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

Mar 31, 2023

(1> During the years ended 31 March 2023 and 31 March 2022, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy''s Employees Stock Option Plan, 2002 and Dr. Reddy''s Employees Stock Option Plan, 2007. The options exercised had an exercise price of''5, ''2,607, ''2,814 or ''3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the "share-based payment reserve" was transferred to"securities premium" in the Statement of Changes in Equity.

(2> Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy''s Employees ESOS Trust (the "ESOS Trust") was formed to support the Dr. Reddy''s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock options thereunder. During the years ended 31 March 2023 and 31 March 2022, an aggregate of 49,295 and 106,730 equity shares, respectively were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy''s Employees Stock Option Scheme, 2018. The options exercised had an exercise price of''2,607, ''2,814 or ''3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the "share based payment reserve" was transferred to "securities premium" in the statement of changes in equity. In addition, any difference between the carrying amount of treasury shares and the consideration received was recognised in the "securities premium". During the year ended 31 March 2023, an aggregate of 48,032 equity shares representing unappropriated inventory of shares that are not backed by grants, acquired through secondary market acquisitions were sold for an aggregate consideration of'' 211 in the secondary market pursuant to requirements under Chapter II Regulation 3(12) of the SEBI (share based employee benefits and sweat equity) Regulations, 2021. As of 31 March 2023 and 31 March 2022, the ESOS Trust had outstanding 371,144 and 468,471 shares, respectively, which it purchased from the secondary market for an aggregate consideration of''1,269 and ''1,601, respectively. Refer note 2.25 of these financial statements for further details on the Dr. Reddy''s Employees Stock Option Scheme, 2018.

(b) Terms / rights attached to the equity shares

The Company has only one class of equity shares having a par value of ''5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as reflected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held.

Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India.

In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date.

Final dividends on equity shares are recorded as a liability on the date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company’s Board of Directors. The details of dividends paid by the Company are as follows:

(d) 152,33 6 (31 March 2022: 207,175) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”, 457,077 (31 March 2022: 413,229) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees ADR Stock Option Plan, 2007” and 366,877 (31 March 2022: 251,035) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise (under the “Dr. Reddy’s Employees Stock Option Scheme, 2018”)

(e) Represents 200 equity shares of C5/- each, amount paid-up C500/- (rounded off to millions in the note above) forfeited due to non-payment of allotment money.

(a) Packing credit loans for the year ended 31 March 2022, comprised of INR denominated loans carrying rates of 3-months Treasury Bill plus 25 bps, 3-months Treasury Bill minus 5 bps and 3-months Treasury Bill and are repayable within 12 months from the date of drawdown.

(b) The Company had uncommitted lines of credit of ''50,194 and ''25,489 as of 31 March 2023 and 31 March 2022, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.

Details of contract asset:

As mentioned in the accounting policies for refund liability set forth in note 1.3 (l) of these financial statements, the Company recognises an asset, (i.e., the right to the returned goods) which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

As on 31 March 2023 and 31 March 2022, the Company had ''48 and ''43, respectively as contract assets representing the right to returned goods.

Dr. Reddy’s Employees Stock Option Plan -2002 (the “DRL 2002 Plan”):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees and directors (excluding promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ''5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

The term of the DRL 2002 plan was extended for a period of 10 years effective as of 29 January 2012 by the shareholders at the Company’s Annual General Meeting held on 20 July 2012.

Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended 31 March 2023 and 31 March 2022 is as follows:

Category A — Fair Market Value Options: There was no stock activity under this category during the years ended 31 March 2023 and 31 March 2022 and there were no stock options outstanding under this category as of 31 March 2023 and 31 March 2022.

The weighted average grant date fair value of options granted during the years ended 31 March 2023 and 31 March 2022 was ''0 and ''4,985 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2023 and 31 March 2022 was ''4,246 and ''4,948 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2023 and 31 March 2022 was ''171 and ''428, respectively. As of 31 March 2023, options outstanding had an aggregate intrinsic value of ''703 and options exercisable had an aggregate intrinsic value of ''125.

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ''5 per option).

The weighted average grant date fair value of options granted during the years ended 31 March 2023 and 31 March 2022 was ''4,224 and ''5,235, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2023 and 31 March 2022 was ''4,331 and ''4,975, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2023 and 31 March 2022 was ''248 and ''158, respectively. As of 31 March 2023, options outstanding had an aggregate intrinsic value of ''466 and options exercisable had an aggregate intrinsic value of ''58.

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”):

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive 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 grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

The weighted average grant date fair value of options granted during the years ended 31 March 2023 and 31 March 2022 was ''1,497 and ''1,841 per option, respectively. The weighted average share prices on the date of exercise of options during the years ended 31 March 2023 and 31 March 2022 was ''4,302 and '' 4,967 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2023 and 31 March 2022 was ''6 and 12, respectively. As of 31 March 2023, options outstanding had an aggregate intrinsic value of ''539 and options exercisable had an aggregate intrinsic value of ''300.

During the year ended 31 March 2023, an aggregate of 48,032 equity shares representing unappropriated inventory of shares that are not backed by grants, acquired through secondary market acquisitions were sold for an aggregate consideration of H 211 in the secondary market pursuant to requirements under Chapter II Regulation 3(12) of the SEBI (share based employee benefits and sweat equity) Regulations, 2021.The outstanding shares purchased from secondary market as of 31 March 2023 and 2022, are 371,144 and 468,471 shares for an aggregate consideration of ''1,269 and ''1,601, respectively.

The weighted average grant date fair value of options granted during the years ended 31 March 2023 and 31 March 2022 was ''1,492 and ''1,848 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2023 and 31 March 2022 was ''4,388 and ''4,922 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2023 and 31 March 2022 was ''72 and ''212, respectively. As of 31 March 2023, options outstanding had an aggregate intrinsic value of ''384 and options exercisable had an aggregate intrinsic value of ''110.

Valuation of stock options:

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behaviour of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.

The estimated fair value of stock options is recognised in the statement of profit and loss on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

Total employee benefit expenses, including share-based payments, incurred during the years ended 31 March 2023 and 31 March 2022 amounted to ''28,326 and ''24,346, respectively.

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. 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 bonds issued by the Government of India and in debt securities and equity securities of Indian companies.

Provident fund benefits

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ''1,059 and ''945 to the provident fund plan during the years ended 31 March 2023 and 31 March 2022, respectively.

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ''127 and ''83 to the superannuation plan during the years ended 31 March 2023 and 31 March 2022, respectively.

Compensated absences

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the recognised compensated absences and recognised them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability 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 obligation was ''717 and ''732 as at 31 March 2023 and 31 March 2022, respectively.

In assessing whether the deferred income tax assets will be realised, management considers whether some portion or all of the deferred income tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the benefits of those recognised deductible differences and tax loss carry forwards.

Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

As at 31 March 2023 and 31 March 2022, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

Derivative Financial instruments

The Company had a derivative financial asset and derivative financial liability of ''715 and ''135, respectively, as at 31 March 2023 as compared to derivative financial asset and derivative financial liability of ''1,903 and ''472, respectively, as at 31 March 2022 towards these derivative financial instruments.

Hedges of changes in the interest rates:

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

A net gain/loss of '' Nil, representing the changes in the fair value of interest rate swaps used as hedging instrument in a cash flow hedge is recognised in the statement of other comprehensive income. For balance interest rate swaps, the changes in fair value (including cross currency interest rate swaps) are recognised as part of the foreign exchange gain and losses and finance costs. Accordingly, the Company has recorded, as part of statement of profit and loss, a net gain of '' Nil and ''32 for the year ended 31 March 2023 and 31 March 2022, respectively.

The Company had outstanding cross currency swap against INR borrowing of '' Nil as at 31 March 2023 and '' Nil as on 31 March 2022. The swap hedges the principal repayment of underlying INR liability and transforms it into US $ principal repayment liability.

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 minimise 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 analyse 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 is responsible for overseeing the Company’s risk assessment and management policies and processes.

a. Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings. 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 revenues measured in Indian rupees may decrease. 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 both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.28 above.

In respect of the Company’s 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:

a) ''6,141/(6,221) increase/(decrease) in the Company’s hedging reserve before tax and a ''4,278/(4,278) increase/(decrease) in the Company’s profit from such contracts, as at 31 March 2023;

b) ''3,169/(2,937) increase/(decrease) in the Company’s hedging reserve before tax and a ''6,351/(6,354) increase/(decrease) in the Company’s profit from such contracts, as at 31 March 2022;

For the years ended 31 March 2023 and 31 March 2022, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company’s net profit by ''4,081 and ''5,950, respectively.

Interest rate risk

As of 31 March 2023, the Company had no loans with floating interest rates. As of 31 March 2022, the Company had loans with floating interest rates as follows: ''13,800 of loans carrying a floating interest rate of 3 Months India Treasury Bill and ''4,000 of loans carrying a floating interest rate of 3 Months India Treasury Bill minus 5 bps and ''411 of loans carrying a floating interest rate of 3 Months India Treasury Bill plus 25 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer note 2.10A of these financial statements.

For the years ended 31 March 2023 and 31 March 2022, every 10% increase or decrease in the floating interest rate component (i.e., Treasury bill) applicable to its loans and borrowings would affect the Company’s net profit by '' Nil and ''68, respectively.

The Company’s investments in term deposits (i.e, certificates of deposit) with banks and short-term liquid mutual funds are for short and long 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. As of 31 March 2023, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

b. 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 and investment securities. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

Details of financial assets - not due, past due and impaired

None of the Company’s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2023. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements. Refer note 2.6 C of these financial statements for the activity in the allowance for doubtful advances.

Other than trade receivables and loans and advances, the Company has no significant class of financial assets that is past due but not impaired.

c. 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 2023 and 31 March 2022, the Company had uncommitted lines of credit from banks of ''50,194 and ''25,489 respectively.

As at 31 March 2023, the Company had working capital of ''93,486, including cash and cash equivalents of ''1,123, investments in term deposits with banks (i.e., deposits having original maturities more than 3 months but less than 12 months) of ''5,335, investments in bonds of ''2,894, investment in commercial paper of ''2,328, investment in market linked debentures of ''994 and investments mutual funds of ''36,692.

A. Contingent liabilities (claims against the Company not acknowledged as debts)

The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings (collectively, “Legal Proceedings”), including patent and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is often difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company based on internal and external legal advice discloses information with respect to the nature and facts of the case.

The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the Legal Proceedings referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial statements or cashflows, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such Legal Proceedings were to result in judgments against the Company, such judgments could be material to its results of operations or cashflows in a given period.

(i) Product and patent related mattersMatters relating to National Pharmaceutical Pricing Authority

Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs (Prices Control) Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favor of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was ''285 including interest.

The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was ''77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of ''30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defence against the demand.

For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court. In addition, the Company have filed writ petitions challenging the inclusion and designation of Theophylline/Doxofylline, Cloxacillin and Ciprofloxacin as “specified product” as per DPCO 1995 and the related Demand Notices issued thereunder. The matters are tagged along with the Norfloxacin matter and have been adjourned to 12 July 2023 for hearing.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

Litigation relating to cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgment of the Bombay High Court dated 26 September 2016. This recall application filed by the IPA was dismissed by the Bombay High Court on 4 October 2017 Further, on 13 December 2017, the IPA filed a Special Leave Petition with the Supreme Court for the recall of the judgment of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018.

During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of ''776. On 3 August 2017, the Company filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit ''100 and furnish a bank guarantee for ''676. Pursuant to the order, the Company deposited ''100 on 13 September 2017 and submitted a bank guarantee of ''676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to file a final counter affidavit within six weeks, subsequent to which the Company could file a rejoinder. On 10 May 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 25 May 2023 for hearing.

Based on its best estimate, the Company has recorded a provision of ''395 under “Selling and other expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

Class Action and Other Civil Litigation on Pricing/Reimbursement Matters

The Company believes that all of the aforesaid complaints and asserted claims are without merit and it denies any wrongdoing and intends to vigorously defend itself against the allegations. Any liability that may arise on account of these claims is unascertainable at this time. Accordingly, no provision was made in these consolidated financial statements of the Company.

On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets).

The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiffs in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs’ right to appeal the dismissal of the First Pricing Complaint expired.

Further, on 17 November 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A. Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multiproduct litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States.

In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrongdoing and intends to vigorously defend against these allegations.

In response to the consolidated new complaint, the Company filed a motion to dismiss in October 2017. The plaintiffs filed opposition to the motion to dismiss in December 2017 and a reply was filed by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility.

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in these financial statements

(ii) Civil litigation with Mezzion

On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. The Company filed a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of said denial was also denied. The case is continuing in pretrial discovery.

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in these financial statements.

(iii) Securities Class Action Litigation

On 25 August 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Officer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were affected. On 9 May 2018, the Company and other defendants filed a motion to dismiss the complaint in the United States District Court for the District of New Jersey.

On 25 June 2018, the plaintiffs filed an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was filed by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court.

On 21 March 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiffs claims with respect to seventeen out of the twenty two alleged misstatements and omissions. On 15 May 2020, Dr. Reddy’s Laboratories Limited, Dr. Reddy’s Laboratories, Inc., and certain of the Company’s current or former directors and officers have entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with lead plaintiff the Public Employees’ Retirement System of Mississippi in the putative securities class action filed against the defendants in the United States District Court for the District of New Jersey. As consideration for the settlement of the class action, the Company has agreed to pay U.S.$9.

The settlement is subject to the approval of the court and may be terminated prior to court approval pursuant to the grounds for termination set forth in the Stipulation. Subject to the terms of the Stipulation, in exchange for the settlement consideration, the lead plaintiff and members of the settlement class who do not opt-out of this settlement would release, among other things, the claims that were asserted, or that they could have asserted, in this class action. In entering into the settlement, the defendants do not admit, and explicitly deny, any liability or wrongdoing of any kind.

Subject to the terms of the Stipulation, the settlement resolves the remainder of the litigation.

As the Company is adequately insured with respect to the aforesaid liability, the settlement did not have any impact on the Company’s statement of profit and loss for the year ended 31 March 2020.

The amount payable to the plaintiffs on account of the settlement and the corresponding receivable from the insurer have been presented under “other current financial assets” and “other current financial liabilities”, respectively, in the balance sheet of the Company as at 31 March 2020.

On 23 December 2020, the court issued a final order and judgment approving the settlement. Pursuant to the settlement/court order, the escrow was funded on 4 January 2021. The effective date of the settlement occurred on 1 February 2021, upon transfer of the settlement fund balance into the final escrow account. As the transfer of funds to the final escrow account constitutes settlement of liability, the amount of liability has been derecognised during the year ended 31 March 2021.

(iv) Internal Investigation

The Company received an anonymous complaint in September 2020, alleging that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. The Company disclosed the matter to the U.S. Department of Justice (“DOJ”), Securities and Exchange Commission (“SEC”) and Securities Exchange Board of India. The Company engaged a U.S. law firm to conduct the investigation at the instruction of a committee of the Company’s Board of Directors. On 6 July 2021 the Company received a subpoena from the SEC for the production of related documents, which were provided to the SEC.

The Company made presentations to the SEC and the DOJ in relation to the investigation with respect to certain countries during the current and previous fiscal year. The Company also made a presentation to the SEC and the DOJ in relation to its Global Compliance Framework, including the ongoing enhancement initiatives, during the year ended 31 March 2023. The Company is complying with its listing obligations as it relates to updating the regulatory agencies. While the findings from the aforesaid investigations could result in government or regulatory enforcement actions against the Company in the United States and/or foreign jurisdictions, which can lead to civil and criminal sanctions under relevant laws, the outcomes including liabilities are not reasonably ascertainable at this time

(v) Environmental matters Land pollution

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollaram areas of Medak district of the then existing undivided state 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, Bollaram and Jeedimetla areas for discharging effluents which damaged the farmers’ agricultural land. The compensation was fixed at ''0.0013 per acre for dry land and ''0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of ''3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee.

The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

The NGT, Chennai in a judgment dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently filed a review petition against the judgment on various aspects.

The NGT, Delhi, in a judgment dated 16 November 2017 in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health. The Company filed an appeal challenging this judgment.

The High Court of Hyderabad heard the Company’s appeal challenging this judgment in July 2018 and directed the respondents to file their response within a period of four weeks. During the three months ended 30 September 2018, the respondents filed counter affidavits and the matter has now been adjourned for final hearing.

The appeal came up for hearing before the High Court of Hyderabad on 25 October 2018 and has been adjourned for further hearing. The Hon’ble High Court has closed the matter in June 2022, by granting liberty for the Company to take proper recourse for remedies available under the NGT Act, 2010 before the Hon’ble Supreme Court of India.

On 24 April 2019, based upon the judgment of the NGT, Chennai dated 24 October 2017, the Government of Telangana has issued GO.Ms. No. 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru - Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded

fiscal year, i.e., 31 March 2019. Accordingly, the Company made a provision of ''29.4, representing the probable cost of expansion, during the year ended 31 March 2019.

During the three months ended September, 2019, the Telangana State Pollution Control Board (“TSPCB”) has issued Operational Guidelines basis the NGT, Chennai Order dated 24 October 2017, G.O.Ms. No. 24 dated 24 April 2019 and G.O.Ms. No. 31 dated 24 May 2019 and sought to recover retrospectively an amount of 0.5% of the annual turnover from the fiscal years 2016-2017 to

2018- 2019 for all the industrial units situated in Patancheru and Bollaram for the purposes of restoration of the such effected area. The Company has four industrial units situated in Patancheru and Bollaram. The Consent For Operation (“CFO”) for change of product mix application filed by one of the industrial unit of the Company has been recommended for issuance of CFO with change of product mix only upon payment of 0.5% of the annual turnover from the fiscal years 2016-2017 to 2018-2019 to the TSPCB. The Company intends to vigorously defend itself against the Operational Guidelines.

In November 2019, demand notices were issued by the TSPCB for collection of Corpus Fund of 0.5 % as remediation fee on the previous year turnover as per Operational Guidelines dated 3 August 2019 issued by TSPCB under the guise of G.O.Ms No. 24 dated 24 April 2019 and G.O.Ms No. 31 dated 24 May 2019 and basis the judgment of NGT, Chennai dated 24 October 2017 for the fiscal years 2015-2016 to 2018-2019 received by CTO-1, CTO-2, CTO-3 and CTO-5 of the Company.

On 22 November 2019, The Hon’ble High Court of Judicature at Hyderabad issued an Interim Order which stayed the demand on the condition that the Company deposit ''60 as the remediation fee for the fiscal year 2018-2019 payable in the fiscal year

2019- 2020. The deposit of ''60 was made and the Interim Order is continuing. The matter was adjourned to 22 April 2020 but has been delayed as a result of the closure of the Court due to the COVID-19 lockdown, and a new date has not yet been rescheduled. The Hon’ble High Court has disposed of the matter with a liberty to the Company to approach the NGT, if necessary. The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in the financial statements.

Water pollution and air pollution

During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board”) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the


Mar 31, 2022

The Company had total cash outflows for leases of '' 373 during the year ended 31 March 2022. The maturity analysis of lease liabilities are disclosed in note 2.10 B of these financial statements.

Capital commitments

As of 31 March 2022 and 31 March 2021, the Company was committed to spend '' 7,695 and '' 9,560, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

Interest capitalisation

During the years ended 31 March 2022 and 31 March 2021, the Company capitalised interest cost of '' 268 and '' 149, respectively, with respect to qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2022 and 31 March 2021 was approximately 4.65% and 4.25% respectively.

Depreciation for the year includes an amount of '' 635 (31 March 2021: '' 595) pertaining to assets used for research and development. During the year, the Company incurred '' 713 (31 March 2021: '' 522) towards capital expenditure for research and development. (Refer note 2.41)

The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value-in-use is generally calculated as the net present value of the projected post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. Key assumptions upon which the Company has based its determinations of value-in-use include:

a) Estimated cash flows for five years, based on management’s projections.

b) A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.

c) The after tax discount rates used are based on the Company’s weighted average cost of capital.

d) The after tax discount rates used range from 11.7% to 14% for various cash generating units. The pre-tax discount rates range from 12.72% to 17.92%.

The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

(1) Impairment losses recorded:

During the year ended 31 March 2022, the Company recorded a impairment loss of '' 98 on account of decreased market potential of Cyanocobalamin, forming part of the Company''s Global Generics segment, decrease in the market potential of products, increased competition leading to lower volumes, and revenues not being in line with projections.

As a result of the Company''s decision to discontinue a few products pertaining to its Global Generics segment, '' 150 was recorded as total impairment charge in the statement of Profit and loss for the year ended 31 March 2021 of which '' 43 was pertaining to Doxercalciferol inj, '' 40 pertaining to Enalaprilat and the balance of'' 67 was attributable to other product related intangibles.

(1) During the years ended 31 March 2022 and 31 March 2021, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy''s Employees Stock Option Plan, 2002 and Dr. Reddy''s Employees Stock Option Plan, 2007. The options exercised had an exercise price of '' 5, '' 2,607, '' 2,814 or '' 3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the “share-based payment reserve" was transferred to“securities premium" in the Statement of Changes in Equity.

(2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy''s Employees ESOS Trust (the “ESOS Trust") was formed to support the Dr. Reddy''s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock options thereunder. During the years ended 31 March 2022 and 31 March 2021, an aggregate of 106,730 and 85,250 equity shares, respectively were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy''s Employees Stock Option Scheme, 2018. The options exercised had an exercise price of '' 2,607, '' 2,814 or '' 3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the “share based payment reserve" was transferred to “securities premium" in the statement of changes in equity In addition, any difference between the carrying amount of treasury shares and the consideration received was recognised in the “securities premium". As of 31 March 2022 and31 March 2021, the ESOS Trust had outstanding 468,471 and 575,201 shares, respectively, which it purchased from the secondary market for an aggregate consideration of'' 1,601 and '' 1,967, respectively. Refer note 2.25 of these financial statements for further details on the Dr. Reddy''s Employees Stock Option Scheme, 2018.

(b) Terms / rights attached to the equity shares

The Company has only one class of equity shares having a par value of '' 5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as reflected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held. Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India. In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date.

(d) 207,175 (31 March 2021: 217,253) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”, 413,229 (31 March 2021: 412,339) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees ADR Stock Option Plan, 2007” and 251,035 (31 March 2021: 385,930) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Scheme, 2018 “. (Refer note 2.25)

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

(a) Packing credit loans for the year ended 31 March 2022, comprised of INR denominated loans carrying rates of 3-months Treasury Bill plus 25 bps, 3-months Treasury Bill minus 5 bps and 3-months Treasury Bill and are repayable within 12 months from the date of drawdown. Packing credit loans for the year ended 31 March 2021, comprised of INR denominated loans carrying rates of 3-months Treasury Bill plus 30 bps and fixed rate of 5.75% and are repayable within 12 months from the date of drawdown.

Contract asset:

As mentioned in the accounting policies for refund liability set forth in note 1.3 (l) of these financial statements, the Company recognises an asset, (i.e., the right to the returned goods) which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

As on 31 March 2022 and 31 March 2021, the Company had '' 43 and '' 37, respectively as contract assets representing the right to returned goods.

Dr. Reddy’s Employees Stock Option Plan -2002 (the “DRL 2002 Plan”):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees and directors (excluding promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., '' 5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

The term of the DRL 2002 plan was extended for a period of 10 years effective as of 29 January 2012 by the shareholders at the Company’s Annual General Meeting held on 20 July 2012.

Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended 31 March 2022 and 31 March 2021 is as follows:

Category A — Fair Market Value Options: There was no stock activity under this category during the years ended 31 March 2022 and 31 March 2021 and there were no stock options outstanding under this category as of 31 March 2022 and 31 March 2021.

The aggregate intrinsic value of options exercised during the years ended 31 March 2022 and 31 March 2021 was '' 428 and '' 328, respectively. As of 31 March 2022, options outstanding had an aggregate intrinsic value of '' 899 and options exercisable had an aggregate intrinsic value of '' 91.

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., '' 5 per option).

Stock options activity under the DRL 2007 Plan for the above two categories of options during the years ended 31 March 2022 and 31 March 2021 was as follows:

The aggregate intrinsic value of options exercised during the years ended 31 March 2022 and 31 March 2021 was '' 158 and '' 182, respectively. As of 31 March 2022, options outstanding had an aggregate intrinsic value of '' 631 and options exercisable had an aggregate intrinsic value of '' 120.

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”):

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive 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 grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

The aggregate intrinsic value of options exercised during the years ended 31 March 2022 and 31 March 2021 was '' 212 and '' 165, respectively. As of 31 March 2022, options outstanding had an aggregate intrinsic value of '' 282 and options exercisable had an aggregate intrinsic value of '' 77.

Valuation of stock options:

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.

(1) As of 31 March 2022, and 31 March 2021, there was '' 701 and '' 612, respectively, of total unrecognised compensation cost related to unvested stock options. This cost is expected to be recognised over a weighted-average period of 1.93 years and 1.95 years, respectively.

(2) Certain of the Company''s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from 1 to 4 years. The amount of cash payment is determined based on the price of the Company''s ADSs at the time of vesting. As of 31 March 2022 and 31 March 2021, there was '' 101 and '' 126, respectively, of total unrecognised compensation cost related to unvested awards. This cost is expected to be recognised over a weighted-average period of 1.82 years and 1.88 years, respectively. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

Total employee benefit expenses, including share-based payments, incurred during the years ended 31 March 2022 and 31 March 2021 amounted to '' 24,346 and '' 22,701, respectively.

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. 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 bonds issued by the Government of India and in debt securities and equity securities of Indian companies.

* Liabilities assumed/transferred:

During the year ended 31 March 2022,'' (4) represents the transfer of the liabilities on account of transfer of employees between the parent company and its subsidiaries. During the year ended 31 March 2021, '' 25 is comprised of

a. '' 70 increase in liabilities on account of acquisition, employees pursuant to the Business Transfer Agreement with Wockhardt limited. Refer note 2.39 of these financial statements for further details.

b. '' 45 transfer of liabilities on account of restructuring of the pharmaceutical services business between the parent company and its subsidiary.

Provident fund benefits

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed '' 945 and '' 854 to the provident fund plan during the years ended 31 March 2022 and 31 March 2021, respectively.

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed '' 83 and '' 84 to the superannuation plan during the years ended 31 March 2022 and 31 March 2021, respectively.

Compensated absences

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability 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 obligation was '' 732 and '' 790 as at 31 March 2022 and 31 March 2021, respectively.

In assessing whether the deferred income tax assets will be realised, management considers whether some portion or all of the deferred income tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the benefits of those recognised deductible differences and tax loss carry forwards.

Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

The Company enters into derivative financial instruments with various counterparties, principally financial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs including foreign exchange forward rates, interest rate curves and forward rate curves.

As at 31 March 2022 and 31 March 2021, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

Derivative Financial instruments

The Company had a derivative financial asset and derivative financial liability of '' 1,903 and '' 472, respectively, as at 31 March 2022 as compared to derivative financial asset and derivative financial liability of '' 915 and '' 306, respectively, as at 31 March 2021 towards these derivative financial instruments.

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

A net gain/loss of '' Nil, representing the changes in the fair value of interest rate swaps used as hedging instrument in a cash flow hedge is recognised in the statement of other comprehensive income. For balance interest rate swaps, the changes in fair value (including cross currency interest rate swaps) are recognised as part of the foreign exchange gain and losses and finance costs. Accordingly the Company has recorded, as part of statement of profit and loss, a net gain of '' 32 and '' 164 for the year ended 31 March 2022 and 31 March 2021 respectively.

The Company had outstanding cross currency swap against INR borrowing of '' Nil as at 31 March 2022 and '' 7,240 as on 31 March 2021. The swap hedges the principal repayment of underlying INR liability and transforms it into US $ principal repayment liability.

2.29. 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 minimise 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 analyse 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 is responsible for overseeing the Company’s risk assessment and management policies and processes.

a. Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings. 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 revenues measured in Indian rupees may decrease. 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 both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.28 above.

In respect of the Company’s 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:

• a '' 3,169/(2,937) increase/(decrease) in the Company’s hedging reserve before tax and a '' 6,351/(6,354) increase/(decrease) in the Company’s profit from such contracts, as at 31 March 2022;

• a '' 4,895/(4,267) increase/(decrease) in the Company’s hedging reserve before tax and a '' 5,063/(5,063) increase/(decrease) in the Company’s profit from such contracts, as at 31 March 2021;

The following table analyses foreign currency risk from non-derivative financial instruments as at 31 March 2022:

As of 31 March 2022, the Company had loans with floating interest rates as follows: '' 13,800 of loans carrying a floating interest rate of 3 Months India Treasury Bill and '' 4,000 of loans carrying a floating interest rate of 3 Months India Treasury Bill minus 5 bps and '' 411 of loans carrying a floating interest rate of 3 Months India Treasury Bill plus 25 bps. As of 31 March 2021, the Company had loans with floating interest rates as follows: '' 8,800 of loans carrying a floating interest rate of 3 Months India Treasury Bill plus 30 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer note 2.10A of these financial statements.

For the years ended 31 March 2022 and 31 March 2021, every 10% increase or decrease in the floating interest rate component (i.e., Treasury bill) applicable to its loans and borrowings would affect the Company’s net profit by '' 68 and '' 29, respectively.

The Company’s investments in term deposits (i.e, certificates of deposit) with banks and short-term liquid mutual funds are for short and long 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. As of 31 March 2022, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

b. 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 and investment securities. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

Details of financial assets - not due, past due and impaired

None of the Company’s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2022. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

Refer note 2.6 C of these financial statements for the activity in the allowance for doubtful advances.

Other than trade receivables and loans and advances, the Company has no significant class of financial assets that is past due but not impaired.

c. 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 2022 and 31 March 2021, the Company had uncommitted lines of credit from banks of '' 25,489 and '' 18,361 respectively.

As at 31 March 2022, the Company had working capital of '' 74,385, including cash and cash equivalents of '' 1 1,595, investments in term deposits with banks (i.e., deposits having original maturities more than 3 months but less than 12 months) of '' 8,710, investments in bonds of '' 2,505, investment in commercial paper of '' 973 and investments mutual funds of '' 15,702.

As at 31 March 2021, the Company had working capital of '' 63,839, including cash and cash equivalents of '' 13,063, investments in term deposits with banks (i.e., deposits having original maturities more than 3 months but less than 12 months) of '' 3,402, investments in bonds of '' 522, investment in commercial paper of '' Nil and investments mutual funds of '' 12,048.

A. Contingent liabilities (claims against the Company not acknowledged as debts)

The Company is involved in 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. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company based on internal and external legal advice discloses information with respect to the nature and facts of the case.

The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgements against the Company, such judgements could be material to its results of operations in a given period.

(i) Product and patent related matters

Matters relating to National Pharmaceutical Pricing Authority

Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs (Prices Control) Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was '' 285 including interest.

The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was '' 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of '' 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defense against the demand.

For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court. In addition, the Company have filed writ petitions challenging the Inclusion and designation of Theophylline/Doxofylline, Cloxadllln and

Ciprofloxacin as “specified product” as per DPCO 1995 and the related Demand Notices issued thereunder. The matters are tagged along with the Norfloxacin matter and have been adjourned to 20 January 2023 for hearing.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

Litigation relating to Cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgement of the Bombay High Court dated 26 September 2016. This recall application filed by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA filed a Special Leave Petition with the Supreme Court for the recall of the judgement of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018.

During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of '' 776. On 3 August 2017, the Company filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit '' 100 and furnish a bank guarantee for '' 676. Pursuant to the order, the Company deposited '' 100 on 13 September 2017 and submitted a bank guarantee of '' 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to file a final counter affidavit within six weeks, subsequent to which the Company could file a rejoinder. On 10 May 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 14 November 2022 for hearing.

Based on its best estimate, the Company has recorded a provision of '' 353 under “Selling and other expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

Class Action and Other Civil Litigation on Pricing/Reimbursement Matters

On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets).

The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiffs in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs’ right to appeal the dismissal of the First Pricing Complaint expired.

Further, on 17 November 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A. Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States.

In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrongdoing and intends to vigorously defend against these allegations.

In response to the consolidated new complaint, the Company filed a motion to dismiss in October 2017. The plaintiffs filed opposition to the motion to dismiss in December 2017 and a reply was filed by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility.

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the financial statements.

(ii) Civil litigation with Mezzion

On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. The Company filed a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of said denial was also denied. The case is continuing in pretrial discovery.

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the financial statements.

(iii) Securities Class Action Litigation

On 25 August 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Officer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were affected. On 9 May 2018, the Company and other defendants filed a motion to dismiss the complaint in the United States District Court for the District of New Jersey.

On 25 June 2018, the plaintiffs filed an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was filed by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court.

On 21 March 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiffs claims with respect to seventeen out of the twenty two alleged misstatements and omissions.

On 15 May 2020, Dr. Reddy’s Laboratories Limited, Dr. Reddy’s Laboratories, Inc., and certain of the Company’s current or former directors and officers, have entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with lead plaintiff the Public Employees’ Retirement System of Mississippi in the putative securities class action filed against the defendants in the United States District Court for the District of New Jersey. As consideration for the settlement of the class action, the Company has agreed to pay US $ 9 million.

The settlement is subject to the approval of the court and may be terminated prior to court approval pursuant to the grounds for termination set forth in the Stipulation. Subject to the terms of the Stipulation, in exchange for the settlement consideration, lead plaintiff and members of the settlement class who do not opt-out of this settlement would release, among other things, the claims that were asserted, or that they could have asserted, in this class action. In entering into the settlement, the defendants do not admit, and explicitly deny, any liability or wrongdoing of any kind. Subject to the terms of the Stipulation, the settlement resolves the remainder of the litigation.

As the Company is adequately insured with respect to the aforesaid liability, the settlement did not have any impact on the Company’s statement of profit and loss for the year ended 31 March 2020.

The amount payable to the plaintiffs on account of the settlement and the corresponding receivable from the insurer have been presented under “other current financial assets” and “other current financial liabilities”, respectively, in the balance sheet of the Company as at 31 March 2020.

On 23 December 2020, the court issued a final order and judgment approving the settlement. Pursuant to the settlement/court order, the escrow was funded on 4 January 2021. The effective date of the settlement occurred on 1 February 2021, upon transfer of the settlement fund balance into the final escrow account. As the transfer of funds to the final escrow account constitutes settlement of liability, the amount of liability has been derecognised during the year ended 31 March 2021.

(iv) Internal Investigation

The Company received an anonymous complaint in September 2020, alleging that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. The Company disclosed the matter to the U.S. Department of Justice (“DOJ”), Securities and Exchange Commission (“SEC”) and Securities Exchange Board of India. The Company engaged a U.S. law firm to conduct the investigation at the instruction of a committee of the Company’s Board of Directors. On 6 July 2021 the Company received a subpoena from the SEC for the production of related documents, which were provided to the SEC.

The Company shared the report with respect to one country with the SEC and the DOJ during the three months ended 30 September 2021, and certain other countries in the three months ended 31 March 2022, and subsequent to the year end. The Company is complying with its listing obligations as it relates to updating the regulatory agencies. While the findings from the aforesaid investigations could result in government enforcement actions against the Company in the United States and/or foreign jurisdictions, which can lead to civil and criminal sanctions under relevant laws, the outcomes including liabilities are not reasonably ascertainable at this time.

(v) Environmental matters Land pollution

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollaram areas of Medak district of the then existing undivided state 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, Bollaram and Jeedimetla areas for discharging effluents which damaged the farmers’ agricultural land. The compensation was fixed at '' 0.0013 per acre for dry land and '' 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of '' 3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

The NGT, Chennai in a judgement dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently filed a review petition against the judgement on various aspects.

The NGT, Delhi, in a judgement dated 16 November 2017 in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping In view the needs of the environment and public health. The Company filed an appeal challenging this Judgement.

The High Court of Hyderabad heard the Company’s appeal challenging this judgement in July 2018 and directed the respondents to file their response within a period of four weeks. During the three months ended 30 September 2018, the respondents filed counter affidavits and the matter has now been adjourned for final hearing.

The appeal came up for hearing before the High Court of Hyderabad on 25 October 2018 and has been adjourned for further hearing.

On 24 April 2019, based upon the judgement of the NGT, Chennai dated 24 October 2017, the Government of Telangana has issued G.O.Ms. No 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru - Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded fiscal year i.e., 31 March 2019. Accordingly, the Company made a provision of


Mar 31, 2021

The Company had total cash outflows for leases of ? 377 during the year ended 31 March 2021. The maturity analysis of lease liabilities are disclosed in note 2.9 of these financial statements.

Capital commitments

As of 31 March 2021 and 31 March 2020, the Company was committed to spend ? 9,560 and ? 4,485, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

Interest capitalisation

During the years ended 31 March 2021 and 31 March 2020, the Company capitalised interest cost of ? 149 and ? 52, respectively, with respect to qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2021 and 31 March 2020 was approximately 4.25% and 4.22% respectively.

Depreciation for the year includes an amount of ? 595 (31 March 2020: ? 617) pertaining to assets used for research and development. During the year, the Company incurred ? 522 (31 March 2020: ? 628) towards capital expenditure for research and development. (Refer note 2.40)

The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value-in-use is generally calculated as the net present value of the projected post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. Key assumptions upon which the Company has based its determinations of value-in-use include:

a) Estimated cash flows for five years, based on management’s projections.

b) A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a constant long-term growth rate of 0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.

c) The after tax discount rates used are based on the Company’s weighted average cost of capital.

d) The after tax discount rates used is 10.5% for the cash generating unit. The pre-tax discount rate is 15.7%.

The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

1 Impairment losses recorded for the year ended 31 March 2021:

As a result of the Company’s decision to discontinue a few products pertaining to its Global Generics segment, ? 150 was recorded as total impairment charge in the statement of Profit and loss for the year ended 31 March 2021 of which ? 43 was pertaining to Doxercalciferol inj, ? 40 pertaining to Enalaprilat and the balance of ? 67 was on account of other product related intangibles

In accordance with Ind AS 109, the Company uses the expected credit loss ("ECL") model for measurement and recognition of impairment loss on its trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account externa I and internal credit risk factors and historical data of credit losses from various customers. The details of changes in allowance for credit losses during the year ended 31 March 2021 and 31 March 2020 are as follows:

1 During the years ended 31 March 2021 and 31 March 2020, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees

Stock Option Plan, 2002 and Dr. Reddy’s Employees Stock Option Plan, 2007. The options exercised had an exercise price of 7 5, 7 2,607 or 7 2,814 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the "share-based payment reserve” was transferred to‘‘securities premium” in the statement of changes in equity.

(2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy’s Employees ESOS Trust (the ‘‘ESOS Trust”) was formed to

support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock options thereunder. During the year ended 31 March 2021 and 31 March 2020, an aggregate of85,250 and 1,150 equity shares, respectively were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2018. The options exercised had an exercise price of 7 2,607 or 7 2,814 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the ‘‘share based payment reserve” was transferred to “securities premium” in the statement of changes in equity. In addition, any difference between the carrying amount of treasury shares and the consideration received was recognised in the “securities premium”. As of 31 March 2021 and 31 March 2020, the ESOS Trust had outstanding 575,201 and 395,950 shares, respectively, which it purchased from the secondary market for an aggregate consideration of 71,967 and 71,006, respectively. Refer note 2.24 of these financial statements for further details on the Dr. Reddy’s Employees Stock Option Scheme, 2018.

b) Terms / rights attached to the equity shares

The Company has only one class of equity shares having a par value of 7 5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as reflected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held. Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India. In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Final dividends on equity shares (including dividend tax on distribution of such dividends, if any) are recorded as a liability on the date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company’s Board of Directors. The details of dividends paid by the Company are as follows:

(d) 217,253 (31 March 2020: 232,837) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the "Dr. Reddy''s Employees Stock Option Plan, 2002", 412,339 (31 March 2020: 354,343) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the "Dr. Reddy’s Employees ADR Stock Option Plan, 2007" and 385,930 (31 March 2020: 375,775) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the "Dr. Reddy’s Employees Stock Option Scheme, 2018 ". (Refer note 2.24)

(b) Packing credit loans for the year ended 31 March 2021, comprised of INR denominated loans carrying rates of 3-months Treasury Bill plus

30 bps and fixed rate of 5.75% and are repayable within 6 to 12 months from the date of drawdown. Packing credit loans for the year ended

31 March 2020, comprised of US$ denominated loans carrying interest rates of 1 Month LIBOR plus 12.5 to 16 bps and INR denominated loans carrying rates of Treasury Bill plus 60 bps and are repayable within 6 to 12 months from the date of drawdown.

(c) The Company had uncommitted lines of credit of ? 18,361 and ? 20,743 as of 31 March 2021 and 31 March 2020, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.

Details of contract asset:

As mentioned in the accounting policies for refund liability set forth in note 1.3 (l) of these financial statements, the Company recognises an asset , (i.e., the right to the returned goods), which is included in inventories for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

Dr. Reddy’s Employees Stock Option Plan -2002 (the “DRL 2002 Plan”):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 24 September 2001. The DRL 2002 Plan covers all employees and directors (excluding promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ? 5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

The weighted average grant date fair value of options granted during the years ended 31 March 2021 and 31 March 2020 was ? 3,677 and? 2,746 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2021 and 31 March 2020 was ? 4,565 and ? 2,681 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2021 and 31 March 2020 was ? 328 and ? 193, respectively. As of 31 March 2021, options outstanding had an aggregate intrinsic value of ? 980 and options exercisable had an aggregate intrinsic value of ? 208.

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., ? 5 per option).

The weighted average grant date fair value of options granted during the years ended 31 March 2021 and 31 March 2020 was f 3,631 and ? 2,747, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2021 and 31 March 2020 was

f 4,334 and? 2,757, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2021 and 31 March 2020 was f 182 and ? 93, respectively. As of 31 March 2021, options outstanding had an aggregate intrinsic value of f 641 and options exercisable had an aggregate intrinsic value of f 69.

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”):

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive 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 grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

The weighted average grant date fair value of options granted during the years ended 31 March 2021 and 31 March 2020 was ? 1,255 and ? 994 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2021 and 31 March 2020 was ? 4,609 and ? 2,914 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2021 and 31 March 2020 was ? 165 and ? 0.35, respectively. As of 31 March 2021, options outstanding had an aggregate intrinsic value of ? 563 and options exercisable had an aggregate intrinsic value of ? 104.

Valuation of stock options:

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option I i fe is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. 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 bonds issued by the Government of India and in debt securities and equity securities of Indian companies.

Provident fund benefits

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ? 854 and ? 780 to the provident fund plan during the years ended 31 March 2021 and 31 March 2020, respectively.

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed ? 84 and ? 82 to the superannuation plan during the years ended 31 March 2021 and 31 March 2020, respectively.

Compensated absences

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability 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 obligation was ? 790 and ? 902 as at 31 March 2021 and 31 March 2020, respectively.

In assessing whether the deferred income tax assets will be realised, management considers whether some portion or all of the deferred income tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the benefits of those recognised deductible differences and tax loss carry forwards.

Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

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 both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.27 above.

In respect of the Company’s forward contracts and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

• a ? 4,895/(4,267) increase/(decrease) in the Company’s hedging reserve and a ? 5,063/(5,063) increase/(decrease) in the Company’s net profit from such contracts, as at 31 March 2021;

• a ? 1,303/(1,837) increase/(decrease) in the Company’s hedging reserve and a ? 4,195/(4,246) increase/(decrease) in the Company’s net profit from such contracts, as at 31 March 2020;

Hedges of changes in the interest rates:

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

A net gain/loss of ? Nil, representing the changes in the fair value of interest rate swaps used as hedging instrument in a cash flow hedge is recognised in the statement of other comprehensive income. For balance interest rate swaps, the changes in fair value (including cross currency interest rate swaps) are recognised as part of the foreign exchange gain and losses and finance costs. Accordingly the Company has recorded, as part of statement of profit and loss, a net gain of ? 164 and a net gain of ? 36 for the year ended 31 March 2021 and 31 March 2020 respectively.

The Company had outstanding cross currency swap against I NR borrowing of ''7,240 as at 31 March 2021 and '' Nil as on 31 March 2020. The swap hedges the principal repayment of underlying INR liability and transforms it into USD principal repayment liability.

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 minimise 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 analyse 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 is responsible for overseeing the Company’s risk assessment and management policies and processes.

a. Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings (in United States dollars). 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 revenues measured in Indian rupees may decrease.

For the years ended 31 March 2021 and 31 March 2020, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company''s net profit by '' 5,897 and '' 4,400, respectively.

Interest rate risk

As of 31 March 2021, the Company had loans with floating interest rates as follows: ? 8,800 of loans carrying a floating interest rate of 3 Months India Treasury Bill plus 30 bps. As of 31 March 2020, the Company had loans with floating interest rates as follows: ? 10,215 of loans carrying a floating interest rate of 1 Month LIBOR plus 12.5 bps to 1 Month LIBOR plus 82.7 bps and ? 4,000 of loans carrying a floating interest rate of 1 Month India Treasury Bill plus 60 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer note 2.9A and 2.9B of these financial statements.

For the years ended 31 March 2021 and 31 March 2020, every 10% increase or decrease in the floating interest rate component (i.e., Treasury bill) applicable to its loans and borrowings would affect the Company’s net profit by ? 29 and ? 27.

The carrying value of the Company’s borrowings, interest component of which designated in a cash flow hedge was ? Nil as of 31 March 2021 and 31 March 2020.

The Company’s investments in term deposits (i.e, certificates of deposit) 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. As of 31 March 2021, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

b. 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 and investment securities. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

Details of financial assets - not due, past due and impaired

None of the Company’s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2021. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days.

The ageing of trade receivables is given below:

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

Refer note 2.5 C of these financial statements for the activity in the allowance for doubtful advances.

Other than trade receivables and loans and advances, the Company has no significant class of financial assets that is past due but not impaired.

c. 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 2021 and 31 March 2020, the Company had uncommitted lines of credit from banks of ? 18,361 and ? 20,743 respectively.

As at 31 March 2021, the Company had working capital of ? 63,839, including cash and cash equivalents of ? 13,063, investments in term deposits with banks (i.e., deposits having original maturities of more than 3 months) of ? 3,402, investments in bonds of ? 522, investment in commercial paper of ? Nil, investments in marked linked debentures of ? Nil and investments mutual funds of ? 12,048.

A. Contingent liabilities (claims against the Company not acknowledged as debts)

The Company is involved in 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. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company based on internal and external legal advice discloses information with respect to the nature and facts of the case.

The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgements against the Company, such judgements could be material to its results of operations in a given period.

(i) Product and patent related matters

Matters relating to National Pharmaceutical Pricing Authority

Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs (Prices Control) Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price.

The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was ? 285 including interest.

The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was ? 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of ? 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court. The matter has been adjourned to 29 July 2021 for hearing.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

Litigation relating to Cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgement of the Bombay High Court dated 26 September 2016. This recall application filed by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA filed a Special Leave Petition with the Supreme Court for the recall of the judgement of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018.

During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of ? 776. On 3 August 2017, the Company filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit ? 100 and furnish a bank guarantee for ? 676.

Pursuant to the order, the Company deposited ? 100 on 13 September 2017 and submitted a bank guarantee of ? 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to file a final counter affidavit within six weeks, subsequent to which the Company could file a rejoinder. On 10 May 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 3 August 2021 for hearing.

Based on its best estimate, the Company has recorded a provision of ? 310 under “Selling and other expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

Class Action and Other Civil Litigation on Pricing/Reimbursement Matters

On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets).

The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiffs in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs’ right to appeal the dismissal of the First Pricing Complaint expired.

Further, on 17 November 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A. Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States.

In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrongdoing and intends to vigorously defend against these allegations.

In response to the consolidated new complaint, the Company filed a motion to dismiss in October 2017. The plaintiffs filed opposition to the motion to dismiss in December 2017 and a reply was filed by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility.

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(ii) Civil litigation with Mezzion

On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. The Company filed a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of said denial was also denied. The case is continuing in pretrial discovery.

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(iii) Securities Class Action Litigation

On 25 August 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Officer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were affected. On 9 May 2018, the Company and other defendants filed a motion to dismiss the complaint in the United States District Court for the District of New Jersey.

On 25 June 2018, the plaintiffs filed an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was filed by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court.

On 21 March 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiffs claims with respect to seventeen out of the twenty two alleged misstatements and omissions.

On 15 May 2020, Dr. Reddy’s Laboratories Limited, Dr. Reddy’s Laboratories, Inc., and certain of the Company’s current or former directors and officers, have entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with lead plaintiff the Public Employees’ Retirement System of Mississippi in the putative securities class action filed against the defendants in the United States District Court for the District of New Jersey. As consideration for the settlement of the class action, the Company has agreed to pay US$ 9 million.

The settlement is subject to the approval of the court and may be terminated prior to court approval pursuant to the grounds for termination set forth in the Stipulation. Subject to the terms of the Stipulation, in exchange for the settlement consideration, lead plaintiff and members of the settlement class who do not opt-out of this settlement would release, among other things, the claims that were asserted, or that they could have asserted, in this class action. In entering into the settlement, the defendants do not admit, and explicitly deny, any liability or wrongdoing of any kind.

Subject to the terms of the Stipulation, the settlement resolves the remainder of the litigation.

As the Company is adequately insured with respect to the aforesaid liability, the settlement did not have any impact on the Company’s statement of profit and loss for the year ended 31 March 2020.

The amount payable to the plaintiffs on account of the settlement and the corresponding receivable from the insurer have been presented under “other current financial assets" and "other current financial liabilities”, respectively, in the balance sheet of the Company as at 31 March 2020.

On 23 December 2020, the court issued a final order and judgment approving the settlement. Pursuant to the settlement/court order, the escrow was funded on 4 January 2021. The effective date of the settlement occurred on 1 February 2021, upon transfer of the settlement fund balance into the final escrow account. As the transfer of funds to the final escrow account constitutes settlement of liability, the amount of liability has been derecognised during the three months ended 31 March 2021.

(iv) Internal Investigation

The Company has commenced a detailed investigation into an anonymous complaint. The complaint alleges that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the US Foreign Corrupt Practices Act. A US law firm is conducting the investigation at the instruction of a committee of the Company''s Board of Directors. The investigation is ongoing. The Company has disclosed the matter to the US Department of Justice, Securities and Exchange Commission and Securities Exchange Board of India. While the matter may result in government enforcement actions against the Company in the United States and/or foreign jurisdictions, which could lead to civil and criminal sanctions under relevant laws, the probability of such action and the outcome are not reasonably ascertainable at this time.

(v) Environmental matters Land pollution

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollaram areas of Medak district of the then existing undivided state 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, Bollaram and Jeedimetla areas for discharging effluents which damaged the farmers’ agricultural land. The compensation was fixed at ? 0.0013 per acre for dry land and ? 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of ? 3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

The NGT, Chennai in a judgement dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently filed a review petition against the judgement on various aspects.

The NGT, Delhi, in a judgement dated 16 November 2017 in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health. The Company filed an appeal challenging this judgement.

The High Court of Hyderabad heard the Company’s appeal challenging this judgement in July 2018 and directed the respondents to file their response within a period of four weeks. During the three months ended 30 September 2018, the respondents filed counter affidavits and the matter has now been adjourned for final hearing.

The appeal came up for hearing before the High Court of Hyderabad on 25 October 2018 and has been adjourned for further hearing.

On 24 April 2019, based upon the judgement of the NGT, Chennai dated 24 October 2017, the Government of Telangana has issued G.O.Ms. No 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru - Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded fiscal year i.e., 31 March 2019. Accordingly, the Company made a provision of ? 29.4, representing the probable cost of expansion, during the year ended 31 March 2019.

During the three months ended 30 September 2019, the Telangana State Pollution Control Board (“TSPCB”) has issued Operational Guidelines basis the NGT, Chennai Order dated 24 October 2017, G.O.Ms. No. 24 dated 24 April 2019 and G.O.Ms. No. 31 dated 24 May 2019 and sought to recover retrospectively an amount of 0.5% of the annual turnover from the fiscal years 2016-2017 to 2018-2019 for all the industrial units situated in Patancheru and Bollaram for the purposes of restoration of the said effected area. The Company has four industrial units situated in Patancheru and Bollaram.

The Consent For Operation (“CFO”) for change of product mix application filed by one of the industrial unit of the Company has been recommended for issuance of CFO with change of product mix only upon payment of 0.5% of the annual turnover from the fiscal years 2016-2017 to 2018- 2019 to the TSPCB. The Company intends to vigorously defend itself against the Operational Guidelines.

In November 2019, demand notices were issued by the TSPCB for collection of Corpus Fund of 0.5 % as remediation fee on the previous year turnover as per Operational Guidelines dated 3 August 2019 issued by TSPCB under the guise of G O Ms No 24 dated 24 April 2019 and G O Ms No 31 dated 24 May 2019 and basis the judgement of NGT, Chennai dated 24 October 2017 for the fiscal years 2015-2016 to 2018 -2019 received by CTO-1, CTO-2 and CTO-3 of the Company.

On 22 November 2019, The Hon’ble High Court of Judicature at Hyderabad issued an Interim Order which stayed the demand on the condition that the Company deposit ? 60 as the remediation fee for the fiscal year 2018-2019 payable in the fiscal year 2019-2020. The deposit of ? 60 was made and the Interim Order is continuing. The matter was adjourned to 22 April 2020, but has been delayed as a result of the closure of the Court due to the COVID-19 lockdown, and a new date has not yet been rescheduled.

The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in the financial statements.

Water pollution and air pollution

During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board”) to show cause as to why action should not be initiated against them 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) cease manufacturing products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee 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 (the “APP Appellate Board”). The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD”) facilities and otherwise found no faul


Mar 31, 2019

1.1 Description of the Company

Dr. Reddy’s Laboratories Limited (“Dr. Reddy’s” or “the Company”) is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products - the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom Pharmaceutical Services (“CPS”), generics, biosimilars and differentiated formulations.

The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India; and its principal markets are in India, Russia, the United States, the United Kingdom and Germany. The Company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and also on the New York Stock Exchange in the United States.

1.2 Basis of preparation of financial statements

a) Statement of compliance

The financial statements of the Company as at and for the year ended 31 March 2019 have been prepared and presented in accordance with the Indian Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules, 2015 and as amended from time to time.

These financial statements have been prepared by the Company as a going concern on the basis of relevant Ind AS that are effective or elected for early adoption at the Company’s annual reporting date, 31 March 2019. These financial statements were authorised for issuance by the Company’s Board of Directors on 17 May 2019.

b) Basis of measurement

These financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the balance sheet:

- derivative financial instruments are measured at fair value;

- financial assets are measured either at fair value or at amortised cost depending on the classification;

- employee defined benefit assets/(liability) are recognised as the net total of the fair value of plan assets, adjusted for actuarial gains/ (losses) and the present value of the defined benefit obligation;

- long-term borrowings, except obligations under finance leases, are measured at amortised cost using the effective interest rate method;

- assets held for sale are measured at fair value less costs to sell; and

- share-based payments are measured at fair value;

c) Functional and presentation currency

These financial statements are presented in Indian rupees, which is the functional currency of the Company. All financial information presented in Indian rupees has been rounded to the nearest million.

d) Use of estimates and judgements

The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:

- Note 1.2 (c) — Assessment of functional currency;

- Note 1.3 (c) — Financial instruments;

- Note 1.3 (d) — Business combinations;

- Notes 1.3 (e) and 1.3 (f) — Useful lives of property, plant and equipment and intangible assets;

- Note 1.3 (h) — Valuation of inventories;

- Note 1.3 (i) — Measurement of recoverable amounts of cash-generating units;

- Note 1.3 (j) — Assets and obligations relating to employee benefits;

- Note 1.3 (j) — Share-based payments;

- Note 1.3 (k) — Provisions and other accruals;

- Note 1.3 (l) —Measurement of transaction price in a revenue transaction (Sales returns, rebates and chargeback provisions);

- Note 1.3 (n) — Evaluation of recoverability of deferred tax assets; and

- Note 1.3 (k) — Contingencies

e) Current and non-current classification

All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1, Presentation of Financial Statements.

Assets:

An asset is classified as current when it satisfies any of the following criteria:

a) it is expected to be realised in, or is intended for sale or consumption in, the Company’s normal operating cycle;

b) it is held primarily for the purpose of being traded;

c) it is expected to be realised within twelve months after the reporting date; or

d) it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

Liabilities:

A liability is classified as current when it satisfies any of the following criteria:

a) it is expected to be settled in the Company’s normal operating cycle;

b) it is held primarily for the purpose of being traded;

c) it is due to be settled within twelve months after the reporting date; or

d) the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classified as non-current. Deferred tax assets and liabilities are always disclosed as non-current.

2.1 During the year ended 31 March 2019, the Company sold one of its API manufacturing business units located in Jeedimetla, Hyderabad to Therapiva Private Limited. This sale was done by way of slump sale (as defined under section 2(42C) of Indian Income Tax Act,1961) including all related property, plant and equipment, current assets, current liabilities, and transfer of employees. An amount of Rs. 423 representing the profit on sale of such business unit was included under the heading “other income”.

As of.31 March 2019 and 31 March 2018, the Company was committed to spend Rs. 2,423 and Rs. 3,477, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

During the years ended 31 March 2019 and 31 March 2018, the Company capitalised interest cost of Rs. 74 and Rs. 71, respectively, with respect to qualifying assets. The rate for capitalisation of interest cost for the years ended 31 March 2019 and 31 March 2018 was approximately 3.21% and 2.76% respectively.

Depreciation for the year includes an amount of Rs. 634 (31 March 2018: Rs. 640) pertaining to assets used for research and development. During the year, the Company incurred Rs. 677 (31 March 2018: Rs. 419) towards capital expenditure for research and development. (Refer note 2.35)

2.2 Goodwill

Goodwill arising upon business combinations is not amortised but tested for impairment at least annually or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired.

For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within the Company at which goodwill is monitored for internal management purposes and which is not higher than the Company’s operating segment.

The carrying amount of goodwill was allocated to the cash generating units as follows:

The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value-in-use is generally calculated as the net present value of the projected post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. Key assumptions upon which the Company has based its determinations of value-in-use include:

a) Estimated cash flows for five years, based on management’s projections.

b) A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a constant long-term growth rate of.0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.

c) The after tax discount rates used are based on the Company’s weighted average cost of capital.

d) The after tax discount rates used range from 6.97% to 13.74% for various cash generating units. The pre-tax discount rates range from 7.56% to 16.63%.

The Company believes that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

In accordance with Ind AS 109, the Company uses the expected credit loss (“ECL”) model for measurement and recognition of impairment loss on its trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 115. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers. The details of changes in allowance for credit losses during the year ended 31 March 2019 and 31 March 2018 are as follows:

The amount of credit loss as at 31 March 2018 includes provision for doubtful debts from Venezuela operations which has been written off during the year ended 31 March 2019.

(1) Balances and receivables from statutory authorities primarily consist of amounts receivable from the goods and service tax (“GST”), excise duty, value added tax and customs authorities of India and the unutilised GST input tax credits, excise duty, service tax and value added tax input credits (subsumed under GST input tax credits effective as of.1 July 2017) on purchases. These are regularly utilised to offset the GST liability (or, prior to 1 July 2017, liability for excise duty, value added tax, etc.) on goods produced by and services provided by the Company. Accordingly, these balances have been classified as current assets.

(2) Export benefits receivables primarily consist of amounts receivable from various government authorities of India towards incentives on export sales made by the Company.

* Rounded off to millions.

(1) During the years ended 31 March 2019 and 31 March 2018, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Plan, 2002 and Dr. Reddy’s Employees Stock Option Plan, 2007. All of the options exercised had an exercise price of Rs. 5, being equal to the par value of the underlying shares. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognised in the “share-based payment reserve” was transferred to “securities premium” in the statement of changes in equity.

(2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on 27 July 2018, the Dr. Reddy’s Employees ESOS Trust (the”ESOS Trust”) was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, including through secondary market acquisitions, equity shares which are used for issuance to eligible employees upon exercise of stock options thereunder. As at 31 March 2019, the ESOS Trust purchased 217,976 shares from secondary market for an aggregate consideration of Rs. 535. Refer note 2.23 of these financial statements for further details on the Dr. Reddy’s Employees Stock Option Scheme, 2018.

b) Terms/rights attached to the equity shares

The Company has only one class of equity shares having a par value of Rs. 5 per share. For all matters submitted to vote in a shareholders meeting of the Company, every holder of an equity share, as reflected in the records of the Company as on the record date set for the shareholders meeting, shall have one vote in respect of each share held. Should the Company declare and pay any dividends, such dividends will be paid in Indian rupees to each holder of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Indian law on foreign exchange governs the remittance of dividends outside India. In the event of liquidation of the Company, all preferential amounts, if any, shall be discharged by the Company. The remaining assets of the Company shall be distributed to the holders of equity shares in proportion to the number of shares held to the total equity shares outstanding as on that date. Final dividends on equity shares (including dividend tax on distribution of such dividends) are recorded as a liability on the date of their approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Company’s Board of Directors. The details of dividends paid by the Company are as follows:

2.3 a) 270,141 (31 March 2018: 320,544) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”, 261,215 (31 March 2018: 107,308) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees ADR Stock Option Plan, 2007” and 229,600 (31 March 2018: Nil) stock options are outstanding and are to be issued by the Company upon exercise of the same in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Scheme, 2018” (Refer note 2.23).

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

c) During the year ended 31 March 2017, the Company bought-back and extinguished 5,077,504 equity shares under the buy-back of equity shares plan approved by the shareholders on 1 April 2016.

d) Represents External Commercial Borrowing, carrying interest rate of.1 Month LIBOR plus 82.7 bps and is repayable in three equal installments in the years ending 31 March 2020 and 31 March 2021. Current maturity of the same is shown under note 2.8 D of the financial statements.

As per the loan arrangement, the Company is required to comply with certain financial covenants and the Company was in compliance with such covenants as at 31 March 2019.

The aggregate maturities of long-term loans and borrowings, based on contractual maturities, as of.31 March 2019 and 31 March 2018 were as follows:

(1) Long-term debt obligations disclosed in the above table does not reflect any netting of transaction costs amounting to Rs. 4 and Rs. 8 as at 31 March 2019 and 31 March 2018, respectively.

b) Packing credit loans for the year ended 31 March 2019, comprised of US$ denominated loans carrying interest rates of.1 Month LIBOR plus 25 to 40 bps and are repayable within 6 to 12 months from the date of drawdown. Packing credit loans for the year ended 31 March 2018, comprised of US$ denominated loans carrying interest rates of.1 Month LIBOR minus 30 to plus 30 bps, RUB denominated loans carrying fixed interest rate of.6.75%, and INR denominated loans carrying fixed interest rate of.6.00% and are repayable within 6 to 12 months from the date of drawdown.

c) The Company uncommitted lines of credit of Rs. 33,327 and Rs. 14,209 as of.31 March 2019 and 31 March 2018, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.

(1) (a) The principal amount remaining unpaid as at 31 March 2019 in respect of enterprises covered under the “Micro, Small and Medium Enterprises Development Act, 2006” (MSMED) is Rs. 77 (31 March 2018: Rs. 93). The interest amount computed based on the provisions under Section 16 of the MSMED is Rs. 0.00 (31 March 2018: Rs. 0.00) is remaining unpaid as of.31 March 2019. The interest amount of Rs. 0.00 that remained unpaid as at 31 March 2018 was paid fully during the current year.

(b) 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 ‘ Nil (31 March 2018: Nil).

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

(1) Refund liablity is accounted for by recording a provision based on the Company’s estimate of expected sales returns. See note 1.3(l) of these financial statements for the Company’s accounting policy on refund liabilty.

(2) Primarily consists of provision recorded towards the potential liability arising out of a litigation relating to cardiovascular and anti-diabetic formulations. Refer note 2.30 of these financial statements under “Product and patent related matters - Matters relating to National Pharmaceutical Pricing Authority -Litigation relating to Cardiovascular and Anti-diabetic formulations” for further details.

Details of contract asset:

As mentioned in the accounting policies for refund liability, the Company recognises an asset i.e., right to the returned goods (included in inventories) for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods.

Along with remeasuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

As on 31 March 2019 and 31 March 2018, the Company has Rs. 16 and Rs. 17, respectively as contract asset representing the right to the returned goods.

Equity held in subsidiaries and joint venture has been disclosed under “Financial assets-Investments” (Note 2.4 A). Loans and advances to subsidiaries and joint venture have been disclosed under “Loans” (Note 2.4 C). Other receivables from subsidiaries and joint venture have been disclosed under “Other financial assets” (Note 2.4 D).

2.4 Employee stock incentive plans

Dr. Reddy’s Employees Stock Option Plan -2002 (the “DRL 2002 Plan”):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to 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”). The Nomination, Governance and Compensation Committee of the Board of DRL (the “Committee”) administer the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at annual general meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of.2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

After the stock split effected in the form of stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides for stock option grants in the above two categories as follows:

The term of the DRL 2002 plan was extended for a period of.10 years effective as of.29 January 2012 by the shareholders at the Company’s Annual General Meeting held on 20 July 2012.

The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was Rs. 2,195 and Rs. 2,546 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was Rs. 2,302 and Rs. 2,375 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was Rs. 281 and Rs. 342, respectively. As of.31 March 2019, options outstanding had an aggregate intrinsic value of Rs. 750 and options exercisable had an aggregate intrinsic value of Rs. 91.

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of.1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of.1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs. 5 per option).

The weighted average grant date fair value of options granted during the years ended 31 March 2019 and 31 March 2018 was Rs. 2,056 and Rs. 2,540 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2019 and 31 March 2018 was Rs. 2,445 and Rs. 2,295 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended 31 March 2019 and 31 March 2018 was Rs. 80 and Rs. 57, respectively. As of.31 March 2019, options outstanding had an aggregate intrinsic value of Rs. 320 and options exercisable had an aggregate intrinsic value of Rs. 26.

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”):

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on 27 July 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the Company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the Company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive 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 grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

The weighted average grant date fair value of options granted during the year ended 31 March 2019 was Rs. 667 per option.

As of.31 March 2019, options outstanding had an aggregate intrinsic value of Rs. 40.

Valuation of stock options:

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, the DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.

The estimated fair value of stock options is recognised in the statement of profit and loss on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

(1) As of.31 March 2019, there was Rs. 519 of total unrecognised compensation cost related to unvested stock options. This cost is expected to be recognised over a weighted-average period of.2.09 years.

(2) Certain of the Company’s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from one to four years. The amount of cash payment is determined based on the price of the Company’s ADs at the time of vesting. As of.31 March 2019, there was Rs. 18 of total unrecognised compensation cost related to unvested awards. This cost is expected to be recognised over a weighted-average period of.1.92 years. This Scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

2.5 Employee benefits

Total employee benefit expenses, including share-based payments, incurred during the years ended 31 March 2019 and 31 March 2018 amounted to Rs. 19,319 and ‘18,430, respectively.

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. 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 bonds issued by the Government of India and in debt securities and equity securities of Indian companies.

2.6 Provident fund benefits

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs. 710 and Rs. 707 to the provident fund plan during the years ended 31 March 2019 and 31 March 2018, respectively.

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs. 84 and Rs. 88 to the superannuation plan during the years ended 31 March 2019 and 31 March 2018, respectively.

Compensated absences

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilised compensated absences and utilise them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability 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 obligation was Rs. 821 and Rs. 797 as at 31 March 2019 and 31 March 2018, respectively.

* As per Indian tax laws, companies are liable for a Minimum Alternate Tax (“MAT” tax) when current tax, as computed under the provisions of the Income Tax Act, 1961 (“Tax Act”), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of.15 years.

In assessing whether the deferred tax assets will be realised, management considers whether some portion or all of the deferred tax assets will not be realised. The ultimate realisation of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realise the benefits of those recognised deductible differences and tax loss carry forwards. Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

2.7 Operating leases

The Company has leased offices and vehicles under various operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. Rental expense under these leases was Rs. 278 and Rs. 280 for the years ended 31 March 2019 and 31 March 2018, respectively.

2.8 Finance lease

There are no assets taken on finance lease as on 31 March 2019 and 31 March 2018.

2.9 Financial instruments

Non-derivative financial instruments

Non-derivative financial instruments consist of investments in mutual funds, bonds, equity and debt securities, trade receivables, cash and cash equivalents, loans and borrowings, and trade payables.

Derivative financial instruments

The Company uses derivative contracts like forwards, options and interest rate swaps to mitigate its risk of changes in foreign currency exchange rates and interest rates.

Fair value hierarchy

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

(1) The Company enters into derivative financial instruments with various counterparties, principally financial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs including foreign exchange forward rates, interest rate curves and forward rate curves.

As at 31 March 2019 and 31 March 2018, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value.

Derivative financial instruments

The Company had a derivative financial asset and derivative financial liability of Rs. 335 and Rs. 45, respectively, as at 31 March 2019 as compared to derivative financial asset and derivative financial liability of Rs. 17 and Rs. 85, respectively, as at 31 March 2018 towards these derivative financial instruments.

Hedges of changes in the interest rates:

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

The changes in fair value of such interest rate swaps (including cross currency interest rate swaps) are recognised as part of finance cost.

As at 31 March 2019 and 31 March 2018, the Company had no outstanding interest rate swap arrangements.

2.10 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 minimise 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 analyse 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 is responsible for overseeing the Company’s risk assessment and management policies and processes.

a) Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States dollars, Russian roubles, U.K pounds sterling and Euros) and foreign currency borrowings (in United States dollars). 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 revenues measured in Indian rupees may decrease. 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 both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognised assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.28 above.

In respect of the Company’s forward contracts and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

- a Rs. 1,884/(1,363) increase/(decrease) in the Company’s hedging reserve and a Rs. 2,256/(2,256) increase/(decrease) in the Company’s net profit from such contracts, as at 31 March 2019;

- a Rs. 1,277/(1,338) increase/(decrease) in the Company’s hedging reserve and a Rs. 843/(749) increase/(decrease) in the Company’s net profit from such contracts, as at 31 March 2018;

For the years ended 31 March 2019 and 31 March 2018, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company’s net profit by Rs. 1,854 and Rs. 939, respectively.

Interest rate risk

As of.31 March 2019 and 31 March 2018, the Company had Rs. 10,650 of loans carrying a floating interest rate of.1 Month LIBOR plus 25 bps to 1 Month LIBOR plus 82.7 bps and Rs. 22,811 of loans carrying a floating interest rate of.1 Month LIBOR minus 30 bps to 1 Month LIBOR plus 82.7 bps. These loans expose the Company to risk of changes in interest rates. The Company’s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer to note 2.8A and 2.8B of these financial statements.

For the years ended 31 March 2019 and 31 March 2018, every 10% increase or decrease in the floating interest rate component (i.e., LIBOR) applicable to its loans and borrowings would affect the Company’s net profit by Rs. 27 and Rs. 42, respectively.

The carrying value of the Company’s borrowings, interest component of which designated in a cash flow hedge was Rs. Nil as of.31 March 2019.

The Company’s investments in term deposits (i.e, certificates of deposit) 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. As of.31 March 2019, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

b) 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 and investment securities. 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. The Company establishes an allowance for credit losses and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectof or specific country risks.

Details of financial assets - not due, past due and impaired

None of the Company’s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2019. The Company’s credit period for trade receivables payable by its customers generally ranges from 20 - 180 days.

Refer note 2.4 B of these financial statements for the activity in the allowance for credit losses.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

Refer note 2.4 C of these financial statements for the activity in the allowance for doubtful advances.

Other than trade receivables and loans and advances, the Company has no significant class of financial assets that is past due but not impaired.

c) 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 2019 and 31 March 2018, the Company had uncommitted lines of credit from banks of Rs. 33,327 and Rs. 14,209 respectively.

As at 31 March 2019, the Company had working capital of Rs. 58,539, including cash and cash equivalents of Rs. 1,132, investments in term deposits with banks (i.e., deposits having original maturities of more than 3 months) of Rs. 513, investments in bonds of Rs. 5,272, investment in commercial paper of Rs. 459 and investments measured at fair value through profit and loss (“FVTPL”) of Rs. 14,900.

As at 31 March 2018, the Company had working capital of Rs. 43,186, including cash and cash equivalents of Rs. 1,207, investments in bonds of Rs. 3,279, investment in commercial paper of Rs. 232 and investments measured at fair value through profit and loss (“FVTPL”) of Rs. 13,317.

2.11 Contingent liabilities and commitments

A. Contingent liabilities (claims against the Company not acknowledged as debts)

The Company is involved in 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. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgements against the Company, such judgements could be material to its results of operations in a given period.

(i) Product and patent related matters

Matters relating to National Pharmaceutical Pricing Authority Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs Prices Control Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was Rs. 285 including interest.

The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was Rs. 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of Rs. 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court. The matter is adjourned to 11 September 2019 for hearing.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

Litigation relating to Cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and anti-diabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgement of the Bombay High Court dated 26 September 2016. This recall application filed by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA filed a Special Leave Petition, with the Supreme Court for the recall of the judgement of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018.

During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of Rs. 776. On 3 August 2017, the Company filed a writ petition challenging the speaking order and the demand notice.

Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit Rs. 100 and furnish a bank guarantee for Rs. 676. Pursuant to the order, the Company deposited Rs. 100 on 13 September 2017 and submitted a bank guarantee of Rs. 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to file a final counter affidavit within six weeks, subsequent to which the Company could file a rejoinder. On 10 May 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 22 July 2019 for hearing.

Based on its best estimate, the Company has recorded a provision of Rs. 342 under “selling and other expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

Class Action and Other Civil Litigation on Pricing/Reimbursement Matters

On 30 December 2015 and on 4 February 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of.80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of.500, 10 mg tablets).

The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On 25 September 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiffs in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs right to appeal the dismissal of the First Pricing Complaint expired.

Further, on 17 November 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi-product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States.

In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies any wrong doing and intends to vigorously defend against these allegations.

In response to the consolidated new complaint, the Company filed a motion to dismiss in October 2017. The plaintiffs filed opposition to the motion to dismiss in December 2017 and a reply was filed by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility.

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(ii) Civil litigation with Mezzion

On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. In this regard, the Company filed a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of the said denial, was also denied.

The Commercial Court, Hyderabad has accepted the request of the Company to withdraw the suit, in view of the Court granting the Company’s motion of Dr. Reddy’s to file a Counterclaim in U.S. Action.

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(iii) Securities Class Action Litigation

On 25 August 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer, and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Officer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were affected. On 9 May 2018, the Company and other defendants filed a motion to dismiss the complaint in the United States District Court for the District of New Jersey.

On 25 June 2018, the plaintiffs filed an opposition to the motion to dismiss and, on 25 July 2018, a further reply in support of the motion to dismiss was fil


Mar 31, 2018

1.[ RELATED PARTIES

a) List of all subsidiaries, joint ventures and other consolidating entities:

Subsidiaries including step down subsidiaries

1 Aurigene Discovery Technologies (Malaysia) SDN BHD, Malaysia

2 Aurigene Discovery Technologies Inc., USA

3 Aurigene Discovery Technologies Limited, India

4 beta Institut gemeinnutzige GmbH, Germany

5 betapharm Arzneimittel GmbH, Germany

6 Cheminor Investments Limited, India

7 Chienna B.V., Netherlands (Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

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 (UK) Limited, UK

2. | RELATED PARTIES (CONTINUED)

15 Dr. Reddy''s Laboratories Canada, Inc., Canada

16 Dr. Reddy''s Laboratories Chile SPA., Chile (from 16 June 2017)

17 Dr. Reddy''s Laboratories Inc., USA

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

19 Dr. Reddy''s Laboratories Japan KK, Japan

20 Dr Reddy''s Laboratories Kazakhstan, Kazakhstan (from 30 November 2016)

21 Dr. Reddy''s Laboratories LLC, Ukraine

22 Dr. Reddy''s Laboratories Louisiana LLC, USA

23 Dr. Reddy''s Laboratories Malaysia Sdn. Bhd., Malaysia (from 10 July 2017)

24 Dr. Reddy''s Laboratories New York, Inc., USA

25 Dr. Reddy''s Laboratories Romania S.R.L., Romania

26 Dr. Reddy''s Laboratories SA, Switzerland

27 Dr. Reddy''s Laboratories SAS, Colombia

28 Dr. Reddy''s Laboratories Taiwan Limited, Taiwan (from 23 February 2018)

29 Dr. Reddy''s Laboratories Tennessee, LLC, USA

30 Dr. Reddy''s New Zealand Limited, New Zealand

31 Regkinetics Services Limited, India (formerly Dr. Reddy''s Pharma SEZ Limited, India)

32 Dr. Reddy''s Research and Development B.V. (formerly Octoplus BV)

33 Dr. Reddy''s Singapore PTE Limited, Singapore

34 Dr. Reddy''s Srl, Italy_

35 Dr. Reddy''s (WUXI) Pharmaceutical Co. Ltd, China (from 2 June 2017)

36 Dr. Reddy''s Venezuela, C.A., Venezuela

37 DRL Impex Limited, India

38 Eurobridge Consulting B.V., Netherlands

39 Idea2Enterprises (India) Private Limited, India

40 Imperial Credit Private Limited, India (Acquired w.e.f. from 22 February 2017)

41 Industrias Quimicas Falcon de Mexico, S.A.de C.V, Mexico

42 Lacock Holdings Limited, Cyprus

43 OctoPlus Development B.V. (Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

44 OctoPlus PolyActive Sciences B.V.( Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

45 OctoPlus Sciences B.V.( Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

46 OctoPlus Technologies B.V.( Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

47 OctoShare B.V.( Merged with Dr. Reddy''s Research and Development B.V. w.e.f. from 1 January 2017)

48 OOO Dr. Reddy''s Laboratories Limited, Russia

49 ~ OOO DRS LLC, Russia

50 Promius Pharma LLC, USA

51 Reddy Antilles N.V., Netherlands

52 Reddy Cheminor S.A., France (liquidated during the year ended 31 March 2017)

53 Reddy Holding GmbH, Germany

54 Reddy Netherlands B.V., Netherlands

55 Reddy Pharma Iberia SA, Spain

56 Reddy Pharma Italia S.R.L, Italy

57 Reddy Pharma SAS, France

3. RELATED PARTIES (CONTINUED)

Equity held in subsidiaries and joint venture has been disclosed under “Financial assets-Investments" (Note 2.3 A). Loans and advances to subsidiaries and joint venture have been disclosed under “Loans" (Note 2.3 C). Other receivables from subsidiaries and joint venture have been disclosed under “Other financial assets" (Note 2.3 D).

4. BUY-BACK OF EQUITY SHARES

The Board of Directors of the Company, in their meeting held on 17 February 2016, approved a proposal to buy back equity shares of the Company, subject to approval by the Company''s shareholders, for an aggregate amount not exceeding '' 15,694 and at a price not exceeding '' 3,500 per equity share. The plan involved the purchase of such shares from shareholders of the Company (including persons who become shareholders by cancelling American Depository Shares and receiving underlying equity shares, and excluding the promoters and promoter group of the Company) under the open market route in accordance with the provisions contained in the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made there under. The shares bought back under this plan were required to be extinguished in accordance with the provisions of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made there under.

The Company''s shareholders approved the buy-back plan on 1 April 2016, and implementation of the buy-back plan commenced on 18 April 2016 and ended on 28 June 2016.

Under this plan, the Company bought back and extinguished 5,077,504 equity shares for an aggregate purchase price of Rs, 15,694 during the year ended 31 March 2017. The aggregate face value of the equity shares bought back was Rs, 25.

5.EMPLOYEE STOCK INCENTIVE PLANS

Dr. Reddy''s Employees Stock Option Plan -2002 (the "DRL 2002 Plan"):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to 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"). The Nomination, Governance and Compensation Committee of the Board of DRL (the “Committee") administer the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at Annual General Meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs, 5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended 31 March 2018 and 31 March 2017 is as follows:

Category A - Fair Market Value Options:

There was no stock options activity under this category during the year 31 March2018 and 31 March 2017 and there were no options outstanding under this category as of 31 March 2018 and 31 March 2017.

The weighted average grant date fair value of par value options granted under category B above of the DRL 2002 Plan during the years ended 31 March 2018 and 31 March2017 was Rs, 2,546 and Rs, 3,266 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2018 and 31 March 2017 was Rs, 2,375 and Rs, 3,292 per share, respectively.

The aggregate intrinsic value of options exercised under the DRL 2002 Plan during the years ended 31 March 2018 and 31 March2017 was Rs, 342 and Rs, 584, respectively. As of 31 March 2018, options outstanding under the DRL 2002 Plan had an aggregate intrinsic value of Rs, 665 and options exercisable under the DRL 2002 Plan had an aggregate intrinsic value of Rs, 98.

The term of the DRL 2002 plan was extended for a period of 10 years effective as of 29 January 2012 by the shareholders at the Company''s Annual General Meeting held on 20 July 2012.

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees"). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

6. EMPLOYEE STOCK INCENTIVE PLANS (CONTINUED)

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs, 5 per option).

The weighted average grant date fair value of par value options granted under category B of the DRL 2007 Plan during the years ended 31 March 2018 and 31 March 2017 was Rs, 2,540 and Rs, 3,266, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2018 and 31 March 2017 was Rs, 2,295 and Rs, 3,268, respectively.

The aggregate intrinsic value of options exercised under the DRL 2007 Plan during the years ended 31 March2018 and 31 March2017 was Rs, 57 and Rs, 110, respectively. As of 31 March 2018, options outstanding under the DRL 2007 Plan had an aggregate intrinsic value of Rs, 223 and options exercisable under the DRL 2007 Plan had an aggregate intrinsic value of Rs, 23.

During the year ended 31 March 2015, the Company adopted a new program to grant performance linked stock options to certain employees under the DRL 2002 Plan and the DRL 2007 Plan. Under this program, performance targets are measured each year against pre-defined interim targets over the three year period ending on 31 March 2017 and eligible employees are granted stock options upon meeting such targets. The stock options so granted are ultimately vested with the employees who meet subsequent service vesting conditions which range from one to four years. After vesting, such stock options generally have a maximum contractual term of five years.

Valuation of stock options:

The fair value of stock options granted under the DRL 2002 Plan and the DRL 2007 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted under category B, the expected term of an option (or “option life") is estimated based on the vesting term, contractual term, as well as expected exercise behavior of the employees receiving the option. In respect of fair market value options granted under category A, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company''s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management''s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company''s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock-based compensation expense could be materially impacted in future years.

The estimated fair value of stock options is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted.

Equity settled share-based payment expense

For the years ended 31 March2018 and 31 March2017, the Company recorded employee share-based payment expense of Rs, 454 and Rs, 350, respectively. As of 31 March 2018, there was Rs, 313 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.98 years.

Cash settled share-based payment expense

Certain of the Company''s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, upon satisfaction of certain service conditions which range from one to four years. The amount of cash payment is determined based on the price of the Company''s ADS at the time of exercise. For the years ended 31 March 2018 and 31 March 2017, the Company recorded cash settled share-based payment expense of Rs, 0 and Rs, 22, respectively. As of 31 March 2018, there was Rs, 14 of total unrecognized compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.94 years. This Scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

7. EMPLOYEE BENEFITS

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan") and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee''s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy''s Laboratories Gratuity Fund (the “Gratuity Fund") to fund the Gratuity Plan. 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 bonds issued by Government of India, corporate debt securities and in equity securities of Indian companies.

Provident fund benefits

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee''s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs, 707 and Rs, 656 to the provident fund plan during the years ended 31 March 2018 and 31 March 2017, respectively.

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes annual contributions based on a specified percentage of each covered employee''s salary. The Company has no further obligations under the plan beyond its annual contributions. The Company contributed Rs, 88 and Rs, 79 to the superannuation plan for the years ended 31 March 2018 and 31 March 2017, respectively.

Compensated absences

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 the Company''s policy. The Company records a liability 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 obligation was Rs, 797 and Rs, 746 as at 31 March 2018 and 31 March 2017, respectively.

Long-term incentive plan

Certain senior management employees of the Company participate in a long-term incentive plan which is aimed at rewarding the individual, based on performance of such individual, their business unit/function and the Company as a whole, with significantly higher rewards for superior performances. The total liability recorded by the Company towards this benefit was Rs, Nil and Rs, 523 as at 31 March 2018, and 31 March 2017, respectively.

Total employee benefit expenses, including share-based payments, incurred during the years ended 31 March 2018 and 31 March 2017 amounted to Rs, 18,430 and Rs, 18,033, respectively.

(1) India''s Finance Act, 2016 incorporated an amendment that reduces the weighted deduction on eligible research and development expenditure in a phased manner from 200% to 150% commencing from 1 April 2017.

The Company''s average effective tax rate for the years ended 31 March 2018 and 31 March 2017 were 18.66% and 10.39%, respectively. The decrease in the Company''s effective tax rate for the year ended 31 March 2017 was primarily due to resolution of certain tax matters pertaining to prior years.

During the year ended 31 March 2018, the Company did not recognize deferred tax assets of '' 1,447, primarily on MAT credit entitlement, as the Company believes that availability of taxable profits is not probable. The above MAT credit expire at various dates ranging from 2031 through 2033.

* As per Indian tax laws, companies are liable for a Minimum Alternate Tax (“MAT" tax) when current tax, as computed under the provisions of the Income Tax Act, 1961 (“Tax Act"), is determined to be below the MAT tax computed under section 115JB of the Tax Act. The excess of MAT tax over current tax is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of 15 years.

In assessing whether the deferred tax assets will be realized, management considers whether some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred income tax assets and tax loss carry forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realize the benefits of those recognized deductible differences and tax loss carry forwards. Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

Hedges of changes in the interest rates:

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

The changes in fair value of such interest rate swaps (including cross currency interest rate swaps) are recognized as part of finance cost.

As at 31 March 2018 and 31 March 2017, the Company had no outstanding interest rate swap arrangements.

8. 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 is responsible for overseeing the Company''s risk assessment and management policies and processes.

9.FINANCIAL RISK MANAGEMENT (CONTINUED)

a) Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in US$, Russian rubles, Ukrainian hryvnias, UK pounds sterling, and Euros) and foreign currency borrowings (in US$ and Russian 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 revenues measured in Indian rupees may decrease. 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 both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognized assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.30 above.

In respect of the Company''s forward contracts and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

- a Rs, 1,277/(1,338) increase/(decrease) in the Company''s hedging reserve and a Rs, 843/(749) increase/(decrease) in the Company''s net profit from such contracts, as at 31 March 2018;

- a Rs, 1,154/(710) increase/(decrease) in the Company''s hedging reserve and a Rs, 1,707/(1,854) increase/(decrease) in the Company''s net profit from such contracts, as at 31 March 2017.

For the years ended 31 March 2018 and 31 March 2017, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company''s net profit by Rs, 939 and Rs, 1,866, respectively.

Interest rate risk

As of 31 March 2018 and 31 March 2017, the Company had Rs, 22,811 of loans carrying a floating interest rate of 1 Month LIBOR minus 30 bps to 1 Month LIBOR plus 82.7 bps and Rs, 18,061 of loans carrying a floating interest rate of 1 Month LIBOR minus 30 bps to 1 Month LIBOR plus 82.7 bps, respectively. These loans expose the Company to risk of changes in interest rates. The Company''s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company''s short-term and long-term loans and borrowings, including interest rate profiles, refer to note 2.7A and 2.7B of these financial statements.

For the years ended 31 March 2018 and 31 March 2017, every 10% increase or decrease in the floating interest rate component (i.e., LIBOR) applicable to its loans and borrowings would affect the Company''s net profit by Rs, 42 and Rs, 23, respectively.

The carrying value of the Company''s foreign currency borrowings designated in a cash flow hedge as of 31 March 2018 and 31 March 2017 was Rs, Nil.

The Company''s investments in bonds, commercial paper 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. As of 31 March 2018, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

b) 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 and investment securities. 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. The Company establishes an allowance for credit losses and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

Financial assets that are neither past due nor impaired

None of the Company''s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2018. Of the total trade receivables, Rs, 35,390 as at 31 March 2018 and Rs, 31,071 as at 31 March 2017 consisted of customer balances that were neither past due nor impaired.

The Company uses Expected Credit Loss (ECL) model for assessing the impairment loss. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

c) 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 2018 and 31 March 2017, the Company had unutilized credit limits from banks of Rs, 14,209 and Rs, 12,437 respectively.

As at 31 March 2018, the Company had working capital of Rs, 43,186, including cash and cash equivalents of Rs, 1,207, investments in bonds of Rs, 3,279, investment in commercial paper of Rs, 232 and investments in FVTPL financial assets of Rs, 13,317. As at 31 March 2017, the Company had working capital of Rs, 43,358, including cash and cash equivalents of Rs, 668, investments in term deposits (i.e., bank certificates of deposits having original maturities of more than 3 months) of Rs, 2,110 and investments in FVTPL financial assets of Rs, 10,881.

10.CONTINGENT LIABILITIES AND COMMITMENTS

A. Contingent liabilities (claims against the Company not acknowledged as debts)

The Company is involved in 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. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgments against the Company, such judgments could be material to its results of operations in a given period.

(i) Product and patent related matters

Matters relating to National Pharmaceutical Pricing Authority Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs Prices Control Order (the “DPCO"), the National Pharmaceutical Pricing Authority (the “NPPA") established by the Government of India had the authority to designate a pharmaceutical product as a “specified product" and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product" and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court") challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favour of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court") by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was Rs, 285 including interest. The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was Rs, 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of Rs, 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company''s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product" under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product" under the DPCO back to the High Court for further proceedings. During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Nor floxacin was filed by the Company with the Delhi High Court. Upon the request of the respondents to file a counter, the Delhi High Court has adjourned the matter to 26 November 2018.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

Litigation relating to Cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and ant diabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA"), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgment of the Bombay High Court dated 26 September 2016.This recall application filed by the IPA was dismissed by the Bombay High Court on 4 October 2017. Further, on 13 December 2017, the IPA filed a Special Leave Petition, with the Supreme Court for the recall of the judgment of the Bombay High Court dated 4 October 2017, which was dismissed by Supreme Court on 10 January 2018.

During the three months ended 31 March 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On 13 July 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on 21 July 2017. On 27 July 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of Rs, 776. On 3 August 2017, the Company filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on 8 August 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit Rs, 100 and furnish a bank guarantee for Rs, 676. Pursuant to the order, the Company deposited Rs, 100 on 13 September 2017 and submitted a bank guarantee of Rs, 676 dated 15 September 2017 to the Registrar General, Delhi High Court. On 22 November 2017, the Delhi High Court directed the Union of India to file a final counter affidavit within six weeks subsequent to which the Company could file a rejoinder. On 10 May 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to 8 August 2018 for hearing.

Based on its best estimate, the Company has recorded a provision of Rs, 416 under “selling and other expenses" as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

(ii) Civil litigation with Mezzion

On 13 January 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion") filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API") for “udenafil'''' (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA''s current Good Manufacturing Practices (“cGMP") at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. In this regard, the Company filed a motion to dismiss Mezzion''s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the Court denied the Company''s motion to dismiss the complaint on the jurisdictional matter. Company''s interlocutory appeal of the said denial, was also denied.

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion''s complaint. Any liability that may arise on account of this complaint is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(iii) Shareholder Class Action Litigation

On 25 August 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer, and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company''s Co-Chairman, its Chief Operating Officer, and Dr. Reddy''s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws and that the Company''s share price dropped and its investors were affected. On 9 May 2018, the Company and other defendants filed a motion to dismiss the complaint in the United States District Court for the District of New Jersey.

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of this complaint is unascertainable. Accordingly, no provision was made in the financial statements of the Company.

(iv) Environmental matters Land pollution

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union 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 the then existing undivided state 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 effluents which damaged the farmers'' agricultural land. The compensation was fixed at '' 0.0013 per acre for dry land and '' 0.0017 per acre for wet land.

Accordingly, the Company has paid a total compensation of '' 3. The Andhra Pradesh High Court disposed of the writ petition on 12 February 2013 and transferred the case to the National Green Tribunal (“NGT"), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

The NGT, Chennai in a judgment dated 24 October 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI"), in which the Company is a member, subsequently filed a review petition against the Judgment on various aspects.

The NGT, Delhi, in a judgment dated 16 November 2017, in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health.

The Company believes that any additional liability that might arise in this regard is not material to the financial statements. Accordingly, no provision relating to these claims has been made in the financial statements as of 31 March 2018.

Water pollution and air pollution

During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board") to show cause as to why action should not be initiated against them 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) cease manufacturing products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee 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 (the “APP Appellate Board"). The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD") 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 notification in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the notification 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 notification that re-imposed a moratorium on expansion of industries in certain areas where some of the Company''s manufacturing facilities are located. This notification overrides the Andhra Pradesh Government''s notification that conditionally permitted expansion.

(v) Indirect taxes related matters Distribution of input service tax credits

The Central Excise Authorities have issued various demand notices to the Company objecting to the Company''s methodology of distributing input service tax credits claimed for one of the Company''s facilities. The below table shows the details of each such demand notice, the amount demanded and the current status of the Company''s responsive actions.

The Company believes that the likelihood of any liability that may arise on account of the allegedly inappropriate distribution of input service tax credits is not probable. Accordingly, no provision relating to these claims has been made in these financial statements as of 31 March 2018.

Value Added Tax ("VAT") matter

The Company has received various demand notices from the Government of Telangana''s Commercial Taxes Department objecting to the Company''s methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Company''s responsive actions.

The Company has recorded a provision of '' 27 as of 31 March 2018, and believes that the likelihood of any further liability that may arise on account of the allegedly inappropriate claims to VAT credits is not probable.

Others

Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is '' 278. The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these financial statements as of 31 March 2018.

(vi) Fuel Surcharge Adjustments

The Andhra Pradesh Electricity Regulatory Commission (the “APERC") passed various orders approving the levy of Fuel Surcharge Adjustment (“FSA") charges for the period from 1 April 2008 to 31 March 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where the Company''s headquarters and principal manufacturing facilities are located. Separate writ petitions filed by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the Supreme Court of India.

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 March 2013 is '' 482. After taking into account all of the available information and legal provisions, the Company has recorded Rs, 219 as the potential liability towards FSA charges. However, the Company has paid, under protest, an amount of Rs, 354 as 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.

During the three months ended 30 June 2016, the Supreme Court of India dismissed the Special Leave Petition filed by the Company in this regard for the period from 1April 2012 to 31 March 2013. As a result, for the quarter ended 30 June 2016, the Company recognized an expenditure of Rs, 55 (by de-recognizing the payments under protest) representing the FSA charges for the period from 1 April 2012 to 31 March 2013.

(vii) Direct taxes related matters

The Company is contesting various disallowances by the Indian Income Tax authorities. The associated tax impact is Rs, 1,727. The Company believes that the chances of an unfavorable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in these financial statements as of 31 March 2018.

(viii) Others

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.

11. 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 in turn remits the dividends to the ADR holders.

12| SEGMENT REPORTING

In accordance with Ind AS 108, Operating Segments, 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.

13.AGREEMENT WITH GLAND PHARMA LIMITED

On 29 November 2016, the Company entered into an agreement with Gland Pharma Limited (“Gland") to license, market and distribute eight injectable ANDAs. Pursuant to the arrangement, the Company will pay Gland US$ 6.8 million as consideration for in-licensing the aforesaid eight ANDAs upon completion of certain milestones by Gland.

a) Additions include transfers from non-research and development group to research and development group. The gross carrying value of such transferred assets is Rs, 46 (31 March2017: Rs, 10) and accumulated depreciation/amortization is Rs, 36 (31 March 2017: Rs, 9).

b) Disposals include transfers from research and development group to non-research and development group. The gross carrying value of such transferred assets is Rs, 99 (31 March2017: Rs, 55) and accumulated depreciation/amortization is Rs, 43 (31 March 2017: Rs, 31).

14. RECEIPT OF WARNING LETTER FROM THE U.S. FDA

The Company received a warning letter dated 5 November 2015 from the U.S. FDA relating to current Good Manufacturing Practice (“cGMP") deviations at its active pharmaceutical ingredient (“API") manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the U.S. FDA in November 2014, January 2015 and February-March 2015, respectively.

The warning letter does not restrict production or shipment of the Company''s products from these facilities. However, unless and until the Company is able to correct outstanding issues to the U.S. FDA''s satisfaction, the U.S. FDA may withhold approval of new products and new drug applications of the Company, refuse admission of products manufactured at the facilities noted in the warning letter into the United States, and/or take additional regulatory or legal action against the Company. Any such further action could have a material and negative impact on the Company''s ongoing business and operations. During the years ended 31 March 2017 and 2018, the U.S. FDA withheld approval of new products from these facilities pending resolution of the issues identified in the warning letter. To minimize the business impact, the Company transferred certain key products to alternate manufacturing facilities.

Subsequent to the issuance of the warning letter, the Company promptly instituted corrective actions and preventive actions and submitted a comprehensive response to the warning letter to the U.S. FDA, followed by periodic written updates and in-person meetings with the U.S. FDA. The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities in the months of February, March and April 2017. During the re-inspections, the U.S. FDA issued three observations with respect to the API manufacturing facility at Miryalaguda, two observations with respect to the API manufacturing facility at Srikakulam and thirteen observations with respect to the Company''s oncology formulation manufacturing facility at Duvvada. The Company has responded to these observations identified by the U.S. FDA and believes that it can resolve them in a timely manner.

In June 2017, the U.S. FDA issued an Establishment Inspection Report (“EIR") which indicated that the inspection of the Company''s API manufacturing facility at Miryalaguda is successfully closed.

With regard to the Company''s oncology manufacturing facility at Duvvada and its API manufacturing facility at Srikakulam, the Company received EIRs from the U.S. FDA in November 2017 and February 2018, respectively, which indicated that the inspection status of these facilities remains unchanged.

Inspection of other facilities:

In May and June 2017, inspection of the Company''s Formulations Srikakulam Plan (SEZ) Unit II and I, India, was completed by the U.S. FDA with zero and one observations, respectively, and the U.S. FDA issued EIRs in September 2017 for both Units II and I, indicating the closure of the audit for these facilities.

The inspection of the Company''s Custom Pharmaceutical Services facility in Hyderabad, India was completed by the U.S. FDA on 21 September 2017 with zero observations, and the U.S. FDA issued an EIR in December 2017 indicating the closure of audit for this facility.

In April 2017, inspection of the Company''s formulations manufacturing facility at Bachupally, Hyderabad was completed by the U.S. FDA and the Company was issued a Form 483 with 11 observations. In December 2017, the U.S. FDA issued an EIR which indicates the closure of the audit for this facility.

In March 2018, The inspection of two of the Company''s Custom Pharmaceutical Services facility in API manufacturing facilities namely, the API Hyderabad Plant 1, and the API Hyderabad Plant 3, India was completed by the U.S. FDA with four and five observations, respectively. The observations at API Hyderabad Plant 3 were related to procedures and facility maintenance. The Company has responded to these observations and believes that it can address all these observations comprehensively in a timely manner.

15. CAPITAL MANAGEMENT

For the purposes of the Company''s capital management, capital includes issued capital and all other equity reserves. The primary objective of the Company''s capital management is to maximize shareholder value. The Company manages its capital structure and makes adjustments in the light of changes in economic environment and the requirements of the financial covenants. The Company monitors capital using gearing ratio, which is total debt divided by total capital plus debt.

The capital gearing ratio as on 31 March 2018 and 31 March 2017 was 18% and 17%, respectively.

16. SUBSEQUENT EVENTS

There are no significant events that occurred after the balance sheet date.

2.40| RECENT ACCOUNTING PRONOUNCEMENTS

Standards issued but not yet effective and not early adopted by the Company:

Ind AS 115, Revenue from Contracts with Customers

In March 2018, the Ministry of Corporate Affairs (“MCA") has notified Ind AS 115, Revenue from Contracts with Customers, which is effective for accounting periods beginning on or after 1 April 2018. This comprehensive new standard will supersede existing revenue recognition guidance, and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements.

Ind AS 115 is effective for annual reporting periods beginning on or after 1 April 2018.

The Company intends to adopt Ind AS 115 effective 1 April 2018, using the modified retrospective method. The adoption of Ind AS 115 is not expected to have a significant impact on the Company''s recognition of revenues from product sales, service income and license fee.

Other Amendments:

On 28 March 2018, the MCA, issued certain amendments to Ind AS. The amendments relate to the following standards:

- Ind AS 40, Investment Property

- Ind AS 21, The Effects of Changes in Foreign Exchange Rates

- Ind AS 12, Income Taxes

- Ind AS 28, Investments in Associates and Joint Ventures

- Ind AS 112, Disclosure of Interests in Other Entities

The amendments are effective 1 April 2018. The Company believes that the aforementioned amendments will not materially impact the financial position, performance or the cash flows of the Company.


Mar 31, 2017

1. FIRST-TIME ADOPTION OF IND AS (CONTINUED)

The Company does not have any arrangements containing a lease as defined under Appendix C to Ind AS 17, "Determining whether an arrangement contains a lease". Consequently, this exemption is not applicable to the Company.

Estimates

The estimates at 1 April 2015 and at 31 March 2016 are consistent with those made for the same dates in accordance with Indian GAAP (after adjustments to reflect any differences in accounting policies) apart from the following items where application of Indian GAAP did not require estimation:

- FVTOCI - Quoted equity shares

- Impairment of financial assets based on expected credit loss model

The estimates used by the Company to present these amounts in accordance with Ind AS reflect conditions at 1 April 2015, the date of transition to Ind AS and as of 31 March 2016.

Reconciliation of equity as previously reported under Previous GAAP and that computed under Ind AS

a) Proposed dividend

Under Indian GAAP, proposed dividends including dividend distribution tax are recognized as a liability in the period to which they relate, irrespective of when they are declared. Under Ind AS, a proposed dividend is recognized as a liability in the period in which it is declared by the company (usually when approved by shareholders in a general meeting) or paid. Therefore, the liability of '' 4,1 00 for the year ended on 31 March 2015 recorded for dividend has been derecognized against retained earnings on 1 April 2015.

b) FVTOCI financial assets

Under Indian GAAP, the Company accounted for long-term investments in quoted equity shares as investment measured at cost less provision for other than temporary diminution in the value of investments. Under Ind AS, the Company has designated such investments as FVTOCI investments. Ind AS requires FVTOCI investments to be measured at fair value. At the date of transition to Ind AS, difference between the instruments fair value and Indian GAAP carrying amount has been recognized as a separate component of equity, in the retained earnings, net of related deferred taxes.

2. FIRST-TIME ADOPTION OF IND AS (CONTINUED)

c) Mutual funds

Under Indian GAAP, investments in mutual funds are accounted for as short-term investments and accordingly they are carried at lower of cost and fair value. Under Ind AS, the Company has designated such investments as FVTPL investments. Ind AS requires FVTPL investments to be measured at fair value. At the date of transition to Ind AS, difference between the instruments fair value and Indian GAAP carrying amount has been recognized as a separate component of equity, in the retained earnings, net of related deferred taxes.

d) Deferred tax

Indian GAAP requires deferred tax accounting using the statement of profit and loss approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The application of Ind AS 12 approach has resulted in recognition of deferred tax on new temporary differences which was not required under Indian GAAP.

e) Trade receivables

Under Ind AS, impairment allowance has been determined based on Expected Credit Loss model (ECL). Due to ECL model, the group impaired its trade receivable by '' 40 on 1 April 2015 which has been eliminated against retained earnings.

f) In-process research and development expenditure

Under Indian GAAP, in-process research and development expenditure does not qualify for capitalization as intangible asset. Under Ind AS, such expenditure is allowed to be capitalized as intangible asset. As the asset is not available for use yet, it is not subject to amortization. However, the same is tested for impairment following the guidance available under Ind AS 38, Intangible assets.

g) Sale of goods

Under Indian GAAP, sale of goods was presented as net of excise duty. However, under Ind AS, sale of goods includes excise duty. Excise duty on sale of goods is included as part of sales in the face of statement of profit and loss. Thus sale of goods under Ind AS for the year ended 31 March 2016 has increased by Rs, 842 with a corresponding increase in cost of material consumed.

h) Defined benefit liabilities

Both under Indian GAAP and Ind AS, the Company recognized costs related to its post-employment defined benefit plan on an actuarial basis. Under Indian GAAP, the entire cost, including actuarial gains and losses, are charged to the statement of profit and loss. Under Ind AS, remeasurements (comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets excluding amounts included in net interest on the net defined benefit liability) are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI. Thus the employee benefit cost is reduced by Rs, 183 and remeasurement gains/ losses on defined benefit plans has been recognized in the OCI, net of tax.

i) Share-based payments

Under Indian GAAP, the Company recognized only the intrinsic value of the options granted as an expense. Ind AS requires the fair value of the share options to be determined using an appropriate pricing model recognized over the vesting period. An additional expense of Rs, 16 has been recognized in the statement of profit and loss for the year ended 31 March 2016.

*Represents Rs,600 thousands (31 March 2016: Rs,600 thousands) rounded off to millions above.

3.RELATED PARTIES

a. List of all subsidiaries and joint ventures:

Subsidiaries including step down subsidiaries:

1 Aurigene Discovery Technologies (Malaysia) SDN BHD, Malaysia

2 Aurigene Discovery Technologies Inc., USA

3 Aurigene Discovery Technologies Limited, India

4 beta Institut gemeinnutzige GmbH, Germany

5 betapharm Arzneimittel GmbH, Germany

6 Cheminor Investments Limited, India

7 Cheminor Employees Welfare Trust, India

8 Chienna B.V., Netherlands (Merged with Dr. Reddy''s Research and Development B.V. w e f from 1 January 2017)

9 Chirotech Technology Limited, UK

10 Dr. Reddy''s Bio-sciences Limited, India

11 Dr. Reddy''s Farmaceutica Do Brasil Ltda., Brazil

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

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

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

15 Dr. Reddy''s Laboratories (UK) Limited, UK

16 Dr. Reddy''s Laboratories Canada, Inc., Canada

17 Dr. Reddy''s Laboratories Inc., USA

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

19 Dr. Reddy''s Laboratories Japan KK, Japan

20 Dr Reddy''s Laboratories Kazakhstan, Kazakhstan (from 30 November 2016)

21 Dr. Reddy''s Laboratories LLC, Ukraine

22 Dr. Reddy''s Laboratories Louisiana LLC, USA

23 Dr. Reddy''s Laboratories New York, Inc., USA

24 Dr. Reddy''s Laboratories Romania S.R.L., Romania

25 Dr. Reddy''s Laboratories SA, Switzerland

26 Dr. Reddy''s Laboratories SAS, Colombia

27 Dr. Reddy''s Laboratories Tennessee, LLC, USA

28 Dr. Reddy''s New Zealand Limited, New Zealand

29 Dr. Reddy''s Pharma SEZ Limited, India

30 Dr. Reddy''s Research and Development B.V. (formerly Octoplus BV)

31 Dr, Reddy''s Research Foundation, India

32 Dr. Reddy''s Singapore PTE Limited, Singapore

33 Dr. Reddy''s Srl, Italy

34 Dr. Reddy''s Venezuela, C.A., Venezuela

4. RELATED PARTIES (CONTINUED)

35 DRL Impex Limited, India

36 Eurobridge Consulting B.V., Netherlands

37 Idea2Enterprises (India) Private Limited, India

38 Imperial Credit Private Limited, India (acquired w e f from 22 February 2017)

39 Industrias Quimicas Falcon de Mexico, S.A.de C.V, Mexico

40 Lacock Holdings Limited, Cyprus

41 OctoPlus Development B.V. (Merged with Dr. Reddy''s Research and Development B.V. w e f from 1 January 2017)

42 OctoPlus PolyActive Sciences B.V.( Merged with Dr. Reddy''s Research and Development B.V. w e f from 1 January 2017)

43 OctoPlus Sciences B.V.( Merged with Dr. Reddy''s Research and Development B.V. w e f from 1 January 2017)

44 OctoPlus Technologies B.V.( Merged with Dr. Reddy''s Research and Development B.V. w e f from1 January 2017)

45 OctoShare B.V.( Merged with Dr. Reddy''s Research and Development B.V. w e f rom 1 January 2017)

46 OOO Dr. Reddy''s Laboratories Limited, Russia

47 OOO DRS LLC, Russia_

48 Promius Pharma LLC, USA

49 Reddy Antilles N.V., Netherlands

50 Reddy Cheminor S.A., France (liquidated during the year)

51 Reddy Holding GmbH, Germany

52 Reddy Netherlands B.V., Netherlands

53 Reddy Pharma Iberia SA, Spain

54 Reddy Pharma Italia S.R.L, Italy

55 Reddy Pharma SAS, France

Joint ventures

Kunshan Rotam Reddy Pharmaceutical Company Enterprise over which the Company exercises joint control with other joint venture partners and

56

Limited ("Reddy Kunshan"), China holds 51.33% of equity shares

Enterprise over which the Company''s step down subsidiary exercises joint control with other joint venture partner and holds 50% of equity shares DRSS Solar Power Private Limited, India Enterprise over which the Company exercises joint control with other joint venture partners and

5 (under liquidation) holds 26% of equity shares

Enterprise over which the Company exercises joint control with other joint venture partners and

6 DRES Energy Private Limited, India holds 26% of equity shares

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

1 Dr. Reddy''s Institute of Life Sciences Enterprise over which whole-time directors have significant influence

2 Stamlo Hotels Limited Enterprise controlled by whole-time directors

3 Green Park Hotels and Resorts Limited Enterprise controlled by relative of a whole-time director

4 K Samrajyam Mother of Chairman

5 G Anuradha Spouse of Chief Executive Officer

6 Deepti Reddy Spouse of Chairman

7 G Mallika Reddy Daughter of Chief Executive Officer

8 G V Sanjana Reddy Daughter of Chief Executive Officer

9 Dr. Reddys Foundation Enterprise over which whole-time directors and their relatives have significant influence

10 Pudami Educational Society__Enterprise over which whole-time directors and their relatives have significant influence_

Further, the Company contributes to the Dr. Reddy''s Laboratories Gratuity Fund, which maintains the plan assets of the Company''s Gratuity Plan for the benefit of its employees.

In accordance with the provisions of Ind AS 24 "Related Party Disclosures" and the Companies Act, 2013, Company''s Directors, members of the Company''s Management Council and Company Secretary are considered as Key Management Personnel.

List of Key Management Personnel of the Company is as below:

J__K Satish Reddy__Whole-time director_

2__G V Prasad__Whole-time director_

_3__Anupam Puri__Independent director_

4 Bharat Narotam Doshi Independent director

2.22 RELATED PARTIES (CONTINUED)__

_5__Dr. Ashok Ganguly__Independent director_

6 Dr. Bruce LA Carter Independent director

_7__Dr. Omkar Goswami__Independent director_

_8__Hans Peter Hasler__Independent director_

_9__J P Moreau (till 31 July 2015)__Independent director_

10 Kalpana Morparia Independent director

1_1__Ravi Bhoothalingam (till 27 July 2016)__Independent director_

1 2__Sridar Iyengar__Independent director_

1 3__Abhijit Mukherjee__Management council_

14 Alok Sonig Management council

1_5__Dr. Amit Biswas__Management council_

1 6__Dr. Cartikeya Reddy__Management council_

1 7__Dr. Chandrasekhar Sripada__Management council_

18 Dr. K V S Ram Rao Management council

1 9__Dr. Raghav Chari (till 31 October 2016)__Management council_

2 0__Ganadhish Kamat (from 18 April 2016)__Management council_

2 1__J Ramachandran (from September 2016)__Management council_

22 M V Ramana Management council

2 3__Samiran Das__Management council_

2 4__Saumen Chakraborty__Management council_

2 5__Umang Vohra (till 25 September 2015) and__Management council_

26 Sandeep Poddar Company secretary

Equity held in subsidiaries and joint venture has been disclosed under "Financial assets-Investments" (Note 2.4 A). Loans and advances to subsidiaries and joint venture have been disclosed under "Loans" (Note 2.4 C). Other receivables from subsidiaries and joint venture have been disclosed under "Other financial assets" (Note 2.4 D).

7. BUYBACK OF EQUITY SHARES

The Board of Directors of the Company, in their meeting held on 17 February 2016, approved a proposal to buy back equity shares of the Company, subject to approval by the Company''s shareholders, for an aggregate amount not exceeding '' 15,694 and at a price not exceeding '' 3,500 per equity share. The plan involved the purchase of such shares from shareholders of the Company (including persons who become shareholders by cancelling American Depository Shares and receiving underlying equity shares, and excluding the promoters and promoter group of the Company) under the open market route in accordance with the provisions contained in the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made there under. The shares bought back under this plan were required to be extinguished in accordance with the provisions of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 and rules made there under.

The Company''s shareholders approved the buyback plan on 1 April 2016, and implementation of the buyback plan commenced on 18 April 2016 and ended on 28 June 2016.

Under this plan, the Company bought back and extinguished 5,077,504 equity shares for an aggregate purchase price of '' 15,694. The aggregate face value of the equity shares bought back was '' 25.

8.EMPLOYEE STOCK INCENTIVE PLANS

Dr. Reddy''s Employees Stock Option Plan -2002 (the "DRL 2002 Plan"):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to 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"). The Nomination, Governance and Compensation Committee of the Board of DRL (the "Committee") administer the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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, as amended at Annual General Meetings of shareholders held on 28 July 2004 and on 27 July 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant 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 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., '' 5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the 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.

The weighted average grant date fair value of par value options granted under category B above of the DRL 2002 Plan during the years ended 31 March 2017 and 31 March 2016 was '' 3,266 and '' 3,350 per option, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2017 and 31 March 2016 was '' 3,292 and '' 3,504 per share, respectively.

The aggregate intrinsic value of options exercised under the DRL 2002 Plan during the years ended 31 March 2017 and 31 March 2016 was '' 584 and '' 679, respectively. As of 31 March 2017, options outstanding under the DRL 2002 Plan had an aggregate intrinsic value of '' 867 and options exercisable under the DRL 2002 Plan had an aggregate intrinsic value of '' 107.

The term of the DRL 2002 plan was extended for a period of 10 years effective as of 29 January 2012 by the shareholders at the Company''s Annual General Meeting held on 20 July 2012.

9. EMPLOYEE STOCK INCENTIVE PLANS (CONTINUED)

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 became effective upon its approval by the Board of Directors on 22 January 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, "eligible employees"). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive 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 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.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., '' 5 per option).

The weighted average grant date fair value of par value options granted under category B of the DRL 2007 Plan during the years ended 31 March 2017 and 31 March 2016 was Rs, 3,266 and Rs, 3,465, respectively. The weighted average share price on the date of exercise of options during the years ended 31 March 2017 and 31 March 2016 was Rs, 3,268 and Rs, 3,575, respectively.

The aggregate intrinsic value of options exercised under the DRL 2007 Plan during the years ended 31 March 2017 and 31 March 2016 was Rs, 110 and Rs, 116, respectively. As of 31 March 2017, options outstanding under the DRL 2007 Plan had an aggregate intrinsic value of Rs, 232 and options exercisable under the DRL 2007 Plan had an aggregate intrinsic value of Rs, 17.

During the year ended 31 March 2015, the Company adopted a new program to grant performance linked stock options to certain employees under the DRL 2002 Plan and the DRL 2007 Plan. Under this program, performance targets are measured each year against pre-defined interim targets over the three year period ending on 31 March 2017 and eligible employees are granted stock options upon meeting such targets. The stock options so granted are ultimately vested with the employees who meet subsequent service vesting conditions which range from one to four years. After vesting, such stock options generally have a maximum contractual term of five years.

10. EMPLOYEE STOCK INCENTIVE PLANS (CONTINUED)

Valuation of stock options:

The fair value of stock options granted under the DRL 2002 Plan and the DRL 2007 Plan has been measured using the Black-Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted under category B, the expected term of an option (or "option life") is estimated based on the vesting term, contractual term, as well as expected exercise behavior of the employees receiving the option. In respect of fair market value options granted under category A, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company''s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management''s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company''s control. As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock based compensation expense could be materially impacted in future years.

The estimated fair value of stock options is charged to income on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

No employee of the Company received grant of options during the year amounting to 5% or more of options granted or exceeding 1% of issued capital of the Company.

Share-based payment expense

For the years ended 31 March 2017 and 31 March 2016 the Company recorded employee share-based payment expense of '' 377 and '' 442, respectively. As of 31 March 2017, there was approximately '' 432 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.95 years.

11. EMPLOYEE BENEFITS

Gratuity benefits provided by the Company

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the "Gratuity Plan") and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee''s last drawn salary and the years of employment with the Company. Effective 1 September 1999, the Company established the Dr. Reddy''s Laboratories Gratuity Fund (the "Gratuity Fund") to fund the Gratuity Plan. 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 bonds issued by Government of India, corporate debt securities and in equity securities of Indian companies.

(1) The Company enters into derivative financial instruments with various counterparties, principally financial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations.

The models incorporate various inputs including foreign exchange spot and forward rates, interest rate curves and forward rate curves. As at 31 March 2017, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

Derivative financial instruments

The Company is exposed to exchange rate risk that arises from its foreign exchange revenues and expenses, primarily in US dollars, UK pounds sterling, Russian roubles, Venezuelan bolivars and Euros, and foreign currency debt in US dollars, Russian roubles and Euros. The Company uses forward contracts, option contracts and currency swap contracts (collectively, "derivatives") to mitigate its risk of changes in foreign currency exchange rates.

12.FINANCIAL INSTRUMENTS (CONTINUED)

The counterparty for these contracts is generally a bank or a financial institution. The Company had a derivative financial asset and derivative financial liability of Rs, 220 and Rs, 6, respectively, as at 31 March 2017 as compared to derivative financial asset and derivative financial liability of Rs, 175 and Rs, 52, respectively, as at 31 March 2016 towards these derivative financial instruments.

Further, in respect of these foreign exchange derivative contracts, the Company has recorded, as part of foreign exchange gain and losses, a net gain of Rs, 945, and a net gain of Rs, 275 for the years ended 31 March 2017 and 31 March 2016 respectively.

Hedges of highly probable forecasted transactions

The Company classifies its derivative contracts that hedge foreign exchange risk associated with its 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 a component of equity 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 of such cash flow hedges is immediately recorded in the statement of profit and loss as a foreign exchange gain and losses.

The Company also designates certain non derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for the hedge of foreign exchange 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 a component of equity 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 recorded, as a component of equity, a net gain of Rs, 145, and a net loss of Rs, 65 for the years ended 31 March 2017 and 31 March 2016 respectively.

The Company also recorded, as a component of revenue, a net gain of Rs, 136 and Rs, 299 during the years ended 31 March 2017 and 31 March 2016, respectively.

The net carrying amount of the Company''s "hedging reserve" as a component of equity before adjusting for tax impact was a gain of Rs, 129 as at 31 March 2017, as compared to a loss of Rs, 19 as at 31 March 2016.

Hedges of changes in the interest rates

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

The changes in fair value of such interest rate swaps (including cross currency interest rate swaps) are recognized as part of finance cost.

As at 31 March 2017 and 31 March 2016, the Company had no outstanding interest rate swap arrangements.

13. 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 is responsible for overseeing the 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 and investment securities. 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. The Company establishes an allowance for credit losses and impairment that represents its estimate of expected 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.

Investments

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

14. FINANCIAL RISK MANAGEMENT (CONTINUED)

Financial assets that are neither past due nor impaired

None of the Company''s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as at 31 March 2017. Of the total trade receivables, '' 31,071 as at 31 March 2017 and '' 25,826 as at 31 March 2016 consisted of customer balances that were neither past due nor impaired.

On account of adoption of Ind AS 109, the Company uses Expected Credit Loss (ECL) model for assessing the impairment loss. For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers.

Loans and advances

Loans and advances are predominantly given to subsidiaries for the purpose of working capital and other business requirements.

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 2017 and 31 March 2016, the Company had unutilized credit limits from banks of Rs, 12,437 and Rs, 12,304 respectively.

As at 31 March 2017, the Company had working capital (current assets less current liabilities) of Rs, 43,358, including cash and cash equivalents of Rs, 668, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs, 2,110 and investments in FVTPL financial assets of Rs, 10,881. As at 31 March 2016, the Company had working capital of Rs, 58,224, including cash and cash equivalents of Rs, 2,021, investments in term deposits (i.e., bank certificates of deposit having original maturities of more than 3 months) of Rs, 10,660 and investments in FVTPL financial assets of Rs, 22,320.

c. Market risk

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term 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 foreign exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in US dollars, Russian roubles, UK pounds sterling, and Euros) and foreign currency borrowings (in US dollars and Russian 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 revenues measured in Indian rupees may decrease. 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 both derivative and non derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities.

The details in respect of the outstanding foreign exchange forward and option contracts are given in note 2.34 above.

In respect of the Company''s forward contracts, option contracts and currency swap contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

- a Rs, 1,154/(710) increase/(decrease) in the Company''s hedging reserve and a Rs, 1,707/(1,854) increase/(decrease) in the Company''s net profit from such contracts, as at 31 March 2017;

- a Rs, 1,511/(424) increase/(decrease) in the Company''s hedging reserve and a Rs, 1,193/(1,588) increase/(decrease) in the Company''s net profit from such contracts, as at 31 March 2016.

The carrying value of the Company''s foreign currency borrowings designated in a cash flow hedge as of 31 March 2017 was '' Nil. In respect of these borrowings, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such borrowings would have resulted in a '' 182 increase/decrease in the Company''s hedging reserve as at 31 March 2016.

(1) Others include currencies such as UK pounds sterling, Swiss francs and Venezuelan bolivars.

For the years ended 31 March 2017 and 31 March 2016, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company''s net profit by approximately '' 1,866 and '' 224, respectively.

Interest rate risk

As of 31 March 2017 and 31 March 2016, the Company had '' 18,061 of loans carrying a floating interest rate of LIBOR minus 30 bps to LIBOR plus 82.7 bps and '' 27,730 of foreign currency loans carrying a floating interest rate of LIBOR minus 5 to LIBOR plus 125 bps, respectively. These loans expose the Company to risk of changes in interest rates. The Company''s treasury department monitors the interest rate movement and manages the interest rate risk based on its policies, which include entering into interest rate swaps as considered necessary.

For details of the Company''s short-term and long-term loans and borrowings, including interest rate profiles, refer to note 2.8A and 2.8B of these financial statements.

For the years ended 31 March 2017 and 31 March 2016, every 10% increase or decrease in the floating interest rate component (i.e., LIBOR) applicable to its loans and borrowings would affect the Company''s net profit by approximately '' 23 and '' 11, respectively.

The Company''s investments in term deposits (i.e., certificates of deposit) 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. As of 31 March 2017, the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

15. CONTINGENT LIABILITIES AND COMMITMENTS

A. Contingent liabilities (claims against the company not acknowledged as debts)

The Company is involved in 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. The more significant matters are discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

Although there can be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgments against the Company, such judgments could be material to its results of operations in a given period.

(i) Product and patent related matters

Matters relating to National Pharmaceutical Pricing Authority

Norfloxacin, India litigation

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs Prices Control Order (the "DPCO"), the National Pharmaceutical Pricing Authority (the "NPPA") established by the Government of India had the authority to designate a pharmaceutical product as a "specified product" and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a "specified product" and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the "High Court") challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favor of the Company; however it subsequently dismissed the case in April 2004.

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the "Supreme Court") by filing a Special Leave Petition.

During the year ended 31 March 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was '' 285 including interest. The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was '' 77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of '' 30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company''s application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a "specified product" under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On 20 July 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a "specified product" under the DPCO back to the High Court for further proceedings.

During the three months ended 30 September 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

During the three months ended 31 December 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court. Such writ petition is pending for admission.

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

16.CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)

Litigation relating to Cardiovascular and Anti-diabetic formulations

In July 2014, the NPPA, pursuant to guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and anti-diabetic therapeutic areas. The Indian Pharmaceutical Alliance ("IPA"), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On 26 September 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on 25 October 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

During the three months ended 31 December 2016, the NPPA issued show-cause notices relating to a few products of the Company for recovery of the allegedly overcharged amounts. The Company has responded to these notices.

On 20 March 2017, the IPA filed an application before the Bombay High Court for the recall of the judgment of the High Court dated 26 September 2016 on the grounds that certain information important for the determination of the issue was not disclosed by the counsel representing the Union of India during the proceedings before the Bombay High Court.

On 26 April 2017, the Bombay High Court heard the recall application and directed the matter to the same bench of judges of the Bombay High Court which passed the original judgment on 26 September 2016. Further, it also directed the Union of India and others to file their reply.

During the three months ended 31 March 2017, the NPPA issued demand notices to the Company relating to the foregoing products for the allegedly overcharged amounts, along with interest. The Company has responded to these notices.

Based on its best estimate, the Company has recorded a provision of '' 374 under "other selling expenses" as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

In the event the Government of India pursues litigation against the Company on the aforementioned NPPA matters for the excess sales proceeds and the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

(ii) Environmental matters Land pollution

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union 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 the then existing undivided state 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 effluents which damaged the farmers'' agricultural land. The compensation was fixed at '' 0.0013 per acre for dry land and '' 0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of '' 3. The Company believes that the likelihood 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 ("NGT"), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated 30 October 2015, constituted a Fact Finding Committee. The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company along with the alleged polluting industries have challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

Water pollution and air pollution

During the year ended 31 March 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the "APP Control Board") to show cause as to why action should not be initiated against them 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) cease manufacturing products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee to assure compliance with the APP Control Board''s orders.

17.CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)

The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the "APP Appellate Board"). The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge ("ZLD") 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 notification in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the notification 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 notification that re-imposed a moratorium on expansion of industries in certain areas where some of the Company''s manufacturing facilities are located. This notification overrides the Andhra Pradesh Government''s notification that conditionally permitted expansion.

(iii) Indirect taxes related matters

Distribution of input service tax credits

The Central Excise Authorities have issued various demand notices to the Company objecting to the Company''s methodology of distributing input service tax credits claimed for one of the Company''s facilities. The below table shows the details of each such demand notice, the amount demanded and the current status of the Company''s responsive actions.

The Company believes that the likelihood of any liability that may arise on account of the allegedly inappropriate distribution of input service tax credits is not probable. Accordingly, no provision relating to these claims has been made in these financial statements as of 31 March 2017.

Value Added Tax ("VAT") matter

The Company has received various demand notices from the Government of Telangana''s Commercial Taxes Department objecting to the Company''s methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Company''s responsive actions.

The Company has recorded a provision of '' 27 as of 31 March 2017, and believes that the likelihood of any further liability that may arise on account of the allegedly inappropriate claims to VAT credits is not probable.

Others

Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is '' 174. The Company has responded to such notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these financial statements as of 31 March 2017.

18. CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)

(iv) Fuel Surcharge Adjustments

The Andhra Pradesh Electricity Regulatory Commission (the "APERC") passed various orders approving the levy of Fuel Surcharge Adjustment ("FSA") charges for the period from 1 April 2008 to 31 March 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where the Company''s headquarters and principal manufacturing facilities are located. Separate writ petitions filed by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the Supreme Court of India.

After taking into account all of the available information and legal provisions, the Company has recorded Rs, 219 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 March 2013 is Rs, 482. As of 31 March 2017, the Company has made "payments under protest" of Rs, 354 as 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.

During the three months ended 30 June 2016, the Supreme Court of India dismissed the Special Leave Petition filed by the Company in this regard for the period from 1 April 2012 to 31 March 2013. As a result, the Company recognized an expenditure of Rs, 55 (by de-recognizing the payments under protest) representing the FSA charges for the period from 1 April 2012 to 31 March 2013.

(v) Direct taxes related matters

During the year ended 31 March 2014, the Indian Income Tax authorities disallowed for tax purposes certain business transactions entered into by the Company with its wholly-owned subsidiaries. The associated tax impact is Rs, 570. The Company believes that such business transactions are allowed for tax deduction under Indian Income Tax laws and accordingly filed an appeal with the Income Tax Appellate Authorities. On 28 April 2017, the Income Tax Appellate Tribunal of Hyderabad issued a judgment in favor of the Company confirming the Company''s position.

Additionally, the Company is contesting various other disallowances by the Indian Income Tax authorities. The associated tax impact is '' 1,555. The Company believes that the chances of an unfavorable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in these financial statements as of 31 March 2017.

(vi) Others

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.

19. 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.

20. SEGMENT REPORTING

In accordance with Ind AS 108 "Operating Segments", 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.

(a) Includes gross carrying value of Rs, 10 (31 March 2016: Rs, 17) and accumulated depreciation of Rs, 9 (31 March 2016: Rs, 11) towards transfers from non research and development to research and development property, plant and equipment during the year.

(b) Includes gross carrying value of Rs, 55 (31 March 2016: Rs, 32) and accumulated depreciation of Rs, 31 (31 March 2016: Rs, 23) towards transfers from research and development to non research and development property, plant and equipment during the year.

21. RECEIPT OF WARNING LETTER FROM THE U.S. FDA

The Company received a warning letter dated 5 November 2015 from the U.S. FDA relating to current Good Manufacturing Practice ("cGMP") deviations at its active pharmaceutical ingredient ("API") manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the U.S. FDA in November 2014, January 2015 and February-March 2015, respectively.

The warning letter does not restrict production or shipment of the Company''s products from these facilities. However, unless and until the Company is able to correct outstanding issues to the U.S. FDA''s satisfaction, the U.S. FDA may withhold approval of new products and new drug applications of the Company, refuse admission of products manufactured at the facilities noted in the warning letter into the United States, and/ or take additional regulatory or legal action against the Company. Any such further action could have a material and negative impact on the Company''s ongoing business and operations. During the years ended 31 March 2016 and 31 March 2017, U.S. FDA withheld approval of new products for, these facilities pending resolution of the issues identified in the warning letter. To minimize the business impact, the Company transferred certain key products to alternate manufacturing facilities.

Subsequent to the issuance of the warning letter, the Company promptly instituted corrective actions and preventive actions and submitted a comprehensive response to the warning letter to the U.S. FDA, followed by periodic written updates and in-person meetings with the U.S. FDA. The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities in the months of March and April 2017. During the re-inspections, the U.S. FDA issued three observations with respect to the API manufacturing facility at Miryalaguda, two observations with respect to the API manufacturing facility at Srikakulam and thirteen obser


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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