SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

For the Quarter Ended June 30, 2009

DR. REDDY’S LABORATORIES LIMITED

(Translation of registrant’s name into English)

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ                                     Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o		No þ

If “Yes” is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b): 82-o.

 

 

QUARTERLY REPORT
Quarter Ended June 30, 2009

Currency of Presentation and Certain Defined Terms

     In this Quarterly Report, references to “$” or “dollars” or “U.S.$” or “U.S. dollars” are to the legal currency of the United States and references to “Rs.” or “rupees” or “Indian rupees” are to the legal currency of India. Our unaudited consolidated condensed interim financial statements are presented in Indian rupees and are prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”). Convenience translation into U.S. dollars with respect to the unaudited interim condensed consolidated financial statements is also presented. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year. References to “ADS” are to our American Depositary Shares. All references to “IAS” are to the International Accounting Standards, to “IASB” are to the International Accounting Standards Board, to “IFRS” are to International Financial Reporting Standards, to “SIC” are to Standing Interpretations Committee and to “IFRIC” are to the International Financial Reporting Interpretations Committee.

     References to “U.S. FDA” are to the United States Food and Drug Administration, to “NDAs” are to New Drug Applications, and to “ANDAs” are to Abbreviated New Drug Applications.

     References to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. All references to “we,” “us,” “our,” “DRL,” “Dr. Reddy’s” or the “Company” shall mean Dr. Reddy’s Laboratories Limited and its subsidiaries. “Dr. Reddy’s” is a registered trademark of Dr. Reddy’s Laboratories Limited in India. Other trademarks or trade names used in this Quarterly Report are trademarks registered in the name of Dr. Reddy’s Laboratories Limited or are pending before the respective trademark registries.

          Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars are based on the noon buying rate in the City of New York on June 30, 2009 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was Rs.47.74 per U.S.$1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

     Information contained in our website, www.drreddys.com, is not part of this Quarterly Report and no portion of such information is incorporated herein.

Forward-Looking and Cautionary Statement

          IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED “OPERATING AND FINANCIAL REVIEW” AND ELSEWHERE IN THIS REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT OUR ANALYSIS ONLY AS OF THE DATE HEREOF. IN ADDITION, READERS SHOULD CAREFULLY REVIEW THE INFORMATION IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED AND/OR FURNISHED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) FROM TIME TO TIME.

TABLE OF CONTENTS

ITEM 1. FINANCIAL STATEMENTS			4
ITEM 2. OPERATING AND FINANCIAL REVIEW			33
ITEM 3. LIQUIDITY AND CAPITAL RESOURCES			38
ITEM 4. RECENT DEVELOPMENTS			38
ITEM 5. TREND INFORMATION			40
ITEM 6. EXHIBITS			42
SIGNATURES			43
EXHIBIT 99.1: INDEPENDENT AUDITORS’ REPORT ON REVIEW OF UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION			44

ITEM 1. FINANCIAL STATEMENTS

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(in millions, except share and per share data)

						As of
Particulars		Note				June 30, 2009				June 30, 2009				March 31, 2009
						Convenience
						translation in to U.S.$
ASSETS
Current assets
Cash and cash equivalents			6			U.S.$	130			Rs.	6,184			Rs.	5,596
Other investments							9				422				530
Trade receivables, net							280				13,374				14,592
Inventories			7				292				13,933				13,226
Derivative financial instruments							—				13				—
Current tax assets							8				377				58
Other current assets							105				5,024				5,008
Total current assets						U.S.$	824			Rs.	39,327			Rs.	39,010
Non-current assets
Property, plant and equipment			8				439				20,970				20,882
Goodwill			9				153				7,311				7,300
Other intangible assets			10				303				14,457				14,879
Investment in equity accounted associates							6				273				262
Deferred income tax assets							32				1,531				1,259
Other non-current assets							4				212				199
Total non-current assets						U.S.$	937			Rs.	44,754			Rs.	44,781
Total assets						U.S.$	1,761			Rs.	84,081			Rs.	83,791
LIABILITIES AND EQUITY
Current liabilities
Trade payables						U.S.$	144			Rs.	6,873			Rs.	5,987
Derivative financial instruments							—				—				332
Current income tax liabilities							42				2,020				633
Bank overdraft			6				10				473				218
Short-term borrowings							58				2,778				5,850
Long-term borrowings, current portion							78				3,747				3,501
Provisions							23				1,078				1,928
Other current liabilities							176				8,389				8,103
Total current liabilities						U.S.$	531			Rs.	25,358			Rs.	26,552
Non-current liabilities
Long-term loans and borrowings, excluding current portion						U.S.$	191			Rs.	9,111			Rs.	10,132
Provisions							1				46				42
Deferred tax liabilities							91				4,345				4,669
Other liabilities							8				389				351
Total non-current liabilities						U.S.$	291			Rs.	13,891			Rs.	15,194
Total liabilities						U.S.$	822			Rs.	39,249			Rs.	41,746

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(in millions, except share and per share data)

						As of
Particulars		Note				June 30, 2009				June 30, 2009				March 31, 2009
						Convenience
						translation in to U.S.$
Equity
Share capital						U.S.$	18			Rs.	843			Rs.	842
Equity shares held by controlled trust							—				(5	)			(5	)
Share premium							426				20,321				20,204
Share based payment reserve							13				601				676
Retained earnings							435				20,750				18,305
Other components of equity							49				2,322				2,023
Total equity						U.S.$	939			Rs.	44,832			Rs.	42,045
Total liabilities and equity						U.S.$	1,761			Rs.	84,081			Rs.	83,791

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS
(in millions, except share and per share data)

						Three months ended June 30,
Particulars		Note				2009				2009				2008
						Convenience
						translation
						into U.S.$
Revenues						U.S.$	381			Rs.	18,189			Rs.	15,038
Cost of revenues							168				8,017				7,544
Gross profit						U.S.$	213			Rs.	10,172			Rs.	7,494
Selling, general and administrative expenses							124				5,927				5,085
Research and development expenses							21				985				1,050
Other expense/(income), net			13				(1	)			(35	)			241
Total operating expenses, net						U.S.$	144			Rs.	6,877			Rs.	6,376
Results from operating activities							69				3,295				1,118
Finance income							2				88				320
Finance expense							(5	)			(223	)			(243	)
Finance (expense)/income, net			14				(3	)			(135	)			77
Share of profit of equity accounted investees, net of income tax							—				11				—
Profit before income tax							66				3,171				1,195
Income tax expense			19				(15	)			(726	)			(84	)
Profit for the period						U.S.$	51			Rs.	2,445			Rs.	1,111
Attributable to:
Equity holders of the Company							51				2,445				1,111
Non-controlling interest							—				—				—
Profit for the period						U.S.$	51			Rs.	2,445			Rs.	1,111
Earnings per share			16
Basic earnings per share of Rs.5/- each						U.S.$	0.30			Rs.	14.51			Rs.	6.61
Diluted earnings per share of Rs.5/- each						U.S.$	0.30			Rs.	14.45			Rs.	6.58

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except share and per share data)

		Three months ended June 30,
		2009				2009				2008
		Convenience
		translation in to
		U.S.$
Profit for the period		U.S.$	51			Rs.	2,445			Rs.	1,111
Other comprehensive income
Changes in fair value of available for sale financial instruments		U.S.$	—			Rs.	8			Rs.	4
Foreign currency translation adjustments			2				110				1,398
Effective portion of changes in fair value of cash flow hedges, net			6				289				(725	)
Income tax on other comprehensive income			(2	)			(108	)			117
Other comprehensive income for the period, net of income tax		U.S.$	6			Rs.	299			Rs.	794
Total comprehensive income for the period attributable to the owners of the Company		U.S.$	57			Rs.	2,744			Rs.	1,905
Attributable to:
Owners of the company			57				2,744				1,905
Non-controlling interest			—				—				—
Total comprehensive income for the period		U.S.$	57			Rs.	2,744			Rs.	1,905

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
(in millions, except share and per share data)

														Share				Equity shares
														based				held by a								Other
										Share				payment				controlled								components of
Particulars		Share capital								premium				reserve				trust*				Retained earnings				equity				Total
		Shares				Amount				Amount				Amount				Amount				Amount				Amount				Amount
Balance as of April 1, 2009			168,468,777			Rs.	842			Rs.	20,204			Rs.	676			Rs.	(5	)		Rs.	18,305			Rs.	2,023			Rs.	42,045
Issue of equity shares on exercise of options			198,493				1				117				(115	)			—				—				—				3
Share based payment expense			—				—				—				40				—				—				—				40
Total comprehensive income			—				—				—				—				—				2,445				299				2,744
Balance as of June 30, 2009			168,667,270			Rs.	843			Rs.	20,321			Rs.	601			Rs.	(5	)		Rs.	20,750			Rs.	2,322			Rs.	44,832
Convenience translation into U.S. $							18				426				13				—				435				49				939
Balance as of April 1, 2008			168,172,746			Rs.	841			Rs.	20,036			Rs.	709			Rs.	(5	)		Rs.	24,211			Rs.	1,558			Rs.	47,350
Issue of equity share on exercise of options			124,637				1				72				(68	)			—				—				—				5
Share based payment expense			—				—				—				34				—				—				—				34
Total comprehensive income			—				—				—				—				—				1,111				794				1,905
Balance as of June 30, 2008			168,297,383			Rs.	842			Rs.	20,108			Rs.	675			Rs.	(5	)		Rs.	25,322			Rs.	2,352			Rs.	49,294

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
(in millions)

		For the three months ended June 30,
Particulars		2009				2009				2008
		Convenience
		translation into
		U.S.$
Cash flows from operating activities:
Profit for the period		U.S.$	51			Rs.	2,445			Rs.	1,111
Adjustments for:
Income tax expense			15				726				84
Profit on sale of investments			—				(8	)			(75	)
Depreciation and amortization			24				1,134				933
Allowance for sales returns			4				175				160
Allowance for doubtful trade receivable			1				28				36
Inventory write-downs			2				81				37
(Profit)/loss on sale of property, plant and equipment, net			—				12				(3	)
Equity in (gain)/loss of equity accounted investees			—				(11	)			—
Unrealized exchange (gain)/loss, net			9				437				(289	)
Interest expense, net			1				59				174
Share based payment expense			1				40				34
Negative goodwill on acquisition of business			—				—				(150	)
Changes in operating assets and liabilities:											—
Trade receivables			12				589				(1,654	)
Inventories			(19	)			(905	)			(1,075	)
Other assets			—				10				37
Trade payables			22				790				1,752
Other liabilities and provisions			(19	)			(887	)			(1	)
Income tax paid			(8	)			(400	)			(192	)
Net cash from operating activities		U.S.$	96			Rs.	4,315			Rs.	919
Cash flows used in investing activities:
Expenditures on property, plant and equipment			(15	)			(442	)			(1,300	)
Proceeds from sale of property, plant and equipment			—				6				8
Purchase of investments			(104	)			(4,979	)			(5,867	)
Proceeds from sale of investments			107				5,103				7,435
Expenditures on intangible assets			—				(15	)			(101	)
Payment of contingent consideration			—				—				(26	)
Cash paid for acquisition of business, net of cash received			—				—				(3,089	)
Interest received			—				16				55
Net cash used in investing activities		U.S.$	(12	)		Rs.	(311	)		Rs.	(2,885	)

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
(in millions)

		For the three months ended June 30,
Particulars		2009				2009				2008
		Convenience
		translation into
		U.S.$
Cash flows used in financing activities:
Interest paid			(3	)			(153	)			(238	)
Proceeds from issuance of equity shares			—				3				5
Repayment of short term loans and borrowings, net			(63	)			(3,002	)			(1,678	)
Repayment of long term loans and borrowings, net			(17	)			(797	)			(478	)
Net cash used in financing activities		U.S.$	(83	)		Rs.	(3,949	)		Rs.	(2,389	)
Net decrease in cash and cash equivalents			1				55				(4,355	)
Effect of exchange rate changes on cash and cash equivalents			6				278				196
Cash and cash equivalents at the beginning of the period			113				5,378				6,987
Cash and cash equivalents at the end of the period		U.S.$	120			Rs.	5,711			Rs.	2,828

Note:

The property, plant and equipment purchased on credit during the three months ended June 30, 2009 and June 30, 2008 were Rs.0 and Rs.42, respectively.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

1. Reporting Entity

     Dr. Reddy’s Laboratories Limited (“DRL” or the “parent company”), together with its subsidiaries (collectively, the “Company”), is a leading India-based pharmaceutical company headquartered in Hyderabad, India. The Company’s principal areas of operation are in pharmaceutical services and active ingredients, global generics, and proprietary products. The Company’s principal research and development facilities are located in Andhra Pradesh, India; its principal manufacturing facilities are located in Andhra Pradesh, India, Himachal Pradesh, India and Cuernavaca-Cuautla, Mexico; and its principal marketing facilities are located in India, Russia and other countries of former Soviet Union, 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, since April 11, 2001, also on the New York Stock Exchange in the United States.

2. Basis of preparation of financial statements

a) Statement of compliance

     These unaudited condensed consolidated interim financial statements as at and for the three months ended June 30, 2009 have been prepared under the historical cost convention on the accrual basis, except for certain financial instruments which have been measured at fair values. These unaudited condensed consolidated interim financial statements are prepared in accordance with IAS 34, “Interim Financial Reporting”. They do not include all of the information required for full annual financial statements and should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2009. These unaudited condensed consolidated interim financial statements were authorized for issuance by the Company’s Board of Directors on September 2, 2009.

b) Presentation of financial statements

     The Company applies revised IAS 1, “Presentation of Financial Statements” (2007), which became effective as of April 1, 2009. As a result, the Company presents in the consolidated statements of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statements of comprehensive income. This presentation has been applied in these unaudited condensed consolidated interim financial statements as of and for the three months period ended on June 30, 2009. Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

c) Significant accounting policies

     The accounting policies applied by the Company in these unaudited condensed consolidated interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended March 31, 2009 contained in the Company’s Annual Report on Form 20-F.

d) Functional and presentation currency

     The unaudited condensed consolidated interim financial statements are presented in Indian rupees, which is the functional currency of DRL. Functional currency of an entity is the currency of the primary economic environment in which the entity operates.

     In respect of all non-Indian subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company (i.e., the Indian rupee). Accordingly, the operations of these entities are largely restricted to import of finished goods from the parent company in India, sale of these products in the foreign country and remittance of the sale proceeds to the parent company. The cash flows realized from sale of goods are readily available for remittance to the parent company and cash is remitted to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from the parent company. The financing of these subsidiaries is done directly or indirectly by the parent company.

     In respect of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been determined to be the local currency of those countries/regions. The assets and liabilities of such subsidiaries are translated into Indian rupees at the rate of exchange prevailing as at the reporting date. Revenues and expenses are translated into Indian rupees at average exchange rates prevailing during the year.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

2. Basis of preparation of financial statements (continued)

     Resulting translation adjustments are included in foreign currency translation reserve. All financial information presented in Indian Rupees has been rounded to the nearest million.

e) Convenience translation

     The accompanying unaudited condensed consolidated interim financial statements have been prepared in Indian rupees. Solely for the convenience of the reader, the unaudited condensed consolidated interim financial statements as of June 30, 2009 have been translated into United States dollars at the noon buying rate in New York City on June 30, 2009 for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York of U.S.$1.00 = Rs.47.74. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate.

f) Use of estimates and judgments

     The preparation of condensed consolidated interim financial statements in conformity with IAS-34 requires management to make judgments, 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.

     As at March 31, 2009, due to certain adverse market developments and consequential impairment losses recorded by the Company in its betapharm cash-generating unit, the Company reviewed the useful life of its indefinite life intangible asset trademark/brand –‘beta’ and determined it to be a finite life intangible asset with a useful life of 12 years. The consequent effect of this change in the amortization expense has been recognized from and after April 1, 2009. In preparing these unaudited condensed consolidated interim financial statements the significant judgments made by the management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as at and for the year ended March 31, 2009.

g) Recent accounting pronouncements

Standards early adopted by the Company

	•		IFRS 3 (Revised), “Business Combinations” (2008), as amended, is applicable for annual periods beginning on or after July 1, 2009. This standard was early adopted by the Company as at April 1, 2009. Business combinations consummated after April 1, 2009 will be impacted by this standard. IFRS 3 (Revised) primarily requires the acquisition-related costs to be recognized as period expenses in accordance with the relevant IFRS. Costs incurred to issue debt or equity securities are required to be recognized in accordance with IAS 39, “Financial Instruments: Recognition and Measurement: Eligible Hedged Items”. Consideration, after this amendment, will include fair values of all interests previously held by the acquirer. Re-measurement of such interests to fair value would be carried out through net profit in the income statements. Contingent consideration is required to be recognized at fair value even if not deemed probable of payment at the date of acquisition.
			IFRS 3 (Revised) provides an explicit option on a transaction-by-transaction basis, to measure any non-controlling interest (“NCI”) in the entity acquired at fair value of their proportion of identifiable assets and liabilities or at full fair value. The first method will result in a marginal difference in the measurement of goodwill from the measurement under existing IFRS 3; however, the second approach will require recording goodwill on NCI as well as on the acquired controlling interest. Upon consummating a business transaction in the future, the Company is likely to adopt the first method for measuring NCI.
	•		IAS 27, “Consolidated and Separate Financial Statements” (2008), as amended, is applicable for annual periods beginning on or after July 1, 2009. Earlier adoption is permitted, provided that IFRS 3 (Revised) is also early adopted. This standard was early adopted by the Company as at April 1, 2009. It requires a mandatory adoption of an economic entity model which treats all providers of equity capital as shareholders of the entity. Consequently, a partial disposal of an interest in a subsidiary in which the parent company retains control does not result in a gain or loss but in an increase or decrease in equity. Additionally, purchase of some or all of the NCI is treated as a treasury transaction and accounted for in equity, and a partial disposal of an interest in a subsidiary in which the parent company loses control triggers recognition of gain or loss on the entire interest. A gain or loss is recognized on the portion that has been disposed of and a further holding gain is recognized on the interest retained, being the difference between the fair value and carrying value of the interest retained. This standard requires an entity to attribute the NCI’s share of net profit and reserves to the NCI even if this results in the NCI having a deficit balance.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

2. Basis of preparation of financial statements (continued)

g) Recent accounting pronouncements (continued)

•

IFRS 8, “Operating Segments”, is applicable for annual periods beginning on or after July 1, 2009. This standard was early adopted by the Company as at March 31, 2009. IFRS 8 replaces IAS 14, “Segment Reporting”. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting provided to the chief operating decision maker. The application of this standard did not result in any significant change in the Company’s segmental disclosures. Goodwill has been allocated in accordance with the requirements of this standard.

Recently adopted accounting pronouncements

•

IAS 1 (Revised), “Presentation of Financial Statements” (2007) is applicable for annual periods beginning on or after January 1, 2009. This standard was adopted by the Company as at April 1, 2009. As a result of the adoption of this standard, the title for the balance sheet has been changed to ‘Statement of Financial Position’. Furthermore, the Company has included in its unaudited condensed consolidated interim financial statements two statements to display all items of income and expense recognized during the period - i.e., an ‘Income Statement’ and a ‘Statement of Comprehensive Income’.

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

	•		IFRIC Interpretation 18, “Transfers of Assets from Customers”, defines the treatment for property, plant and equipment transferred by customers to companies or for cash received to be invested in property, plant and equipment that must be used either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. The item of property, plant and equipment is to be initially recognized by the Company at fair value with a corresponding credit to revenue. If an ongoing service is identified as a part of the agreement, the period over which revenue shall be recognized for that service would be determined by the terms of the agreement with the customer. If the period is not clearly defined, then revenue should be recognized over a period no longer than the useful life of the transferred asset used to provide the ongoing service. This interpretation is to be applied prospectively to transfers of assets from customers received on or after July 1, 2009. Earlier application is permitted provided the valuations and other information needed to apply the information to past transfers were obtained at the time the transfer occurred. The Company intends to prospectively adopt this interpretation for all assets transferred after July 1, 2009. This interpretation is not expected to have a significant impact on the Company’s unaudited condensed consolidated interim financial statements.
			In April 2009, the IASB issued “Improvements to IFRSs 2009” — a collection of amendments to twelve International Financial Reporting Standards — as part of its program of annual improvements to its standards, which is intended to make necessary, but non-urgent, amendments to standards that will not be included as part of another major project. The latest amendments were included in exposure drafts of proposed amendments to IFRS published in October 2007, August 2008, and January 2009. The amendments resulting from this standard mainly have effective dates for annual periods beginning on or after January 1, 2010, although entities are permitted to adopt them earlier. The Company is evaluating the impact these amendments will have on the Company’s unaudited condensed consolidated interim financial statements.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

3. Segment reporting

     The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The operating segments reviewed by the CODM are as follows:

	•		Pharmaceutical Services and Active Ingredients (“PSAI”);
	•		Global Generics; and
	•		Proprietary Products.

     Pharmaceutical Services and Active Ingredients. This segment includes active pharmaceutical ingredients and intermediaries, also known as active pharmaceutical products or bulk drugs, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and intermediaries become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes contract research services and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specific customer requirements.

     Global Generics. This segment consists of finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). This reportable segment was formed through the combination and re-organization of the Company’s former Formulations and Generics segments in the year ended March 31, 2009.

     Proprietary Products. This segment involves the discovery of new chemical entities for subsequent commercialization and out-licensing. It also involves the Company’s specialty pharmaceuticals business which engages in sales and marketing operations for in-licensed and co-developed dermatology products.

     The CODM reviews gross profit as a performance indicator for all three of the above segments. The Company does not review the total assets and liabilities for each segment. The property, plant and equipment used in the Company’s business, and the related depreciation and amortization expenses, are not fully identifiable with or allocable to individual reportable segments, as certain assets are used interchangeably between segments. The other assets are not specifically allocable to the segments. Consequently, management believes that it is not practicable to provide segment disclosures relating to total assets and liabilities since allocation among the various segments is not possible.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

3. Segment reporting (continued)

Information about segments:														For the three months ended June 30,
Segments		PSAI								Global Generics								Proprietary Products								Others								Total
		2009				2008				2009				2008				2009				2008				2009				2008				2009				2008
Segment revenue (Note 1)		Rs.	4,869			Rs.	4,613			Rs.	13,020			Rs.	10,287			Rs.	112			Rs.	38			Rs.	188			Rs.	99			Rs.	18,189			Rs.	15,038
Gross profit		Rs.	1,704			Rs.	1,499			Rs.	8,313			Rs.	5,942			Rs.	73			Rs.	31			Rs.	82			Rs.	22			Rs.	10,172			Rs.	7,494
Selling, general and administrative expenses																																			5,927				5,085
Research and development expenses																																			985				1,050
Other expense/(income), net																																			(35	)			241
Results from operating activities																																			3,295				1,118
Finance income, net																																			135				77
Share of profit/(loss) of equity accounted investees																																			11				—
Profit before income tax																																			3,171				1,195
Income tax expense																																			(726	)			(84	)
Profit for the period																																		Rs.	2,445			Rs.	1,111

Note 1: Segment revenue for the three months ended June 30, 2009 does not include inter-segment revenues from PSAI to Global Generics which is accounted for at cost of Rs.639 (as compared to Rs.585 for the three months ended June 30, 2008) and inter-segment revenues from Global Generics to PSAI which is accounted for at cost of Rs.0 (as compared to Rs.4 for the three months ended June 30, 2008).

Analysis of revenue by geography within Global Generics segment:

     During the fiscal year ended March 31, 2009 , although resource allocation was done by the CODM at the Global Generics level, certain additional information (revenue and gross profit) with respect to the Company’s formulations and generics businesses continued to be reviewed by the CODM and, accordingly, further detailed information was included in the segment’s disclosures. However, effective April 1, 2009, the CODM no longer reviews information with respect to the Company’s formulations and generics business. Accordingly, the separate financial information relating to the Company’s formulations and generics business is no longer provided. Instead, the CODM reviews the geographical composition of revenues within the Global Generics segment. Accordingly, the geographical revenue information within the Global Generics segment has been provided for the three months ended June 30, 2009 with corresponding comparative information.

     The following table shows the distribution of the Company’s revenues by geography within the Global Generics segment, based on the location of the customer:

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

3. Segment reporting (continued)

		For the three months ended June 30,
		2009				2008
India		Rs.	2,393			Rs.	2,202
North America			6,026				2,808
Russia and other countries of the former Soviet Union			1,871				1,928
Europe			2,109				2,862
Others			621				487
		Rs.	13,020			Rs.	10,287

4.

Business combinations

     a. Acquisition of a unit of The Dow Chemical Company

     On April 28, 2008, the Company, through its wholly owned subsidiary Dr. Reddy’s Laboratories (EU) Limited, acquired a unit of The Dow Chemical Company associated with its United Kingdom sites in Mirfield and Cambridge for a total cash consideration of Rs.1,302 (U.S.$32). The acquisition included customer contracts and relationships, associated active pharmaceutical ingredient products, process technology and know-how, technology licensing rights and the Dowpharma Small Molecules facilities located in Mirfield and Cambridge, United Kingdom. The Company also took over the existing work force as a part of the acquisition. The acquisition resulted in technology related synergies for the Company’s existing Pharmaceutical Services and Active Ingredients segment and gave the Company access to an experienced research and development team.

     The Company has accounted for the acquisition under the purchase method in accordance with IFRS No. 3, “Business Combinations”. Accordingly, the financial results of this acquired business for the period from April 29, 2008 to March 31, 2009 have been included in the unaudited condensed consolidated interim financial statements of the Company.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

		Recognized values on
Particulars		acquisition
Property, plant and equipment		Rs.	741
Intangible assets			801
Inventories			231
Non-current liabilities, net			(71	)
Deferred tax liabilities, net			(250	)
Net identifiable assets and liabilities		Rs.	1,452
Negative goodwill recognized in other expense/(income), net			(150	)
Consideration paid in cash (1)		Rs.	1,302

⁽¹⁾     Total consideration paid includes direct attributable costs of Rs.13.

     As the acquisition involved a combination of a purchase of a unit of an existing entity and a purchase of certain identifiable assets, the carrying value of assets and liabilities before acquisition could not be determined in accordance with IFRS.

     The estimated useful lives of intangibles acquired are as follows:-

Customer related intangible		4-11 years
Product related intangibles		6-13 years

     The negative goodwill on acquisition is attributable mainly to lower amounts paid towards inventories and intangible assets in the acquired business.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

4. Business combinations (continued)

     b. Acquisition of BASF Corporation’s manufacturing facility in Shreveport, Louisiana, U.S.A. and related pharmaceutical contract manufacturing business.

     On April 30, 2008, the Company acquired BASF Corporation’s pharmaceutical contract manufacturing business and its manufacturing facility in Shreveport, Louisiana, U.S.A. for a total cash consideration of Rs.1,639 (U.S.$40). The business involves contract manufacturing of generic prescription and OTC products for branded and generic companies in the United States. This business includes customer contracts, related approved ANDAs and approved NDAs, and trademarks, as well as the Shreveport manufacturing facility. The Company also took over the existing work force as a part of the acquisition. This acquisition relates to the Company’s Global Generics segment.

     The Company has accounted for the acquisition under the purchase method in accordance with IFRS No. 3, “Business Combinations”. Accordingly, the financial results of this acquired business for the period from May 1, 2008 to March 31, 2009 have been included in the unaudited condensed consolidated interim financial statements of the Company.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

		Recognized values on
Particulars		acquisition
Property, plant and equipment		Rs.	755
Intangible assets			482
Inventories			249
Deferred tax asset			53
Net identifiable assets and liabilities		Rs.	1,539
Goodwill on acquisition			100
Consideration paid in cash(1)		Rs.	1,639

⁽¹⁾      Total consideration paid includes direct attributable costs of Rs.31.

     As the acquisition involved purchase of a unit of an existing entity with certain identifiable assets and liabilities, the carrying value of assets and liabilities before acquisition could not be determined in accordance with IFRS.

     The estimated useful lives of intangibles acquired are as follows:

Customer related intangibles		4 – 9 years
Product related intangibles		9 – 10 years

     Goodwill amounts to Rs.100 and is attributable mainly to the employee workforce acquired and the estimated values to be derived from the synergies for the Company due to cost savings.

     c. Acquisition of Jet Generici SRL

     On April 30, 2008, the Company acquired Jet Generici Srl, a company engaged in the sale of generic finished dosages in Italy, for a total cash consideration of Rs.148 (Euro 2.34). This acquisition resulted in the Company gaining an entry into the Italian market and access to Jet Generici’s customers, as well as the Company acquiring Jet Generici’s product related intangibles and employee workforce. The transaction was accounted for as an acquisition of a business under the purchase method in accordance with IFRS 3, whereby the Company assumed net liabilities of Rs.14 (primarily consisting of product supply related trade payables) which resulted in goodwill of Rs.162.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

4. Business combinations (continued)

     d. Pro-forma information

     If the above acquisitions had taken effect at the beginning of the reporting period (i.e., April 1, 2008), the revenue, profit before tax and profit after tax of the Company for the applicable periods on a pro-forma basis would have been as below:

		Three months ended
		June 30, 2008
Revenue		Rs.	15,182
Profit before tax			1,127
Profit after tax			1,072

5. Financial instruments

     Hedging of fluctuations in foreign currency

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

     The Company uses forward exchange contracts and option contracts (derivatives) to mitigate its risk of changes in foreign currency exchange rates. Most of the forward exchange contracts and option contracts have maturities of less than one year after the statements of financial position date. Where necessary, the forward exchange contracts are rolled over at maturity.

     Forecasted transactions

     The Company classifies its option contracts hedging forecasted transactions as cash flow hedges and measures them at fair value. The fair value of option contracts used as hedges of forecasted transactions at June 30, 2009 was a liability of Rs.13 (as compared to a liability of Rs.323 at March 31, 2009). This amount was recognized as derivatives measured at fair value.

     Recognized assets and liabilities

     Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are recognized in the income statements. Both the changes in fair value of the forward contracts and the foreign exchange gains and losses relating to the monetary items are recognized as part of “net finance costs”. The fair value of forward exchange contracts and option contracts used as economic hedges of monetary assets and liabilities in foreign currencies recognized in fair value derivatives was an asset of Rs.26 at June 30, 2009 (as compared to a liability of Rs.9 at March 31, 2009).

     Fair values

     The net carrying amount and fair value of all financial instruments, except derivative financial instruments, as at June 30, 2009 was a net liability of Rs.8,685 (as compared to a net liability of Rs.12,038 at March 31, 2009).

6. Cash and cash equivalents

     Cash and cash equivalents consist of:

		As of
		June 30, 2009				March 31, 2009
Cash balances		Rs.	15			Rs.	30
Balances with banks			6,169				5,566
Cash and cash equivalents on the statements of financial position			6,184				5,596
Bank overdrafts used for cash management purposes			(473	)			(218	)
Cash and cash equivalents on the cash flow statement		Rs.	5,711			Rs.	5,378

     Balances with banks amounting to Rs.16 as of each of June 30, 2009 and March 31, 2009 included above represent amounts pledged with statutory and other authorities as margin money, and are therefore restricted.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

7. Inventories

     Inventories consist of the following:

		As of
		June 30, 2009				March 31, 2009
Raw materials		Rs.	4,012			Rs.	3,518
Packing material, stores and spares			839				876
Work-in-process			3,027				2,976
Finished goods			6,055				5,856
		Rs.	13,933			Rs.	13,226

     During the three months ended June 30, 2009 and June 30, 2008, the Company recorded inventory write-downs of Rs.81 and Rs.37, respectively, on account of reductions in net realizable value. These adjustments were included in cost of revenues. Cost of revenues for June 30, 2009 and June 30, 2008 include raw materials, consumables and changes in finished goods and work in progress recognized in the income statements amounting to Rs.5,618 and Rs.5,397, respectively. The above table includes inventories amounting to Rs.366 and Rs.505 which are carried at fair value less cost to sell as at June 30, 2009 and March 31, 2009, respectively.

8. Property, plant and equipment

     Acquisitions and disposals

     During the three months ended June 30, 2009, the Company acquired assets at an aggregate cost of Rs.698 (as compared to a cost of Rs.2,838 and Rs.4,619 for the three months ended June 30, 2008 and the year ended March 31, 2009, respectively), including assets acquired through business combinations of Rs.0 (as compared to a cost of Rs.1,496 for assets acquired through business combinations for the three months ended June 30, 2008 and year ended March 31, 2009). Assets with a net book value of Rs.18 were disposed of during the three months ended June 30, 2009 (as compared to Rs.5 and Rs.66 for the three months ended June 30, 2008 and the year ended March 31, 2009, respectively), resulting in a net loss on disposal of Rs.12 (as compared to a gain of Rs.3 and Rs.15 for the three months ended June 30, 2008 and the year ended March 31, 2009, respectively). Depreciation expense for the three months ended June 30, 2009 was Rs.627 (as compared to Rs.556 for the three months ended June 30, 2008).

     Capital Commitments

     As of March 31, 2009 and June 30, 2009, the Company was committed to spend approximately Rs.996 and Rs.693, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchases.

9. Goodwill

     Goodwill arising upon acquisitions is not amortized but tested for impairment annually or more frequently if there are certain internal or external indicators.

     The following table presents the changes in goodwill during the three months ended June 30, 2009 and the year ended March 31, 2009:

		Three months ended				Three months ended				Year ended
		June 30, 2009				June 30, 2008				March 31, 2009
Opening balance (1)		Rs.	18,246			Rs.	17,088			Rs.	17,087
Goodwill arising on business combinations			—				315				262
Effect of translation adjustments			11				1,128				897
Closing balance (1)		Rs.	18,257			Rs.	18,531			Rs.	18,246
Less: Impairment loss (2)			(10,946	)			(90	)			(10,946	)
		Rs.	7,311			Rs.	18,441			Rs.	7,300

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

9. Goodwill (continued)

(1)		This does not include goodwill arising upon investment in associates of Rs.181, which is included in the carrying value of the investment in the equity accounted investees.
(2)		The impairment loss includes Rs.10,856 for the year ended March 31, 2009 related to the Company’s German subsidiary, betapharm Arzneimittel GmbH, which is part of the Global Generics segment (refer to note 10 for further details). The impairment loss of Rs.90 for the year ended June 30, 2008 relates to the Company’s Proprietary Products segment.

10. Other intangible assets

     Acquisitions and Write-down of intangibles

     During the three months ended June 30, 2009, the Company acquired other intangible assets at an aggregate cost of Rs.15 (as compared to a cost of Rs.1,413 and Rs.1,647 for the three months ended June 30, 2008 and the year ended March 31, 2009, respectively), including assets acquired through business combinations of Rs.0 (as compared to a cost of Rs.1,312 for the three months ended June 30, 2008 and the year ended March 31, 2009, respectively). Amortization expenses for the three months ended June 30, 2009 was Rs.507 (as compared to amortization expenses of Rs.377 for the three months ended June 30, 2008).

     Impairment losses recorded during the year ended March 31, 2009

     During the year ended March 31, 2009, there were significant changes in the generics market related to the Company’s German subsidiary, betapharm Arzneimittel GmbH (“betapharm”). These changes included a decrease in the reference prices of its products, increased quantity of discount contracts being negotiated with State Healthcare Insurance Funds (“SHIs”), and announcement of a large competitive bidding sale (or “tender”) process from the Allgemeine Ortskrankenkassen (“AOK”), one of the largest SHI funds in Germany. Due to these adverse market developments, as at March 31, 2009, the Company tested the carrying value of its product related intangibles, being the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable value of the above product-related intangibles was determined as the higher of its value in use and its fair value less costs to sell. This resulted in the fair value less costs to sell being the recoverable value of such intangibles. The impairment testing indicated that the carrying values of certain product-related intangibles were higher than their recoverable value, resulting in the Company recording an impairment loss on certain product related intangibles amounting to Rs.3,167 during the year ended March 31, 2009.

     As at March 31, 2009, the Company also performed its annual impairment analysis related to the betapharm cash-generating unit, comprised of the above product related intangibles, the indefinite life trademark/brand –‘beta’ and acquired goodwill. The recoverable value of the betapharm cash-generating unit was based on its fair value less costs to sell, which was higher than its value in use. The impairment testing indicated that the carrying value of the betapharm cash-generating unit was higher than its recoverable value, resulting in the Company recording an impairment loss of goodwill amounting to Rs.10,856 during the year ended March 31, 2009.

     Change in estimated useful life of indefinite life trademark/brand –‘beta’

     Due to the above adverse market developments and consequential impairment losses recorded by the Company in its betapharm cash-generating unit, the Company has reviewed the useful life of its indefinite life intangible asset trademark/brand –‘beta’. The carrying amount of this intangible was Rs.6,926 as at March 31, 2009 and the Company determined it to be a finite life intangible asset with a useful life of 12 years. This change will consequently increase the future annual amortization expense of the Company by approximately Rs.577 (Euro 9) for the next 12 years.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

11. Loans and borrowings

     Short term loans and borrowings

     The Company had undrawn lines of credit of Rs.16,650 and Rs.16,603 as of June 30, 2009 and March 31, 2009, respectively, from its bankers for working capital requirements. These lines of credit are renewable annually. The Company has the right to draw upon these lines of credit based on its requirements.

     An interest rate profile of short term borrowings from banks is given below:

		As at
		June 30, 2009				March 31, 2009
Rupee borrowings			7.52%				7.52%
Foreign currency borrowings		LIBOR+ 100 - 225bps				LIBOR+ 100 - 225bps

     Long term loans and borrowings

     Long term loans and borrowings consist of the following:

		As of
		June 30, 2009				March 31, 2009
Rupee term loan		Rs.	6			Rs.	7
Foreign currency loan			12,556				13,326
Obligations under finance leases			296				300
			12,858				13,633
Less: Current portion
Rupee term loan			5				6
Foreign currency loan			3,723				3,477
Obligations under finance leases			19				18
			3,747				3,501
Non current portion
Rupee term loan			1				1
Foreign currency loan			8,833				9,849
Obligations under finance leases			277				282
		Rs.	9,111			Rs.	10,132

     During the three month period ended June 30, 2009, the Company repaid Rs.795 of foreign currency loans (consisting of Euro 11.4 million and U.S.$0.64 million), Rs.1 of Rupee term loans and Rs.3 of obligations under capital leases. During the year ended March 31, 2009, the Company repaid Rs.1,907 of foreign currency loans (consisting of Euro 27 million and U.S.$2 million), Rs.6 of Rupee term loans and Rs.12 of obligations under finance leases.

     An interest rate profile of long-term debt is given below:

		As of
		June 30, 2009				March 31, 2009
Rupee borrowings			2.00	%			2.00	%
Foreign currency borrowings		EURIBOR + 70				EURIBOR +70
		bps and				bps and
		LIBOR+70 bps				LIBOR+70 bps

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

12. Amalgamation of Perlecan Pharma Private Limited

     During the three months ended June 30, 2009, the Company concluded a legal reorganization to amalgamate its wholly owned subsidiary, Perlecan Pharma Private Limited (“Perlecan”), into its own operations. The appropriate High Court approval was received by the Company during the three months ended June 30, 2009, which states that the Company would be able to offset the carry-forward tax losses of Perlecan against the taxable income of the Company for periods effective January 1, 2006. Accordingly, the Company has recorded an amount of Rs.250 representing the tax benefit arising from the carried forward tax losses of Perlecan as a reduction to its current tax liability with an offset to the existing deferred tax asset recognized for the tax losses of Perlecan as at March 31, 2009.

13. Other expense/(income), net

     Other expense/ (income), net consists of the following:

		Three months ended
		June 30, 2009				June 30, 2008
(Profit)/loss on sale of property, plant and equipment, net		Rs.	12			Rs.	(3	)
Sale of spent chemical			(41	)			(60	)
Negative goodwill on acquisition of business			—				(150	)
Miscellaneous income			(54	)			(61	)
Provision for expected claim from innovator			48				515
		Rs.	(35	)		Rs.	241

14. Finance income, net

     Finance income/(expense), net consists of the following:

		Three months ended
		June 30, 2009				June 30, 2008
Interest income		Rs.	80			Rs.	69
Foreign exchange (loss)/gain			(84	)			176
Profit on sale of investments			8				75
Interest expense			(139	)			(243	)
		Rs.	(135	)		Rs.	77

15. Share capital and share premium

     During the three months ended June 30, 2009 and June 30, 2008, 198,493 and 124,637 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 Plan-2002. Each of these options was exercised at an exercise price of Rs.5. The amount of grant date fair value previously recognized for these options has been transferred from “share based payment reserve” to “share premium” in the statements of financial position.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

16. Earnings per share

     Basic earnings per share

     The calculation of basic earnings per share for the three month period ended June 30, 2009 was based on the profit attributable to equity shareholders of Rs.2,445 (as compared to a profit of Rs.1,111 for the three months ended June 30, 2008) and a weighted average number of equity shares outstanding during the three months ended June 30, 2009 and three months ended June 30, 2008 calculated as follows:

		Three months ended June 30,
		2009				2008
Issued equity shares as on April 1			168,468,777				168,172,746
Effect of shares issued on exercise of stock options			30,537				36,105
Weighted average number of equity shares at June 30			168,499,314				168,208,851

     Diluted earnings per share

     The calculations of diluted earnings per share for the three months ended June 30, 2009 was based on the profit attributable for equity shareholders of Rs.2,445 (as compared to a profit of Rs.1,111 for the three months ended June 30, 2008) and weighted average number of equity shares outstanding during three months ended June 30, 2009 and three months ended June 30, 2008 calculated as follows:

		Three months ended June 30,
		2009				2008
Weighted average number of equity shares at June 30 (Basic)			168,499,314				168,208,851
Effect of stock options outstanding			750,158				679,355
Weighted average number of equity shares at June 30 (Diluted)			169,249,472				168,888,206

17. 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 September 24, 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 compensation committee of the Board of DRL (the “Compensation Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Compensation 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 was amended on July 28, 2004 at the annual general meeting of shareholders to provide for stock option grants in two categories:

Category A: 1,721,700 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: 573,778 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).

     The DRL 2002 Plan was further amended on July 27, 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 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).

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

17. Employee stock incentive plans (continued)

     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 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.

     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 options granted in the above two categories as follows:

		Number of				Number of
		Options granted				Options granted
		under				under
Particulars		Category A				Category B				Total
Options reserved under original Plan			300,000				1,995,478				2,295,478
Options exercised prior to stock dividend date (A)			94,061				147,793				241,854
Balance of shares that can be allotted on exercise of options (B)			205,939				1,847,685				2,053,624
Options arising from stock dividend (C)			205,939				1,847,685				2,053,624
Options reserved after stock dividend (A+B+C)			505,939				3,843,163				4,349,102

     The Compensation Committee, at its meeting held in October 2007, proposed that the Company should absorb the full liability of the Fringe Benefit Tax upon exercise of all stock options granted on or prior to the date of its resolution. In respect of new grants to be made by the Company subsequent to the date of such resolution, the Fringe Benefit Tax will be recovered from employees upon the exercise of their stock options. An amendment to the DRL 2002 Plan reflecting the Compensation Committee’s proposal was approved by the shareholders at the Annual General Meeting held on July 22, 2008.

     In April 2007, certain employees surrendered their par value options under category B of the DRL 2002 Plan in exchange for par value options under category B of the DRL 2007 Plan (discussed below). The incremental cost due to such modifications was insignificant.

     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 July 27, 2005. The DRL 2007 Plan became effective upon its approval by the Board of Directors on January 22, 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”). The Compensation Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Compensation 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 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 Compensation Committee, at its meeting held in October 2007, proposed that the Company should absorb the full liability of the Fringe Benefit Tax upon exercise of all stock options granted on or prior to the date of its resolution. In respect of new grants to be made by the Company subsequent to the date of such resolution, the Fringe Benefit Tax will be recovered from employees upon the exercise of their stock options. An amendment to the DRL 2007 Plan reflecting the Compensation Committee’s proposal was approved by the shareholders at the Annual General Meeting held on July 22, 2008.

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share data)

17. Employee stock incentive plans (continued)

     Aurigene Discovery Technologies Ltd. Employee Stock Option Plan 2003 (the “Aurigene ESOP Plan”):

     Aurigene Discovery Technologies Limited (“Aurigene”), a consolidated subsidiary, adopted the Aurigene ESOP Plan to provide for issuance of stock options to employees of Aurigene and its subsidiary, Aurigene Discovery Technologies Inc., who have completed one full year of service with Aurigene or its subsidiary. Aurigene has reserved 4,550,000 of its ordinary shares for issuance under this plan. Under the Aurigene ESOP Plan, stock options may be granted at an exercise price as determined by Aurigene’s compensation committee. The options issued under the Aurigene ESOP Plan vest in periods ranging from one to three years, including certain options which vest immediately on grant, and generally have a maximum contractual term of three years.

     During the year ended March 31, 2008, the Aurigene ESOP Plan was amended to increase the total number of options reserved for issuance to 7,500,000 and to provide for Aurigene’s recovery of the Fringe Benefit Tax from employees upon the exercise of their stock options.

     Aurigene Discovery Technologies Ltd. Management Group Stock Grant Plan (the “Aurigene Management Plan”):

     In the year ended March 31, 2004, Aurigene adopted the Aurigene Management Plan to provide for issuance of stock options to management employees of Aurigene and its subsidiary Aurigene Discovery Technologies Inc. Aurigene has reserved 2,950,000 of its ordinary shares for issuance under this plan. Under the Aurigene Management Plan, stock options may be granted at an exercise price as determined by Aurigene’s compensation committee. As of March 31, 2008, there were no stock options outstanding under the Aurigene Management Plan. The plan was closed by a resolution of the shareholders in January 2008.

     Stock option activity during the period:

     The terms and conditions of the grants made during the three months ended June 30, 2009 under the above plans were as follows:

		Number of				Exercise				Vesting				Contractual
		instruments				price				period				life
DRL 2002 Plan:
- Category A			—				—				—				—
- Category B			359,840			INR 5.00					1 to 4 years			5 years
DRL 2007 Plan:
- Category A			—				—				—				—
- Category B			74,600			INR 5.00					1 to 4 years			5 years
Aurigene ESOP Plan:			—				—				—				—