issued under the DRL 2002 plan vests in periods ranging between one and four years and generally have a maximum contractual term of five years.

The DRL 2002 Plan was amended on 28 July 2004 at the Annual General Meeting of shareholders to provide for stock options grants in two categories:

Category A: 1,721,700 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 573,778 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

The DRL 2002 Plan was further amended on 27 July 2005 at the Annual General Meeting of shareholders to provide for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 reserved for grant of options having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,995,478 stock options out of the total of 2,295,478 reserved for grant of options having exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

The fair market value of a share on each grant date falling under Category A above is defined as the average closing price (after adjustment of Bonus issue) for 30 days prior to the grant, in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Compensation Committee may, after getting the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

As the number of shares that an individual employee is entitled to receive and the price of the option are known at the grant date, the scheme is considered as a fixed grant.

In the case of termination of employment, all non-vested options would stand cancelled. Options that have vested but have not been exercised can be exercised within the time prescribed under each option agreement by the Committee or if no time limit is prescribed, within three months of the date of employment termination, failing which they would stand cancelled.

During the current year, the Company under the DRL 2002 Plan has issued 359,840 options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

3. EMPLOYEE STOCK OPTION SCHEME (CONTINUED)

The Compensation Committee may, after obtaining the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

During the current year, the Company under the DRL 2007 Plan has issued 74,600 options to eligible employees. The vesting period for the options granted varies from 12 to 48 months.

4. UTILISATION OF FUNDS RAISED ON ADS ISSUE

In November 2006, the Company made a public offering of its American Depository Shares (ADS) to international investors. The offering consisted of 14,300,000 ADS representing 14,300,000 equity shares having face value of Rs. 5 each, at an offering price of US$ 16 per ADS. The aggregate funds raised by such issue was Rs. 10,014 (net of share issue expenses of Rs. 227). The equity shares represented by the ADS carry equivalent rights with respect to voting and dividends as the ordinary equity shares.

5. DIVIDEND REMITTANCE IN FOREIGN CURRENCY

The Company does not make any direct remittances of dividends in foreign currencies to ADS holders. The Company remits the equivalent of the dividends payable to the ADS holders in Indian Rupees to the depositary bank, which is the registered shareholder on record for all owners of the Company’s ADS. The depositary bank purchases the foreign currencies and remits dividends to the ADS holders.

6. RESEARCH AND DEVELOPMENT ARRANGEMENTS

I-VEN Pharma arrangement

During the year ended 31 March 2005, the Company had entered into an agreement with I-VEN Pharma Capital Limited (“I-VEN”) for the joint development and commercialization of a portfolio of 36 generic drug products. As per the terms of the agreement, I-VEN has a right to fund up to 50% of the project costs (development, registration and legal costs) related to these products and the related U.S. Abbreviated New Drug Applications (“ANDA”) filed or to be filed, subject to a maximum contribution of US$ 56. Upon successful commercialization of these products, the Company is required to pay I-VEN a royalty on net sales at agreed rates for a period of 5 years from the date of commercialization of each product.

The first tranche of Rs. 985 (US$ 23) was funded by I-VEN on 28 March 2005. This amount received from I-VEN was initially recorded as an advance and subsequently credited in the income statement as a reduction of research and development expenses upon completion of specific milestones as detailed in the agreement. A milestone (i.e. a product filing as per the terms of the agreement) was considered to be completed once the appropriate ANDA is submitted by the Company to the U.S. FDA. Achievement of a milestone entitled the Company to reduce the advance and credit research and development expenses in a fixed amount equal to I-VEN’s share of the research and development costs of the product (which varied depending on whether the ANDA is a Paragraph III or Paragraph IV filing). Accordingly, based on product filings made by the Company through 31 March 2007, an amount of Rs. 933 has been credited to research and development expense during the years ended 31 March 2005, 2006 and 2007

As per the agreement, in April 2010 and upon successful achievement of certain performance milestones specified in the agreement (e.g. successfu commercialization of a specified number of products, and achievement of specified sales milestones), I-VEN has a one-time right to require the Company to pay I-VEN a portfolio termination value amount for such portfolio of products. In the event I-VEN exercises this portfolio termination value option, then it will not be entitled to the sales-based royalty payment for the remaining contractual years.

During the year ended 31 March 2010, the Company and I-VEN have reached an agreement to settle the portfolio termination value option available to I-VEN at a consideration of Rs. 2,680 to be paid by the Company on or before 30 September 2010. The form of settling such consideration is being finalized. The Company has recorded such present obligation as at 31 March 2010 at an equivalent amount and it has reflected in capital advances pending the finalization of the form of aforesaid settlement.

7. SCHEME OF AMALGAMATION OF PERLECAN PHARMA PRIVATE LIMITED WITH THE COMPANY UNDER SECTION 391 AND 394 OF THE COMPANIES ACT, 1956

In October 2008, the Board of Directors approved a scheme of amalgamation (‘the Scheme’) of Perlecan Pharma Private Limited (“transferor Company”) with the Company (“transferee Company”) under section 391 and 394 of the Companies Act, 1956. In January 2009, the Company filed a petition for approvals of the Scheme with the Hon’ble High Court of Andhra Pradesh (‘the Court’). The Court approved the Scheme vide its order dated 12 June 2009 with the appointed date as 1 January 2006. The Scheme will be effective from the date on which the certified true copy of the scheme is filed with the Registrar Of Companies. The certified true copy of the scheme was filed with the Registrar of Companies on 18 July 2009 and accordingly the effective date is 18 July 2009. The salient features of the Scheme are as follows:

- The transferee Company shall, upon the Scheme coming into effect, record the assets and liabilities of the transferor Company vested in it pursuant to this Scheme at the respective book values thereof and in the same form as appearing in the books of the transferor Company at the close of business of the day mmediately preceding the appointed date.

- The transferee Company shall record the reserves of the transferor Company in the same form and at the same values as they appear in the financia statements of the transferor Company at the close of business of the day immediately preceding the appointed date. Balances in profit and loss account of the transferor Company shall be similarly aggregated with balances in profit and loss account of the transferee Company.

- The excess, if any, of the value of the assets over the value of the liabilities of the transferor Company vested in the transferee Company pursuant to the Scheme as recorded in the books of account of the transferee Company shall, after adjusting the amounts recorded, be credited to the Capital Reserve account. The deficit, if any, be debited to the Goodwill account in the books of the transferee Company.

- In case of any differences in accounting policy between the transferor Company and the transferee Company, the impact of the same till the amalgamation be quantified and adjusted in the General Reserve of the transferee Company to ensure that the financial statements of the transferee Company reflect the financial position on the basis of consistent accounting policy.

8. SCHEME OF AMALGAMATION OF PERLECAN PHARMA PRIVATE LIMITED WITH THE COMPANY UNDER SECTION 391 AND 394 OF THE COMPANIES ACT, 1956 (CONTINUED)

- To the extent there are inter-corporate loans or balances between the transferor Company and the transferee Company, the obligations in respect thereof shal come to an end and corresponding effect shall be given in the books of accounts and records of the transferee Company for the reduction of any assets or liabilities, as the case may be

- All inter-company transactions between transferor and transferee companies from the appointed date shall be regarded as intra-company transactions.

- From the effective date, the authorised share capital of the transferor Company shall stand combined with the authorised share capital of the transferee Company. Upon the Scheme becoming fully effective, the authorised share capital of the Company would be Rs. 1,200 divided into 240,000,000 equity shares of Rs. 5/- each

- The equity shares of the transferor Company held by the transferee Company constituting 99.99% of the share capital of transferor Company will stand cancelled and no shares or consideration shall be issued or paid to the transferor Company. In respect of the 2 shares of transferor Company held by shareholders other than transferee Company, the transferee shall pay cash in the ratio of Rs. 50.64 for every equity share of Rs. 1/- each held in the transferor Company

- All taxes / cess / duties payable by or on behalf of the transferor Company from the appointed date onwards including all or any refunds and claims, including refunds or claims pending with the revenue authorities and including the right of carry forward of accumulated losses, shall, for all purposes, be treated as the tax / cess / duty, liabilities or refunds, claims and accumulated losses of the transferee Company. Accordingly, upon the Scheme becoming effective, the transferee Company is expressly permitted to revise, if it becomes necessary, its Income tax returns, Sales tax returns, Excise & CENVAT returns, Service tax returns, other tax returns, and to restore as input credit of service tax adjusted earlier or claim refunds / credits, pursuant to the provisions of this Scheme

The amalgamation which is in the nature of a merger has been accounted for as prescribed by the Accounting Standard 14 - Accounting for Amalgamation (hereinafter referred to as ‘AS 14’) and in accordance with the requirements of the approved Scheme

Although the scheme of amalgamation requires retrospective accounting from the period 1 January 2006, since the court approvals were received after the previous year financial statements were authorised, the amalgamation has been accounted in the current year and in accounting for such amalgamation the net results of transactions of the transferor Company for the years ended 31 March 2006, 31 March 2007, 31 March 2008 and 31 March 2009 have been included in current year financial statements of the Company as a single line item. The profit and loss account of the Company for the aforesaid years would be as disclosed below, had the effect of the Scheme been given in the respective years:

9. SEGMENT INFORMATION

In accordance with AS-17 “Segment Reporting”, segment information has been given in the consolidated financial statements of DRL and therefore no separate disclosure on segment information is given in these financial statements.

10. ISSUANCE OF BONUS DEBENTURES

On 31 March 2010, the Board of Directors of the Company approved a scheme of arrangement, for the issue of bonus debentures that would be effected by capitalization of the retained earnings on the successful receipt of the necessary approvals of the shareholders and the Hon’ble High Court of Andhra Pradesh, India. The proposed scheme, entails the issuance and allotment of unsecured, non-convertible, redeemable, fully paid up bonus debentures carrying a face value of Rs. 5/- each (‘bonus debentures’) to its equity holders, in the ratio of 6 bonus debentures for every 1 equity share of Rs. 5/- each held by them, on a date to be determined in future. The bonus debentures will carry a coupon rate (to be determined in future) that is to be paid annually. Additionally, these bonus debentures would be redeemable at the end of 36 months from the initial date of allotment. No adjustments have been recorded for this proposed scheme in the financial statements; as the proposed scheme is to be approved by the shareholders and the High Court.

11. COMPARATIVE FIGURES

Previous year’s figures have been regrouped / reclassified wherever necessary to conform to current year’s classification.

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