D R . R E D D Y ’ S L A B O R AT O R I E S L I M I T E D | A N N U A L R E P O R T | 2 0 0 9 – 1 0
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C ONTENTS
24 MANAGEMENT DISCUSSION AND ANALYSIS
42 BOARD OF DIRECTORS
45 MANAGEMENT COUNCIL
72 DIRECTORS’ REPORT
2 CHAIRMAN’S LETTER
46 CORPORATE GOVERNANCE
89 IGAAP STANDALONE FINANCIALS
4 KEY HIGHLIGHTS
60 ADDITIONAL SHAREHOLDERS’ INFORMATION 70 FIVE YEARS AT A GLANCE
141 IGAAP CONSOLIDATED FINANCIALS
6 THE DNA OF SUSTAINABILITY
187 EXTRACT OF IFRS CONSOLIDATED FINANCIALS 190 STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956 191 INFORMATION ON THE FINANCIALS OF SUBSIDIARY COMPANIES 192 NOTICE OF ANNUAL GENERAL MEETING
14 HUMAN RESOURCES
71 RATIO ANALYSIS
16 SAFETY, HEALTH AND ENVIRONMENT
18 CORPORATE SOCIAL RESPONSIBILITY
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
CHAIRMAN’S LETTER
2009-10 has been a satisfactory year for your Company. Let me start with the financial results. Consolidated revenues for 2009-10 was Rs. 70,277 million. Excluding revenues from sumatriptan — your Company’s Authorized Generic version of Imitrex® which was launched in 2008-09 — revenue grew by 9%. In US dollar terms, 2009-10 revenue was US$ 1.56 billion. I am happy to inform you that the Company’s revenue has been rising at a CAGR of 23% over the last decade. That is a creditable performance by any standard. Your Company’s EBITDA of Rs. 15,828 million was the highest among pharmaceutical companies in India. Return on Capital Employed (RoCE) in 2009-10 was 17%, as against 14% in 2008-09. You may recollect that in my last year’s letter to you, I had asked your Company to generate “Return on Capital Employed in middle to high teens”. It has. There have been several other developments in 2009-10 that I am particularly proud of. The first is that in the US market, 2009 saw Dr. Reddy’s enter the list of the Top 10 generic companies. This is a red-letter event for your Company. It confirms Dr. Reddy’s abilities to compete in the US, and strengthens its resolve to becoming a leading generics player in this important geography.
Your Company remains committed to building a strong generics and active ingredients pipeline. In 2009-10, Dr. Reddy’s filed 13 drug applications in North America, of which 12 Abbreviated New Drug Applications (ANDAs) were in the US and one in Canada. Among these were six Para-IV filings.
The second development is in the Russian and CIS markets. In Russia, revenues of your Company grew by 25% in 2009-10 — versus an overall market growth of 8% — and thus gross sales for Russia and CIS markets exceeded the US$ 200 million mark. That is another ‘first’ for Dr. Reddy’s. Third, the Indian market saw your Company’s revenues increase by 20% in 2009-10 to
Rs. 10,158 million — thus crossing the Rs. 1,000 crore landmark. This is also a ‘first’. Fourth, I am proud of what your Company did on 30 September 2009. Following concerns on the size and proportion of a few of its pills in the US — an issue isolated to four products, one specific lot per product, or four lots in total — it voluntarily recalled four categories of tablets. To my mind, this is an act of courage and honesty. In such circumstances, the right thing to do is to take all the necessary corrective measures with utmost speed and fairness. This action of your Company has strengthened its fiduciary position vis-à-vis its US customers and the US Food and Drug Administration (USFDA). Fifth, Dr. Reddy’s had successful audits carried out by the USFDA for two of its formulation plants, one in Hyderabad and the other in Vishakapatnam. The USFDA follows extremely stringent audit procedures, and the success demonstrates your Company’s commitment to producing medicines according to the highest international standards. The formulation plant at Vishakapatnam was also audited and certified by Brazil’s National Health Surveillance Agency (or the Agência Nacional de Vigilância Sanitária, ANVISA). In addition, the chemical plants were audited and certified by the United Kingdom’s Medicines and Health products Regulatory Agency (MHRA). Sixth, I am happy to inform you that Dr. Reddy’s has entered into a strategic partnership with GlaxoSmithKline plc (GSK) to develop and market select products across emerging markets outside India. This partnership will expand the Company’s reach in emerging economies. The products will be manufactured by Dr. Reddy’s; and will be licensed and supplied to GSK in markets such as Latin America, Africa, the Middle East, and Asia Pacific excluding India. Already, there has been more than 50 dossier filings in various markets under this alliance. Seventh, let me talk about discovery research. I am satisfied with the results of the first set of Phase III clinical trials of Balaglitazone (DRF 2593). These have shown significant reduction in HbA1c
ANNUAL RE P O RT 2 0 0 9 – 1 0 CHAIRMAN’S LETTER | 3
The global pharmaceutical business is becoming more complicated than ever before. Older business models are being challenged by competition; and new verticals are coming into play.
(glycosylated haemoglobin) and improved safety profile. I hope that your Company will continue getting successful Phase III results, and will be able to monetize this new molecule in the future. Your Company remains committed to building a strong generics and active ingredients pipeline. In 2009-10, Dr. Reddy’s filed 13 drug applications in North America, of which 12 Abbreviated New Drug Applications (ANDAs) were in the US and one in Canada. Among these were six Para-IV filings. The US generic pipeline now comprises 73 ANDAs pending with the USFDA, including 11 tentative approvals. Of these, 38 are Para-IV filings, with 12 in the category of ‘first to file’. As of 31 March 2010, the Company has filed 179 cumulative drug applications in both US and Canada. In the Active Ingredients business, too, the Company filed 36 Drug Master Files (DMFs) in 2009-10 —19 in the US, five in Canada, eight in Europe and four in other countries. As on 31 March 2010, Dr. Reddy’s had cumulative filings of 378 DMFs, with 156 in the US. We have taken all the necessary impairments on account of our German subsidiary, betapharm. As I wrote last year, the German generics market has become commoditized, driven by tenders and auctions. In such a scenario, accounting standards dictated taking another non-cash impairment. Your Company has done so in 2009-10 by recording a write-down of intangible assets of Rs. 3,323 million, and goodwill of Rs. 5,147 million. The balance sheet has been effectively cleansed of intangible and goodwill on account of betapharm. With the cost and organizational rationalizations that are being carried out in Germany, and with much greater supply chain support from India, I expect betapharm to do better in the future. Finally, a peep into tomorrow. The global pharmaceutical business is becoming more complicated than ever before. Older business models are being challenged by competition; and new verticals are coming into play. There will be new developments and alliances, as well as new opportunities and challenges. In such an
environment only the rapid, clever and nimble will win. The changes that are being carried out across your Company are all geared to create the ‘winning infrastructure’. For the next year, I am asking your Company to earn a return on capital employed between 18% to 22%, in line with the goal of reaching 25% by 2012-13. I am confident that your Company will continue winning. And be the most respected global pharmaceutical company in India committed to providing affordable and innovative medicines. Thank you for your support. With warm regards,
Dr. K Anji Reddy Chairman
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
F I N A N C I A L H I G H L I G H T S ( B A S E D O N I F R S F I N A N CI A L S )
Consolidated Revenues Excluding revenues from sumatriptan – Dr. Reddy’s Authorized Generic version of Imitrex® which was launched in 2008-09, the Company’s overall revenue grew by 9%. It should be noted that the Company’s revenue has been rising at a CAGR of 23% over the last 10 years. EBITDA Adjusted EBITDA of Rs. 15,828 million is highest among pharmaceutical companies in India.
Profit After Tax Net profit of Rs. 1,068 million in 2009-10 as against a net loss of Rs. 5,168 million in 2008-09. Excluding impact of impairment from the current year as well as from the previous year, adjusted net income increased by 10% to Rs. 9,217 million in 2009-10 from Rs. 8,355 million in 2008-09.
Return on Capital Employed (RoCE) RoCE at 17% for 2009-10 as against 14% in 2008-09. This increase is attributable to: Core business growth of India, Russia and North America Rationalization of business model and Cost optimization and restructuring initiatives. Fully diluted Earnings Per Share Fully diluted earnings per share was at Rs. 6.30 in 2009-10 as against Rs. (30.69) in 2008-09.
CONSOLIDATED REVENUE
IN RS. MILLION
GLOBAL GENERICS REVENUES
GEOGRAPHICAL MIX, IN RS. MILLION
North America 40% (19,843) CIS 4% (1,821) Russia 12% (5,803) Others 4% (1,959)
2008-09
Europe 24% (11,886)
HIGHLIGHTS
70,277
2009 2010
REVENUES FROM DIFFERENT BUSINESSES
India 17% (8,478) North America 34% (16,817)
69,441
CIS 4% (1,887) Russia 15% (7,232) Others 6% (2,868)
2009-10
Europe 20% (9,643)
2009
2010
India 21% (10,158)
Global Generics Revenues were at Rs. 48,606 million in 2009-10 versus Rs. 49,790 million in 2008-09. Excluding revenues from sumatriptan, Dr. Reddy’s Authorized Generic version of Imitrex® which was launched in 2008-09, Global Generics revenues grew by 8%. In 2008-09, the company was able to launch sumatriptan, the Authorized Generic version of Imitrex®, ahead of others. The launch of sumatriptan in the US contributed Rs. 7,188
million in 2008-09 and Rs. 2,543 million in 2009-10. Excluding sumatriptan, revenues from North America grew by 13% to Rs. 14,274 million in 2009-10 from Rs. 12,655 million in 2008-09, growth being largely driven by the new product launches and OTC products. Revenues in India grew by 20% to Rs. 10,158 million in 2009-10 from 8,478 million in 2008-09.
Revenues from Russia and CIS countries grew by 20% to Rs. 9,119 million in 2009-10 from Rs. 7,623 million in 2008-09. Revenues from Europe dropped by 19% to Rs. 9,643 million in 2009-10 from Rs. 11,886 million in 2008-09. betapharm revenues dropped by 26% to Rs. 7,298 million in 2009-10 from Rs. 9,854 million in 2008-09.
ANNUAL RE P O RT 2 0 0 9 – 1 0 KEY HIGHLIGHTS | 5
A N DA s , D M F s , P R O D U C T R E G I S T R AT I O N A N D N C E s
ANDAs in North America In 2009-10, the Company filed 12 Abbreviated New Drug Applications (ANDAs) in US including six Para IV filings. The Company has filed 158 cumulative ANDAs up to date. As on 31 March 2010, there were 73 ANDAs pending approval at the USFDA, of which 38 are Para-IV filings, with 12 in the category of ‘first to file’.
DMFs Regarding Active Ingredients business, the Company filed 36 DMFs in 2009-10. Of these, 19 were filed in US, five in Canada, eight in Europe and four in other countries. As on 31 March 2010, the Company had cumulative filings of 378 filings, with 156 in the US.
New Chemical Entities (NCEs) As on 31 March 2010, Dr. Reddy’s had six New Chemical Entities (NCEs), of which five are in clinical development and one in the preclinical stage.
PSAI REVENUES
GEOGRAPHICAL MIX, IN RS. MILLION
ANDA S IN NORTH AMERICA
DMFs
GEOGRAPHICAL MIX
India 13% (2,383)
Others 34% (6,340)
23
Canada 5
Others 10
2008-09
Non Para IV 16 12 USA Non Para IV 6 21 Canada
2008-09
Europe 33% (6,160) India 13% (2,646)
North America 20% (3,875) Others 36% (7,433)
Europe 19 Others 4
5
2009-10
Para IV 7
Para IV 6
2009-10
Europe 33% (6,652)
North America 18% (3,673)
2009
2010
USA 19
Europe 8
RECOGNITIONS
Pharmaceutical Services and Active Ingredients (PSAI) Revenues grew by 9% to Rs. 20,404 million in 2009-10 from Rs. 18,758 million in 2008-09. International revenues accounted for 87% of PSAI revenues. 2009-10 saw the company posting significant increase primarily from Europe by 8% and “Rest of the World” markets (i.e., all markets other than North America, Europe, Russia and other countries of the former Soviet Union and India) by 17%.
The year saw Dr. Reddy’s win numerous awards. Some of the key ones were: “Corporate Social Responsibility Award” at the CNBC TV18’s India Business Leader Awards (IBLA); “Golden Peacock Award for Excellence in Corporate Governance” and “NASSCOM CNBC IT User Award” 2009 in the Pharmaceutical vertical for the 2nd year in a row. For its HR initiatives, Dr. Reddy’s won the: Recruiting And Staffing Best In Class (RASBIC) award 2009-10 for the ‘Best Overall
Recruiting and Staffing Organization’ and ‘Best Recruiting Evaluation Techniques’; ‘Organization with Innovative HR Practices’ and ‘Outstanding Contribution to the Cause of Education’ awards at the World HRD Congress and was adjudicated the best in the ‘Great Places to Work Survey’ in the pharmaceutical and biotechnology industry. The Company’s Annual Report was conferred the ‘Merit Award’ for the year 2008 in the category ‘Manufacturing Sector’ by the South Asian Federation of Accountants.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
ENVIRONMENTAL MANAGEMENT & CLIMATE CHANGE
THE DNA OF SUSTAINABILITY
At Dr. Reddy’s, Sustainability is a way of life and is embedded in our purpose. It is a broad concept which encompasses how we value our employees, social impact of our products, patient centric programs, proactive safety, health and environment (SHE) management, implementation of community development projects and voluntary engagement with the society to address larger social concerns like livelihood and education. Our awareness of sustainability originates from the social benefits of our business. We have come to understand the interdependence (as against independence) of our stakeholders and this has encouraged our simultaneous pursuit of a people, purpose and planet approach. For our organization to be truly sustainable, we have to be distinctive in a few areas, while being good at most activities that we do. We believe that our strategy of “Leveraging industry-leading science & technology, product offering, and customer service with execution excellence to provide affordable and innovative medicines for healthier lives” will help us focus on the right areas. In practicing sustainability, our initial efforts were focused on environment management and safety & health at the workplace. As our organization evolved, so has been our sustainability thinking. Today, while considering issues that are of significance to our stakeholders as well as to the organization, we have arrived at a robust sustainability framework with six key focus areas– Providing affordable and innovative medicines, being an employer of choice, environmental management and climate change, caring for communities, sustainable sourcing and product responsibility.
SUSTAINABLE SOURCING
PRODUCT RESPONSIBILITY
A N N U A L R E P O R T 2 0 0 9 – 1 0 T H E D N A O F S U S TA I N A B I L I T Y | 7
KEY AREAS OF FOCUS
CARING FOR COMMUNITIES SOCIETY COMMUNITY ENVIRONMENT PUBLIC
To us at Dr. Reddy’s, a sustainable organization is one that simultaneously pursues economic, social and environmental benefits, thereby increasing value for all its stakeholders and assuring a robust future.
BEING AN EMPLOYER OF CHOICE
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
PROVIDING AFFORDABLE AND INNOVATIVE MEDICINES
At Dr. Reddy’s, a company with a significant global footprint, we have a serious responsibility – to help reduce the burden of disease on individuals and on the world. We achieve this by leveraging our proficiency in science and technology to innovate at every stage of our processes. Our Pharmaceutical Services and Active Ingredients (PSAI) and Global Generics businesses focus on affordability by providing lower cost, high quality alternatives while our Proprietary Products business addresses unmet and poorly met medical needs.
» Reaching out to the rural markets in India Dr. Reddy’s forayed into the rural markets in FY09 with launch of an exclusive portfolio of products targeted at the needs of people in rural India. » Dose Counter Inhalers – a novel device It is the first Metered Dose Inhaler in India that gives patients an advance indication of when the inhaler is going to be empty. » Through Sparsh, the entire range of Dr. Reddy’s oncology products are routed to needy patients through patron-oncologists
GREEN (FULL) TIME TO CHANGE RED (EMPTY)
across India, enabling them to complete planned cancer care and treatment.
Satyajit Ghosh (7 yrs.) from Bhubaneswar, Orissa, India was diagnosed with blood cancer six months ago. His treatment requires him to spend two to three weeks at the SCB Medical
College in Cuttack, India every month. His care and treatment costs are beyond the reach of his father, a daily wage laborer. He was given assistance under the Sparsh program to meet his treatment needs. Dr. Reddy’s arranged for free medication as well as reimbursement of other treatment related expenses. He has now successfully completed 4 cycles of chemotherapy and is looking forward to getting his normal childhood back.
A N N U A L R E P O R T 2 0 0 9 – 1 0 T H E D N A O F S U S TA I N A B I L I T Y | 9
ENVIRONMENTAL MANAGEMENT & CLIMATE CHANGE
We are working towards maintaining a harmonious relationship with the environment, which calls upon us to engage ethically with our stakeholders and to do everything in our power to reduce our ecological footprint. Our mandate now, is ‘every new product should have a sensible footprint’. Efforts are on to achieve a suitable blend of energy conservation, use of renewable sources of energy, water conservation, control on generation, disposal of hazardous waste and green chemistry.
» Safe disposal of organic residue to cement industry A positive development regarding disposal of our organic residues was the opening up of an alternative, environmentally friendly option as
compared to incineration. During 2009-10, we disposed 1,747 tons of organic residues to the cement industry for use as feedstock in the cement manufacturing process.
» In FY10 a total 71 energy conservation measures were initiated, with an annual saving of around 5.0 million kwh. » Green Chemistry Dr. Reddy’s “Centre of Excellence for Process Engineering” contributes to Sustainability through “Green Chemistry”. This ensures not only environment friendly products and processes, but also contributes to the health and safety of employees involved in manufacturing. In FY10 the Company joined the Green Chemistry Institute® Pharmaceutical
Roundtable of the American Chemical Society. » Solvent Recovery Systems (SRS) were installed across all our Hyderabad based Chemical units in FY09 at a cost of Rs. 250 million.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
BEING AN EMPLOYER OF CHOICE
We believe collaboration and teamwork enhances performance and drives innovation. We work as One Team, collectively ideating, innovating and interacting. At Dr. Reddy’s, we offer a conducive working environment that taps one’s potential to the fullest while offering them the freedom to question, innovate and find that ‘better way’. This has gone a long way in earning us the trust of our employees and in making our employees proud to work with us.
» Leadership Academy The Leadership Academy at our Bachupally campus in Hyderabad is a state-of-the-art infrastructure aimed at being a catalyst for our company-wide culture of continuous learning and leadership development. The academy provides a platform for people to come together to ideate and introspect. In FY10 a total of 6,068 man days of training was provided. » Diversity There is a conscious effort at building diversity in the
workforce, which has led to a greater proportion of women employees. In FY10, almost 13% of the recruits were women. Also, of all the campus hires, 31% were women.
Our global employee strength comprises of 13,000+ associates from over 25 nationalities. Over 2,600 associates are based outside India.
» Self Managed Team (SMT) We were the first pharmaceutical company in India to implement the Self Managed Teams (SMTs) concept at our manufacturing operations. A SMT is an empowered, multiskilled team with operational decision-making authority. Turning traditional thinking on its head, the SMT concept, implemented at our plants at Baddi and Yanam in India have proved to be a resounding success.
A N N U A L R E P O R T 2 0 0 9 – 1 0 T H E D N A O F S U S TA I N A B I L I T Y | 11
PRODUCT RESPONSIBILITY
The trust of patients and doctors is crucial to our business. We ensure there is ‘No scope for error in anything we do’ by addressing quality management, regulatory compliance, product safety requirements and putting in stringent procedures for packaging to protect patient safety. We are adopting a Quality by Design (QbD) approach where it is no longer enough to do a quality check at the end of the process. Our aim is to ensure that every step in our process is done ‘first time right’.
» Product packagingWe address counterfeiting through: batch numbering, manufacturing and expiry date
Tamper-proof package design of Mitotax injection was awarded the AmeriStar award for packaging excellence in 2005
to safeguard products from cheap counterfeits to eliminate obvious conventional practice among others
» Compliance Our manufacturing facilities have been inspected and approved by leading regulatory agencies like United States Food and Drug Administration (USFDA), Ministries of Health of Brazil
(ANVISA), UK (MHRA), Ukraine, Romania, Therapeutic Goods Administration (TGA), Danish Medicines Agency and World Health Organization (WHO) among others. Globally, we have eight USFDA approved chemical plants, seven finished dosage plants (two USFDA approved) and one biologics development center.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
SUSTAINABLE SOURCING
Our Business Partners are important stakeholders and working with them provides us operational flexibility and cost advantage. However, we are the ones responsible for social, economic and environmental impacts of our entire value chain. Through sustainable sourcing, we try to influence them to adhere to best practices in human rights, ethics, health & safety, environment and other related management systems. Our mantra has been ‘nurture them, and let them grow’, as ultimately our growth is linked to theirs.
» Enabling compliance Many of our business partners are WHO GMP certified and ISO compliant. We evaluate their compliance through audit and give weightage to those who are environmentally sensitive. A data bank has been created on our Safety, Health and Environment (SHE) infosite and it triggers mail alerts to the business partners regarding the expiry/nonreceipt of their licenses. Periodic safety audits are conducted at their facilities to check infrastructure
improvement and systems implementation. » Vendor Lab and Use Test Lab We have created a vendor lab, through which our business partners can manage
processes faster, validate new sources and technologies, speed up implementation and conserve higher cost facilities. In the pharmaceutical industry, maintaining high quality standards
and robust systems is crucial. Through a Use Test Lab, analysis is done to ensure that our finished drugs meet regulatory standards.
A N N U A L R E P O R T 2 0 0 9 – 1 0 T H E D N A O F S U S TA I N A B I L I T Y | 13
CARING FOR COMMUNITIES
‘To progress and provide for the community around us’ and ‘to benefit individuals and society at large’ are our focus areas in sustainable community development. Caring for communities is a part of our values statement. We channel our wide network of social activities through Dr. Reddy’s Foundation (DRF), address health education needs and patient care activities through Dr. Reddy’s Foundation for Heath Education (DRFHE) and create positive impact on communities through Corporate Social Responsibility (CSR) teams in each location.
» Dr. Reddy’s Foundation The activities of Dr. Reddy’s Foundation (DRF) span two broad areas of social intervention: Livelihoods Create, implement and disseminate sustainable and
replicable livelihood models through partnerships. Education Provide learning opportunities for those who have never been to school, or are
dropouts, while improving quality of education across schools. » Dr. Reddy’s Foundation for Health Education (DRFHE) Conducts programs like Post Graduate Certificate in Healthcare
Management (PGCHM) and certificate program in cancer counseling. Students passing out from these courses assist healthcare professionals and doctors in providing better care to patients. ‘Life at Your Doorstep’ is a palliative care initiative that helps terminally ill patients and their families better manage serious illness.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
HUMAN RESOURCES
PARTICIPANTS AT THE SENIOR LEADERS PROGRAM WHICH WAS HOSTED BY DR. REDDY’S AT OUR LEADERSHIP ACADEMY IN BACHUPALLY, HYDERABAD FROM 14-19 SEPTEMBER.
As we set ourselves a target of reaching $ 3 billion by FY13, we realize that it is our people – our biggest strength – that will get us there. Our employees are the engine that drives our organization forward. We are committed to nurture and develop the tremendous talent that exists at Dr. Reddy’s by providing our people a platform to achieve greater things in life. In today’s rapidly changing business environment, the organization that is efficient and effective wins. It means having people who fit your needs perfectly, when you need them. Dr. Reddy’s global employee strength crossed 13,000 in 2009-10, of which over 2,600 are based at locations outside India. There is a conscious effort at building diversity in the workforce, which has led to a greater proportion of women employees. In FY10, almost 13% of the recruits were women. Of all the campus hires, 31% were women. Our consistent pursuit to create an ever-flourishing organization built on a platform of unyielding integrity and sound values has indeed, gone a long way in making us an employer of choice.
TA L E N T AC Q U I S I T I O N
During the year, around 4,100 new employees were hired, including replacements. The highlights of the hiring program are: India field and manufacturing hires have contributed 25% each to the overall hiring while 24% of the hiring was in Quality, Research & Development and Engineering Services. Critical talent was added in the areas of Life Cycle Strategy, Formulations ScaleUp Development, Regulatory Strategy, Legal, Corporate Development & Strategic Planning, Safety Health & Environment, Pharmacovigilance & Clinical Development, Bioassay and Medical Sciences. 24 Management Trainees and laterals were recruited from prestigious B-Schools including IIMs, ISB, TISS and about 628 technical trainees were recruited which includes a number of IIT graduates. We also ramped up our Self Managed Teams (SMTs) in Baddi and Vishakapatnam.
TA L E N T M A N AG E M E N T
Nominations for promotion to and within Senior Management were taken through the Talent Management Board (TMB) process for the first time on a pilot basis. The TMB process roadmap was drawn up with the top management and is slated to be executed in FY11. The deployment of this initiative will be top down with TMBs for top management being done at the Corporate and for others in the Business Units. The Company’s Management Council (MC) will lead this process to reinforce the commitment of the top management to the development of leadership in the organization. We are also partnering with a global consulting firm to work on critical interventions related to role clarification, job evaluations and competency management.
LEARNING & LEADERSHIP DEVELOPMENT
Leadership development across all levels and a culture of continuous learning are key to our
ANNUAL RE PO RT 2 0 0 9 – 1 0 HUMAN RESOURCES |
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In today’s rapidly changing business environment, the organization that is efficient and effective wins. It means having people who fit your needs perfectly, when you need them. Dr. Reddy’s global employee strength crossed 13,000 in 2009-10, of which over 2,600 are based at international locations.
*
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growth aspirations. Some of the key activities carried out in this area for the year were: Second Leadership Summit was organized at Boston, USA with world class faculty sharing ideas on Performance & Execution, Talent & Leadership, and Organizational Culture. Hosted the Senior Leaders Program (SLP) for cross-industry consortium. During this program, senior leaders from high powered consortium companies including those from Dr. Reddy’s attended a week long program at our Leadership Academy. Coaching provided to middle and senior leaders based on their 360 degree feedback. Launched several learning interventions focused on developing critical skill sets, soft skills and leadership competencies. The Company offered 6,068 man days of training. Increased the reach of learning through Learning@drreddys – an internal learning portal. 399 Management, Engineering and Technical trainees inducted into the organization through an intense, systematic and well-planned Campus-to-Corporate induction program.
BUILDING AN INCLUSIVE AND E N A B L I N G O R G A N I Z AT I O N
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During the year, several new employee enabling policies like flexible work timings, sabbatical leave, part-time work, paternity leave & adoption were introduced with an aim to provide flexibility and work life balance to employees.
H R AWA R D S
WOMEN’S DAY CELEBRATIONS AT DR. REDDY’S PARTICIPANTS AT THE 2ND ANNUAL LEADERSHIP SUMMIT WHICH WAS HELD FROM 10-13 AUGUST AT BOSTON, USA.
In FY10, the Company received the following key recognitions for its HR initiatives. Recruiting and Staffing Best in Class Award (RASBIC) 2009-10 for the ‘Best Overall Recruiting & Staffing Organization’ and ‘Best Recruiting Evaluation Techniques’ Employer awards at the World HRD Congress for ‘Organization with Innovative HR Practices’ and ‘Outstanding Contribution to the Cause of Education’ Adjudicated the best in the ‘Great Places to Work Survey’ in the Pharma and Biotech industry.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
SAFETY HEALTH & ENVIRONMENT
We are committed to maintaining the highest standards of Safety, Health and Environment (SHE) by complying with the laws and regulations first, and then going beyond the mandate to keep our planet safe for future generations. Minimizing the environment impact of our operations assumes utmost priority. Our comprehensive SHE policy, as well as dedicated measures we have taken through specialized teams, systems and programs for this purpose are a testament of our commitment to the cause. Reducing our existing carbon footprint and tailoring our processes to minimize the impact on the environment rank high in our list of priorities. Greatest emphasis is given to safety measures for minimizing accidents. Emergency management and safety training for employees, the use of Green Chemistry and engineering principles in our product development, and incorporating waste water recycling and Zero Liquid Discharge (ZLD) in our plants were key features of the SHE program at Dr. Reddy’s. The year 2009-10 saw significant steps taken in the direction of building a fool-proof and robust Safety, Health & Environment system in the organization.
S A F E T Y U P DAT E
Five new safety guidelines & six audit protocols were released during the year.
T O WA R D S B E T T E R S A F E T Y AWA R E N E S S A N D E M E R G E N C Y P R E PA R E D N E S S
SAFETY TRAINING AT ONE OF OUR CTO UNIT IN HYDERABAD, INDIA
During the year 124 safety related incidents were reported across all locations out of which eight were Lost Time Accidents. We initiated a system of cross-unit audits of all 16 manufacturing units and a total of 546 safety audit observations were noted. For 70% of audit observation, corrective actions were implemented and closed as on 31st March 2010. In a new initiative, “Batch Chemical Safety“cards with all key safety data were released for 34 products in the CTOs.
38 monthly safety campaigns were carried out on themes like emergency management, work permit system etc. across all manufacturing sites. Safety week was observed in March 2010 across all facilities to promote a culture of safety at the work place. 1,460 internal training program (equivalent to 5,355 man days of training) on safety was conducted by internal faculty. Some specialized external training programs like dust explosion hazard, tank farm & warehouse management, safe handling of chemicals were also organized for 174 employees. During the year, 33 mock drills, 54 fire drills and 23 first aid training programs were conducted. As on date 835 trained first aiders, 1,315 trained fire fighters are available at various locations. SHE support was also extended to third party manufacturing facilities and 18 audits & four safety risk assessments were conducted during the year. 43 man-days of training was also organized on various topics like static-electricity hazard and its control and work permit system.
P R O C E S S S A F E T Y M A N AG E M E N T
Focus during the year was on embedding SHE aspects into our new product development process. Objective of the initiative was to make our manufacturing processes safer, through a comprehensive method for analyzing process hazards. A SHE guideline for conducting risk analysis of CTO manufacturing processes was put in place. Aspects of process hazard identification, risk analysis and measures towards risk reduction were considered in the guideline. Nine training programs including sessions by globally recognized consultants were organized
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Minimizing the environment impact of our operations assumes utmost priority. Our comprehensive SHE policy, as well as dedicated measures we have taken through specialized teams, systems and programs for this purpose are a testament of our commitment to the cause.
to create a knowledge base amongst our technical work groups across PSAI. Two new supplementary SHE guidelines were released for smoother implementation of risk analysis procedure and a chemical database listing for referral during risk analysis was created. Process risk analysis for 12 CTO products was completed with a detailed action plan for implementing the recommendations. A process risk analysis guideline for FTO manufacturing processes was also developed. A process to identify hazardous chemicals handled in our facilities was initiated to establish measures towards risk reduction in hazardous chemical handling. This exercise has been completed in two facilities so far.
O C C U PAT I O N A L H E A LT H
Two new guidelines on Environment Management to ensure a uniform documented system for environment management were released. World Environment Day was celebrated across all units. Clearance from Ministry of Environment and Forests was obtained for new SEZ projects. 1,747 MT of organic residue from CTO units was disposed as auxiliary fuel to cement plants. This constituted 50 % of the total organic waste generated and the rest was sent for incineration at TSDF facility. 71 energy conservation measures were initiated this year resulting in an annual saving of 5.0 million kwh.
W E B B A S E D T R AC K I N G O F S A F E T Y, H E A LT H & E N V I R O N M E N T I N F O R M AT I O N
Occupational health surveillance was conducted at all CTO units. Industrial hygiene qualitative risk assessment was carried out at all manufacturing facilities using in-house tool based on hazard and control banding concept. Basic occupational health awareness training was conducted for 180 shop floor operators and block-in-charges.
E N V I R O N M E N T M A N AG E M E N T
Post the commissioning of the Zero Liquid Discharge Plant (ZLDP), the absolute water consumption at the Biologics Development Center has come down by 50%. Effluent treatment plant at CTO – 1 was upgraded by adding RO based polishing plant and one more ZLDP being commissioned in FTO – 3 Waste minimization teams were formed at CTO manufacturing units to achieve significant effluent load reduction.
The SHE Infosite (an exhaustive information& action tracking website on the intranet) was upgraded and deployed for use. Separate workflows were created for: SHE audit recommendations, SHE incident reporting and status of corrective action implementation. Statutory compliances of pressure vessels and lifting tools and tackles testing Regulatory compliance tracking system for Strategic Business Partners (SBP) which supply key starting material to CTO units. Database for logging minutes of safety committee meetings. Dedicated efforts continue towards resource conservation, strengthening safety culture and upgradation of physical facilities to deliver better safety and environmental performance.
ZERO LIQUID DISCHARGE (ZLD) UNIT AT CTO FACILITY IN BOLLARAM, HYDERABAD, INDIA.
Note: CTO: Chemical Technical Operations (Manufacturing facility for Active Pharmaceutical Ingredients (APIs)) FTO: Formulation Technical Operations (Manufacturing facility for finished dosages / formulations)
SAFETY TRAINING: A FIRE DRILL AT THE CORPORATE HEADQUARTERS
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CORPORATE SOCIAL RESPONSIBILITY
A DEEP COMMITMENT
“Dr. Reddy’s Foundation (DRF) was born out of my anger”, says Dr. K Anji Reddy, Founder Chairman of Dr. Reddy’s. It was a Newsweek article which commented that “some parts of India were worse off than Sub-Saharan Africa” that triggered a call for action. Dr. Reddy set out to seek an answer to the query – what can we do to improve the condition of our country? DRF, founded in 1996, through its pioneering efforts in the field of livelihood creation and education, has changed the lives of millions while achieving measurable social impact. It has exemplified the change that could be brought in the lives of the underprivileged through corporate initiatives. Past efforts have given us the confidence and hope that we can do much more LABS Partnership Name of the Corporate CII Yi LABS Accenture LABS ASHA LABS PCC LABS WORLD VISION Total Name of Government Bodies Grameen LABS – National EGMM – III EGMM – IV MEPMA MEPMA – II Corporation LABS MPRLP NABARD SHG LABS Total Name of International NGOs MSDF LABS Total Total Livelihoods Generated Partnership with CII Yi Accenture Tata Teleservices CII Yi WORLD VISION Livelihoods 178 403 20 130 105 836 Livelihoods 8,673 1,498 795 2,211 1,093 410 110 1,178 125 16,093 Livelihoods 3,891 3,891 20,820
in the coming years for the betterment of the marginalized sections of society.
FLOOD RELIEF INITIATIVE
DRF played an active part in providing relief to victims of the massive floods which hit Andhra Pradesh, India in October 2009. Health camps were organized to provide immediate health services to the needy. Free treatment, essential medicines and technical advisers were made available by Dr. Reddy’s, while DRF carried out the community mobilization and camp management activities. In a week-long operation from 13-19 October 2009, about 5,800 patients from over 30,000 families were treated in 38 villages and 21 urban slums. The Company also made a contribution of Rs. 10 million to the Chief Minister’s Relief Fund and employees based out of India contributed their one day’s basic salary towards the cause.
D R . R E D DY ’ S F O U N DAT I O N ( D R F )
DRF has made significant progress in its social development endeavor in FY10 through several initiatives in the areas of creating Sustainable livelihoods and providing Quality education.
LIVELIHOODS UPDATE
Partnership with MoRD, Government of India EGMM, Government of AP EGMM, Government of AP MEPMA, Government of AP MEPMA, Government of AP Corporation of Chennai, Tamil Nadu MPRLP, Government of AP MoRD and NABARD, Uttar Pradesh WBSRDA, West Bengal
Partnership with Michael & Susan Dell Foundation
Livelihood Advancement Business School (LABS) A total of 20,820 livelihoods were generated by LABS in 2009-10 through various partnerships. (refer LABS Partnership table) Andhra Pradesh in India accounted for 30% of the total livelihoods generated followed by Delhi and UP which accounts for approximately 8% and 7% respectively. 68% of 20,820 youths trained were placed with an average salary of Rs. 3,618. A total income of Rs. 611,491,659 (Rs. 611 million) was generated for the financial year 2009-10 with 14,157 families being the beneficiaries of this increase in income. Rural Livelihoods The Rural Livelihoods Department of DRF undertook two projects last year:
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DRF, founded in 1996, through its pioneering efforts in the field of livelihood creation and education, has changed the lives of millions while achieving measurable social impact. It has exemplified the change that could be brought in the lives of the underprivileged through corporate initiatives.
1. Pilot project in 10 villages in Sadshivpet Mandal of Medak District, Andhra Pradesh, India 2. Pilot project in 10 villages in Daund Taluka of Pune District, Maharashtra, India. Wage Employment 205 youth were trained and placed in jobs in local areas (without migration) with an average salary of Rs. 3000 per month. As of 31 March 2010, a further 173 youth were undergoing training and 24, after having completed training were awaiting placement. Self Employment Apart from wage employment, 50 youth at Daund, Maharashtra, India have been helped to gain self employment. They were provided training and linked to banks to obtain loans. Around Rs. 18 million was mobilized as bank loan. The average monthly income of youths engaged in self employment is Rs. 4,000 per month. Youths have been assisted to set up poultry farms, dairy farming, auto repair shops and other small establishments in the village. Capacity building of farmers At Daund, DRF provided a grant of Rs. 50,000 to Farmer’s Club to procure good quality seeds and conducted tours to expose them to new technologies. This helped them improve their farm output thus leading to increased income. A total of 200 farmers have benefitted from this project with an increase in income of Rs. 2,000 per farmer.
LABS PARTNERS HIP S INITIATED TH IS YEAR
program for rural youth in Himachal Pradesh and Rajasthan.
» Dalmia Cements and ACC DRF signed a MoU with Dalmia Cements to support the training of 250 aspirants in five villages and provide them with livelihoods in Gulbarga District, Karnataka. A similar MoU has been signed with ACC for training and providing support to 50 aspirants in Chattisgarh. » Tata Power Company DRF initiated the Skilling Rural India Project in Pune in association with Tata Power to train 300 aspirants. » Ashta No Kai DRF has also signed a MoU with a Pune based NGO Ashta No Kai for training and livelihoods support to 100 aspirants in five villages. DRF has raised sponsored projects worth Rs. 4.5 million with a target of skilling 700 youth in the next one year.
GV PRASAD AND SATISH REDDY PRESENTING A CHEQUE TO MR. K ROSAIAH (CHIEF MINISTER OF THE STATE OF ANDHRA PRADESH, INDIA). DR. REDDY’S MADE A CONTRIBUTION OF RS. 10 MILLION TO THE CHIEF MINISTER’S RELIEF FUND IN AID OF THE FLOOD VICTIMS.
Based on the experiences and results gained in the pilot projects, DRF has been able to sign up for the below sponsored projects:
» Lafarge India Private Limited A MoU was signed with Lafarge India Pvt. Ltd. for conducting diagnostic study to access the feasibility of initiating a skill development and employability
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EXPL ORING NEW LIVELIHOOD OPTIONS
New programs were launched to meet the needs of the deprived sections of the society and bring out new poverty alleviation programs.
A MOBILE HEALTH CAMP IN AID OF FLOOD VICTIMS IN ANDHRA PRADESH, INDIA.
» Program for prisoners In a bid to enhance the employability of convicts after their release from jail and help them get re-integrated into society, DRF launched the “Prisoners program” to provide technical skills in two domains – automobile mechanism and refrigeration & air conditioning. The 92 days prisoner’s program was conducted in Charlapally Jail in Hyderabad from the 27 October 2009 to 27 January 2010 for 50 prisoners. » MoU with Nasscom Foundation
DRF signed an MoU with NASSCOM Foundation and Accenture where it would train NASCOMM Knowledge Network partners and associated NGO’s who work in similar areas of operations and support these teams in terms of process, curriculum and content, life skills and other operational issues.
» In shop Demonstrators Branded electronic stores require an adept workforce who could answer customer queries while being clear in communication. DRF piloted a batch which oriented the aspirants on electronics devices. The program, currently rolled out in Delhi and Kolkata, is planned for a pan India launch. » Pharma Retail With organized Pharma retail catching steam in India, DRF has tried to fulfill the needs of this sector by training youth on medicines, dosage forms and its selections, human anatomy and physiology, use of insulin pen, respiratory device and glucometer etc.
E D U C AT I O N U P DAT E YUVA YOUTH LEARNI N G CENTERS
» Program for Home Managers A comprehensive 30 day module covering life skills, housekeeping, first aid, cooking, child and elderly care along with practical training was provided to 22 unemployed girls / women to help them become home managers.
NEW L ABS CURRICULUM
Community-based adolescent youth learning centers established in various urban slum areas around Hyderabad help bring dropouts and working children into the mainstream education system. These centers help eligible students obtain formal academic certification, provide career counseling and job-related training. Six Yuva Youth Learning Centers were established in 2009-10 with four teachers in each centre.
TRANSIT EDUCATION C EN TERS
» Retail With demand for entry level skilled manpower increasing manifold, exclusive batches of retail training was planned pan-India. The curriculum involves store management methods, space utilization, store layout, influencing consumer behavior etc. » Housekeeping DRF trained aspirants on industrial housekeeping aspects like cleaning and maintenance methods, floor cleaning reagents, manual and mechanical equipments, pest control mechanism etc.
Dr. Reddy’s extended its support to victims of the Haiti earthquake by providing free medicines. For its contribution to relief efforts, the company was given a special award at the ‘Americares Spirit of Humanity Awards’.
A transit school comprises of an early childhood education center (crèche), a bridge course camp and a regular primary school. In FY10, 17 Non residential bridge centers, with a total strength of 38 teachers provided education to 575 students. Also, 360 students were taught at four Residential bridge centers with 20 teachers engaged in teaching them.
EDUCATION RESOURC E C ENTER (ERC)
ERC is a Resource Center set up to provide academic support to all the Pudami Schools. ERC develops curricular content, material for teachers’ education and mechanisms for academic support to schools. To facilitate children’s shift to English medium, ERC has prepared an English transition course that aids children recover the academic backlog in any given class.
PUDAMI NEIGHBOURHO O D SCHOOLS
» Security Trained people on inventory management, vigilance aspects, CCTV operations, fire protection, bomb detection and evacuation procedures, mock drill operations etc.
Pudami schools address the rising demand for English medium education from marginalized / lower income communities. Four schools have been set up in Hyderabad and Ranga Reddy district so far where 70 teachers impart education to a combined strength of over 1,400 children drawn from all sections.
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PU DAMI ENGLIS H P RIMARIES
To make quality English-medium education accessible to urban children from lower income groups, DRF set up 29 Pudami English Primaries in Hyderabad and Ranga Reddy Districts in Andhra Pradesh. They have a combined strength of 4,700 students (2,491 pre-primary and 2,209 primary) who are taught by 238 teachers.
KALLAM ANJI RE D DY VIDYALAYA (K AR V)
and 20 ECCE supported by Sarva Sikshya Abhiyan (SSA), a Government of India initiative, supported a total of 1,340 children with help from 15 teachers and 10 assistant teachers.
BR IDGE SCHOOL AT JUVENILE HOME FOR GIRLS AT NIMBOLIADDA, HY DERABAD, INDIA
A LIVELIHOOD ADVANCEMENT BUSINESS SCHOOL (LABS) CENTER RUN BY DR. REDDY’S FOUNDATION
The Kallam Anji Reddy Vidyalaya at Hyderabad has 45 teachers providing education to about 1,200 students in both English and Telugu medium. Kallam Anji Reddy Vocational Junior College at Hyderabad presently offers five 2-year vocational courses at the Intermediate level – Automobile Engineering Technician, Computer Graphics & Animation, Computer Science & Engineering, Hotel Operations and Multi-Purpose Health Worker. It has 450 students who are being trained by 20 teachers.
EARLY CHILDHOO D CARE & EDU CATION CE N TE R
Started in January 2010, about 84 children in three groups — Juvenile delinquents in special home, under-trials in observation home and children who need care and protection in the children home were housed in the campus. This bridge school has been set up with support from Sarva Sikshya Abhiyan (SSA).
D R . R E D DY ’ S F O U N DAT I O N F O R H E A LT H E D U C AT I O N ( D R F H E )
DRFHE aims to create professionals (health educators) who would work with the medical fraternity to offer an integrated, multi-disciplinary approach to good health. The programs also aim at building the necessary soft skill capabilities with an objective of strengthening the healthcare delivery system for better patient care.
EDU CATION INITIATIVES
Early Childhood Care & Education (ECCE) Center takes care of children in the age group of 0-5 years belonging to migrant children living on construction sites in urban Hyderabad, India. In FY10, ten ECCE centers funded by World Bank
Better understanding through education » Post Graduate Diploma in Healthcare Management The seventh batch of the program commenced
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from July 2009 where 16 students enrolled. A PGCHM certified Patient Educator would be a combination of a Physician’s Assistant, Patient Counselor, Health Educator and a Physician’s Associate.
TRAINING INITIATIVES
Training to deliver better patient care
» INNER CIRCLE
Introduced in 2007 to impart soft skill training of doctors, 53 Inner Circle programs were conducted in FY10 benefiting 1,809 doctors.
STUDENTS AT A YUVA LEARNING CENTER IN HYDERABAD, INDIA
» Certificate Program in Cancer Counseling Three training programs were conducted in FY10 where fifteen candidates benefited and were placed as Case Managers under leading Oncologists across India.
» ABHILASHA Is aimed at helping nurses understand the true importance of their work and boost their selfconfidence & motivation.
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148 programs were conducted during FY10 benefitting 3,800 nurses.
» Life at your doorstep (LAYD)
Based on the principle of “Home Care” aspect of Palliative Care, this initiative aims to improve the quality of life for terminally ill patients by providing access to physical, psychological, emotional, social and spiritual support in an appropriate manner. A well-equipped medical van with a team consisting of a doctor, nurse and patient counselor goes to the patient’s doorstep to provide home care service. DRFHE is also tying up with DRF – LABS program to provide livelihood to one member of a family where the earning member has been a victim of cancer. During FY10 this service, apart from Hyderabad was also launched at Bangalore, Mumbai, Bhopal, Jabalpur, Kolkata, Cochin and Coimbatore benefiting 2,048 cancer patients.
SOCIAL AUDIT CERTIFICATION
» SARATHI Is a program that enables a doctor’s assistant to emerge as a sharper, smarter and motivated individual. 60 programs were conducted during FY10 benefitting 1,474 participants. » SANJEEVANI Aimed at the pharmacist, this program helps them develop self confidence, empathy towards their customers and effective prescription dispensation. During FY10, 42 programs were conducted benefiting 672 pharmacists.
PATIENT INITIATIVE S
ABHILASHA – NURSES TRAINING PROGRAM CONDUCTED BY DRFHE
Reaching out, touching lives » Living Well This program, in partnership with the “Art of Living”, is aimed at helping people reduce risk factors and increase their resistance levels through awareness and lifestyle modification. It also helps manage their chronic condition through a self management support system. Seven programs were conducted during FY10 benefiting 70 patients.
The Social Accounts of DRFHE for the period 2008-09 covering the programs Inner Circle, Abhilasha and Sarathi were discussed and certified by a Social Audit Panel comprising of Alan Kay (Social Audit Network, UK) and select experts in the field of health education on 27 & 28 October 2009. During FY10, DRFHE significantly scaled up their activities from 192 programs last year to 383 programs this year.
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MANAGEMENT DISCUSSION AND ANALYSIS
Note: Unless otherwise stated, financial data given in this section is based on the Company’s consolidated IFRS financial statements
Established in 1984, Dr. Reddy’s Laboratories (‘Dr. Reddy’s’ or ‘the Company’) is an integrated global pharmaceutical company committed to providing affordable and innovative medicines through its three core businesses:
OFFERINGS
» Global Generics, which includes branded and unbranded prescription and over-the-counter (OTC) drug products. » Pharmaceutical Services and Active Ingredients (PSAI), comprising Active Pharmaceutical Ingredients and Custom Pharmaceutical Services. » Proprietary Products, comprising Generic Biopharmaceuticals, New Chemical Entities (NCEs), Differentiated Formulations and a dermatology focused specialty company – Promius TM Pharma.
The Company has a strong presence — in highly regulated markets such as the United States, the United Kingdom, Germany, as well as in emerging markets including India, Russia, Venezuela, Romania and certain CIS countries.
S T R AT E G Y
Global Generics Branded Generics The Company seeks to have a portfolio that is strongly differentiated and offers compelling advantages to doctors and patients. Unbranded Generics It aims to ensure that its customers — pharmacy chains and distributors — are ‘first to market’ the Company’s products; and that they have high product availability combined with low inventories resulting in superior inventory turns while addressing the customer’s needs. Vertical integration and process innovation ensures that the Company’s products remain competitive. PSAI The Company’s product offering is geared to offer IP and technology-advantaged products to enable launches ahead of others at competitive prices. In the area of services, it aims to offer niche product service capabilities, technology platforms, and competitive cost structures to innovator companies. Proprietary Products Differentiated Formulations The Company’s emerging Differentiated Products portfolio, which comprises of new, synergistic combinations as well as technologies that improve safety and / or efficacy by modifying pharmacokinetics of existing medicines, is focused on significant clinically unmet needs. The Company is also investigating new indications for existing medicines. New Chemical Entities (NCEs) The Company is also focused in the discovery, development, and commercialization of novel small molecule agents in therapeutic areas of bacterial infections, metabolic disorders, and pain / inflammation. Generic Biopharmaceuticals The Company aims to deliver equivalents of
The Company’s strategy is to combine industryleading science and technology, product offering and customer service with execution excellence to provide affordable and innovative medicines for healthier lives. The key elements of Dr. Reddy’s strategy include:
STRENGTHENING OF SCIENCE AND TECHNOLOGY
The Company’s strengths in science and technology range from synthetic organic chemistry, formulation development, biologics development to small molecule based drug discovery. Such expertise enables the creation of unique competitive advantages with an industryleading Intellectual Property (IP) and technologyleveraged product portfolio.
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In the US market, 2009 saw Dr. Reddy’s enter the list of the Top 10 generic companies. The Company has broken into the Top 10 league by improving its market share from 2.1% to 2.7%. This is a significant milestone, and corroborates Dr. Reddy’s longer term target of becoming a leading generics player in the US.
proprietary biopharmaceuticals as affordable alternatives through process development as well as relevant clinical research.
EX ECUTION EXCE LLENCE (BUILDING BLOCKS)
Execution excellence provides the framework to create sustainable customer value across all the activities of the Company. The key elements of execution excellence as practiced in the company are: Lean Manufacturing Eliminating waste and reducing cycle time with focus on capacity constrained resources. Quality by Design Building quality into all processes and using quality tools to eliminate process risks.
Principles of the Theory of Constraints in supply chain and product development This ensures high availability with low inventory through a pull-based logistics system. It also ensures speed in product development through Critical Chain Project Management (CCPM). Leadership Development Developing leaders as well as enhancing leadership behavior across the organization.
KEY EVENTS FINANCIAL HIGHLIGHTS
» Consolidated revenues for 2009-10 was
Rs. 70,277 million. Excluding revenues from sumatriptan — Dr. Reddy’s Authorized Generic version of Imitrex® which was launched in 2008-09 — the Company’s overall revenue grew by 9%. In US API MANUFACTURING FACILITY AT BOLLARUM, HYDERABAD, INDIA
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CHART A
North America: Growing Annuity of Opportunities FY11 FY12 1 product rivastigmine desloratidine FY13 2 products finasteride FY14 FY15
Opportunities Assured 180 days exclusivity Settlements / Go early
The potential Biosimilar pipeline, based on Mammalian Cell Culture
Process Development Tox Study Clinical Manufacturing Clinical Study
Cell Line Development
Product F
Product D Exp. Launch FY12 Product E Product C Exp. Launch FY12
Product B Exp. Launch FY11 Product A Exp. Launch FY11
Product G
dollar terms, 2009-10 revenue was US$ 1.56 billion, compared to US$ 1.37 billion in the previous year. It may be noted that the Company’s revenue has been rising at a CAGR of 23% over the last 10 years.
the-counter (OTC) product. The key launches include nateglinide, omeprazole magnesium (OTC), metformin glyburide and fluoxetine DR.
» Adjusted EBITDA of Rs. 15,828 million is highest among pharmaceutical companies in India in the year 2009-10. » Return on Capital Employed (RoCE) at 17% for 2009-10 as against 14% in 2008-09. This increase is attributable to: Core business growth of India, Russia and North America; Rationalization of business model; and Cost optimization and restructuring initiatives.
BUSINESS HIGHLIGHTS
» India & Russia, both key emerging markets for the Company, registered impressive performance In India, branded formulation revenues grew by 20% to Rs. 10,158 million. New product revenues contributed to 5% of total revenues from India formulations. The Company’s new product rank improved from 25th in 2008-09 to 8th in 2009-10. In Russia, Dr. Reddy’s revenues grew by 25% — out-performing market growth of 8% in value terms (Pharmexpert MAT, March 2010). » Germany Ongoing healthcare reforms and changing market dynamics continue to cause pricing pressures, leading to low margins. To remain competitive in this scenario, the Company has rationalized its field force and moved towards a lean operating model. In 2009-10, the Company recorded a one-time charge of Rs. 912 million related to termination benefits payable to a set of identified employees. Moreover, the results of additional tenders in Germany led to further deterioration in the market dynamics, thereby resulting in the Company recording an impairment loss of: Rs. 2,112 million for the product related intangibles. Rs. 5,147 million towards carrying value of goodwill, and
» In the US market, 2009 saw Dr. Reddy’s enter the list of the Top 10 generic companies. The Company has broken into the Top 10 league by improving its market share from 2.1% to 2.7%. This is a significant milestone, and corroborates Dr. Reddy’s longer term target of becoming a leading generics player in the US. At 6.5%, the Company’s growth in the US generics market was one percentage point higher than the average growth recorded by all the generic firms in the industry. In doing so, Dr. Reddy’s achieved a prescription growth of 40%. Nine new products were launched in the US generics market in 2009-10, including one over-
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Rs. 1,211 million towards the trademark / brand, ‘beta’, which forms a significant portion of the betapharm cash generating unit.
» Successful audits of the Company’s formulations and chemical plants 2009-10 saw successful US Food and Drug Authority (USFDA) audits of the Company’s formulation plants at Bachupally, Hyderabad and Vishakapatnam, the ANVISA audit of the formulation plant at Vishakapatnam and the MHRA audit of the chemical plants.
the market is expected to grow by 4% to 6% in constant dollar terms, thus exceeding US$ 850 billion. This growth will be largely driven by strong overall growth in the emerging countries, as well as the rising influence of healthcare access and funding on market demand. Moreover, the global market is expected to grow at 5% to 8% CAGR over the next five years, reaching an anticipated US$ 1.1 trillion in 2014.
KEY GL OBAL MARKET TRENDS
» Product pipeline continues to show impressive growth potential The Company has filed 158 cumulative Abbreviated New Drug Applications (ANDAs) up to date. As on 31 March 2010, there were 73 ANDAs pending approval at the USFDA, of which 38 are Para-IV filings and 12 have the status of ‘first to file’. It has filed 19 Drug Master Files (DMFs) in the US during the year, taking the total filings to 156. It also filed five DMFs in Canada, eight in Europe, and four in the Rest of the World (RoW). In addition, Dr. Reddy’s has generated a sound near-term pipeline of limited competition / high margin opportunities of generic products and biosimilars, as depicted in the Charts A and B. Dr. Reddy’s and Rheoscience announced the first Phase III clinical trial of Balaglitazone (DRF 2593) with results of significant reduction in HbA1c (glycosylated haemoglobin) and improved safety profile.
STRATEGIC PARTN E RSHIPS
» Emerging markets are set to play a pivotal role in future pharmaceutical successes Currently, emerging pharmaceutical markets are typically small. However, their rapid growth vis-à-vis the more regulated markets make them attractive prospects for the pharmaceutical industry. Rapidly growing economies, increasing population and greater health awareness combined with larger incomes to spend on healthcare will drive the growth of pharmaceuticals in emerging markets. By 2017, IMS forecasts revenues from emerging markets at US$ 290 billion to US$ 320 billion, with a CAGR of 12% to 15%. » Therapy area growth dynamics will be driven by innovation cycles and unmet needs As the pharmaceutical industry’s research and development (R&D) programs adjust to creating low-cost generic options in many chronic therapy areas, higher growth will occur in those areas where there is significant unmet clinical need. In oncology, diabetes, multiple sclerosis and HIV, annual growth is expected to exceed 10% right up to 2014, as new drugs are brought to market, patient access is expanded and funding is redirected from other areas where lower-cost generics take over. » Transition from small molecules to big molecules, or the expansion of Biologics in developed markets; and branded and off-patent small molecule medicines in fast growing emerging markets In the developed markets of the US, Europe and Japan, the industry is perceptibly moving away from the small molecule driven sales model, towards targeting specialist secondary care indications through the use of high-value biologic therapies. The key driver of sales growth up to year 2014 will be injectable biologic therapies for the treatment of more secondary care indications. In emerging markets, branded and off-patent medicines will continue to dominate, with occasional breakthroughs and revenue spikes coming from Biologics. Primary care drugs will still drive sales in these markets, with medicines for infectious diseases and endocrine / metabolic disorder experiencing the largest growth.
» Partnering with GlaxoSmithKline plc Dr. Reddy’s has entered into a strategic partnership with GlaxoSmithKline plc (GSK) to develop and market select products across emerging markets outside India. This partnership will expand the Company’s reach in emerging economies, and leverage its product portfolio and process development strengths across Generic and Differentiated Formulations with GSK’s market knowledge and presence in such markets. The products will be manufactured by Dr. Reddy’s; and will be licensed and supplied to GSK in markets such as Latin America, Africa, the Middle East, and Asia Pacific excluding India.
TRENDS IN GLOBAL MARKETS
Note: Global market share numbers referred to in this and subsequent sections are based on latest available reports from IMS Health Inc. According to IMS Health Inc., the global pharmaceutical market grew by 7% in 2009 to reach US$ 837 billion on a constant-dollar basis — compared with 4.8% growth in 2008. In 2010,
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» Mergers, acquisitions and strategic partnerships are here to stay In line with recovery from the global economic downturn, the number of M&A and strategic deals has been on the rise throughout the second half of 2009. While neither M&A nor strategic partnerships can totally offset sales declines from the impending patent cliff of 2011, these partnerships and mergers will offer improved profitability because of higher combined sales, cost saving opportunities and operational synergies. A number of events may occur in 2010 that could have long term effects on the pharmaceutical market. These include actual initiation of the comprehensive healthcare reform in the US and cost-saving legislative or regulatory actions in other countries.
REGIONAL PERFORMANCE
14% in 2010, and a CAGR of 13% to 16% over the next five years. China’s pharmaceutical market is expected to grow at over 20% annually, and contribute 21% of overall global growth right up to 2013. Russia and Turkey may be negatively impacted by new measures intended to reduce the level of healthcare spending.
TRENDS IN NORTH AMER ICA
» Patent cliff to drive the generics market through 2014 The impending 2011 patent cliff is set to erode US$ 78 billion in global branded sales from drugs facing patent expiry over 2010–14. This is in addition to another US$ 32 billion from continued erosion of already expired brands. The patent cliff will be a major catalyst for the growth of generic pharmaceutical companies. Generics will be an aggressive driver of sales and, in the process, deliver cheaper drugs for all.
» The US market’s growth to slow down in 2010 In 2009, the US market grew by 5.5% to US$ 322 billion — thus crossing US$ 300 billion mark for the first time. However, the growth is expected to slow down to somewhere between 3% and 5% in 2010. This is due to growing substitution, taking the margin away from innovator brands in favor of generics. Generics have been growing much faster than brands due to the enormous number of patent expiries. Consequently, generics now account for more than 70% of the total US prescriptions. » Other mature markets: Europe and Japan
Europe contributed US$ 247 billion to the total pharmaceutical market, and showed a growth of 4.8% in 2009 versus 7% in 2008, in constant dollar terms. The expected market growth in Europe is in the 3% to 5% range in 2010. While Europe is seeing increased demand from an ageing population and for preventive care, growth is being hindered by constrained
» US healthcare reforms
On 21 March 2010, with the US Congress passing The Patient Protection and Affordable Care Act, there are expectations of significant changes in the US pharmaceutical market. There are three parts to the US healthcare reform. The first is expanding healthcare coverage to citizens, mostly those employed in smaller companies, the unemployed and reducing co-payments for Medicaid — the federal insurance program for the poor. This should boost volumes for generic companies in the long term. The second is a higher emphasis on insurance regulation and access. There will be new regulations governing the insurance industry that will prohibit the denial of coverage due to pre-existing diseases, and ban placing life-time value limits on policy coverage. Indirectly, these reforms, too, should help improve overall generic penetration, and hence the opportunity for Indian pharmaceutical companies. The third part consists of regulations and data exclusivity protection in the biologics drugs space. The legislation grants innovator firms 12 years of data protection, and allows the first interchangeable biosimilar 18 months of exclusivity. This may affect Dr. Reddy’s entry in biologics in the US market.
TRENDS IN INDIA
Rapidly growing economies, increasing population and greater health awareness combined with larger incomes to spend on healthcare will drive the growth of pharmaceuticals in emerging markets. government healthcare budgets, and payer agencies using contracting and auctions to control costs. The Japanese pharmaceutical market grew by 7.6% to US$ 90 billion in 2009, versus 2.1% growth in 2008.
» ‘Pharmerging’ markets in the aggregate sustain strong growth Seven ‘pharmerging’ countries — Brazil, Russia, India, China, South Korea, Turkey and Mexico — are expected in aggregate to grow by 12% to
Note: Information in this section is based on the Indian Pharmaceutical Overview Report, published by ORG IMS Research Private Ltd. for the year ended December 2009, and other latest reports from ORG IMS. The Indian pharmaceutical market has seen a CAGR of about 14% in the last five years. It continues to be highly fragmented and dominated by Indian companies. The domestic pharmaceutical industry grew by 18% in March
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CHART C
Dr. Reddy’s Consolidated Revenue and Share of Markets
ROW 11% 30% North America ROW 15%
35% North America
India 17%
India 18%
2008-09
2009-10
26% Europe
RCIS 11%
24% Europe
RCIS 13%
2010 (ORG’s moving annual total, or MAT) versus 10% in March 2009. Acute therapy dominates, with a share of over 75% of the total market value. The chronic segment has registered a growth of 21%, versus 16% in the acute segment. Anti-infectives grew by 14%, respiratory and dermatology by 21%, cardiac by 21% and CNS by 20%. The Government of India’s Vision 2015 statement indicates an 18% plus CAGR for the pharmaceutical sector, translating to a doubling of revenues over the next five years. According to this report, growth will be driven by all verticals: domestic formulations, generics exports, and outsourcing. By 2015, the report expects specialty and super-specialty therapies to account for 45% of the market. Growing lifestyle disorders, particularly metabolic disorders like diabetes, obesity and hypertension, coronary heart disease, cardiovascular, neuropsychiatry and oncology drugs are likely to gain significance.
MARKET PERFORMANCE REV ENUES
contributed to Rs 2,543 million in 2009-10, versus Rs. 7,188 million in 2008-09. In 2009-10, share of revenue from the international businesses stood at 82%, with 18% coming from India. The revenue composition between geographies changed considerably primarily due to sale of sumatriptan in the US. As a result, North America (US and Canada) contributed to 30% of total revenues in 200910, versus 35% last year. Europe accounted for 24% of total sales in 2009-10, compared to 26% in 2008-09. Russia and other CIS countries contributed to 13% of total revenues. And India delivered 18% of total revenues in 2009-10 from 17% in 2008-09. Chart C plots the data. Table 1 gives Dr. Reddy’s consolidated business-wise performance under IFRS.
GL OBAL GENERICS BUSINESS
FY 09 FY 10
Global Generics revenues were at Rs. 48,606 million in 2009-10, versus Rs. 49,790 million in 2008-09. North America North America revenues dropped by 15% to Rs. 16,817 million in 2009-10 — largely due to the lower sales from sumatriptan during the year. As mentioned earlier, sumatriptan contributed Rs. 2,543 million in 2009-10, compared to Rs. 7,188 million in 2008-09. Excluding sumatriptan, Dr. Reddy’s North American generics portfolio witnessed 13% growth. During 2009-10, the Company launched nine new products, including one OTC offering.
IN RS. MILLIONS
The Company’s consolidated revenues increased marginally by 1% to Rs. 70,277 million (US$ 1.56 billion) in 2009-10. The relevant details are: Excluding sumatriptan, the Authorized Generic version of Imitrex®, revenues grew by 9% from Rs. 62,253 million in 2008-09 to Rs. 67,734 million in 2009-10. PSAI grew by 9% and Global Generics by 8%. In 2008-09, the Company launched sumatriptan tablets in North America. This
TABLE 1
Consolidated Business-Wise Performance under IFRS
2009-10 2008-09 % to Revenue Revenue Gross profits(1) % to Revenue Revenue Gross profits(1) Global Generics 48,606 29,146 60 49,790 30,448 61 20,404 6,660 33 18,758 5,595 30 Pharmaceutical Services and Active Ingredients (PSAI) Proprietary Products 513 396 77 294 196 67 Others 754 138 18 599 261 44 Total 70,277 36,340 52 69,441 36,500 53 NOTE (1) does not include selling, general and administrative expenses, research and development costs and foreign exchange gains and losses.
69,441
70,277
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These new launches — for instance, nateglinide, omeprazole magnesium, metformin glyburide, fluoxetine DR and others — contributed Rs. 763 million or 5% of total North America revenues. OTC revenues grew by 59% to Rs. 1,575 million during 2009-10 from Rs. 992 million in 2008-09. India Revenues in India grew by 20% to Rs. 10,158 million in 2009-10 — driven by volume growth of 16%, new product led growth of 6% and a price de-growth of 2%. New products contributed to 5% of total revenues. The Company’s revenue growth has outperformed a market growth of 18% (ORG IMS March 2010, MAT). Dr. Reddy’s top-10 brands accounted for revenues of Rs. 3,845 million (38% of India formulations revenue). Some of the details are: Omez® and Omez DR®, the Company’s brands of omeprazole, grew by 26% compared to a market growth of 18%. OmezTM now accounts for 50% of the total market. RedituxTM, the Company’s brand of rituximab, grew by 17%. It continues to be the only biosimilar launched in India so far. The Dr. Reddy’s brand — accompanied by various awareness initiatives — led to this high growth. Aided by a focused market campaign, revenues from RazoTM and Razo-DTM, the Company’s brand of rabeprazole, grew by 18%. The brand has a market share of around 13%. MintopTM, Dr. Reddy’s brand of minoxidil, grew by 14%, and is ranked first with a market share of over 42%.
Stamlo®, the Company’s brand of amlodipine, grew by 12%, and is ranked first with a market share of over 21%. Table 2 gives the data for the top-10 brands in India. Russia and Other CIS Countries Dr. Reddy’s outperformed the market in Russia. While the Russian pharmaceutical market grew by 8% in 2009-10, the Company grew its sales by 25%. Growth was driven by strong contributions from the OTC segment as well as prescription sales. Key brands such as Nise, Cetrine, Keterol, Omez and Ciprolet played a major role. At present, Dr. Reddy’s accounts for 1.39% market share in value terms (Pharmexpert MAT, March 2010). Table 3 gives the revenues from the Company’s top five brands in Russia. Revenues from other CIS countries increased marginally by 4%. Europe Revenues from Europe dropped by 19% to Rs. 9,643 million. This was largely due to revenues from the Company’s German subsidiary, betapharm, decreasing by 26% — from Rs. 9,854 million in 2008-09 to Rs. 7,298 million in 2009-10. betapharm’s revenue decline was on account of severe pricing pressures due to Germany’s implementation of the ‘lowest bid wins’ tender system. Revenues from rest of Europe increased by 15% to Rs. 2,345 million.
TABLE 2
Revenues from the Top 10 Brands in India 2009-10 928 690 473 326 310 274 247 232 196 169 6,313 10,158 2008-09 776 605 422 301 210 269 214 199 172 138 5,172 8,478
Revenues from the Top 5 Formulation Brands in Russia 2009-10 1,862 1,458 1,287 760 408 2008-09 1,249 1,281 1,078 701 339
IN RS. MILLIONS
Key Products Nise Omez Ketorol Ciprolet Cetrine
Growth 49% 14% 19% 8% 20%
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CHART D,E Segment-wise Geographical Distribution of Revenues 21% India 10,158 Europe 20% 9,643 Russia & 19% Other CIS Countries 9,119 Rest of the world 7,433 36%
IN RS. MILLIONS
13% India 2,646
Global Generics 2009-10
Rest of the world 2,868 6% North America 34% 16,817 North America 3,672 18%
PSAI 2009-10
Europe 33% 6,653
Rest of the World (RoW) Revenues from RoW markets increased by 48% to Rs. 2,868 million in 2009-10. This was largely contributed by Venezuela, New Zealand and South Africa.
PHARMACEUTICAL SERVICES AND ACTIVE INGREDIENTS (PSAI) BUSINESS
applications in North America, of which 12 ANDAs were in US and one in Canada. Among these were six Para IV filings. These filings address innovator revenues of about US$ 14 billion (IMS MAT, December 2009). As of 31 March 2010, the Company has filed 179 cumulative drug applications in both US and Canada.
Revenues from PSAI grew by 9% to reach Rs. 20,404 million in 2009-10. International markets accounted for 87% of PSAI’s top-line, increasing by 8% to Rs. 17,758 million. Revenues from Europe grew by 8% to Rs. 6,653 million in 2009-10, primarily on account of increased sale of gemcitabine, clopidogrel and montelukast. This was partially offset by fall in the sales of ramipril and olanzapine. Revenues from North America fell by 5% to Rs. 3,672 million. This was mostly on account of decrease in sales of naproxen, finasteride, ibuprofen, montelukast; and partially offset by increase in sales of levetiracetam. Revenues from the emerging markets increased by 17% to Rs. 7,433 million, on account of increased sales from Israel, Turkey, Brazil and Japan. Chart D, E gives the segment-wise geographical distribution of revenues during 2009-10.
R E G U L AT O RY AC T I V I T Y
Revenues from PSAI business grew by 9% to reach Rs. 20,404 million in 2009-10. International markets accounted for 87% of PSAI’s top-line, increasing by 8% to Rs. 17,758 million.
In 2009-10, the Company has received 12 final approvals and five tentative approvals in US, and four in Canada. As of 31 March 2010, the Company’s North America generic pipeline comprises 73 ANDAs pending with the USFDA, including 11 tentative approvals. Of these 38 are Para IV filings, with 12 in the category of ‘first to file’. In the Active Ingredients business, the Company filed 36 DMFs in 2009-10. Of these, 19 were filed in US, five in Canada, eight in Europe and four in other countries. As on 31 March 2010, Dr. Reddy’s had 378 cumulative filings, with 156 DMFs in the US.
PROPRIETARY PRODUCTS BUSINESS
Dr. Reddy’s has continued with its commitment to build a robust generics and API pipeline. In 2009-10, the Company filed 13 drug
As on 31 March 2010, Dr. Reddy’s had six New Chemical Entities (NCEs), of which five are in clinical development and one in the pre-clinical stage. The Company successfully repositioned its research activities and is working on creating a differentiated product pipeline. Details of the six NCEs are given in Table 4.
TABLE 4
Dr. Reddy's Development Pipeline Therapeutic Area Metabolic disorders Metabolic disorders / Cardiovascular disorders Oncology Dyslipidemia Dyslipidemia Anti-Infectives Status Phase III Phase I Phase I Phase I Phase I Pre-Clinical development Remarks In Phase III clinical testing for Type 2 diabetes partnered with Nordic Biosciences Targeting dyslipidemia / atherosclerosis Targeting solid tumors Targeting dyslipidemia Targeting dyslipidemia Targeting bacterial infections
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The Company continues to advance these NCEs through a combination of in-house development, partnerships and co-development initiatives.
HUMAN RESOURCES
HR AWARDS
The Company’s global employee strength crossed 13,000 in 2009-10, of which over 2,600 are based outside India.
TALENT ACQUISITION
During the year, around 4,100 new employees were hired, including replacements. The highlights of the hiring program were: India field and manufacturing hires have contributed 25% each to the overall hiring; 24% of the hiring was in quality, R&D and engineering services. Critical talent was added in the areas of life cycle strategy, formulations scale-up development, regulatory strategy, legal, corporate development and strategic planning, safety, health and environment, pharmacovigilance and clinical development, bioassay and medical sciences. 24 management trainees and laterals were recruited from prestigious business schools including the IIMs, the Indian School of Business and the Tata Institute of Social Sciences. In addition, 628 technical trainees were recruited, which included a number of IIT graduates. 399 management, engineering and technical trainees inducted to the organization through an intense and systematic campus-to-corporate induction program.
Received the Recruiting And Staffing Best In Class award (RASBIC) 2009-10 for the ‘Best Overall Recruiting and Staffing Organization’ and ‘Best Recruiting Evaluation Techniques’. Received two employer awards at the World HRD Congress for ‘Organization with Innovative HR Practices’ and ‘Outstanding Contribution to the Cause of Education’. Adjudicated the best rank in the ‘Great Places to Work Survey’ in the pharmaceutical and biotechnology industry.
SAFET Y, HEALTH AND ENVIRONMENT
In 2009-10, the Company filed 13 drug applications in North America, of which 12 ANDAs were in North America and one in Canada. Among these were six Para IV filings. These filings address innovator revenues of about US$ 14 billion
TALENT MANAGEMENT
Institutionalized a talent management framework based on the performance-potential matrix to review breadth and depth of talent and to facilitate downstream interventions. The Company has partnered with a global consulting firm to build a robust talent management competency model.
BUIL DING AN INCLUSIVE ORGANIZATION
During the year, several new employee enabling policies like flexible work timings, sabbatical leave, part-time work, paternity leave & adoption were introduced with an aim to provide flexibility and work life balance to employees.
As a part of the Company’s commitment towards the principles of sustainable development, safety, health and environment continue to be priority areas. Dr. Reddy has been publishing its Sustainability Report for the last six years. These give full account of its activities in safety, health and environment, and go well beyond the statutory requirements. The Sustainability Report is prepared according to internationally accepted guidelines issued by Global Reporting Initiatives, commonly known as GRI guidelines. GRI is an official collaborating center of the United Nations Environment Program (UNEP), and works in cooperation with the UN Secretary General’s Global Compact. Some of the major activities in the area of safety, health and environment have been: The Company joined the Green Chemistry Institute® Pharmaceutical Roundtable of the American Chemical Society (ACS). Green chemistry can play a major role in improving the Company’s environmental performance and contribute towards sustainable operations while actually improving competitiveness. Dr. Reddy’s has 6 zero liquid discharge plants — where the entire effluent generated is treated, and the treated effluent is recycled as cooling tower make-up or boiler feed water. Significant efforts have been made across the Company to reduce water consumption, effluent quantity and load reduction. Efforts to find environment friendly ways to dispose organic residue have begun to yield results. In 2009-10, over 1,700 metric ton, constituting about 50% of the Company’s organic residue generation, was disposed off to the cement industry for use as auxiliary fuel, and the balance was incinerated. To maintain alertness and awareness on safety at the desired level, monthly safety campaigns were carried out across all manufacturing sites. As on date, there are 1,315 trained fire fighters and 835 trained first aid resources available at various locations.
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Revenues Gross profit Selling, general and administrative expenses Research and development expenses Impairment loss on other intangible assets Impairment loss on goodwill Other expenses / (income), net Operating (expense) / income Finance expense Finance income Finance (expense) / income, net Share of profit of equity accounted investees Profit / (loss) before income tax Income tax (expense) / benefit Profit / (loss) for the year Notes: NC = Not Comparable 71 energy conservation initiatives were started during the year 2009-10, resulting in a saving of approximately 5 million KWH. Several other activities such as occupational health surveillance, batch chemical safety cards and manufacturing process safety initiatives have also been carried out. Efforts at resource conservation, strengthening the safety culture, and continuous upgradation of physical facilities to deliver better safety and environmental performance will continue.
FINANCIALS
Dr. Reddy’s gross profit remains almost flat at Rs. 36,340 million. Gross profit as a percentage of revenue was 52% in 2009-10, versus 53% in 2008-09. The minor decrease in gross margin was primarily due to a fall in revenues from sumatriptan, which contributed a significantly higher margin in 2008-09.
SELL ING, GENERAL AND ADMINISTRATIVE EXPENSES
The financials are given in three sub-sections: Abridged IFRS accounts for Dr. Reddy’s as a consolidated entity. Abridged Indian GAAP consolidated accounts. Abridged Indian GAAP stand-alone accounts for Dr. Reddy’s, as statutorily required under India’s Companies Act, 1956.
IFRS CONSOLIDATE D FINANCIALS
Table 5 gives the abridged IFRS consolidated financial performance of Dr. Reddy’s for 2009-10 and 2008-09.
R EV ENUES
Revenues increased by 1% to Rs. 70,277 million in 2009-10. In November 2008, the Company launched sumatriptan, the Authorized Generic version of Imitrex®, which contributed Rs. 7,188 million in 2008-09 as against Rs. 2,543 million in 2009-10. Excluding sumatriptan revenues from both the years, the Company’s revenues grew by 9% in 2009-10.
Selling, general and administrative expenses increased by 7% to Rs. 22,505 million in 2009-10. During the year, the Company recorded a one-time charge of Rs. 912 million related to termination benefits payable to a set of identified employees in Germany. During the year, we also closed our research facility at Atlanta, Georgia, USA, and announced re-organization of our North America Generics business in Charlotte, North Carolina, USA, which triggered one time closure related costs. Other than the above, the selling and administrative expenses remained flat primarily due to increase in salaries and inflation in our India business, offset by a decrease in overall costs in Germany due to restructuring. Amortization expenses have almost remained flat at Rs. 1,479 million in 2009-10, versus Rs. 1,503 million in 2008-09.
R&D EXPENSES
R&D expenses fell by 6% to Rs. 3,793 million. As a share of total revenue, R&D expenditure was at 5% in 2009-10, compared to 6% in 2008-09. The fall in R&D expenses was due to lower project expenses and bio-studies costs in 2009-10.
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USFDA APPROVED FORMULATION MANUFACTURING FACILITY AT BACHUPALLY, HYDERABAD, INDIA
IMPAIRMENT LOSS ON OTHER INTANGIBLE ASSETS AND GOODWILL
During the year 2009-10, the Company recorded a write-down of intangible assets of Rs. 3,456 million, and a write down of goodwill of Rs. 5,147 million. In 2008-09, the comparable numbers were Rs. 3,167 million and Rs. 10,856 million, respectively. For both years, the impairment losses have been due to betapharm and the state of the tender-based German generics market. The decrease in market prices due to tender, which began in 2008-09, continued in 2009-10. The year saw additional tenders being announced by several State Healthcare Insurance (SHI) funds. The Company participated in these tenders through betapharm. The final results of a majority of these tenders were announced with betapharm having a lower than anticipated success rate. Due to these results, the Company needed to re-assess the impact of such tenders on future sales and profits in the German market. In light of further deterioration and adverse market conditions in 2009-10, the Company recorded an impairment loss of: Rs. 2,112 million for the product related intangibles; Rs. 5,147 million towards carrying value of goodwill; and
Rs. 1,211 million towards the trademark / brand — ‘beta’ which forms a significant portion of the betapharm cash generating unit. These have been recorded in the income statement. In addition, the Company recorded a write down of Rs. 133 million towards customer related intangibles of US subsidiary, Dr. Reddy’s Louisiana. This arose from the evidence of revenue decline of a product from a customer — on which customer related intangibles had been recognized at the time of acquisition in early 2008-09.
OTHER EXPENSE / (IN C O ME), NET
In 2009-10, net other income amounted to Rs. 569 million compared to net other expense of Rs. 254 million in 2008-09. The higher net other expenses in 2008-09 was largely due to an expense of Rs. 916 million on account of liquidated damages paid to Eli Lilly arising out of an unfavorable court decision relating to patent of olanzapine in Germany.
FINANCE (EXPENSES) / IN COME, NET
Finance income / (expense) includes both net interest income / (expense) and foreign exchange gain / loss. Net expense in 2009-10 amounted to Rs. 3 million as against an expense of Rs. 1,186 million in 2008-09. This was largely due to a foreign exchange gain of Rs. 72 million in 2009-10, versus a loss of Rs. 634 million in previous year. Moreover, there has been a
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reduction in the interest expense by 64% during 2009-10, due to a fall in interest rates and repayment of long term borrowings.
INCOME TAX
LIQU IDITY AND CAPITAL RESOURCES
Provision for income tax for 2009-10 amounted to Rs. 985 million as against Rs. 1,172 million in 2008-09. Excluding the impact of impairment, revenues from sumatriptan in both the years ended 31 March 2010 and 2009 and liquidated damages relating to olanzapine patent in Germany in 2009, the company’s effective tax rate for the year ended 31 March 2010 was at 16.7% of profit before tax as compared to 12.4% for the year ended 31 March 2009. This movement is largely on account of lower R&D expenditure resulting in lower weighted deduction, under Indian Tax law and also lower mix of profits from tax exempted manufacturing units in India.
PROFIT / (LOSS ) FO R THE YEAR
Table 6 gives the Company’s IFRS consolidated cash flow for 2009-10 and 2008-09. The Company’s cash flow for 2009-10 is higher primarily due to higher cash generated from its operating activities. Investing activities includes net investment in property, plant and equipment of Rs. 4,136 million to meet the business growth, compared to Rs. 4,426 million in 2008-09. Investment in mutual funds net of proceeds from sale amounted to Rs. 3,009 million. Net cash outflow from financing activities in 2009-10 mainly represents the repayment of Rs. 3,479 million of long term debt, and payment of dividends amounting to Rs. 1,233 million. Table 7 gives the Company’s consolidated working capital.
DEBT-EQUITY
Dr. Reddy’s net profit was Rs. 1,068 million in 2009-10, versus a net loss of Rs. 5,168 million in 2008-09.
The debt-equity position of the Company as on 31 March 2010 and 2009 is given in Table 8. Stockholders’ equity increased marginally in 2008-09 even after impairment of intangibles and goodwill. Long-term debt, including the current and non-current portions, decreased by Rs. 4,542
2008-09 6,986 4,505 (3,472) (2,527) (114) 5,378
IN RS. MILLIONS
Dr. Reddy’s Consolidated Working Capital 31 March 10 11,960 13,371 9,322 16,009 16,732 42,063 9,310 10,389 29,021 31 March 09 14,592 13,226 5,987 21,831 11,192 39,010 9,569 10,973 26,529
Accounts receivable (A) Inventories (B) Trade Accounts Payable (C) Working Capital (A+B-C) Other current Assets (D) Total Current Assets (A+B+D) Short and long term loans and borrowings, current portion (E) Other current liabilities (F) Total Current Liabilities (C+E+F)
Dr. Reddy’s Debt-Equity Position 31 March 10 42,915 5,385 3,706 5,604 14,695 31 March 09 42,045 10,132 3,501 6,068 19,701
IN RS. MILLIONS
Total Stockholders’ Equity Long-term Debt (non-current) Long-term Debt (current) Bank Borrowings Total Debt
Change 870 (4,747) 205 (464) (5,006)
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million in 2008-09 due to repayments of loan taken on account of betapharm acquisition. The Company’s ratio of total debt-tostockholders’ equity decreased to 0.34 as on 31 March 2010 from 0.47 on 31 March 2009.
INDI AN GAAP CONSOLIDATED FINANCIALS
it reduced from 6% in 2008-09 to 5% in 2009-10. Provision for income tax (inclusive of fringe benefit tax) for 2009-10 amounted to Rs. 2,668 million against Rs. 2,608 million in 2008-09 PAT increased from Rs. (9,172) million in 200809 to Rs. 3,515 million in 2009-10.
INDIAN GAAP STAND-A LONE FINANCIALS
Table 9 gives the break-up of Indian GAAP consolidated financials for 2009-10 and 2008-09. Gross sales increased by 1% to Rs. 68,833 million in 2009-10. Material costs increased to Rs. 23,722 million in 2009-10 from Rs. 23,610 million in 2008-09. Personnel costs rose by 19% to Rs. 11,833 million in 2009-10. This was on account of annual increments and increase in number of employees. As a share of total income, personnel costs increased to 17% in 2009-10, from 15% in 2008-09. Selling expenses grew by 6% to Rs. 7,030 million in 2009-10. This was on account of symposiums, media expenses, sales development costs and higher field expenses. Depreciation and amortization decreased by 17% to Rs. 4,131 million in 2009-10 due to lower amortization charge on betapharm intangibles, resulting from impairment charge recorded in 2008-09. R&D expenses decreased by 9% to Rs. 3,731 million in 2009-10. As a share of total income,
Table 10 gives the break-up of Indian GAAP stand-alone financials for 2009-10 and 2008-09.
INTERNAL CONTROLS A N D RISK MANAGEMENT
Dr. Reddy’s has a comprehensive system of internal controls with the objective of safeguarding the Company’s assets, ensuring that transactions are properly authorized, and providing significant assurance at reasonable cost, of the integrity, objectivity and reliability of financial information. The management of Dr. Reddy’s duly considers and takes appropriate action on recommendations made by the statutory auditors, internal auditors and the Audit Committee of the Board of Directors. More details on internal controls is given in the chapter on Corporate Governance. In a very dynamic business environment, the traditional base business model is exposed to much volatility, both upwards and downwards. While the upsides create nonlinear value for the
Particulars Gross Sales Less: Excise Duty Net Sales License fees and Service Income Other operating income Total Income Expenditure Material consumed Research and development expenses, net Personnel costs Selling expenses Other expenditure Depreciation and Amortization Total Expenditure Profit from operations Other Income Interest Expense Impairment of goodwill and intangibles Profit / (loss) before tax Provision for Taxation Minority interest Equity in loss of associates Net Profit
Particulars Gross Sales Less: Excise Duty Net Sales License fees and Service Income Other Operating Income Total Income Expenditure Material costs Research and development expenses, net Personnel costs Selling costs Other expenditure Depreciation and amortisation Provision for decline in the value of long-term investments Total Expenditure Profit from Operations Other Income Interest Expense Profit before tax Tax expense Profit after tax
organization, there is a conscious attempt to protect it against the downsides. Enterprise-wide Risk Management (ERM) Risk Management at Dr. Reddy’s is modeled around the COSO (Committee of Sponsoring Organizations) ERM framework. The ERM function operates with the following objectives: Identifies and highlights risks to the relevant stakeholders proactively; Facilitate discussions around risk prioritization and risk mitigation; Provide a framework to assess risk capacity and risk appetite and develop systems to warn when the appetite is getting breached; and Provide an analysis that a formal and focused risk management process is facilitating reduction in residual risks. A ‘Central’ ERM team connects with each business unit and function. These units / functions are the primary source for risk identification. Risk Identification and mitigation at the business unit / function level The ERM team conducts interviews, facilitates ‘polls’ and enables prioritisation at the unit / function level. While there are independent assurance processes for compliance and SOX [financial] related risks, the ERM team focuses on identification of operational and strategic risks, as well as potential compliance and financial issues. Mitigation plans for the key ‘business risks’ are identified with timelines and owners. While the responsibility for risk mitigation lies with the
risk owners, the ERM team periodically ensures oversight of the mitigation process through formal reviews. Risk aggregation, prioritization and mitigation at the organization level Risks are aggregated at the unit / function and organization level by risk groups [approximately ‘60’ groups] and bucketed into Strategic, Operational, Financial and Compliance categories. A Risk Committee [RC] comprising of heads of Business Segment, Finance, Legal, HR and Quality is entrusted with organization wide risk prioritisation and mitigation in line with risk capacity and appetite. Reviewing the status of mitigation projects and residual risk thereon The ERM function’s responsibility is to provide a periodic review of (a) risks identified and prioritized company wide (b) any RA breaches and how the same has been dealt with (c) the status of mitigation and (d) residual risks there from is carried out to provide assurance on the effectiveness of the risk management activities in the organization. Update to and review by the Board [including the Audit Committee] The Chief Risk Officer provides periodic updates to the Board: a. Quarterly, on the status of key de-risking initiatives
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QUALITY COMPLIANCE CHECKS AT OUR CHEMICALS MANUFACTURING FACILITY IN HYDERABAD, INDIA
b. Annually, on the key risks and their movement compared to the previous year(s) along with a measure of the residual risk.
T H R E AT S , R I S K S A N D C O N C E R N S
in the market, the dynamics will be even more challenging for the generics industry.
The pharmaceutical industry works in a dynamic environment. Compared with other industries, the risk and compliance profile span the full pharmaceutical product life cycle — from invention to testing, manufacturing, and marketing. Given below are some key threats, risks and concerns.
» US healthcare reforms in the biologics space The US Patient Protection and Affordable Care Act, 2010, consists of regulations and data exclusivity protection in the biologics space, which grants innovators 12 years of data protection. This may effect Dr. Reddy’s entry in biologics in the US market. » Russia reference pricing The Russian government’s healthcare prioritization plan for the pharmaceutical market is making a slow transition from a largely outof-pocket market to the western European model of centralized reimbursements. Through this, the government will play a more active role in regulating market access, particularly for high-cost medicines. The Russian government is extremely focused on regulating price of essential drugs by way of reference pricing, which may impact the Company’s Russia revenues. » Price controls in India
The Government of India through its Drugs (Prices Control) Order, 1995 (DPCO) imposes price controls for specified pharmaceutical products under certain circumstances. Adverse changes in the DPCO list or a widening of the span of price
» Health care reforms across the globe
Increasingly, healthcare expenses — especially public expenditure — have been the subject of attention across the globe. Both private and government entities are seeking ways to contain healthcare costs. The consequence has been unanticipated reductions, especially in Generics and Active Ingredient prices.
» Germany’s tender model The German market has become very proactive in seeking new ways to rein in costs. More health insurance funds (popularly called ‘sick funds’) are moving towards consolidation and, therefore, forming groups for introducing tenders. After changing to a tender based model, the German market has now become a high volume-low margin play. With the introduction of new tenders
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control can affect pricing, and hence, Indian revenues.
» Regulatory and compliance (i.e. rising audit burdens, inspections and fines) In the recent past, the pharmaceutical industry has witnessed rising regulatory and compliance barriers, as seen in increased inspections and warning letters from USFDA. While the Company continues to give top priority to compliance and quality year on year, an increasing audit burden could impact the business. » Proprietary products Dr. Reddy’s long term research efforts will depend, to a large extent, upon its ability to successfully patent and commercialize its own NCE molecules and differentiated formulations. There are significant risks of execution, as the process of development and commercialization of new molecules is time consuming as well as costly. » Generics
The Company’s generic business remains challenging due to increased competition from India and Eastern Europe. The segment has inherent risks with regard to patent litigation, product liability, pricing pressure, increasing regulation and compliance related issues. The business could be negatively impacted if innovator pharmaceutical companies are successful in limiting the use of generics through aggressive
legal defense as well as authorized generics deals, development of combination products and over-the-counter switching. In view of the number of patent expiries coming up in the near future, sales of patent expiry drugs in the US as well as in Europe represent significant opportunity for all generics and API manufacturers. However, obtaining 180-days exclusivity is getting increasingly difficult in the US, and the generics market is becoming rapidly commoditized.
PACKAGING LINE AT OUR FORMULATIONS MANUFACTURING FACILITY IN BACHUPALLY, HYDERABAD, INDIA
» Foreign exchange fluctuations In 2009-10, the Indian rupee appreciated by approximately 12% vis-à-vis the US dollar closing at Rs. 44.95 per USD for year ending 31 March 2010 — from Rs. 50.87 per USD for year ending 31 March 2009. Appreciation of the Indian rupee may impact top-line growth partly for Indian companies with higher exposure to the US dollar. » Launch at risk At times, the Company seeks approval to market generic products before the expiration of patents — based on the belief that such patents are invalid, unenforceable, or would not be infringed by the Company’s products. As a result, the company is involved in patent litigation, the negative outcome of which could adversely affect the business. Based upon a complex analysis of a variety of legal and commercial factors, the Company may
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elect to market a generic product (‘launch at risk’) even though litigation is still pending. If the final court decision is adverse, the Company could be required to cease the sale of the infringing products, and face substantial liability for patent infringement. These damages may be significant. In April 2006, the Company launched, and continues to sell fexofenadine, the generic version of Allegra®. This is despite the fact that there is an ongoing litigation with the company that holds the patents for and sells this branded product. This is the only product that the Company has launched at risk in the US. In Germany, the Company had ‘launch at risk’ of oxycodon. A cost sharing agreement had been entered to with the supplier to reimburse up to 20% of losses resulting from any damage claim by innovator.
OUTLOOK
C AU T I O N A RY S TAT E M E N T
The Company believes its focus on profitable growth and targeting a leadership position in Global Generics and Pharmaceutical Services & Active Ingredients (PSAI) will create significant value in the near term. It is addressing the need for infrastructure / capacity increases to meet future growth. In the Global Generics segment, improving depth in key markets through portfolio expansion, consistent delivery of limited competition opportunities and supply chain excellence should lead to a leadership position in these markets. In the PSAI segment, we intend to be the partner of choice by creating compelling value for customers through leveraging IP, technology and cost leadership. In our Proprietary Products business, we aim to create a viable business by calibrating investments to produce a self sustainable model. We have been steadily building capabilities and capacity over the years, and have strengthened these further with initiatives at improving productivity and reducing costs. We expect these initiatives shall deliver value in the near term.
The management of Dr. Reddy’s has prepared and is responsible for the financial statements that appear in this report. These financial statements are in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board and accounting principles generally accepted in India and therefore include amounts based on informed judgments and estimates. The management also accepts responsibility for the preparation of other financial information that is included in this report. This write-up includes some forward-looking statements, as defined in the U.S. Private Securities Litigation Reform Act of 1995. The management has based these forward-looking statements on its current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. These factors include, but are not limited to, changes in local and global economic conditions, the Company’s ability to successfully implement its strategy, the market’s acceptance of and demand for its products, growth and expansion, technological change and exposure to market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future.
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BOARD OF DIRECTORS
DR . K ANJI REDDY
CHAIRMAN
is the Founder-Chairman of Dr. Reddy’s. He served in the state-owned Indian Drugs and Pharmaceuticals Limited from 1969 to 1975, was Founder-Managing Director of Uniloids Ltd. from 1976 to 1980 and Standard Organics Limited from 1980 to 1984, before founding Dr. Reddy’s in 1984. Under Dr. Reddy’s leadership, the Company became a pioneer in the Indian Pharmaceutical industry. It turned the Indian bulk drug industry from an import-dependent in the mid-80s to a self-reliant one in the mid-90s and, finally, into the export-oriented industry that it is
today. Dr. Reddy’s was the first company to initiate drug discovery research in India in 1993 and has led the industry in turning from ‘immitators’ into innovators. Dr. Reddy’s was listed on the New York Stock Exchange in April 2001 (RDY) – the first non-Japanese Asian pharmaceutical company to be listed on the NYSE. Dr. Reddy holds a Bachelor of Science degree in Pharmaceuticals and Fine Chemicals from Bombay University and a Ph.D. in Chemical Engineering from National Chemical Laboratory, Pune.
MR. G V PRASAD
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
joined the Board in 1986 and leads the core team that drives the growth and performance of Dr. Reddy’s. He has been Vice-Chairman & CEO of Dr. Reddy’s since 2001, when Cheminor Drugs Ltd, the company of which he was then Managing Director, merged with Dr. Reddy’s. Prasad has played a key role in the evolution of Dr. Reddy’s from a mid-sized pharmaceutical company into a globally respected pharmaceutical major. He is widely credited as the architect of Dr. Reddy’s successful global generics strategy. He envisioned new business platforms like the Custom Pharmaceutical Services business and
Differentiated Formulations. He is dedicated to building the innovation side of the business and drives the Sustainability agenda at Dr. Reddy’s. Prasad earned his degree in Chemical Engineering from the Illinois Institute of Technology in Chicago in 1982 and his Masters in Industrial Administration from Purdue University in 1983.
M R . SATISH REDDY
MANAGING DIRECTOR AND C H I E F O P E R AT I N G O F F I C E R
joined Dr. Reddy’s in 1993 as Executive Director. He played an instrumental role in the company’s transition from a bulk drugs manufacturer to a global player in the branded space by spearheading entry into emerging markets. Satish steers Dr. Reddy’s Pharmaceutical Services and Active Ingredients (PSAI) and Global Generics businesses, two of the company’s core revenue generating streams. In 1997, he was appointed Managing Director. In the mid-90s, as the company prepared for its global foray, Satish anchored the establishment of key systems and initiatives that positioned Dr. Reddy’s for rapid
expansion and helped build the Company’s brand and corporate identity. He was the major force behind the successful acquisition of American Remedies Limited (1999). Besides, he was instrumental in setting up wholly owned subsidiaries in Russia and Latin America and joint ventures in China and South Africa. Satish graduated in Chemical Engineering from Osmania University, Hyderabad, in 1988 and went on to receive his Masters in Medicinal Chemistry from Purdue University in 1990.
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DR. O M KAR GOSWAMI
INDEPENDENT DIRECTOR
joined the Company’s Board in 2000. Since April 2004, he has been the Founder and Chairman of CERG Advisory Private Limited, a consulting and advisory firm. He taught and researched economics for 18 years at Oxford, Delhi School of Economics, Harvard, Tufts, Jawaharlal Nehru University, Rutgers University and the Indian Statistical Institute, New Delhi. In March 1997, he moved away from formal academics to become the Editor of Business India, one of India’s prestigious business magazines. From August 1998 up to March 2004, Dr. Goswami served as the Chief Economist of the Confederation of Indian Industry – the premier apex industry joined the Company’s Board in 2000. Mr. Bhoothalingam has served as the President of The Oberoi Group of Hotels and was responsible for the operations of the Group worldwide. He has also served as Head of Personnel at British American Tobacco (BAT) plc, Managing Director of VST Industries Limited and as a Director of ITC Limited. He is also a Director of Sona Koyo Steering Systems Limited.
organization of India. He is also an Independent Director on the Boards of Infosys Technologies Limited, Crompton Greaves Limited, IDFC Limited, Ambuja Cements Limited, Cairn India Limited, DSP Black Rock Investment Managers Private Limited, Godrej Consumer Products Limited, Max New York Life Insurance Company Limited, Max India Limited and Avantha Power and Infrastructure Limited. A professional economist, Dr. Goswami did his Masters in Economics from the Delhi School of Economics and his D.Phil. (Ph.D.) from Oxford University.
MR. RAVI B HO OTHALINGAM
INDEPENDENT DIRECTOR
Mr. Bhoothalingam holds a Bachelor of Science degree in Physics from St. Stephens College, Delhi and Master’s degree in Experimental Psychology from Gonville and Caius College, Cambridge University.
M R . ANUPA M PURI
INDEPENDENT DIRECTOR
joined the Company’s Board in 2002. From 1970 to 2000, Mr. Anupam Puri was with McKinsey & Company, a leading management consultancy firm. He worked globally with corporate clients in several industries on strategy and organizational issues, and also served several governments and multilateral institutions on public policy. Mr. Anupam Puri spearheaded the development of McKinsey’s India practice, oversaw the Asian and Latin American offices, and was an elected member of the Board. He is currently a management consultant. He is also on the Boards
of ICICI Bank Limited, Mahindra & Mahindra Limited, Tech Mahindra Limited and Mumbai Mantra Media Limited. Mr. Puri holds a M. Phil. in Economics, Nuffield College, Oxford University, 1969; an MA in Economics from Balliol College, Oxford University, 1967; and a BA in Economics from Delhi University in 1965.
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DR . J P MOREAU
INDEPENDENT DIRECTOR
joined the Company’s Board in 2007. He founded Biomeasure Incorporated based near Boston and has been its President and CEO. Prior to that he was working as Executive Vice-President and Chief Scientific Officer of the IPSEN Group and was responsible for the Group’s Discovery and Innovation with facilities in Paris, London, Barcelona and Boston. He was Vice-President, Research from April 1994 and has been a member of the Executive Committee of IPSEN Group since that date. He has published over 50 articles in scientific journals and is named as an inventor
of more than 30 patents. He is a regular speaker at scientific conferences and a member of Nitto Denko Scientific Advisory Board. Dr. Moreau was also responsible for establishing Kinerton Limited in Ireland in March, 1989, a wholesale manufacturer of therapeutic peptides. Dr. Moreau has a degree in Chemistry from the University of Orleans and a D.Sc. in biochemistry. He has also conducted post-doctorate research at the École Polytechnique.
MS. KALPANA MORPA RIA
INDEPENDENT DIRECTOR
joined the Company’s Board in 2007. She is the Chief Executive Officer of J.P. Morgan, India, where she leads their Business Groups (investment banking, asset management, treasury services and principal investment management) & Service Groups (global research, finance, technology and operations). She is also a member of J.P. Morgan’s global strategy team headquartered in New York and the J.P. Morgan Asia Pacific Executive Committee. Prior to becoming CEO of J.P. Morgan India, Ms. Morparia served as Vice Chair on the Boards of ICICI Group. She joined the ICICI Group in 1975 and was the Joint Managing Director
of ICICI Group from 2001 to 2007. She was named one of `The 50 Most Powerful Women’ in `International Business’ by Fortune magazine in 2008; one of the 25 most powerful women in Indian business by Business Today, a leading Indian business journal, in 2004, 2005, 2006 and 2008 and one of ‘The 100 most Powerful Women’ by Forbes magazine in 2006. She also serves on the Board of Bennett, Coleman & Co. Limited and CMC Limited. A graduate in law from Bombay University, Ms. Morparia has served on several committees constituted by the Government of India.
DR. B R UC E L A CART ER
INDEPENDENT DIRECTOR
joined the Company’s Board in 2008. He is the Chairman of the Board and Chief Executive Officer of ZymoGenetics, Inc. USA. Dr. Carter was appointed Chairman of the Board of ZymoGenetics in April 2005. From April, 1998 to January, 2009, he served as Chief Executive Officer of ZymoGenetics. Dr. Carter first joined ZymoGenetics in 1986 as Vice President of Research and Development. In 1988, Novo Nordisk acquired ZymoGenetics and in 1994, Dr. Carter was promoted to Corporate Executive Vice President and Chief Scientific Officer for Novo Nordisk A/S, the then parent company of
ZymoGenetics. Dr. Carter led the negotiations that established ZymoGenetics as an independent company from Novo Nordisk in 2000. Dr. Carter held various positions of increasing responsibility at G. D. Searle & Co., Ltd. from 1982 to 1986 and was a Lecturer at Trinity College, University of Dublin from 1975 to 1982. Dr. Carter received a B.Sc. with Honors in Botany from the University of Nottingham, England, and a Ph.D. in Microbiology from Queen Elizabeth College, University of London.
D R. ASHOK S EKHAR GANGULY
INDEPENDENT DIRECTOR
joined the Company’s Board on 23 October 2009. He is the Chairman of Firstsource Solutions Limited and ABP Private Ltd. and was a Director on the Central Board of the Reserve Bank of India from 2001 to 2009. He also serves as a non-Executive Drector of Mahindra & Mahindra Limited, Wipro Limited, Hemogenomics Private Limited and Tata AIG life Insurance Company Limited. He is a Director on the Advisory Board of Microsoft Corporation (India) Private Limited and the Blackstone Group.
He was the Chairman of Hindustan Lever Limited from 1980 to 1990, and member of the Unilever Board from 1990 to 1997 with responsibility for research and technology. He is a recipient of the Padma Bhushan as well as the Padma Vibhushan, two of India’s prestigious civilian honours. At present, he serves as a member of the Rajya Sabha, the upper house of the Parliament of India.
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MANAGEMENT COUNCIL
T H E M A N AG E M E N T CO U N C I L MEMBERS IN PIC TURE ROW 1 S I T T I N G L TO R S AT I S H R E D DY G V PR ASAD ROW 2 S I T T I N G L TO R D R . C A R T I K E YA R E D DY V I L A S M D H O LY E ABHIJIT MUKHERJEE PRABIR KUMAR JHA B AC K ROW S TA N D I N G L TO R A M I T PAT E L U M A N G VO H R A K B SA N K A R A R AO SAU M E N C H A K R A B O R T Y D R . R AG H AV C H A R I
NAME
G V PRASAD
D E S I G N AT I O N
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER MANAGING DIRECTOR AND CHIEF OPERATING OFFICER PRESIDENT, GLOBAL GENERICS SENIOR VICE-PRESIDENT, NORTH AMERICA GENERICS SENIOR VICE-PRESIDENT, BIOLOGICS EXECUTIVE VICE-PRESIDENT, INTEGRATED PRODUCT DEVELOPMENT SENIOR VICE-PRESIDENT AND GLOBAL CHIEF OF HR S E N I O R V I C E P R E S I D E N T, P R O P R I E TA R Y PRODUCTS PRESIDENT, CORPORATE SENIOR VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER EXECUTIVE VICE-PRESIDENT, FORMULATIONS MANUFACTURING
Q U A L I F I C AT I O N
B.SC. (CHEM. ENG.), M.S. (INDL. ADMN.) B.TECH., M.S.(MEDICINAL CHEMISTRY) B.TECH. (CHEM.)
AGE
50
D AT E O F JOINING THE C O M PA N Y
30-JUN-90
SATISH REDDY
43
18-JAN-93
ABHIJIT MUKHERJEE
52
15-JAN-03
AMIT PATEL
B.S., B.A.S., M.B.A.
36
06-AUG-03
DR. CARTIKEYA REDDY
B.TECH., M.S., PH.D.
40
20-JUL-04
K B SANKARA RAO
M.PHARMA.
56
29-SEP-86
PRABIR KUMAR JHA
M.A., P.G.D.M. (XLRI)
43
29-NOV-02
D R . R A G H AV C H A R I
M.S. (PHYSICS), PH.D.
40
25-SEP-06
SAUMEN CHAKRABORTY
B.SC. (H), MBA - IIM
49
02-JUL-01
UMANG VOHRA
B.E., M.B.A.
39
18-FEB-02
VILAS M DHOLYE
B.TECH. (CHEM.)
61
18-DEC-00
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CORPORATE GOVERNANCE
Dr. Reddy’s Laboratories Limited (‘the Company’ or ‘Dr. Reddy’s’) has a philosophy of corporate governance which stems from the belief that timely disclosures, transparent accounting policies and a strong & Independent Board go a long way to preserving shareholders trust while maximizing long-term corporate value. Keeping in view the Company’s size and complexity in operations, Dr. Reddy’s corporate governance framework is based on the following main principles: Appropriate composition and size of the Board, with each Director bringing in key expertise in different areas. Proactive flow of information to the members of the Board and Board Committees to enable effective discharge of fiduciary duties. Ethical business conduct by the Board, management and employees. Full-fledged systems and processes for internal controls on all operations, risk management and financial reporting. Timely and accurate disclosure of all material operational and financial information to the stakeholders. The Securities and Exchange Board of India (SEBI) regulates corporate governance for listed companies through Clause 49 of the Listing Agreement. Dr. Reddy’s is in full compliance with Clause 49. It is also in compliance with the applicable corporate governance standards of the New York Stock Exchange (NYSE). This chapter of the Annual Report, the information given under the chapters, Management Discussion and Analysis and Additional Shareholders’ Information together constitute the compliance report of the Company on corporate governance during the year 2009-10.
B OA R D O F D I R E C T O R S COMPOSITION
and the Corporate Governance Guidelines of the NYSE Listed Company Manual. Detailed profiles of the Directors have been discussed in this annual report. The Directors have expertise in the fields of strategy, management, finance, operations, technology, human resource development and economics. The Board provides leadership, strategic guidance, objective and independent view to the Company’s management while discharging its fiduciary responsibilities, thereby ensuring that the management adheres to high standards of ethics, transparency and disclosure. Each Director informs the Company on an annual basis about the Board and Board Committee positions he / she occupies in other companies including Chairmanships and notifies changes during the term of their directorship in the Company. Table 1 gives the composition of Dr. Reddy’s Board, their positions, relationship with other Directors, date of joining the Board, other Directorships and memberships of Committees held by each of them.
TERM OF BOARD MEMB ERSHIP
As per the provisions of the Companies Act, 1956, one-third of the Board members (other than Executive Directors) who are subjected to retire by rotation shall retire every year; and approval of the shareholders is sought for the reappointment of such retiring members who are so eligible. Executive Directors are appointed by the shareholders for a maximum period of five years at a time, but are eligible for re-appointment upon completion of the term. The Board, on the recommendations of the Governance and Compensation Committee, considers the appointment and re-appointment of Directors.
SELECTION AND APPOIN TMENT OF NEW DIRECTORS
As on 31 March 2010, the Board of Dr. Reddy’s had 10 Directors, comprising three Executive Directors (including the Chairman) and seven Independent Directors as defined under the Listing Agreement with Indian Stock Exchanges
Induction of any new member on the Board of Directors is the responsibility of the Governance and Compensation Committee, which is entirely composed of Independent Directors. Taking
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into account the existing composition and organization of the Board, and the requirement of new skill sets, if any, the Governance and Compensation Committee reviews potential candidates in terms of their expertise, skills, attributes, personal and professional backgrounds and their ability to attend meetings in India. The Governance and Compensation Committee places the candidates that meet these criteria to the full Board of Directors for its consideration. If the Board approves, the person is appointed as an Additional Director, subject to her / his appointment being ratified by the shareholders in the Company’s Annual General Meeting.
DIRECTORS’ SHA RE HOLDING IN THE COMPANY
MEET INGS OF THE BOARD
Table 2 on page 48 gives details of shares and stock options held by each of the Directors as on 31 March 2010.
The Company plans and prepares the schedule of the Board and Board Committee meetings a year in advance to assist the Directors in scheduling their program. The schedule of meetings and agenda for meeting is finalized in consultation with the Directors of the Company. The agenda of the meeting is pre-circulated with presentations, detailed notes, supporting documents and executive summary. Under Indian laws, the Board of Directors must meet at least four times a year, with a maximum time gap of four months between two Board meetings. Dr. Reddy’s Board met six times during the financial year under review: on 18 May 2009, 21 July 2009, 7 September 2009, 23 October 2009, 20 January 2010 and 31 March 2010. The Company held a minimum of one Board meeting in each quarter as required under the Companies Act, 1956.
TABLE 1
Composition of Dr. Reddy’s Board and directorships held Directorships in India u / s 275 of the Companies Act, 1956 Relationship with other Directors
A S ON 31 MARCH 2010
Other Directorships(1)
Father of Mr. Satish Reddy and 24 February 1984 6 30 – father-in-law of Mr. G V Prasad Mr. G V Prasad Vice Chairman and CEO Son-in-law of Dr. K Anji Reddy and 8 April 1986 9 36 1 brother-in-law of Mr. Satish Reddy Mr. Satish Reddy Managing Director Son of Dr. K Anji Reddy and 18 January 1993 7 42 3 and COO brother-in-law of Mr. G V Prasad Dr. Omkar Goswami Independent Director None 30 October 2000 10 2 7 Mr. Ravi Bhoothalingam Independent Director None 30 October 2000 2 – 1 Mr. Anupam Puri Independent Director None 4 June 2002 5 – 2 Dr. J P Moreau Independent Director None 18 May 2007 1 – – Ms. Kalpana Morparia Independent Director None 5 June 2007 3 2 2 Dr. Bruce L A Carter Independent Director None 21 July 2008 1 3 – Independent Director None 23 October 2009 5 4 1 Dr. Ashok S Ganguly(3) (1) Other Directorships are those, which are not covered under Section 275 of the Companies Act, 1956. (2) Membership / Chairmanship in Audit and Shareholders’ Grievance Committees of all public limited companies, whether listed or not, including Dr. Reddy’s are considered. Foreign companies, private limited companies and companies under Section 25 of the Companies Act, 1956 have been excluded. (3) Dr. Ashok S Ganguly joined the Board of the Company effective 23 October 2009.
Dr. K Anji Reddy
Executive Chairman
Chairmanship in Committees(2) – 1 – 2 2 – – 1 – 1
Date of joining
Committee membership(2)
Position
Name
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TABLE 2
Shares and stock options held by the Directors
A S ON 31 MARCH 2010
Name No. of shares held Stock Options held(2) Dr. K Anji Reddy(1) 700,956 – Mr. G V Prasad 1,365,840 – Mr. Satish Reddy 1,205,832 – Dr. Omkar Goswami 15,000 3000 Mr. Ravi Bhoothalingam 15,000 3000 Mr. Anupam Puri (ADRs) 13,500 3000(3) Dr. J P Moreau (ADRs) 3,000 3000(3) Ms. Kalpana Morparia 3,000 3000 Dr. Bruce L A Carter (ADRs) 4,000 3000(3) Dr. Ashok S Ganguly – – (1) Shares held in individual capacity. In addition, Dr. K Anji Reddy owns 40.00% of Dr. Reddy’s Holdings Limited, which in turn owns 39,128,328 shares of Dr. Reddy’s Laboratories Limited. Various members of his family own the balance shares in Dr. Reddy’s Holdings Limited. (2) Stock Options held were granted to Independent Directors in the Board meetings held on 18 May 2009. (3) Stock Options held pursuant to ADR Stock Option Scheme, 2007.
TABLE 3
Directors’ attendance at Dr. Reddy’s Board meetings and AGM Meetings held in Director’s tenure 6 6 6 6 6 6 6 6 6 3
I N F I N A N C I A L Y E A R 2 0 0 9 -10
Name
Dr. K Anji Reddy Mr. G V Prasad Mr. Satish Reddy Dr. Omkar Goswami Mr. Ravi Bhoothalingam Mr. Anupam Puri Dr. J P Moreau Ms. Kalpana Morparia Dr. Bruce L A Carter Dr. Ashok S Ganguly(1) (1) Dr. Ashok S Ganguly joined the Board of the Company effective 23 October 2009. (2) Were given leave of absence on request. (3) In addition to the above, one meeting was attended through teleconference. No sitting fee was paid for participation through teleconference. Details of Directors and their attendance in Board meetings and Annual General Meeting are given in Table 3. The Board and its Committee meetings at Dr. Reddy’s extended for either one or two days sessions. In the course of these meetings, the business unit heads and key management personnel made presentations to the Board.
INFORMATION GIVEN TO THE BOARD
Number of Board meetings attended 6 6 5(2) 5(2) 6 4(2)(3) 5(2)(3) 6 5(3) 2(3)
Attendance in last AGM on 22 July 2009 Present Present Present Present Present Not Present Present Present Present NA
The Company provides the following information to the Board and the Board Committees. Such information is submitted either as part of the agenda papers in advance of the meetings or by way of presentations and discussion material during the meetings. Annual operating plans and budgets, capital budgets, updates and all variances; Quarterly, half yearly and annual results of the Company and its operating divisions or business segments; Detailed presentations on the progress in Research and Development and new drug discoveries; Minutes of meetings of Audit Committee and other Committees;
Information on recruitment and remuneration of key executives below the Board level; Significant regulatory matters concerning Indian or Foreign regulatory authorities; Issue which involves possible public or product liability claims of a substantial nature; Risk analysis of various products, markets and businesses; Detailed analysis of potential acquisition targets or possible divestments; Details of any Joint Venture or collaboration agreements; Transactions that involve substantial payment towards goodwill, brand equity or intellectual property; Significant sale of investments, subsidiaries, assets, which are not in the normal course of business; Contracts in which Director(s) are deemed to be interested; Materially important show cause, demand, prosecution and penalty notices; Fatal or serious accidents or dangerous occurrences, if any; Significant effluent or pollution problems;
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TABLE 4
Remuneration paid or payable to the Directors for the financial year 2009-10 Sitting fees(1) NA NA NA 55 95 35 40 70 35 10 Commission(2) 100,000 60,000 60,000 3,210 3,188 3,188 3,098 2,829 3,098 2,021 Salaries 5,400 3,600 3,600 NA NA NA NA NA NA NA Perquisites(3) 684 867 885 NA NA NA NA NA NA NA NOTE TABLE 4
(1)
(IN RS. THOUSANDS)
Name of Directors Dr. K Anji Reddy Mr. G V Prasad Mr. Satish Reddy Dr. Omkar Goswami Mr. Ravi Bhoothalingam Mr. Anupam Puri Dr. J P Moreau Ms. Kalpana Morparia Dr. Bruce L A Carter Dr. Ashok S Ganguly(6)
Stock Options(4) NA NA NA 2,400 2,400 2,400(5) 2,400(5) 2,400 2,400(5) 2,400
Materially relevant default in financial obligations to and by the Company or substantial non-payment for goods sold by the Company; Significant labor problems and their proposed solutions; Significant development in the human resources and industrial relations fronts; Quarterly details of foreign exchange exposure and the steps taken by management to limit the risks of adverse exchange rate movement; Non-compliance of any regulatory or statutory nature or listing requirements as well as shareholder services such as non-payment of dividend and delays in share transfer; and Subsidiary companies minutes, financial statements, significant investments and significant transactions and arrangements.
MEETINGS OF IN D E PENDENT DIRECTORS IN E XE CUTIVE SESSION
DIRECT OR’S REMUNERATION
During the financial year, the Independent Directors of Dr. Reddy’s met four times without the management in executive sessions. The Company intends to further facilitate such sessions as and when required by the Independent Directors. An Independent Director, with or without other Independent Directors, takes the lead to provide structured feedback to the Board about the key elements that emerge out of these executive sessions.
ANNUAL BOARD RE TREAT
During the financial year, the Annual Board Retreat was organized at Hyderabad, India in September 2009. In the retreat the Board discussed various business strategy and governance matters. Presentations were made on topics covering global pharmaceutical trends as well as an outside-in view of Dr. Reddy’s. As a part of agenda of the retreat, the Board conducted a strategy and talent review of the Company’s business segments.
Executive Directors are appointed by shareholders’ resolution for a period of five years. No severance fees is payable to the Executive Directors. Except the commission payable, all other components of remuneration to the Executive Directors are fixed and in line with the Company’s policies. The remuneration for the three Executive Directors, including the commission based on net profits of the Company, is recommended by the Board’s Governance and Compensation Committee to the Board for consideration. The commission to be paid each year to the Executive Directors is decided by the Board, within the limits approved by the shareholders. The Independent Directors receive sitting fees for attending meetings of the Board and its Committees, and commission based on the net profits of the Company. The remuneration including commission payable to the Directors during the year under review was in conformity with the applicable provisions of the Companies Act, 1956, duly considered and approved by the Board and the shareholders. The remuneration paid or payable to the Directors for their services rendered during 2009-10 is given in Table 4. The criteria for making payments to the Executive Directors are: Salary, as recommended by the Governance and Compensation Committee and approved by the Board and the shareholders. Perquisites and retirement benefits are also paid in accordance with the Company’s compensation policies, as applicable to all employees. Shareholders of the Company have approved the payment of commission on the net profits calculated in accordance with Sections 198 / 349 of the Companies Act, 1956 to all Executive Directors. The Governance and Compensation Committee decides the amount of commission payable every year within the overall limit. Remuneration paid to the Executive Directors is determined keeping in view the industry benchmarks.
Sitting fees include fees for Board as well as Board Committee meetings @ Rs. 5,000 per meeting. Payment of commission is variable, and based on percentage of net profit calculated according to Sections 198 / 349 of the Companies Act, 1956. The commission would be paid after the Annual General Meeting, scheduled on 23 July 2010. The Board of Directors recommended for a fixed commission of Rs. 2,694,000 (US$ 60,000) per Independent Director, a specific commission of Rs. 449,000 (US$ 10,000) to the Chairman of Audit Committee, Rs. 224,500 (US$ 5,000) to the respective Chairman of other Committees and Rs. 67,350 (US$ 1,500) to the members of the Committees. Other than the above, a specific compensation of Rs. 67,350 (US$ 1,500) per meeting was paid towards foreign travel to the Directors residing outside India. Perquisites include medical reimbursement for self and family according to the rules of the Company, leave travel assistance, personal accident insurance, Company’s vehicle for official use with driver, telephone at residence and mobile phone, contribution to Provident Fund and Superannuation Scheme. All these benefits are fixed in nature. The Company granted stock options to Independent Directors on 6 May 2010. The exercise price of such options is Rs. 5 each. The options vest at the end of one year from the date of grant. The exercise period of options is 5 years from the date of vesting. Stock Options granted under ADR Stock Options Scheme, 2007 on 6 May 2010. Dr. Ashok S Ganguly joined the Board of the Company effective 23 October 2009.
(2)
(3)
(4)
(5)
(6)
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The criteria for making payments to the Independent Directors are given below: Independent Directors are paid sitting fees for each meeting of the Board or Board Committee @ Rs. 5,000 per meeting attended by them. Shareholders of the Company have approved payment of commission up to 0.5 per cent of net profits calculated in accordance with Sections 198 / 349 of the Companies Act, 1956 collectively to all the Independent Directors. The Board decides the amount of commission payable to Independent Directors every year, within the overall limit of 0.5 per cent of net profits. Remuneration paid to Independent Directors is determined by keeping in view the industry benchmarks, and also on the basis of their memberships in various committees of the Board. Shareholders of the Company approved granting of up to 200,000 stock options in aggregate at any point of time during the financial years starting from 2006–07 and ending with 2010–11 to all the Directors (except the three Executive Directors). Of this, up to 60,000 stock options can be granted in a single financial year to the Directors, as aforesaid, under any of the stock option plans, either existing or to be framed in future, on such terms and conditions as the Governance and Compensation Committee / Board of Directors may think fit.
INDEPENDENT DIRECTORS
the risk through means of a properly defined framework. A section on risk management and practices of the Company in minimizing the risk is part of Management Discussion & Analysis section of this annual report.
COMPLIANCE REVIEWS
Dr. Reddy’s has a dedicated team under an identified compliance officer (other than such an officer under the Listing Agreement) and a defined framework to review the compliances with all laws applicable to the Company. The compliance status is periodically updated to the senior management team. Presentations are scheduled periodically in the Audit Committee meetings regarding the status on compliance.
CODE OF BUSINESS CO N DUCT AND ETHICS AND OM B UD SMAN PROCEDURE
The Independent Directors of the Company head the following governance and / or Board Committee functions: Mr. Anupam Puri Governance, corporate strategy and driving agenda for Board and Board Committee meetings and its improvement; Ms. Kalpana Morparia Internal audit and control Dr. Omkar Goswami Finance, internal controls and risk management. Mr. Ravi Bhoothalingam Compliance and Chief Ombudsman for the Whistle Blower Policy of the Company; and Dr. J P Moreau Pharma Regulatory Compliance and its improvement.
RISK MANAGEMENT
The Company has adopted a Code of Business Conduct and Ethics (the ’Code’), which applies to all employees and Directors of the Company, its subsidiaries and affiliates. It is the responsibility of all employees and Directors to familiarize themselves with this Code and comply with its standards. An Ombudsman Procedure has also been made under this Code, which (i) describes the ombudsman framework (ii) procedures for investigation and communication of any report on any violation or suspected violation of the Code (iii) appeal against any decision taken by Ombudsman and (iv) submission of complaint against any retaliation action against any employee. An Independent Director has been appointed as Chief Ombudsman and the reports and complaints submitted to the Company are to be reported to the Audit Committee. The Code of Business Conduct and Ethics and Ombudsman Procedure has been posted on the Company’s website – www.drreddys.com The Board and the senior management affirms compliance with the Code of Business Conduct and Ethics annually. A certificate of the ViceChairman and Chief Executive Officer of the Company to this effect is enclosed as Exhibit 1 to this section.
RELATED PARTY TRANSA CTIONS
The Company has an enterprise-wide risk management system in place. During the year, detailed presentations were made to the Board members on the enterprise-wide risk management and a process was set up to inform Board members about the risk assessment and minimization procedures. These are periodically reviewed to ensure that the management controls
The details of related party transactions are discussed in detail in page no. 116 of this Annual Report. All related party transactions during the year, whether in the ordinary course of business or not, were placed before the Audit Committee and subsequently before the Board. All related party transactions were on arm’s length basis.
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SU BSIDIARY CO MPANIES
The Audit Committee of the Company reviews the financial statements of the subsidiary companies. During the year, the Audit Committee also reviewed the investments made by the subsidiary companies, minutes of the Board meetings of the subsidiary companies and statement of all significant transactions and arrangements entered into by the subsidiary companies. No Indian subsidiary of the Company falls under the term ‘material non-listed Indian subsidiary’ as defined under Clause 49 of the Listing Agreement.
DISCLOSURE ON A CCOUNTING TREATMENT
In the preparation of financial statements for 2009-10, there is no treatment of any transaction different from that prescribed in the Accounting Standards notified by the Government of India under Section 211 (3C) of the Companies Act, 1956.
C OMMITTEES O F THE BOARD
The Board Committees focus on specific areas and make informed decisions within the authority delegated. Each Committee of the Board is guided by its Charter, which defines the composition, scope and powers of the Committee. The Committees also make specific recommendations to the Board on various matters from time-to time. All observations, recommendations and decisions of the Committees are placed before the Board for information or for approval. The Company has five Board-level Committees, namely: Audit Committee Governance and Compensation Committee Shareholders’ Grievance Committee Investment Committee and Management Committee
AU DIT COMMITTE E
The management is responsible for the Company’s internal controls and the financial reporting process while the statutory auditors are responsible for performing Independent audits of the Company’s financial statements in accordance with generally accepted auditing practices and for issuing reports based on such audits. The Board of Directors has entrusted the Audit Committee to supervise these processes and thus ensure accurate and timely disclosures that maintain the transparency, integrity and quality of financial control and reporting. The primary responsibilities of the Audit Committee are to: Supervise the financial reporting process;
Review the quarterly and annual financial results before placing them to the Board along with related disclosures and filing requirements; Review the adequacy of internal controls in the Company, including the plan, scope and performance of the internal audit function; Discuss with management the Company’s major policies with respect to risk assessment and risk management; Hold discussions with statutory auditors on the nature and scope of audits and any views that they have about the financial control and reporting processes; Ensure compliance with accounting standards and with listing requirements with respect to the financial statements; Recommend the appointment and removal of external auditors and their fees; Review the independence of auditors; Ensure that adequate safeguards have been taken for legal compliance both for the Company and its other Indian as well as foreign subsidiaries; Review related party transactions; Review the functioning of Whistle Blower mechanism; and Implementation of the applicable provisions of the Sarbanes Oxley Act, 2002. The Audit Committee is entirely composed of Independent Directors. All members of the Audit Committee are financially literate and bring in expertise in the fields of finance, economics, human resource development, strategy and management. Presently the Committee consists of Dr. Omkar Goswami (Chairman), Mr. Ravi Bhoothalingam and Ms. Kalpana Morparia and all have accounting and / or related financial mangement expertise. The Audit Committee met five times during the year: on 18 May 2009, 21 July 2009, 23 October 2009, 20 January 2010 and 31 March 2010. The Committee also met the key members of finance team and internal audit team along with CEO, COO and CFO to discuss matters relating to audit, compliance and accounting on 25 November 2009. The Committee also met Statutory Auditors without the presence of the management on more than one occasion, during the year. The Company is in compliance with the provisions of the amended Clause 49 of the Listing Agreement on the time gap between any two Audit Committee meetings. In addition, the Chairman of the Audit Committee and the other members of the Audit Committee met additionally to review other processes, particularly the progress on internal control mechanisms to prepare for certification under Section 404 of the Sarbanes Oxley Act, 2002.
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TABLE 5
Audit Committee attendance
I N F I N A N C I A L Y E A R 2 0 0 9 -10
Committee members Position Dr. Omkar Goswami Chairman Mr. Ravi Bhoothalingam Member Ms. Kalpana Morparia Member (1) was given leave of absence on grounds of health.
TABLE 6
Meetings held 5 5 5
Meetings attended 4(1) 5 5
The report of the Audit Committee is enclosed as Exhibit 2 to this chapter.
GOVERNANCE AND CO MPENSATION COMMITTEE
Committee members Position Mr. Anupam Puri Chairman Dr. Omkar Goswami Member Mr. Ravi Bhoothalingam Member Ms. Kalpana Morparia Member Dr. J P Moreau Member Dr. Bruce L A Carter Member (1) was given leave of absence on grounds of health.
Meetings attended 2 1(1) 2 2 2 2
Table 5 gives the composition and attendance record of Audit Committee. The CEO, CFO and Chief Internal Auditor are permanent invitees to all Audit Committee meetings. The statutory auditors of the Company are present in the Audit Committee meetings during the year. The Company Secretary officiates as the secretary of the Committee. Audit Committee meetings are generally preceded by pre-Audit Committee conference calls with the Audit Committee members, the CFO, the internal audit and compliance teams, the external auditors and other key personnel from the Company. These calls discuss major audit related issues and identify items that need further discussion in the formal face-to-face Audit Committee meetings. The agenda for the Audit Committee included the following items: Review of financial performance, including business level financial performance; Internal audit, control matters and risk management, including action-taken reports; Status on the implementation of the compliance with Section 404 of the Sarbanes Oxley Act, 2002 and its sustenance; Discussion with statutory auditors, including new accounting policies relating to Indian Generally Accepted Accounting Principles (IGAAP) as well as IFRS; and Detailed operational and financial risk appraisals, as well as risks relating to legal compliance. The internal and statutory auditors of the Company discuss their audit findings and updates with the Audit Committee and submit their views directly to the Committee. Separate meetings are held with the internal auditors to focus on compliance issues and to conduct detailed reviews of the processes and internal controls in the Company.
The Board of Directors of the Company at their meeting held on 18 May 2009 merged the Governance Committee with the Compensation Committee and named it as the Governance and Compensation Committee, which entirely comprises of Independent Directors. The role of the Governance and Compensation Committee is to: Shortlist and suggest nominees for induction to the Board of the Company; and recommend appointment and resignation of Board members to the Board of Directors, for its consideration Review the principles of corporate governance of the Company. Review the performance of the Executive Directors and senior executives one level below the Board, and the remuneration package offered by the Company to different grades / levels of its employees. The Committee also administers Dr. Reddy’s Employees Stock Option Scheme, 2002, and Dr. Reddy’s Employees ADR Stock Option Scheme, 2007. The details of stock options granted by the Committee have been discussed in the Directors’ Report. The Chief of Human Resources (HR) makes periodic presentations to the Committee on organization structure, performance appraisals, increments, performance bonus recommendations and other HR matters. In addition to one meeting each of erstwhile Governance Committee and Compensation Committee on 18 May 2009, the Governance and Compensation Committee met twice during the year: on 23 October 2009 and 19 January 2010. Table 6 gives the composition and attendance record of the Governance and Compensation Committee. The Chief of Human Resources is the secretary of the Committee. The report of the Governance and Compensation Committee is enclosed as Exhibit 3 to this chapter.
SHAREHOLDERS’ GRIEVA NCE COMMITTEE
The Shareholders’ Grievance Committee is empowered to perform all the functions of the Board in relation to handling of Shareholders’ Grievances. It primarily focuses on: Review of investor complaints and their redressal; Review of queries received from investors; Review of work done by the Share Transfer Agent; and
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TABLE 7
Shareholders’ Grievance Committee attendance Position Chairman Member Member
I N F I N A N C I A L Y E A R 2 0 0 9 -10
Committee members Mr. Ravi Bhoothalingam Mr. G V Prasad Mr. Satish Reddy
Meetings 4 4 4
Meetings attended 4 4 4
Review of corporate actions related to shareholder issues. The Shareholders’ Grievance Committee consists of three Directors, including two Executive Directors. The Chairman of the Committee is an Independent Director. The Committee met four times during the year: on 18 May 2009, 21 July 2009, 23 October 2009 and 19 January 2010. Table 7 gives the composition and attendance record of the Shareholders’ Grievance Committee. The Company Secretary officiates as the secretary of the Committee. The Company Secretary has been designated as Compliance Officer of the Company in line with the Listing Agreement with the Stock Exchanges. An analysis of investor queries and complaints received during the year and pending disposal is given in this Annual Report in the chapter on Additional Shareholders Information.
INV ESTMENT CO MMITTEE
21 January 2010. The Company Secretary officiates as the secretary of the Committee.
M A N AG E M E N T
The management of Dr. Reddy’s has developed and implemented policies, procedures and practices that attempt to translate the Company’s core purpose and mission into reality. The management also identifies, measures, monitors and minimizes risk factors in the business and ensures safe, sound and efficient operation. These are internally supervised and monitored through the Management Council.
MANAGEMENT COUNCIL
The Investment Committee reviews the Company’s capital investment proposals and ongoing projects. It approve loans to subsidiaries or other entities / persons up to an overall limit of Rs. 250 million; and approve borrowings from any person up to an overall limit of Rs. 250 million. It consists of three Directors, including two Executive Directors. The Chairman of the Committee is an Executive Director. The Committee met twice during the year on 14 December 2009 and 31 March 2010. Mr. Ravi Bhoothalingam could not attend the meeting on 14 December 2009; and Mr. Satish Reddy could not attend on 31 March 2010. At their request, the leave of absence was granted. The Company Secretary officiates as the secretary of the Committee.
MANAGEMENT CO MMITTEE
Dr. Reddy’s Management Council consists of senior management members from the business and corporate functions. It has a balanced representation from the Indian as well as its overseas offices. Page no. 45 of this Annual Report give details of the members of the Management Council. The Management Council meets once in a quarter for two to three full-day sessions. Background notes for the meetings are circulated in advance to facilitate decision-making. Listed below are some of the key issues that were considered by the Management Council during the year under review: Company’s long term strategy, growth initiatives and priorities; Monitoring overall Company performance, including those of various business units; Decision on major corporate policies; Discussion and sign-off on annual plans, budgets and investments and any other major initiatives; and Discussion on business alliances proposals and organizational design.
MANAGEMENT DISCUSSION AND ANALY SIS
The role of Management Committee is to authorize Directors and officers of the Company to deal with day-to-day business operations such as banking, treasury, insurance, excise, customs, administrative and dealing with other government / non-government authorities. The Management Committee consists of three Directors including one Independent Director. The Chairman of the Committee is an Executive Director. The Committee held six meetings during the year: on 13 April 2009, 18 May 2009, 21 July 2009, 23 October 2009, 14 December 2009 and
This chapter of the annual report constitutes the Company’s Management Discussion and Analysis.
MANAGEMENT DISCLOSURES
Senior management of the Company (employees at Senior Director level and above, as well as certain identified key employees) make annual disclosures to the Board relating to all material financial and commercial transactions in which they may have personal interest, and which may have a potential conflict with the interest
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of the Company. Transactions with key managerial personnel have been discussed in financials sections of this annual report under Related Party Transactions.
PROH IBITION OF INSIDER TRADING
The Company has implemented a policy prohibiting Insider Trading in conformity with applicable regulations of the Securities Exchange Board of India (SEBI) and Securities Exchange Commission (SEC) of the USA. Necessary procedures have been laid down for Directors, employees, connected persons and persons deemed to be connected for trading in the securities of the Company. The policy and the procedures are periodically communicated to the employees who are considered as insiders of the Company. Trading window closure / blackouts / quiet periods, when the employees are not permitted to trade in the securities of the Company, are intimated to all employees, in advance, whenever required.
INTERNAL CONTROL SYSTEMS
experts. Suggested improvement in processes are identified during reviews, and communicated to the management on an on-going basis. The Audit Committee of the Board monitors the performance of internal audit department on a periodic basis through review of audit plans, audit findings and speed of issue resolution through follow ups. Each year, there are at least four meetings held, where the Audit Committee reviews internal audit findings, in addition to special meetings and teleconferences.
CEO & CFO CERTIFICATIO N
A certificate of the Vice-Chairman and Chief Executive Officer as well as the Chief Financial Officer of the Company on financial statements and applicable internal controls as stipulated under Clause 49 of the Listing Agreement is enclosed as Exhibit 4 to this chapter.
STATUTORY AND IFRS A UDITS
Dr. Reddy’s has both external and internal audit systems in place. Auditors have access to all records and information of the Company. The Board and the management periodically review the findings and recommendations of the auditors and take necessary corrective actions whenever necessary. The Board recognizes the work of the auditors as an independent check on the information received from the management on the operations and performance of the Company.
INTERNAL CONTROLS
The Company maintains a system of internal controls designed to provide reasonable assurance regarding: Effectiveness and efficiency of operations; Adequacy of safeguards for assets; Reliability of financial controls; and Compliance with applicable laws and regulations. The integrity and reliability of the internal control systems are achieved through clear policies and procedures, process automation, careful selection, training and development of employees and an organization structure that segregates responsibilities. Internal Audit at Dr. Reddy’s is an independent and objective assurance function, responsible for evaluating and improving the effectiveness of risk management, control and governance processes. The internal audit department prepares annual audit plans based on risk assessment, and conducts extensive reviews covering financial, operational and compliance controls and risk mitigation. Areas requiring specialized knowledge are reviewed in partnership with external
For 2009-10, B S R & Co. audited the financial statements prepared under the Indian GAAP. The Company had appointed KPMG as independent auditors for the purpose of issuing opinion on the financial statements prepared under IFRS. While auditing the operations of the Company, the external auditors recorded their observations and findings with the management. These were then discussed by the management and the auditors at Audit Committee meetings as well as conference calls with members of the Audit Committee. Remedial measures suggested by the auditors and the Audit Committee have been either implemented or taken up for implementation by the management. Independent auditors render an opinion regarding the fair presentation in the financial statements of the Company’s financial condition and operating results. Their audits are made in accordance with generally accepted auditing standards, and include a review of the internal controls, to the extent necessary, to determine the audit procedures required to support their opinion.
AUDITORS’ FEES
During the year, the Company paid Rs. 8 million to B S R & Co. the statutory auditors as auditors’ fees. The Company also paid Rs. 8 million to the statutory auditors, B S R & Co. for non audit services.
I N F O R M AT I O N T O S TA K E H O L D E R S DISSEMINATION OF IN FO RMATION
The Company has established systems and procedures to disseminate relevant information to its stakeholders, including shareholders, analysts, suppliers, customers, employees and the society at large. It also conducts earning calls with analysts and investors and also communicates
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the financial results to the shareholders through their registered email address. The primary source of information regarding the operations of the Company is the corporate website: www.drreddys.com. All official news releases and presentations made to institutional investors and analysts are posted on the Company’s website. An analysis of the various means of dissemination of information in the year under review is produced in Table 8. Quarterly and Annual results of the Company are published in widely circulated national newspapers such as The Business Standard and the local daily Andhra Prabha. These are also disseminated internationally through Business Wire. In addition to the corporate website, the Company maintains various portals such as www.customer2drl.com, www.vikreta2drl.com and www.housecallsindia.com which have proved to be effective and widely appreciated tools for information dissemination.
ADDITIONAL IN FO RMATION OF DIRECTORS RECO MMENDED FOR APPOINTMENT O R SEEKING REAPPOINTMENT AT THE ENSUING ANNUAL GENERA L MEETING
TABLE 8
Details of communication made
I N F I N A N C I A L Y E A R 2 0 0 9 -10
Means of communication Press releases / statements Earnings calls Publication of results
Frequency 16 4 4
Powerful Women’ by the Forbes magazine in 2006. Ms. Kalpana Morparia holds directorship in CMC Limited, Bennett Coleman & Company Limited, J.P. Morgan Services India Private Limited and J.P. Morgan Asset Management India Private Limited. She also holds the following positions in the Board Committees of the following companies:
Name of the Company Bennett, Coleman & Co. Ltd. CMC Ltd.
As Chairperson Audit Committee –
As Member – Audit Committee Executive Committee Governance Committee
Ms. Morparia holds 3,000 Equity Shares of the Company as on 31 March 2010. Dr. J P Moreau Dr. J P Moreau was appointed as Director on the Board of the Company on 18 May 2007. He founded Biomeasure Incorporated, based near Boston, and has been its President and CEO. Prior to that, he was working as Executive Vice-President and Chief Scientific Officer of the IPSEN Group and was responsible for the Group’s Discovery and Innovation with facilities in Paris, London, Barcelona and Boston. He was a VicePresident (Research) from April 1994 and has been a member of the Executive Committee of IPSEN Group since that date. Dr. Moreau has a degree in chemistry from the University of Orleans and a D.Sc in biochemistry. He has also conducted post-doctorate research at the Ecole Polytechnique. He has published over 50 articles in scientific journals and is named as an inventor of more than 30 patents. He is a regular speaker at scientific conferences and a member of Nitto Denko Scientific Advisory Board. Dr. Moreau was also responsible for establishing Kinerton Ltd. in Ireland in March 1989, a wholesale manufacturer of therapeutic peptides. Dr. Moreau holds 3,000 ADRs having 3,000 underlying shares in the Company as on 31 March 2010 Dr. Ashok Sekhar Ganguly Dr. Ashok Sekhar Ganguly was appointed as Director on the Board of the Company on 23 October 2009. He is the Chairman of Firstsource Solutions Limited and ABP Private Ltd.
Ms. Kalpana Morparia Ms. Kalpana Morparia was appointed as Director on the Board of the Company on 5 June 2007. She is the Chief Executive Officer of J.P. Morgan, India, and leads the business groups (investment banking, asset management, treasury services and principal investment management) and service groups (global research, finance, technology and operations) in India. Ms. Morparia is also a member of J.P. Morgan’s global strategy team headquartered in New York and the J.P. Morgan Asia Pacific Executive Committee. Prior to becoming CEO of J.P. Morgan India, she served as Vice Chair on the Boards of the ICICI group. She was Joint Managing Director of the ICICI Group from 2001 to 2007. She had been with the ICICI group since 1975, India’s second largest bank and having leadership positions in banking, insurance, asset management and private equity. A graduate in law from Bombay University, Ms. Morparia has served on several committees constituted by the Government of India. She was named one of the ‘The 50 Most Powerful Women’ in ‘International Business’ by the Fortune magazine in 2008; one of the 25 most powerful women in Indian Business by Business Today, a leading Indian business journal, in 2004, 2005, 2006 and 2008; and one of the ‘The 100 most
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and was a Director on the Central Board of the Reserve Bank of India from 2001 to 2009. He also serves as a non-Executive Drector of Mahindra & Mahindra Limited, Wipro Limited, Hemogenomics Private Limited and Tata AIG life Insurance Company Limited. He is a Director on the Advisory Board of Microsoft Corporation (India) Private Limited and the Blackstone Group. Dr. Ganguly’s principal professional career spanned 35 years with Unilever Plc / NV. He was the Chairman of Hindustan Lever Limited from 1980 to 1990, and member of the Unilever Board from 1990 to 1997 with responsibility for research and technology. He has served on several public bodies, principal among them being, as member of Science Advisory Council to the Prime Minister of India (1985-89) and the UK Advisory Board of Research Councils (1991-94). Currently, he is a member of the Prime Minister’s Council on Trade and Industry, Investment Commission (2004– 2009) and the India-USA CEO Council, set up by the Prime Minister of India and the President of the USA. Dr. Ganguly has authored ‘Industry and Liberalization’ (1994), ‘Strategic Manufacturing for Competitive Advantage’ (1998) and ‘Business Driven R&D — Managing Knowledge to Create Wealth’ (1999), besides several publications in science, technology & management. He is a recipient of the Padma Bhushan as well as the Padma Vibhushan, two of India’s prestigious civilian honours. At present, he serves as a member of the Rajya Sabha, the upper house of the Parliament of India. Dr. Ganguly holds the following positions in the Board Committees of the following companies: name of the company Mahindra & Mahindra Ltd. Tata AIG life Insurance Co. Ltd. Firstsource Solutions Ltd. as chairman as Member – – Investors’ / Shareholders’ Governance Committee
ways in which the corporate governance practices differ from those required of domestic companies under NYSE listing standards. A detailed analysis of this is posted on Dr. Reddy’s website www.drreddys.com.
Complian Ce Repo Rt o n nonmandato RY RequiRementS undeR ClauSe 49
Research & Development Committee Audit Committee – Compensation cum Board Grievance Committee – Committee for Issue of Securities – Strategy Committee Wipro Limited – Corporate Governance Committee – Nomination Committee Microsoft Corporation of India Ltd. Advisory Board
– –
Dr. Ganguly did not hold any share in the Company as on 31 March 2010.
Com pl ianCe Repo Rt on n YSe CoRpo Rate GoveRnan C e Guidel ine S
(1) the board: The Chairman of Dr. Reddy’s is an Executive Director and he maintains the Chairman’s office at the Company’s expenses. (2) remuneration committee: The Board of Directors has a Governance and Compensation Committee, which is composed of only Independent Directors. This Committee also discharges the duties and responsibilities of Remuneration Committee as contemplated under non-mandatory requirements of Clause 49. Details of the Governance and Compensation Committee and its powers have been discussed in this chapter. (3) shareholders rights: The Company did not send half yearly results to each household of the shareholders in 2009-10. However, in addition to displaying its quarterly and half-yearly results on its website www.drreddys.com and publishing in widely circulated newspapers, it sends the quarterly financial results and press release to the registered e-mail addresses of the shareholders. (4) audit Qualifications: The auditors have not qualified the financial statements of the Company. (5) training of board Members: The Company believes that the Board be continuously empowered with the knowledge of the latest developments in the Company’s businesses and the external environment affecting the industry as a whole. To this end, the Directors were given presentations on the global business environment, as well as all business areas of the Company including business strategy, risks and opportunities. The Directors also visited various manufacturing and research locations of the Company. (6) Mechanism for evaluating non-executive board Members: A Director among the Independent Directors has been identified to provide structured feedback to the Board on the functioning and performance of the Board, and to encourage healthy discussions and openness amongst the members of the Board. (7) Whistle blower policy: The Company has a Whistle Blower policy. additional ShaReho ld eRS’ infoR mation
Pursuant to Section 303A.11 of the NYSE Listed Company Manual, Dr. Reddy’s which is a foreign private issuer as defined by SEC, must make its US investors aware of the significant
The chapter on Additional Shareholders’ Information forms a part of this Annual Report.
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EXHIBIT 1 DECLARATION O F THE CHIEF EX ECUTIVE OFFICE R ON COMPLIANCE WITH CODE OF BUS INESS CONDUCT AND ETHICS
Dr. Reddy’s Laboratories Limited has adopted a Code of Business Conduct and Ethics (“the Code”) which applied to all employees and Directors of the Company, its subsidiaries and affiliates. Under the Code, it is the responsibility of all employees and Directors to familiarize themselves with the Code and comply with its Standards. I hereby certify that the Board members and senior management personnel of Dr. Reddy’s have affirmed compliance with the Code of the Company for the financial year 2009-10.
G V PRASAD VICE-CHAIRMA N A ND CHIEF EX ECUTIVE OFFICE R
Place: Hyderabad Date: 6 May 2010
EXHIBIT 2 REPORT OF THE A UDIT COMMITTEE
To the shareholders of Dr. Reddy’s Laboratories Limited The Audit Committee of the Board of Directors comprises three Directors. Each member of the Committee is an Independent Director as defined under Indian laws, Clause 49 of the Listing Agreement and the New York Stock Exchange Corporate Governance Guidelines. The Committee operates under a written charter adopted by the Board of Directors, and has been vested with all the powers necessary to effectively discharge its responsibilities. Dr. Reddy’s management has primary responsibility for the financial statements and reporting process, including the systems of internal controls. During the year 2009-10, the Audit Committee met five times. It discussed with the Company’s internal auditors and statutory auditors the scope and plans for their respective audits. It also discussed the results of their examination, their evaluation of the Company’s internal controls, and overall quality of the Company’s financial reporting. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the Company’s quarterly unaudited and annual audited financial statements with the management. B S R & Co., the Company’s independent auditors for Indian GAAP, and KPMG, the Company’s independent auditors
for IFRS financial statements, are responsible for expressing their opinion on the conformity of the Company’s audited financial statements with Generally Accepted Accounting Principles. Relying on the review and discussions with the management and the Independent auditors, the Audit Committee believes that the Company’s financial statements are fairly presented in conformity with Generally Accepted Accounting Principles and the IFRS in all material aspects. To ensure that the accounts of the Company are properly maintained and that accounting transactions are in accordance with the prevailing laws and regulations, the Committee reviewed the internal controls put in place by the Company. And in conducting such reviews, the Committee found no material discrepancy or weakness in the Company’s internal control systems. In 2005-06, the Company became the first Indian manufacturing company to comply with Section 404 of the US Sarbanes-Oxley Act (SOX), in advance of the mandatory deadline of 31 March 2007 which was applicable to foreign private issuers. During the year 2009-10, the Committee devoted considerable time and effort towards the compliance with Section 404 of SOX. The Committee has also reviewed the nonaudited services being provided by the Statutory Auditors and concluded that such services were not in conflict with the independence of the Statutory Auditors. The Committee also devoted time towards enterprise-wide risk management processes and discussed the risk profiles of the Company as well as their mitigation plans. The Committee ensures that the Company’s Code of Business Conduct and Ethics has a mechanism such that no personnel intending to make a compliant relating to securities and financial reporting shall be denied access to the Audit Committee. The Audit Committee has recommended to the Board of Directors: (1) That the audited Standalone and Consolidated financial statements prepared as per Indian GAAP of Dr. Reddy’s Laboratories Limited for the year ended 31 March 2010, be accepted by the Board as a true and fair statement of the financial status of the Company. (2) That the financial statements prepared as per International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (IASB) for the year ended 31 March 2010, be accepted by the Board and included in the Company’s Annual Report on Form 20-F, to be filed with the US Securities and Exchange Commission.
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Further, the Committee has recommended to the Board the re-appointment of B S R & Co., Chartered Accountants, and KPMG, India as statutory Independent auditors for Indian GAAP and IFRS respectively for the fiscal year ending 31 March 2011.
DR. OMKAR GOSWAMI CHAIRMAN, AUDIT COMMITTEE
Place: Hyderabad Date: 6 May 2010
EXHIBIT 3 REPORT OF THE GOVERNANCE AND COMPENSATION COMMITTEE
the best principles of corporate governance. It oversees evaluation of the effectiveness of the Board, considers board composition, recommend appointment of additional directors. We are pleased that during the year, Dr. Ashok Sekhar Ganguly was appointed to the Board. The Governance and Compensation Committee also recommends to the Board, changes in committee structure and membership and other steps that would improve the board’s effectiveness in overseeing the Company.
ANUPAM PURI CHAIRMAN, GOVERN A N C E AND COMPENSATION COMMITTEE
To the shareholders of Dr. Reddy’s Laboratories Limited The Governance and Compensation Committee of the Board of Directors comprises of six Directors. Each member of the Committee is an Independent Director as defined under Indian laws and New York Stock Exchange Corporate Governance Guidelines. The Committee operates under a written charter adopted by the Board of Directors. It has been vested with all the powers necessary to effectively discharge its responsibilities. The Committee believes that its principal objective is to designing a reward system for executive performance that will lead to longterm enhancement of shareholder value. The compensation policies are vital elements in the Company’s drive to identify, develop and motivate high-potential leaders to create and sustain outstanding performance. The Committee is responsible for overseeing performance appraisal, approving compensation levels for senior executives and overseeing the administration of the Employees Stock Option Plans. As on 31 March 2010, the Company had 997,397 outstanding stock options, which amounts to 0.59% of total equity capital. The stock options have been granted to 576 employees (including Independent Directors) of the Company and its subsidiaries under Dr. Reddy’s Employees Stock Options Scheme, 2002 and Dr. Reddy’s Employees ADR Stock Options Scheme, 2007. Out of the total 997,397 stock options, 100,000 stock options are exercisable at Fair Market Value and 897,397 stock options are exercisable at Par Value i.e. Rs. 5. The Committee also devoted considerable time discussing the organization design and succession planning for critical positions within the Company. It also monitors the Company’s system for hiring, developing and retaining talent. A second objective of the Committee is to ensure that the Board adopts and implements
Place: Hyderabad Date: 6 May 2010
EXHIBIT 4 CEO & CFO CERTIFICATE TO THE BOARD PURSUANT TO C LAUSE 49 OF THE LISTING AGREEMEN T
We, G V Prasad, Vice-Chairman and Chief Executive Officer, and Umang Vohra, Chief Financial Officer, to the best of our knowledge and belief, certify that: a. We have reviewed the financial statements including cash flow statement (standalone and consolidated) for the financial year ended 31 March 2010 and that these statements: i. do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; ii. together present a true and fair view of the Company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations. b. There are no transactions entered into by the Company during the year, which are fraudulent, illegal or violative of the Company’s Code of Business Conduct and Ethics. c. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to address these deficiencies.
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d. We have disclosed, wherever applicable, to the auditors and the Audit Committee: i. the significant deficiencies in the internal controls over financial reporting and corrective actions taken; ii. that there are no material weaknesses in the internal controls over financial reporting; iii. that there are no significant changes in internal control over financial reporting during the year; iv. all significant changes in the accounting policies during the year, if any, and the same have been disclosed in the notes to the financial statements; and v. that there are no instances of significant fraud of which they have become aware of and involvement therein of the management or an employee having a significant role in the Company’s internal control system over financial reporting.
G V PRASAD VICE-CHAIRMA N A ND CHIEF EX ECUTIVE OFFICE R UMANG VOHRA C H IEF FINANCI A L OFFICER
We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. for B S R & CO.
CHART ERED ACCOUNTANTS
Firm Registration No.: 101248W
S SET H URAMAN PA RT NE R
Membership No.: 203491 Place: Hyderabad Date: 6 May 2010
Place: Hyderabad Date: 6 May 2010
AU D I T O R S’ C E R T I F I C AT E O F C O R P O R AT E G OV E R N A N C E
To the shareholders of Dr. Reddy’s Laboratories Limited We have examined the compliance of conditions of Corporate Governance by Dr. Reddy’s Laboratories Limited (“the Company”), for the year ended on 31 March 2010, as stipulated in Clause 49 of the Listing Agreement of the Company with the Bombay Stock Exchange and the National Stock Exchange. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.
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ADDITIONAL SHAREHOLDERS’ INFORMATION
C O N TAC T I N F O R M AT I O N REGIST ERED AND CORPORATE OFFICE
Dr. Reddy’s Laboratories Limited 7-1-27, Ameerpet, Hyderabad 500 016 Andhra Pradesh, India T +91-40-2373 1946 F +91-40-2373 1955 W http://www.drreddys.com
REPR ESENTING OFFICERS
MEDIA
S Rajan Corporate Communications T +91-40-6651 1725 F +91-40-2373 1955 E rajans@drreddys.com
INDIAN RETAIL INVES TO R S
Correspondence to the following officers may be addressed at the registered and corporate office of the Company.
CHIEF COMPLIANCE OFFICER
Sandeep Poddar Asst. Company Secretary T +91-40-2374 5274 F +91-40-2373 1955 E shares@drreddys.com
ANNUAL GENERAL MEETING
Umang Vohra Chief Financial Officer T +91-40-2373 1946 F +91-40-2373 1955 E umangvohra@drreddys.com
COMPL IANCE OFFICER UNDER LISTING AGR EEMENT
Date Time Venue
V S Suresh Company Secretary T +91-40-2373 4504 F +91-40-2373 1955 E sureshvs@drreddys.com
ADR INV ESTORS / INSTITUTIONAL INVEST ORS / FINANCIAL ANALYSTS
Friday, 23 July 2010 11.30 A.M. Grand Ball Room Hotel Taj Krishna Road No.1 Banjara Hills Hyderabad 500 034
Last date for receipt of proxy forms – 21 July 2010 before 11.30 A.M.
DIVIDEND
Kedar Upadhye Investor Relations T +91-40-6683 4297 F +91-40-2373 1955 E kedaru@drreddys.com Financial Calendar
The Board of Directors of the Company proposed a dividend of Rs. 11.25 per share (225%) on equity shares of Rs. 5 each. The dividend, if declared by the shareholders at the Annual General Meeting, will be paid on or after 23 July 2010.
Tentative Calendar for Declaration of Financial Results in 2010-11 For the quarter ending 30 June 2010 For the quarter and half year ending 30 September 2010 For the quarter and nine months ending 31 December 2010 For the year ending 31 March 2011 AGM for the year ending 31 March 2011
Last week of July, 2010 Last week of October, 2010 Last week of January, 2011 Second week of May, 2011 Second fortnight of July, 2011
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BOOK CLOSURE D ATE
REGIST RAR FOR INDIAN SHARES (COMMON AGENCY FOR DEMAT AND PHY SICAL SHARES)
The dates of book closure are from Tuesday, 6 July 2010 to Saturday, 10 July 2010 (both days inclusive) for the purpose of payment of dividend.
INTERNATIONAL S E CURITIES IDENTIFICATIO N N UMBER (ISIN)
ISIN is an unique identification number of traded scrip. This number has to be quoted in each transaction relating to the dematerialised equity shares of the Company. The ISIN number of the equity shares of the Company is INE089A01023
CU SIP NUMBER FO R ADRs
Bigshare Services Private Limited G-10 Left Wing, Amrutha Ville Opp. Yashodha Hospital Raj Bhavan Road Hyderabad 500 082 T +91-40-2337 4967 F +91-40-2337 0295 E bsshyd@bigshareonline.com
EQU IT Y HISTORY OF THE COMPANY
The Committee on Uniform Security Identification Procedures (CUSIP) of the American Bankers Association has developed a numbering system for securities. A CUSIP number uniquely identifies a security and its issuer and this is recognized globally by organizations adhering to standards issued by the International Securities Organization. The Company’s ADRs carry the CUSIP number 256135203.
DEPOSITORIES OV ERSEAS DEP O S ITORY OF ADRs
Table 1 on page 62 lists equity history of the Company since incorporation of the Company upto 31 March 2010
DESCRIPTION OF VOTING RIGHTS
All shares issued by the Company carry equal voting rights.
PERSONS HOLDING OVER 1% OF THE SHARES
Table 2 on page 63 gives the names of the persons who hold more than 1 per cent shares of the Company as on 31 March 2010.(1)
STOCK DATA
J P Morgan Chase & Co. P.O. Box 64504, St. Paul MN 55164-0504 T (651) 453-2128
INDIAN CUSTO D IA N OF ADRs
Table 3 on page 63 gives the monthly high, low and the total number of shares / ADRs traded per month on the BSE, NSE and the NYSE during the financial year 2009-10.
J P Morgan Chase Bank NA India Sub-Custody, 6th Floor Paradigm B Wing Mindspace, Malad (West) Mumbai – 400 064 Maharashtra, India T +91-22-6649 2500 F +91-22-6649 2509 / 2880 1117 E india.custody.client.service@jpmorgan.com
Listing on Stock Exchanges and Stock Codes EQUITY SHARES Bombay Stock Exchange Limited (“BSE”) National Stock Exchange of India Limited (“NSE”) AMERICAN DEPOSITORY RECEIPTS (“ADRs”) New York Stock Exchange Inc. (“NYSE”) Notes: 1. Listing fees for the year 2010-11 has been paid to BSE and NSE. 2. Listing fees to NYSE for listing of ADRs has been paid for the calendar year 2010. 3. Shares are also traded at other stock exchanges as permitted securities. 4. The Stock Code on Reuters is REDY.BO and on Bloomberg is DRRD@IN. Stock Codes 500124 DRREDDY Stock Code RDY
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TABLE 1
Equity history of the Company since incorporation of the Company Particulars Issue to Promoters Issue to Promoters Issue to Promoters Issue to Public Forfeiture of 100 shares Rights Issue Bonus Issue (1:2) Bonus Issue (1:1) Bonus Issue (2:1) Issue to Promoters GDRs underlying Equity Shares SEFL Shareholders on merger CDL Shareholders on merger Cancellation of shares held in CDL ADRs underlying Equity Shares GDRs conversion into ADRs ARL Shareholders on merger Sub division of equity shares* Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Bonus Issue (1:1) ADRs underlying Equity Shares ADRs underlying Equity Shares (Green Shoe option) Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Allotment pursuant to exercise of ADR Stock Options Allotment pursuant to exercise of Stock Options Issued 200 243,300 6,500 1,116,250 819,750 1,092,950 3,278,850 13,115,400 2,250,000 4,301,076 263,062 5,142,942 6,612,500 56,694 3,001 20,000 68,048 12,573 75,000 7,683 34,687 20,862 76,757,802 12,500,000 1,800,000 13,958 70,782 11,836 137,672 47,590 34,700 3,510 37,094 10,866 2,870 17,604 93,297 15,970 65,575 21,800 21,109 300 7,000 29,888 9,752 150,058 48,435 69,519 8,490 41,140 15,282 21,884
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TABLE 1
Equity history of the Company since incorporation of the Company (continued) Issued 1,450 19,850 500
UP TO 31 MA RCH 2010
Date Particulars 8-Dec-09 Allotment pursuant to exercise of ADR Stock Options 26-Feb-10 Allotment pursuant to exercise of Stock Options 26-Feb-10 Allotment pursuant to exercise of ADR Stock Options * Subdivision of 1 equity share of share Rs. 10 face value into 2 equity shares of Rs. 5 face value.
TABLE 2
Cancelled
Cumulative 168,825,035 168,844,885 168,845,385
Persons holding 1% or more of the shares in the Company Name Dr. Reddy’s Holdings Limited Life Insurance Corporation of India and its associates HSBC Global Investment Funds HDFC Trustee Company Limited The Master Trust Bank of Japan Limited Abu Dhabi Investment Authority / Council ICICI Prudential Life Insurance Company Limited No. of shares 39,128,328(2) 18,871,794 7,366,855 4,018,704 2,480,105 2,332,852 1,898,482
A S ON 31 MARCH 2010
Sr. No. 1 2 3 4 5 6 7
(1) (2)
% 23.17 11.18 4.36 2.38 1.47 1.38 1.12
Does not include ADR holding. Out of the above, 2,100,000 equity shares were under pledge.
BSE Month High (Rs.) Low (Rs.) Apr 2009 573.90 476.10 May 2009 681.25 540.00 Jun 2009 800.00 598.00 Jul 2009 835.00 728.00 Aug 2009 850.00 766.10 Sep 2009 1,018.50 696.00 Oct 2009 1,036.20 891.50 Nov 2009 1,146.00 1,015.00 Dec 2009 1,241.90 1,070.00 Jan 2010 1,255.65 1,051.20 Feb 2010 1,210.00 1,076.05 Mar 2010 1,317.90 1,131.00 (1) One ADR is equal to one equity share.
CHART 1
300
Movement of the Company’s share price during 2009-10 on NSE
260
220 Dr. Reddy’s Share Price 180
140
S&P CNX Nifty
Notes:
100 Aug 09 Nov 09 Apr 09 Jun 09 Sep 09 Oct 09 Dec 09 Jan 10 Feb 10 May 09 Mar 10 Jul 09
1. All values are indexed to 100 as on 1 April 2009 2. S&P CNX Nifty is a diversified 50 stock index accounting for 21 sectors of the Indian corporates. It is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL.
Chart 1 gives the movement of the Company’s share price on NSE vis-à-vis S&P CNX Nifty during the financial year 2009-10.
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CHART 2
300
Movement of ADR prices and S&P ADR Index during 2009-10
260 Dr. Reddy’s ADR Price 220
Notes: 1. All values are indexed to 100 as on 1 April 2009. 2. The S&P ADR Index is based on the non-US stocks comprising the S&P Global 1200. For details of the methodology used to compute this index please visit www.adr.com.
180
140 S&P ADR Index 100 Apr 09 May 09 Jul 09 Aug 09 Oct 09 Jun 09 Nov 09 Sep 09 Dec 09 Feb 10 Jan 10 Mar 10 Mar 10
Chart 2 gives the movement of Dr. Reddy’s ADR prices on NYSE vis-à-vis S&P ADR index during the financial year 2009-10 and Chart 3 gives
CHART 3
6 4 2 0 -2 -4 -6
premium in per cent on ADR traded at NYSE compared to price quoted at NSE.
Premium on ADR traded on NYSE versus price quoted at the NSE (in %)
Notes: Premium has been calculated on a daily basis using RBI reference exchange rate.
-8 Nov 09 Dec 09 Jan 10 Aug 09 Sep 09 Apr 09 May 09 Feb 10 Jun 09 Oct 09 Jul 09
TABLE 4
Distribution of shareholdings on the basis of ownership As on 31 March 2010 No. of shares % of total 2.60 4,389,484(1) 23.17 39,128,328 (2) 43,517,812 25.77 19,471,018 11.53 47,519 0.03 10,928,678 6.47 As on 31 March 2009 No. of shares % of total 4,489,484 2.67 39,978,328(3) 23.73 44,467,812 26.40 22,599,122 13.41 318,236 0.19 11,076,227 6.57 22.16 1.86 15.74 59.93 13.67 100.00 % change (0.07) (0.56) (0.63) (1.88) (0.16) (0.10) 5.11 (0.13) (1.20) 1.64 (1.01) 0.00
Promoter’s Holding – Individuals – Companies Sub-Total Indian Financial Institutions Banks Mutual Funds Foreign holdings – Foreign Institutional 46,044,755 27.27 37,324,443 Investors – Non Resident Indians 2,917,229 1.73 3,139,883 – ADRs / Foreign Nationals 24,551,369 14.54 26,514,068 Sub total 103,960,568 61.57 100,971,979 Indian Public and Corporate 21,367,005 12.66 23,028,986 Total 168,845,385 100.00 168,468,777 (1) Out of the above, 125,000 equity shares were under pledge. (2) Out of the above, 2,100,000 equity shares were under pledge. (3) Out of the above, 11,859,009 equity shares were under pledge.
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CHART 4
The Dividend History of the Company from 1996-97
Interim Dividend
Tables 4 and 5 give the data on shareholding classified on the basis of ownership and shareholder class, respectively.
DIV IDEND HISTO RY
The dividend recommended by the Board of Directors of the Company for declaration by the shareholders for the year 2009-10 is Rs. 11.25 per share (225%) of Rs. 5 face value. Chart 4 gives the dividend history of the Company.
TABLE 5
Shareholders holding physical shares may, if they so desire, send their nominations in prescribed Form 2B of the Companies (Central Governments) General Rules and Forms, Rules, 1956 to the Registrars & Transfer Agents of the Company. Those holding shares in dematerialised form may contact their respective Depository Participant (DP) to avail the nomination facility.
Distribution of shareholding according to shareholder class No. of shareholders 67,188 1,430 969 330 206 105 243 347 70,818 1 70,819 % of shareholders 94.87 2.02 1.37 0.47 0.29 0.15 0.34 0.49 100.00 0.00 100.00 No. of shares held 6,190,859 2,102,253 2,862,259 1,662,373 1,411,660 957,036 3,323,046 125,787,030 144,296,516 24,548,869 168,845,385
PROPOSED
225%
ON 31 MARCH 2010
Shares held 1 – 5,000 5,001 – 10,000 10,001 – 20,000 20,001 – 30,000 30,001 – 40,000 40,001 – 50,000 50,001 – 100,000 100,001 and above Total, excluding ADRs Equity shares underlying ADRs(1) Total (1) held by beneficial owners outside India.
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TABLE 6
Shares transferred / transmitted in physical form 2009-10 92 20,704 2008-09 115 23,050
Number of transfers / transmissions Number of shares
SHARE T RANSFER SYSTEM
SECRETARIAL AUDIT
All requests relating to share transfers / transmissions and information may be addressed to: Bigshare Services Private Limited G-10 Left Wing, Amrutha Ville Opp. Yashodha Hospital, Raj Bhavan Road Hyderabad 500 082 T +91-40-2337 4967 F +91-40-2337 0295 E bsshyd@bigshareonline.com The Company periodically audits the operations of the Share Transfer Agent. The number of shares transferred / transmitted in physical form during the last two financial years are given in Table 6.
DEMAT ERIALISATION OF SHARES
For each quarter of the financial year 2009-10, a qualified practicing Company Secretary carried out secretarial audits to reconcile the total admitted capital with NSDL and CDSL, and total issued and listed capital. The audit reports confirm that the total issued / paid up capital is in agreement with the total number of shares in physical form and the total number of dematerialized shares held with NSDL and CDSL. In addition to the above, a secretarial audit for the year 2009-10 was carried out by Dr. K R Chandratre, practicing Company Secretary. The said secretarial audit report forms part of this Annual Report.
OUTSTANDING ADRs A N D THEIR IMPACT ON EQUITY S HA R ES
The Company’s scrip forms part of the compulsory dematerialisation segment for all investors with effect from 15 February 1999. To facilitate easy access of the dematerialised system to the investors, the Company has signed up with both the depositories — namely the National Securities Depository Limited (“NSDL”) and the Central Depository Services (India) Limited (“CDSL”) — and has established connectivity with the depositories through its Registrar, Bigshare Services Private Limited. Chart 5 gives the breakup of dematerialized shares and shares in certificate form as on 31 March 2010 as compared with that of 31 March 2009. Dematerialisation of shares is done through Bigshare Services Private Limited and on an average the dematerialisation process is completed within 10 days from the date of receipt of a valid dematerialisation request along with the relevant documents.
CHART 5
The Company’s ADRs are traded on New York Stock Exchange (“NYSE”), USA under the ticker symbol ‘RDY’. Each ADR is represented by one equity share. As on 31 March 2010, there were approximately 16,103 record holders of ADRs evidencing 24,548,869 ADRs.
QUERIES AND REQUE STS RECEIVED FROM SHAREHOLDERS IN 2009-10
Table 7 gives details of types of shareholder queries received and replied to during 2009-10. Pending queries and requests were either received during the last week of March 2010, or were pending due to non-receipt of information / documents from the shareholders.
DATES AND VENUE O F LA ST THREE ANNUAL GENERAL MEETINGS
Break up of dematerialized shares and shares in physical form
Electronic Form- CDSL 0.93% 2.09% Physical Form Electronic 1.09% 2.21% Physical Form- CDSL Form Electronic 96.70% FormNSDL
Table 8 gives the date, time, location and business transacted at last three Annual General Meetings. There is no proposal to conduct postal ballot for any matter in the ensuing Annual General Meeting.
DISCLOSURE ON LEGA L PROCEEDINGS PERTAINING TO SHARES
Electronic 96.98% FormNSDL
31 March 2010
31 March 2009
There are four pending cases relating to disputes over title of the shares, in which the Company has been made a party. These cases, however, are not material in nature.
UNCLAIMED DIVIDEN D S
Pursuant to section 205A of the Companies Act, 1956, unclaimed dividends up to and including for the financial year 2001-02 have been
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transferred to the general revenue account of the Central Government / Investor Education and Protection Fund. The dividends for the following years, which remain unclaimed for seven years will be transferred to Investor Education and Protection Fund established by the Central Government under Section 205C of the Companies Act, 1956. Table 9 gives the transfer dates in this regard. Shareholders who have not claimed these dividends are, therefore, requested to do so before they are statutorily transferred to the Investor Education and Protection Fund. Shareholders who have not encashed their dividend warrants relating to the dividends
specified in Table 9 are requested to immediately approach M/s. Bigshare Services Private Limited, Hyderabad for the issue of duplicate warrants / demand drafts in lieu of the dividend warrants.
NON-COMPLIANCE ON MATTERS REL AT ING TO CAPITAL MARKETS
There has been no instance of non-compliance relating to capital markets for the last three years.
FINANCIAL RESULTS ON COMPANY’S WEBSIT E
The quarterly, half yearly and annual results of the Company are displayed on its website www.drreddys.com. Presentations to analysts,
TABLE 7
Shareholder queries and requests received and replied to in 2009-10
Sl. No. Nature of Letters Opening Balance Received Replied Closing Balance(1) 1 Change of address – 88 88 – 2 Revalidation and issue of duplicate dividend warrants 38 365 388 15 3 Sub-division of shares (Exchange) – 73 72 1 4 Share transfers – 121 114 7 5 Transmission of shares – 31 31 – 6 Split / Consolidation of shares – 5 5 – 7 Stop transfers – 4 4 – 8 Power of attorney registration – – – – 9 Change of bank mandate – 26 26 – 10 Correction of name – – – – 11 Dematerialization of Shares 3 590 571 22 12 Rematerialization of Shares – 4 4 – 13 lssue of duplicate share certificates of Dr. Reddy’s 3 11 12 2 14 lssue of duplicate share certificates of ARL / SEFL / CDL – 3 3 – 15 Letters & emails received from Shareholders – 232 232 – 16 Complaints received from Stock Exchanges / SEBI etc. 1 10 11 – (1) The Company has since resolved all the shareholders’ complaints which were pending as on 31 March 2010. The above table does not include those shareholders’ disputes, which are pending in various courts.
TABLE 8
Last three Annual General Meetings Date and time 24 July 2007 at 11.30 A.M. 22 July 2008 at 11.30 A.M. Location Special resolution(s) passed Grand Ball Room, Hotel Taj Krishna, Road No Special resolution was passed No. 1, Banjara Hills, Hyderabad – 500 034 Grand Ball Room, Hotel Taj Krishna, Road No. 1, Banjara Hills, Hyderabad – 500 034 Options Scheme, 2002 and Employees ADR Stock Option Scheme, 2007 for recovery of fringe benefit tax on stock options from employees. Promoters. Grand Ball Room, Hotel Taj Krishna, Road No Special resolution was passed No. 1, Banjara Hills, Hyderabad – 500 034
Year 2006-07 2007-08
2008-09
22 July 2009 at 11.30 A.M.
TABLE 9
Dates of transfer of unclaimed dividend Type of dividend Final Final Final Final Final Final Final Date of declaration 25.08.2003 28.07.2004 27.07.2005 28.07.2006 24.07.2007 22.07.2008 22.07.2009 Amount outstanding as on 31 March 2010 1,538,380 1,973,740 1,688,380 1,585,080 2,961,135 2,701,428 4,490,488 Due for transfer on 01.10.2010 03.09.2011 02.09.2012 03.09.2013 30.08.2014 28.08.2015 28.08.2016
Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
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as and when made, are immediately placed on the website for the benefit of the shareholders and public at large. Apart from the above, the Company also regularly provides relevant information to the stock exchanges as per the requirements of the listing agreements. The Company also send the financial results and other major press releases to the shareholders, at their email addresses registered with the Company.
FACIL IT Y LOCATIONS IN INDIA
FTO – IV Ward-F, Block-4 Adavipolam Yanam, Pondicherry, Pin: 533 464 FTO – VI Khol, Nalagarh Solan, Nalagarh Road Baddi, Himachal Pradesh, Pin: 173 205 FTO – VII Plot No P1-P9, Phase III Duvvada, VSEZ Vishakapatnam, Andhra Pradesh, Pin: 530 046 Biologics Survey No. 47 Bachupally Village, Qutubullapur Mandal Ranga Reddy Dist., Andhra Pradesh, Pin: 500 123 Integrated Product Development Organisation (IPDO) Bachupally Village Qutubullapur Mandal Ranga Reddy Dist., Andhra Pradesh, Pin: 500 123 Technology Development Centre I Bollaram Road Miyapur, Hyderabad Andhra Pradesh, Pin: 500 049 Technology Development Centre II Plot 31A IDA Jeedimetla Hyderabad, Andhra Pradesh, Pin: 500 050 Aurigene Discovery Technologies Ltd. (ADTL) 39-40, KIADB Industrial Area Electronic City Phase II, Hosur Road Bangalore, Karnataka, Pin: 560 100 ADTL Hyderabad Bollaram Road Miyapur Hyderabad, Andhra Pradesh, Pin: 500 049
FACILITY LOCATIONS O UTSIDE INDIA
Chemical Tech-Ops CTO – I Plot No. 137 & 138 IDA Bollaram, Jinnaram Mandal Medak Dist., Andhra Pradesh, Pin: 502 325 CTO – II Plot No. 75B, 105, 110 & 111 IDA Bollaram, Jinnaram Mandal Medak Dist., Andhra Pradesh, Pin: 502 325 CTO – III Plot No.116, 116A & 126C & SY No. 157 IDA Bollaram, Jinnaram Mandal Medak Dist., Andhra Pradesh, Pin: 502 325 CTO – IV Plot No. 9 / A, 9 / B, 22A, 22B & 22C Phase – III, IDA Jeedimetla Ranga Reddy Dist., Andhra Pradesh, Pin: 500 055 CTO – V Peddadevulapally Tripuraram Mandal Nalgonda Dist., Andhra Pradesh, Pin: 508 207 CTO – VI IDA Pydibheemavaram Ransthal Mandal Srikakulam Dist., Andhra Pradesh, Pin: 532 409
FOR MU L ATIONS TECH-OPS
FTO – I Plot No. 146 IDA Bollaram, Jinnaram Mandal Medak Dist., Andhra Pradesh, Pin: 502 320 FTO – II S Y No. 42, 45, 46 & 54 Bachupally, Qutubullapur Mandal Ranga Reddy Dist., Andhra Pradesh, Pin: 500 123 FTO – III S Y No. 41 Bachupally, Qutubullapur Mandal Ranga Reddy Dist., Andhra Pradesh, Pin: 500 123
Dr. Reddy’s Laboratories (UK) Limited 6, Riverview Road Beverly, East Yorkshire HU 17 OLD, United Kingdom Kunshan Rotam Reddy Pharmaceutical Co. Limited No. 258, Huang Pu Jiang (M) Road Kunshan Development Zone, Jiangsu Province P. R. China. Post code: 215 300
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Industrias Quimicas Falcon de Mexico S.A. de C.V. Carretera Federal Cuernavaca-Cuautla KM 4.5 CIVAC, Jiutepec Morelos Mexico 62578 Dr. Reddy’s Laboratories Louisiana LLC 8800 Line Avenue Shreveport LA 71106, USA Dr. Reddy’s Laboratories (EU) Ltd. Steanard Lane Mirfield, West Yorkshire WF 14, 8HZ, UK Chirotech Technology Limited 162 Cambridge Science Park Milton Road, Cambridge Cambridgeshire, CB4 0GH, UK
INFORMATION O N DIRECTORS PROPOSED FOR A P POINTMENT / REAPPOINTMEN T
shall leave a signed notice signifying candidature to the office of a Director, along with requisite deposit at the registered office of the Company, not less than fourteen days before the shareholders’ meeting. All nominations are considered by the Governance and Compensation Committee of the Board of Directors of the Company entirely consisting of Independent Directors.
INFORMATION ON MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of Association of the Company are available at the corporate website of the Company, www.drreddys.com.
CERT IF ICATE FROM THE COMPANY SECRETARY
The information is given in the Chapter on Corporate Governance.
QUERIES AT ANNUAL GENERAL MEETING
Shareholders desiring any information with regard to the accounts are requested to write to the Company at an early date so as to enable the management to keep the information ready. The queries relating to operational and financial performance may be raised at the Annual General Meeting. The Company provides the facility of InvestorHelpdesk at the Annual General Meeting. Shareholders may post their queries relating to shares, dividends etc., at this Investor-Helpdesk.
PROCEDURE FO R CONVENING AN EX TRAORDINARY G ENERAL MEETING
An Extraordinary General Meeting of the Company may be called by the requisition of shareholders. Such a requisition shall set out the matters of consideration for which the meeting is to be called on, signed by the requestors and deposited at the registered office of the Company. Pursuant to the provisions of the Companies Act, 1956, members entitled to the requisition of an Extraordinary General Meeting with regard to any matter shall be those who hold not less than one-tenth of the paid-up capital of the Company as at the date of the deposit of the requisition and carry the right of voting in that matter.
PROCEDURE FOR NOMINATING A DIRECTOR ON THE BOARD
I, V S Suresh, Company Secretary of Dr. Reddy’s Laboratories Limited, hereby confirm that the Company has: a. Complied with provisions prescribed for Director Identification Number under Companies Act, 1956 and Director Identification Number Rules, 2006 as amended. b. Maintained all the books of account and statutory registers prescribed under the Companies Act, 1956. c. Filed all forms and returns and furnished all necessary particulars to the Registrar of Companies and / or Authorities as required under the Companies Act, 1956. d. Conducted the Board Meetings and Annual General Meetings as per the Companies Act, 1956 and the minutes thereof were properly recorded in the minutes books. e. Effected share transfers and despatched the certificates within the time limit prescribed by various authorities. f. Not exceeded the borrowing powers. g. Paid dividend to the shareholders within the time limit prescribed and has also transferred the unpaid dividend to the Investor Education and Protection Fund within the time limit. h. Complied with the regulations prescribed by the Stock Exchanges, SEBI and other Statutory Authorities and also the statutory requirements under the Companies Act, 1956 and other applicable statutes in force. The certificate is given by the undersigned according to the best of his knowledge and belief, knowing fully that on the faith and strength of what is stated above, the shareholders of the Company will place full reliance on it.
V S SU RESH COMPANY SECRETARY
Pursuant to Section 257 of the Companies Act, 1956, any member intending to propose a person for appointment on the Board of the Company
Place: Hyderabad Date: 6 May 2010
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FIVE YEAR AT A GLANCE
Five Years at a Glance Year ended March 31 Income Statement Data Revenues Cost of revenues Gross profit as a % of revenues Operating Expenses Selling, general and administrative expenses Research and development expenses Impairment loss on other intangible assets Impairment loss on goodwill Other expense / (income), net Total operating expenses, net Operating (expense) / income as a % of revenues Finance Costs, net Finance expense Finance income Finance (expense) / income, net Share of profit of equity accounted investees, net of income tax Profit / (loss) before income tax Income tax (expense) / benefit Profit / (loss) for the year as a % of revenues Earnings / (loss) per share Basic Diluted Dividend per share of Rs. 5 Balance Sheet Data Cash and cash equivalents Working capital Total assets Total long-term debt, excluding current portion Total stockholders’ equity Additional Data Net cash provided by / (used in): Operating activities Investing activities Financing activities Effect of exchange rate changes on cash Expenditure on property, plant and equipment 2010 2009 2008
ALL FIGURES IN RS. MILLION EXCEP T EPS
Note: (1) EPS for 2006 has been adjusted for bonus issue. (2) Figures for 2010, 2009 and 2008 are based on financials as per IFRS and figures for 2007 and 2006 are based on financials as per U.S. GAAP.
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RATIO ANALYSIS
Ratio Analysis
B A S E D O N C O N S O L I DAT E D I F R S F I N A N C I A L S
2010
2009
Performance Ratios International revenues / total revenues % 81.8 83.5 Domestic revenues / total revenues % 18.2 16.5 51.7 52.6 Gross profit / total revenues % – Pharmaceutical Services and Active Ingredients % 32.6 29.9 – Global Generics % 60.0 61.1 29.9 28.1 Selling, general and administrative expenses / total revenues % [Note 1] R&D expenses / total revenues % 5.4 5.8 2.9 (4.1) Operating profit / total revenues % 18.2 25.7 Depreciation and amortization / total revenues % [Note 2] Other operating income, net of expense / total revenues % 0.8 (0.4) 2.9 (5.8) Profit before tax / total revenues % Profit after tax / total revenues % 1.5 (7.4) Balance Sheet Ratios Fixed assets turnover ratio 3.2 3.7 Capital expenditure / total revenues % 6.0 6.5 5.0 5.6 Working capital turnover ratio [Note 3} 0.3 0.5 Debt / equity Debtors turnover (Days) 69.0 56.3 143.0 135.0 Inventory turnover ratio (Days) 1.4 1.5 Current ratio Cash and equivalents / total assets 8.2 6.7 4.9 0.9 Investments / total assets Growth Ratios Total revenues % 1.2 38.9 8.8 12.8 – Pharmaceutical Services and Active Ingredients% – Global Generics % (2.4) 51.5 International revenues % (0.9) 46.6 7.7 28.0 Selling, general and administrative expenses % R&D expenses % (6.0) 14.3 Share Data Book value per share (Rs.) 254.2 249.6 Dividend % 225.0 125.0 Dividend per share (Rs.) 11.25 6.25 Basic earnings per share (Rs.) 6.33 (30.69) Diluted earnings per share (Rs.) 6.30 (30.69) Note: (1) Selling, general and administrative expenses excludes amortisation expenses. (2) Includes impairment. (3) Working capital is calculated as (Accounts Receivable, Inventories & Other Current Assets) Less (Trade Accounts Payables, Accrued Expenses & Other Current Liabilities).
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SECRETARIAL AUDIT REPORT
The Board of Directors Dr. Reddy’s Laboratories Limited 7-1-27, Ameerpet, Hyderabad – 500 016
I have examined the registers, records and documents of Dr. Reddy’s Laboratories Limited (“the Company”) for the financial year ended on March 31, 2010 according to the provisions of1. The Companies Act, 1956 and the Rules made under that Act; 2. The Depositories Act, 1996 and the Regulations and Bye-laws framed under that Act; 3. The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’); a. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; b. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; c. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; d. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and 4. The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the Rules made under that Act; and 5. The Equity Listing Agreements with Bombay Stock Exchange Limited and National Stock Exchange of India Limited and Listed Company Manual of New York Stock Exchange Inc. A. Based on my examination and verification of the registers, records and documents produced to me and according to the information and explanations given to me by the Company, I report that the Company has, in my opinion, complied with the provisions of the Companies Act, 1956 (“the Act”) and the Rules made under the Act and the Memorandum and Articles of Association of the Company, with regard to: a. maintenance of various statutory registers and documents and making necessary entries therein; b. closure of the Register of Members;
c. forms, returns, documents and resolutions required to be filed with the Registrar of Companies and Central Government; d. service of documents by the Company on its Members, and the Registrar of Companies; e. notice of Board meetings and Committee meetings of Directors; f. the meetings of Directors and Committees of Directors including passing of resolutions by circulation; g. the 25th Annual General Meeting held on July 22, 2009; h. requirements under section 391-394 of the Act read with Companies (Court) Rules, and the Order of the Hon’ble High Court of Andhra Pradesh with regard to amalgamation of Perlecan Pharma Private Limited with the Company. i. minutes of proceedings of General Meetings and of Board and other meetings; j. approvals of the Members, the Board of Directors, the Committees of Directors and government authorities, wherever required; k. constitution of the Board of Directors / Committee(s) of directors and appointment, retirement and re-appointment of Directors including the Managing Director and Wholetime Directors; l. payment of remuneration to the Directors including the Managing Director and Wholetime Directors; m. appointment and remuneration of Auditors and Cost Auditors; n. transfers and transmissions of the Company’s shares, issue and allotment of shares and issue and delivery of original and duplicate certificates of shares; o. declaration and payment of dividends; p. transfer of certain amounts as required under the Act to the Investor Education and Protection Fund; q. borrowings and registration, modification and satisfaction of charges; r. investment of the Company’s funds including inter corporate loans and investments and loans to others;
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s. giving guarantees in connection with loans taken by subsidiaries and associate companies; t. form of balance sheet as prescribed under Part I of Schedule VI to the Act and requirements as to Profit & Loss Account as per Part II of the said Schedule; u. contracts, common seal, registered office and publication of name of the Company; and v. generally, all other applicable provisions of the Act and the Rules made under that Act. B. I further report that: a. the Directors have complied with the requirements as to disclosure of interests and concerns in contracts and arrangements, shareholdings / debenture holdings and directorships in other companies and interests in other entities; b. the Directors have complied with the disclosure requirements in respect of their eligibility of appointment, their being Independent and compliance with the Company’s Code of Business Conduct & Ethics (COBE) for Directors and Management Personnel. c. the Company has obtained all necessary approvals under the various provisions of the Act; d. there was no prosecution initiated against or show cause notice received by the Company and no fines or penalties were imposed on the Company during the year under review under the Companies Act, SEBI Act, SCRA, Depositories Act, Listing Agreement and Rules, Regulations and Guidelines framed under these Acts against the Company, its Directors and Officers. C. I further report that the Company has complied with the provisions of the Depositories Act, 1996 and the Bye-laws framed under that Act by the Depositories with regard to dematerialisation / rematerialisation of securities and reconciliation of records of
dematerialised securities with all securities issued by the Company. D. I further report that: a. the Company has complied with the requirements under the Equity Listing Agreements entered into with the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited and Listed Company Manual of New York Stock Exchange Inc.; b. the Company has complied with the provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; c. the Company has complied with the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 including the provisions with regard to disclosures and maintenance of records required under the Regulations; d. the Company has complied with the provisions of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 including the provisions with regard to disclosures and maintenance of records required under the Regulations; and e. the Company has complied with the provisions of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 with regard to implementation of Employee Stock Option Scheme, grant of Options and other aspects.
DR . K R CHANDRATRE PRACT ISING COMPANY SECRETARY
Certificate of Practice No. 5144 Dated 27 April 2010
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directors’ report
Dear Members, Your Directors are pleased to present the 26th Annual Report for the year ended 31 March 2010.
Financial HigHligHts
table 1 gives the financial highlights of the Company for the financial year 2009-10 as compared to previous financial year on Indian GAAP standalone basis.
DiviDenD
debentures of Rs. 5 each to the members of the Company in the ratio of 6 bonus debentures for every equity share held by the members on a record date to be fixed by the Board. The said issuance is subject to approval of the regulatory authorities, shareholders and the Hon’ble High Court of Andhra Pradesh. s H a r e c a p i ta l
Your Directors are pleased to recommend a dividend of Rs. 11.25 per equity share of Rs. 5 each (225%) for the financial year 2009-10. The dividend, if approved at the ensuing Annual General Meeting, will be paid to those shareholders whose names appear on the register of members of the Company as on 5 July 2010. The dividend would be tax-free in the hands of the shareholders.
Bonus DeBentures
The paid up share capital of your Company increased by Rs. 1.88 million in the financial year ended 31 March 2010, due to allotment of 376,608 equity shares on exercise of stock options by the eligible employees under Dr. Reddy’s Employees Stock Option Scheme, 2002 and Dr. Reddy’s Employees ADR Stock Option Scheme, 2007. c o r p o r at e g ov e r n a n c e a n D a D D i t i o n a l i n F o r m at i o n t o sHareHolDers
During the financial year, the Board of Directors recommended issuance of unsecured, redeemable, non-convertible, fully paid up bonus
A detailed report on the corporate governance system and practices of the Company are given in a separate section of the annual report 2009-10. Detailed information for the shareholders is given in Additional Shareholders’ Information section. m a n ag e m e n t D i s c u s s i o n a n D a n a lys i s
taBle 1
Financial highlights for the financial year ended 31 March 2010 47,246 13,072 2,224 10,848 (2,387) 8,461 20,391 248 28,604 1,900 316 1 846 25,541
(Rs. in millions)
income gross profit Depreciation Profit before tax Taxation – Current tax net profit for the year Add: Profit and loss brought forward Add: Adjustment on merger of Perlecan Pharma Private Ltd. total available For appropriation appropriations Proposed dividend on equity shares Tax on proposed dividend Dividend of previous year Transfer to general reserve Balance carried forward
A detailed report on the Management Discussion and Analysis is provided as a separate section in the annual report. s u B s i D i a ry c o m pa n i e s
During the year, Dr. Reddy’s Pharma SEZ Limited was incorporated as a wholly-owned subsidiary of the Company for the purpose of formulation manufacturing at Special Economic Zone and Perlecan Pharma Private Limited was amalgamated with the Company. Further, the Company also acquired the balance stake of 30% in Dr. Reddy’s (Australia) Pty. Ltd. The Ministry of Corporate Affairs (MCA) had granted its approval to the Company for not attaching the documents specified in Section 212 of the Companies Act, 1956 in respect to its
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subsidiary companies for the financial year 2009-10. The members may refer to the statement under Section 212 of the Companies Act, 1956 and summary information on the financials of subsidiaries, appended to the above statement in this Annual Report, in terms of the said approval of MCA, for further information on these subsidiaries. The information on financial statements of the aforesaid subsidiaries is also available on the Company’s website. The members, if they desire, may write to Company Secretary at Dr. Reddy’s Laboratories Limited, 7-1-27, Ameerpet, Hyderabad – 500016 to obtain a copy of the financials of the subsidiary companies. The consolidated financial statements, in terms of Clause 32 of the Listing Agreement and prepared in accordance with Accounting Standard 21 as specified in Companies (Accounting Standards) Rules, 2006 also form part of this Annual Report.
FIXED DEPOSITS
The brief profiles of Ms. Kalpana Morparia, Dr. J P Moreau and Dr. Ashok S Ganguly are given in the Corporate Governance section of the Annual Report for reference of the members.
AU D I T O R S
The Statutory Auditors of the Company M/s. B S R & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office of Statutory Auditors, if reappointed. The Audit Committee and the Board of Directors recommend reappointment of M/s. B S R & Co. as Statutory Auditors of the Company for the financial year 2010-11 for shareholder’s approval.
C O S T AU D I T
Your Company has not accepted any fixed deposit under Section 58A of the Companies Act, 1956 and hence no amount of principal or interest was outstanding as at the Balance Sheet date.
DIRECTORS
Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the Company’s Bulk Drug division and Formulation division. Subject to the approval of the Central Government, the Board had appointed M/s. Sagar & Associates as Cost Auditors of the Company for the financial year 2009-10. The cost audit report would be filed with the Central Government as per timeline.
S E C R E TA R I A L AU D I T R E P O R T
Ms. Kalpana Morparia and Dr. J P Moreau retire by rotation at the ensuing Annual General Meeting scheduled on 23 July 2010 and are eligible for re-appointment. The Board of Directors had appointed Dr. Ashok S Ganguly as an additional director on the Board of the Company on 23 October 2009. He will hold this office till the conclusion of 26th Annual General Meeting of the Company scheduled on 23 July 2010. Requisite notice under Section 257 of the Companies Act, 1956 has been received from a member proposing his appointment. It is proposed to appoint him as a Director of the Company liable to retire by rotation. The resolution for the same has been included in the notice of the 26th Annual General Meeting scheduled to be held on 23 July 2010.
A secretarial audit for the year 2009-10 was carried out by Dr. K R Chandratre, practicing Company Secretary. The said secretarial audit report forms part of this Annual Report. The secretarial audit report confirms that the Company has complied with all the applicable provisions of the Companies Act, 1956, Depositories Act, 1996, Listing Agreements with the Stock Exchanges, Securities Contracts (Regulation) Act, 1956 and all the regulations of SEBI as applicable to the Company, including the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.
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D I R E C T O R S’ R E S P O N S I B I L I T Y S TAT E M E N T
C O N S E R VAT I O N O F E N E R G Y RESEARCH AND DEVELOPMENTS, TECHNOLOGY ABSORPTION, F O R E I G N E XC H A N G E E A R N I N G AND OUTGO
In terms of Section 217 (2AA) of the Companies Act, 1956, your Directors confirm as under: 1. In preparation of annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; 2. We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2009-10 and of profit of the Company for that period; 3. We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; 4. We have prepared the annual accounts on an on-going concern basis.
T R A N S F E R O F U N PA I D A N D UNCLAIMED AMOUNTS TO IEPF
The particulars as prescribed under Section 217(1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rule, 1988 are set out in the Annexure – 3 to the Directors’ Report.
GROUP FOR INTER SE TRANSFER OF SHARES
Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, the declared dividends, which remained unpaid or unclaimed for a period of 7 years have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act.
E M P L OY E E S S T O C K O P T I O N SCHEMES
Based on the information received from the Promoters and as required under Clause 3(1)(e)(i) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997, persons constituting Group as defined in the Monopolies and Restrictive Trade Practices Act, 1969, for the purpose of Regulation 3(1)(e)(i) of the aforesaid SEBI Takeover Regulations comprises: Dr. Reddy’s Holdings Limited, Dr. Reddy’s Investments and Advisory LLP, APS Invest Advisory LLP, Dr. K Anji Reddy, Mr. G V Prasad, Mr. Satish Reddy, Ms. K Samrajyam, Ms. G Anuradha and Ms. Deepti Reddy.
AC K N O W L E D G E M E N T
Pursuant to the provisions of Guideline 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999, as amended, the details of stock options as on 31 March 2010 under the “Dr. Reddy’s Employees Stock Option Scheme, 2002” and the “Dr. Reddy’s Employees ADR Stock Option Scheme, 2007” are set out in the Annexure – 1 to the Directors’ Report.
PA R T I C U L A R S O F E M P L OY E E S
Your Directors place on record their sincere appreciation for significant contribution made by the employees through their dedication, hard work and commitment and the trust reposed on us by the medical fraternity and the patients. We also acknowledge the support and wise counsel extended to us by the analysts, bankers, government agencies, shareholders and investors at large. We look forward to having the same support in our endeavor to help people lead healthier lives.
FOR DR. REDDY’S LABORATORIES LIMITED DR. K ANJI REDDY CHAIRMAN
Place: Hyderabad Date: 3 June 2010
Pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975 as amended, the names and other particulars of employees are set out in the Annexure – 2 to the Directors’ Report.
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A N N E X U R E T O T H E D I R E C T O R S’ REPORT ANNEX URE – 1
Pursuant to the provisions of Guideline 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee
Sl. No. Description
Stock Purchase Scheme), Guidelines, 1999, as amended, the details of stock options as on 31 March 2010 under the Dr. Reddy’s Employees Stock Option Scheme, 2002 and the Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 are as under:
Details Dr. Reddy’s Employees Stock Option Scheme, 2002 5,711,036 Dr. Reddy’s Employees Stock Option Scheme, 2002 provides for the grant of options in two categories: Category A: 600,000 stock options out of the total of 4,590,956 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: 3,990,956 stock options out of the total of 4,590,956 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 fair market value of a share on each grant date falling under Category A above is defined as the weighted average closing price for 30 days prior to the grant, in the stock exchange where there is highest trading volume during that period. 159,647 1,366,906 1,366,906 Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 355,818 Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 provides for the grant of options in two categories: Category A: 382,695 shall be available for grant of Stock Options at the fair market value; and
1 2
Options granted The pricing formula
Category B: 1,148,084 Options shall be available for grant of Stock Options at par value of the 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 closing price of the Company’s equity shares on the trading day immediately preceding the date of grant, in the stock exchange where there is highest trading volume during that period. 2,250 146,583 146,583
3 4 5
6 7
Options vested Options exercised The total number of shares arising as a result of exercise of option Options lapsed Variation of terms of options
3,459,123 1. Members of the Company approved the amendment in Dr. Reddy’s Employees Stock Option Scheme, 2002 at the Annual General Meeting held on 28 July 2004.
96,845 1. Members of the Company approved the amendment in Dr. Reddy’s Employees ADR Stock Option Scheme, 2007, at the Annual General Meeting held on 22 July 2008, to exercise the right to recover from the relevant employees, the fringe benefit tax, in respect of options granted to or vested or exercised by the eligible employees under provisions of the Income Tax Act, 1961.
The amendment enabled the Company to grant Stock Options in two categories as discussed below. Before this amendment Dr. Reddy’s Employees Stock Option Scheme, 2002 provided for grant of options at fair market value only. 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).
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Sl. No. Description
Details Dr. Reddy’s Employees Stock Option Scheme, 2002 Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 2. Members of the Company approved the amendment in Dr. Reddy’s Employees Stock Option Scheme, 2002 at the Annual General Meeting held on 28 July 2004. The amendment enabled the Company to grant Stock Options in two categories as discussed in para 2 above. Before this amendment Dr. Reddy’s Employees Stock Option Scheme, 2002 provided for grant of options at fair market value only. 3. Members of the Company approved the amendment in Dr. Reddy’s Employees Stock Option Scheme, 2002, at the Annual General Meeting held on 22 July 2008, to exercise the right to recover from the relevant employees, the fringe benefit tax, in respect of options granted to or vested or exercised by the eligible employees under provisions of the Income Tax Act, 1961. Further, pursuant to changes in the work levels in the organization structure of the Company approved removing the grades and designations prescribed in the Scheme. During the year the Government of India has abolished fringe benefit tax through the Finance Act 2009. Under this Act the fringe benefit tax payable by the employer as a result of share based payments would be replaced by an income tax payable by the employees as a “perquisite” (as defined in the Indian Income Tax Act, 1961) based on the value of the underlying share as on the date of exercise of the options. Consequent to this abolishment and in furtherance of the resolution passed by the Company on 22 July 2008, management resolved to absorb the consequent perquisite tax for the options granted on or prior to 18 May 2008. Rs. 127,550,704 Rs. 732,915 885,007 112,390
8 9 10
Money realised by exercise of options Total number of options in force Employee wise details as on 31 March 2010 of options granted to (i) Senior managerial personnel
Name Mr. V S Vasudevan
Mr. Abhijit Mukherjee Mr. K B Sankara Rao Mr. Saumen Chakraborty Mr. Umang Vohra Mr. Prabir Kumar Jha Mr. Cartikeya Reddy Mr. Vilas Dholye Mr. Raghav Chari (ii) Any other employee who receives a grant in any one year of option amounting to 5% or more of option granted during that year.
Exercise price Fair Market Value Par Value Par Value Par Value Par Value Par Value Par Value Par Value Par Value Par Value Nil
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Sl. No. Description
Details Dr. Reddy’s Employees Stock Option Scheme, 2002 Nil Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 Nil
11
12
13
14
(iii) Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant; Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with Accounting Standard (AS) 20 ‘Earnings Per Share’ The difference between the employee compensation cost computed under Intrinsic Value Method and the employee compensation cost that shall have been recognized if the Company had used the Fair Value Methods and its impact on profits and on EPS of the Company Weighted-average exercise prices and weighted-average fair values of options for options whose exercise price either equals or exceeds or is less than the market price of the stock Description of the method and significant assumptions used during the year to estimate the fair values of options: (i) Risk-free interest rate (ii) Expected life (iii) Expected volatility (iv) Expected dividends (v) The price of the underlying share in market at the time of option grant
Rs. 49.81
The employee Compensation Cost on account of ESOP in the financial year 2009-10 based on Intrinsic Value Method is Rs. 193 million. Had the Company used the Fair Value Method, the ESOP cost in the financial year would have been Rs. 226 million, which would have a consequential impact on profit. However, there would not have been any significant adverse effect on the Profit and EPS, on using fair value method of accounting.
Weighted average exercise price of the outstanding Fair Market Value options as on 31 March 2010 was Rs. 403.02. Weighted average exercise price of the outstanding Par Value options as on 31 March 2010 was Rs. 5. The weighted average fair value of the outstanding options as on 31 March 2010 was Rs. 303.00.
The Company has opted Intrinsic Value Method for accounting of Compensation Cost arising out of ESOP. However for disclosures in para 12 above the following assumptions have been used:
s u s ta i n a b i l i t y — c r e at i n g a p o s i t i v e e c o n o M i c , s o c i a l a n d e n v i r o n M e n ta l i M pa c t
Annexure – 2 Information required under Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1976 and
sl. no. name of the employee 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Dr. K Anji Reddy G V Prasad K Satish Reddy Abhijit Mukherjee Saumen Chakraborty K B Sankara Rao Vilas M Dholye Dr. Cartikeya Reddy Prabir Kumar Jha Ritha Chandrachud Umang Vohra Dr. Darshan B Makhey Dr. Harshal P Bhagwatwar Dr. K V S Ram Rao Dr. K Vyas K Ganesh K N Reddy K P Gopala Krishnan K R Janardana Sarma Kalyana Krishnan NH Mannam Venkata Narasimham Manoj Mehrotra Martin Sanjay Ghosh P Yugandhar Prabhakaran B Nair Rajesh Kumar Singhai Sunil Chand V V Dikshit V V Parsuram Dr. Vilas Dahanukar Zoher T Sihorwala A Karunakar Anindya Chowdhury Atul Dhavle B V Srinivas Bijaygopal Chakrabarti Dr. B Karunakar Dr. J Moses Babu K Sumesh Reddy K V V Raju Kaushik Mitter Kaushik Ray N Thyagarajan Nikhil Dilip Shah P Chandrasekhar Reddy P Muralidhar
age designation 71 50 43 52 49 56 61 40 43 46 39 43 47 47 52 47 56 53 57 51 42 48 45 38 45 40 55 49 43 44 40 44 40 40 50 43 49 48 42 50 43 38 59 33 44 41 Chairman Vice-Chairman and CEO Managing Director and COO President President Executive Vice President Executive Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President and CFO Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director
Qualification B.Sc. (Tech.), Ph.D. B. Sc., (Chem. Eng.), M.S. (Indl. Admn.) B.Tech., M.S. (Medicinal Chemistry) B.Tech. (Chem.) B.Sc. (H), MBA-IIM M.Pharm. B.Tech. (Chem.) B.Tech., M.S., Ph.D. M.A., P.G.D.M. (XLRI) B.Sc., M.M.S. B.E., M.B.A. M.Pharm., Ph.D. M.Pharm., M.S., Ph.D. B.Tech., M.E., Ph.D. M.Sc., Ph.D. B.Com., ACA M.Sc. B.E., P.G.D.P.M. M.Tech. M.Sc., M.B.A. B.Com., ACA, Inter ACS B.Tech., P.G.D.B.M. B.Tech., MBA M.M.S. M.Pharm., MBA B.Tech., P.G.D.M.M. M.Pharm. B.Tech., P.G.D.B.M. ACA, PG Diploma, AICWA M.Pharm., Ph.D. M.Pharm. M.Sc., PG Diploma in Patents Law B.E., P.G.D.M. B.E. B.Com., ACA, MBA M.Pharm., P.G.D.B.M. B.Tech., P.G.D.M., Ph.D. M.SC., Ph.D. B.Sc., LLB, LLM M.Pharm., P.G.D.M.M. M.A., MBA B.E., MBA B.Tech., P.G.D.M. MBA, ACS B.Tech., (ME) B.E., P.G.D.M.
Employed for the full year and in receipt of remuneration more than Rs. 24 lacs per annum
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forming part of the Directors’ Report for the year ended 31 March 2010 experience in years 40 26 18 30 26 32 36 19 21 24 15 20 17 17 30 22 32 27 31 24 19 13 23 16 21 13 32 25 22 16 16 22 16 18 26 19 26 19 28 25 18 13 39 11 13 16 date of commencement 24.02.1984 30.06.1990 18.01.1993 15.01.2003 02.07.2001 29.09.1986 18.12.2000 20.07.2004 29.11.2002 14.07.2003 18.02.2002 01.02.2008 02.08.2004 03.04.2000 15.07.1994 14.10.2005 16.06.1994 16.04.2003 14.09.2005 10.02.1998 12.06.2000 25.07.2007 10.03.2008 21.02.2001 23.12.2008 15.04.2002 19.02.2001 15.06.1994 06.12.2000 12.06.2003 01.04.2008 21.05.2004 02.05.2005 07.06.1999 11.12.1991 14.12.2001 30.03.2005 01.10.1993 01.09.2002 01.11.1994 26.09.2005 07.07.2008 13.09.2007 20.09.1999 25.02.2009 16.11.2001 particulars of last employment Managing Director, Standard Organics Ltd. Promoter Director, Benzex Labs Pvt. Ltd. Director, Globe Organics Ltd. President, Atul Ltd. Vice President, Tecumseh Products India Pvt. Ltd. Production Executive, Cipla Ltd. VP, Pidilite Industries Ltd. Senior Engineer, Genetech Inc. Regional Head HR, Mahindra British Telecom Sr. Director, Fulford (India) Ltd. Manager, Pepsico, India Vice President, Mayne Pharma (USA) Inc. Associate Director, Wockhardt Ltd. Sr.Manager, Vam Organic Chemicals Ltd. Post Doctoral Fellow, University of California Country Treasurer, Philips Electronics Ltd. Manager, Ranbaxy Laboratories Ltd. General Manager, Sanmar Speciality Chemicals Ltd. Consultant, Freelance Consultant Manager, Torrent Pharmaceuticals Ltd. Executive Manager, Sanmar Group Vice President, SRF Ltd. General Works Manager, Ciba Speciality Chemicals (I) Ltd. Manager, Eli Lilly Ranbaxy Ltd. Vice President, IPCA Laboratories Ltd. Country Manager, Ranbaxy Laboratories Ltd. General Manager, Ranbaxy Laboratories Ltd. Deputy Manager, Pfimex International Ltd. Sr. Manager, Tecumseh Products India Pvt.Ltd. Senior Principal Scientist, Schering Plough Vice President, Glenmark Pharmaceutical Ltd. Group Leader, Dabur Research Foundation Manager, Hindustan Lever Ltd. Deputy Manager, Du Pont Fibres Ltd. Assistant Manager, Fenner Finance Ltd. General Manager, Intas Pharmaceuticals Ltd. Head, ICFAI Business School Lecturer, Wesley College, Hyderabad Faculty, ISB Middle Earth Deputy Manager, Biological E. Consultant Group HR, Tata Sons Ltd. Associate Vice President-HR, Infosys Technologies Ltd. Head-Projects, Jubilant Organosys Ltd. – Head-Corp. Admn., UBS. General Manager, Idika Solutions Ltd.
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Information required under Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1976 and forming sl. no. name of the employee 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 Rajorshi Ganguli Raju Subramanyam Dr. Ramesh Kumar S Sriram Sandip Neogi Sanjay S Shetgar Sanjay Singh Sanjay Surendra Bhanushali Savya Sachi Dr. Shashank Narayanrao Lulay Siraj Attari Sreedhar Erukulla Dr. Surya Kumar Jayanthi T S R Gautham Buddha V Manikya Rao Dr. V Narayana Reddy V S Suresh Dr. V Venkateswarlu V Viswanath Dr. Vinayak Nerurkar Anant Wadkar C Nirmala Raju Deepak Sapra Deepti Varma Dinkar Sindhu Durgesh Sharma Harmeet Singh Lamba J K Nayanar K Raja Sekhar Kacharu S Toshniwal Kedar Upadhye M R Syam Sundar Nikhil Jain Padma Rajeswari Tata Ramakrishnan Sundaram S Suryanarayana Sandip Banerjee Sandip Bose Sanjay Deshmukh Dr. Satyanarayana Subrahmanyam Dr. Shanavas Alikunju Subhadra Ummeda Dr. Surya Narayana Devarakonda Tanneeru Krishna Sai V Ragunathan Velliyate Ramdas Vijay Natarajan Sachin Goswami age designation 39 44 40 40 43 41 42 49 48 56 57 37 46 56 47 47 52 50 43 45 39 44 35 35 40 36 43 45 43 41 33 45 34 42 45 56 42 45 46 45 43 34 40 38 47 48 42 41 Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Associate Director gross remuneration 3,508,709 4,909,264 4,542,678 3,049,621 3,049,643 3,746,025 3,779,855 4,346,498 4,359,475 4,136,624 4,598,851 2,534,904 4,027,725 3,850,912 3,799,972 3,679,175 4,226,379 4,076,794 3,776,764 3,488,679 2,581,139 2,659,927 2,484,910 2,538,765 2,974,478 2,821,596 2,866,970 2,497,315 2,636,346 2,780,208 2,545,504 2,397,413 3,274,521 2,870,572 2,663,616 2,546,193 3,134,363 2,541,067 2,877,122 2,819,797 2,760,571 2,415,870 2,623,977 3,049,793 2,822,185 2,509,184 2,999,334 2,424,988 Qualification B.Sc., P.G.D.P.M.I.R. B.Tech., M.M. M.Sc., Ph.D., LLB B.Tech. B.Com., ACA, AICWA M.Sc. M.A., MBA B.Pharma B.Sc., LLB, D.B.M. M.Pharm, Ph.D. B.A. M.Sc. M.Pharm., Ph.D. M.Sc., P.G.D.I.E. M.Tech., P.G.D.I.E. M.A., Ph.D. B.Com., AICWA, ACS M.Pharm., Ph.D. M.Com., AICWA, ACS M.Sc., Ph.D. B.V.S.C., P.G.D.R.M., PG.C+ M.Sc., Ph.D. B.E., PG Diploma in Management, BA B.Sc., ISTD, FOMS, MBA B.Tech., P.G.D.M. B.Sc., MBA, IBP (IIMC) B.Pharma., P.G.D.I.T. M.Pharm. M.Sc. B.Tech. B.Com., AICWA, CS, MBA M.Pharm. B.Tech., P.G.D.M. B.E., P.G.D.M. M.Sc., M.S. B.Com., LLB B.Tech. B.E. M.Pharm. M.Sc., Ph.D. M.Sc., Ph.D. B.E., M.S. B.Tech., M.S., Ph.D. M.S., S.M.P. M.Sc. M.Com., P.G.D.M.D.B.A. B.E., M.Tech. B.Sc., Diploma in M.E.
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part of the Directors’ Report for the year ended 31 March 2010 (continued) experience in years 15 19 12 16 21 20 14 27 24 27 25 15 20 32 23 23 31 25 18 20 14 17 10 12 14 12 19 20 19 19 8 22 10 17 19 29 19 21 21 11 11 9 12 15 24 26 17 20 date of commencement 11.08.2004 18.02.2008 13.01.2000 04.07.2005 03.01.2005 16.12.2002 01.02.2005 09.04.1998 15.11.1997 04.07.2005 03.03.2008 05.07.1995 18.06.2007 11.11.1999 30.10.2007 01.03.1990 02.09.1996 17.08.2005 16.01.1995 26.07.2004 11.11.2002 19.06.2002 23.01.2003 21.01.2002 05.05.2003 04.08.2006 04.04.2007 22.01.2001 12.06.1991 05.04.2007 02.06.2004 07.05.1999 10.03.2003 01.10.2008 24.03.2006 25.03.1987 01.08.2006 01.07.1999 11.09.2006 01.08.2001 01.10.2001 08.03.2004 02.07.2003 01.02.2008 27.03.1995 19.07.1993 07.11.2007 03.12.2001 particulars of last employment Senior Officer, BPCL Project Manager. E I Dupont India Pvt. Ltd. Research Officer, SIRIS Ltd. Senior Manager, Wockhardt Ltd. Manager, CA TCG Software Pvt. Ltd. Head-QA, CIPLA Ltd. Senior Division Personal Officer, Indian Railways Manager, CIPLA Ltd. Regional Manager, CIPLA Ltd. General Manager, Wockhard Ltd. General Manager, Nagarjuna Fertilisers & Chemicals Ltd. – Associate Director, Lupin Research Park Manager, Ranbaxy Research Laboratories Ltd. Executive Director, BizTune Software Pvt. Ltd. APO, Novapoan Ltd. Executive Manager, Fisher-Xomox India Ltd. Principle & Professor, Kakatiya University Assistant Manager, Priyadarshini Cement Ltd. Manager, Wallis Labs Ltd. Marketing Manager, C & K Management Ltd. Post Doctoral Fellow, University of Llino, USA Asst.Divisional Engineer, Indian Railways Regional Head-HR, NIIT Ltd. Production Engineer, Indian Railway General Manager, GVK Biosciences Pvt. Ltd. General Manager, Rusan Pharma Production Manager, Asia Pharmaceuticals – General Manager, Cadila Pharmaceuticals Ltd. Finance Executive, PepsiCo India Holdings Pvt. Ltd. Deputy Manager, Spic Pharma Ltd. Consultant, RSM & Co. Global Senior Leadership Development Consultant, Flextronics Senior Manager, Millenium Pharma Ins, USA Stores Incharge, CPC Pharmaceuticals Ltd. Manager, Tata Chemicals Ltd. Executive, Atul Ltd. Assistant Vice President, Strides Arcolab Ltd. Post Doctoral Fellow, Brookhaven National Labs, USA Post Doctoral Fellow, University of Texas Senior Consultant, ECS Ltd. Engineer, Wyeth Research Limit Project Manager, Genpact Area Manager, Tech Science Services Pvt. Ltd. Area Manager, Themis Chemicals General Manager, Wockhardt Ltd. Manager, Ranbaxy Laboratories Ltd.
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Information required under Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1976 and forming sl. no. name of the employee 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 Jaspal S Bajwa Dr. Rajinder Kumar V S Vasudevan Dr. Julius Anthony Vaz Rajbeer Singh Sachdeva Sharad Tyagi Adnan S Sabir Dr. Akhilesh D Sharma B Madhusudhan Rao Dr. C Seshagiri Rao C V Narayan Rao Dr. K B Sunil Kumar K Ranga Reddy R V Ramesh Dr. Raviraj Pillai Dr. Sanjib Mall Sharat P Narsapur Ajit Basrur Anindya Kumar Shee Dr. Asit Datta Dinesh Kumar Agarwal K Subba Raju Dr. P Pratap Reddy Ranjan P Saha Sanjeev Verma Dr. Subir K Basak Dr. Sunil Kumar Singh Adolf Ceaser Goldwyn Anil V Ghate Debadutta Mishra Dr. K Sreenivas Dr. Kamaldeep Singh Grover Krishna K Venkatesh Dr. Mohamed Takhi Mohit D Kumar Pravin Kumar Khatry Raj Kumar Kapoor Rajiv Pravinkumar Oza Sarina Chohan Suchitra Shekhar Dr. Vipan Dhall Vipin Kumar Trehan Lalit Aggarwal age designation 58 55 59 49 44 49 56 41 43 60 55 48 54 41 49 51 44 46 39 55 55 59 52 44 49 40 48 41 59 35 46 45 37 43 39 44 46 36 33 38 40 48 36 President President President Senior Vice President Senior Vice President Senior Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Senior Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Associate Director gross remuneration 20,646,846 19,669,765 3,684,466 6,877,096 1,647,651 5,364,268 3,673,586 5,185,352 8,819,096 5,356,015 2,926,366 2,023,370 2,021,607 365,622 1,947,941 4,108,760 2,264,151 2,490,236 1,132,740 1,841,490 2,924,476 5,913,310 2,070,574 1,688,915 817,603 5,097,889 1,133,414 2,610,775 1,510,513 1,942,908 1,169,925 2,017,224 285,989 697,016 1,090,734 1,110,885 1,906,422 508,292 2,620,518 1,379,884 983,594 993,318 255,680 Qualification B.Sc., MBA M.Sc., M.B.B.S., P.G.D.P.N. B.Com., ACA M.B.B.S., M.D. B.Sc., LLB, LLM B.E., P.G.D.M. M.Pharm., M.S. M.B.B.S., M.D. M.Sc., M.Phil. M.Sc., Ph.D. B.Tech., P.G.D.M. M.Sc., Ph.D. B.Com., C.A. Inter B.E. (Chem. Engg.) M.S., Ph.D. M.Tech., Ph.D. B.Tech. (Chem. Engg.) B.Sc., Diploma in BM & TQM B.Tech., MBA M.Sc., MBA, Ph.D. B.Sc., B.E. B.Sc. M.Sc., Ph.D. B.Sc., P.G.D.P.T. B.Com. B. Tech., M.S., MBA, Ph.D. M.Sc., Ph.D. B.E. M.Sc. B.Tech., MBA M.Sc., Ph.D. M.Sc., M.Phil., Ph.D. B.Pharma, M.S. M.Sc., M.Phil., Ph.D. B.E., Diploma in R.D.B.M.S. M.Pharm., Diploma in Pharmacy B.Com., ACA B.Tech., P.G.D.M. (IIM) B.S., MBA M.Pharm. M.Pharm., Ph.D. B.Sc. B.Pharma., P.G.D.M. Employed for the part of the year and in receipt of average remuneration above Rs. 2 lacs per month
Notes: 1. All the above employments are contractual. 2. Dr. K Anji Reddy, Mr. G V Prasad and Mr. Satish Reddy are relatives within the meaning of Section 6 of the Companies Act, 1956.
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part of the Directors’ Report for the year ended 31 March 2010 (continued) experience in years 33 27 37 20 20 25 21 13 17 36 32 18 25 18 18 21 26 26 17 26 17 32 21 21 17 19 17 19 32 13 16 18 12 12 17 16 22 13 8 12 13 26 14 date of commencement 10.04.2003 30.04.2007 01.03.2010 01.07.2009 23.01.2009 16.01.2007 09.09.2009 14.04.2009 09.07.1993 21.04.1994 17.09.2009 10.04.1996 12.08.1985 12.11.2003 04.07.2005 25.05.2009 20.01.1998 30.03.2009 18.01.2010 03.12.2007 27.04.2009 15.08.1987 04.08.2003 16.12.2002 18.01.2010 31.08.2007 01.04.1998 21.06.1999 29.09.2005 05.05.2003 11.10.2002 17.08.2009 18.03.2010 30.01.2002 29.10.2003 25.08.2003 06.04.2006 18.01.2010 28.08.2009 20.01.2003 07.08.2007 10.04.2002 05.03.2010 particulars of last employment Executive Director and COO, Marico Industries Ltd. CEO and Founding Member, MeRaD Pharmaceuticals Ltd. Finance Head, Standard Equity Fund Ltd. Medical Director, Novo Nordisk Pharma India Ltd. Vice President, Ranbaxy Laboratories Ltd. Director, Engelhard Asia Pacific India Pvt. Ltd. Associate Director, Watson Laboratories Inc. Vice President, Glenmark Pharmaceuticals Ltd. – Senior Research Executive, IDPL Associate Director, Parke Davis (India) Ltd. Assistant Director, Vimta Labs Ltd. – Vice President, Shasun Chemicals & Drugs Ltd. Associate Director, Ranbaxy Research Laboratories Head of API R&D, Granules India Ltd. Project Manager, Shrirang Agro Chem (P) Ltd. Regional Manager, Nypro Inc. Global Head-C&B, Wipro Technologies Ltd. Professor, Indian Institute of Social Welfare & Business Mgmt Vice President, Reliance Industries Ltd. Deputy Manager, Du Pont Fibres Ltd. Associate Professor, Osmania University Packaging Incharge, Cipla Ltd. General Manager, Mosar Baer Ltd. General Manager, Biocon Ltd. Deputy Manager, Nicholas Piramal India Ltd. Executive, Excel Industries Ltd. Senior Research Scientist, Nicholas Piramal Industries Ltd. Assistant Manager, Indian Oil Corporation Ltd. Research Scientist, Wockhardt Research Center General Manager, Wockhardt Ltd. Director, Teva Pharmaceuticals Inc. Post Doctoral Fellow, University of Konstanz Manager, Tata Honeywell Ltd. Assistant Manager, Janssen Cilag (J&J) Sr. Manager, Price Water House Coopers Pvt. Ltd. Group Head-HR, Transformers and Rectifiers India Ltd. Director, Tethys Bioscience, USA Sr. Officer, Parke-Davis India Ltd. Associate Director, NPS Pharmaceuticals Regional Manager, Lupin Ltd. Deputy General Manager, Lupin Pharmacare Ltd.
3. Dr. K Anji Reddy, Mr. G V Prasad and Mr. Satish Reddy are also eligible for commission on the net profits of the company. The Commission has been included in the remuneration specified above. 4. No individual employee is holding equivalent to or more than 2% of the shareholding of the Company as on 31 March 2010
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ANNEXURE – 3 FOR M A
Form for Disclosure of Particulars with respect to Conservation of Energy. A. Power and fuel consumption 1. Electricity Purchased Unit Total amount (Rs.) Rate / unit (Rs.) Own generation – through diesel generator set Unit Units per ltr. of diesel oil Rate / unit (Rs.) 2. Coal (used in boiler) Quantity (tonnes) Total Cost (Rs.) Average rate (Rs.) 3. Furnace Oil Quantity (K Lts.) Total Cost (Rs.) Rate / unit (Rs.) 48,326 167,494,337 3,466 5,392 142,533,434 26,436 58,719 204,165,661 3,477 4,333 121,043,314 27,936
and developed markets to third parties. Our research and development activities also support our custom pharmaceutical line of business, where we continue to leverage the strength of our process chemistry and finished dosage development expertise to target innovator as well as emerging pharmaceutical companies. The research and development is directed toward providing services to support the entire pharmaceutical value chain — from discovery all the way to the market.
FOR M B
» Proprietary Products, where we are actively pursuing discovery and development of new molecules, sometimes referred to as “New Chemical Entity” or “NCEs” and Differentiated Formulations. Our research programs focus on the following therapeutic areas: Metabolic disorders Cardiovascular disorders Bacterial infections Pain and inflammation We are focusing on an integrated research strategy to build a coherent pipeline of New Chemical Entities and Differentiated Formulations with critical mass and demonstrate repeated success in the chosen therapeutic area.
2. Benefits derived as a result of the R&D Commercial production of the new products Modification of existing manufacturing processes for some of the products and significant savings in cost of production Modification of existing manufacturing processes to reduce the time cycle Indian patents and US patents filings for protection of Intellectual Property generated during R&D
Research and development (R&D) 1. Specific areas in which R&D activities were carried out by the Company are: Our research and development activities can be classified into several categories, which run parallel to the activities in our principal areas of operations: » Global Generics, where our research and development activities are directed at the development of product formulations, process validation, bioequivalence testing and other data needed to prepare a growing list of drugs that are equivalent to numerous brand name products for sale in the emerging markets or whose patents and regulatory exclusivity periods have expired or are nearing expiration in the highly regulated markets of the United States and Europe. Global Generics also include our biologics business, where research and development activities are directed at the development of biologics products for the emerging as well as highly regulated markets. Our new biologics research and development facility caters to the highest development standards, including cGMP, Good Laboratory Practices and bio-safety level IIA.
» Pharmaceutical Services and Active Ingredients, where our research and development activities concentrate on development of chemical processes for the synthesis of active pharmaceutical ingredients and intermediates (“API”) for use in our Global Generics segment and for sales in the emerging
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3. Future plan of action Commercialisation of new products for which the products are under trials at development stage. Several new products have been identified after a thorough study of the market and the processes to manufacture these products will be developed in the R&D lab. 4. Expenditure on R&D A B C
FORM C FOREIGN EXCHANGE EA RNINGS AND OUTGO
Please refer information given in the notes to the annual accounts of the Company in Schedule 17 Notes to accounts item No. 16 and item No. 17.
FOR THE YE AR ENDED MA RCH 31
Capital (Rs. million) Recurring (Rs. million) Total (Rs. million) Total R&D expenditure as a percentage of total turnover
2010 254 3,643 3,897 8.79%
2009 365 3,847 4,212 10.42%
Technology, absorption, adaptation and innovation 1 Efforts, in brief, made towards technology absorption, adaptation and innovation
2
Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution, etc.
3
In case of imported technology (imported during the last 5 years reckoned from the beginning of the financial year), following information may be furnished: a) Technology imported b) Year of import c) Has technology been fully absorbed d) If not fully absorbed, areas where this has not taken place, reasons there for and future plans of action.
The Company has a full-fledged R&D Division continuously engaged in research on new products and on process development of existing products. The Company has developed indigenous technology in respect of the products manufactured by it. As soon as the technology is developed for a product, it is tested in Pilot Plant and thereafter commercial production is taken up. It is our philosophy to continuously upgrade the technology. Product quality improvements, cost reduction, product development, import substitution etc. The continuous up gradation and adoption of new technology has benefited the Company in the form of better production process, better yields, better quality of the end product and cost reduction. No Imported technology
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I GA A P STA NDA L ONE FI NA NC I A LS 95 PROFIT AND LOSS ACCOUNT
96 CASH FLOW STATEMENT
111 SCHEDULES TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT 140 BALANCE SHEET ABSTRACT
97 SCHEDULES TO THE BALANCE SHEET
90 AUDITORS’ REPORT
108 SCHEDULES TO THE PROFIT AND LOSS ACCOUNT
94 BALANCE SHEET
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Auditors’ Report to the Members of Dr. Reddy’s Laboratories Limited
We have audited the attached Balance Sheet of Dr. Reddy’s Laboratories Limited (“the Company”) as at 31 March 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditor’s Report) Order, 2003 (‘the Order’), as amended, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that: (a) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; (c) the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956, to the extent applicable; (e) on the basis of written representations received from the directors, and taken on record by the Board of Directors, we report that none of the directors are disqualified as at 31 March 2010 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; and (f) in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 March 2010;
(ii) in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and (iii) in the case of Cash Flow Statement, of the cash flows of the Company for the year ended on that date.
for B S R & Co. Chartered Accountants Firm Registration No.: 101248W
S Sethuraman Partner Membership No.: 203491
Place: Hyderabad Date: 6 May 2010
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Annexure to the Auditors’ Report
The Annexure referred to in the auditors’ report to the members of Dr. Reddy’s Laboratories Limited (“the Company”) for the year ended 31 March 2010. We report that: i. (a) (b) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of 3 years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification. (c) ii. (a) Fixed assets disposed off during the year were not substantial and therefore do not affect the going concern assumption. The inventory, except goods-in-transit and stocks lying with third parties, has been physically verified by the management during the year. In our opinion, the frequency of such verification is reasonable. For stocks lying with third parties at the year-end, written confirmations have been obtained. (b) In our opinion, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material. iii. (a) The Company has granted loans to eight companies (of which 2 loans are interest free) covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount outstanding during the year was Rs. 8,043 millions and the year-end balance of such loans was Rs. 7,084 millions. (b) In our opinion, the rate of interest and other terms and conditions on which loans have been granted to companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the Company. (c) In the case of loans granted to companies, firms or other parties listed in the register maintained under Section 301, where stipulations have been made, the borrowers have been regular in repaying the principal amounts as stipulated and in the payment of interest. (d) There is no overdue amount of more than Rupees one lakh in respect of loans granted to any of the companies, firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956. (e) The Company has not taken loans secured or unsecured from any companies, firms and other parties covered in the register maintained under Section 301 of the Companies Act, 1956. The opening balance of Rs. 384 million (including interest) from a Company has been eliminated as inter-company balances, pursuant to a court approved scheme of merger. iv. In our opinion and according to the information and explanations given to us, and having regard to the explanation that purchases of certain items of inventories are for the Company’s specialized requirements and similarly certain goods sold are for the specialized requirements of the buyers and suitable alternative sources are not available to obtain comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories and fixed assets and with regard to the sale of goods and services. We have not observed any major weakness in the internal control system during the course of the audit. v. (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section. (b) In our opinion, and according to the information and explanations given to us, the transactions made in pursuance of contracts and arrangements referred to in point (a) above and exceeding the value of Rs. 5 lakh with any party during the year, have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time except for the purchases of certain items of inventories which are for Company’s specialized requirements and similarly for sale of certain goods for the specialized requirements of the buyers and for which suitable alternative sources are not available to obtain comparable quotations. However, on the basis of information and explanations provided, the same appear reasonable. vi. vii. The Company has not accepted any deposits from the public. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.
viii. We have broadly reviewed the books of account maintained by the Company pursuant to the rules prescribed by the Central Government for maintenance of cost records under Section 209(1) (d) of the Companies Act, 1956, and are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the records. ix. (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted / accrued in the books of account in respect of undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income tax, Sales tax, Wealth tax, Service tax, Customs duty, Excise duty and other material statutory dues have been generally regularly deposited during the year by the Company with the appropriate authorities. (b) According to the information and explanations given to us, no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income tax, Sales tax, Wealth tax, Service tax, Customs duty, Excise duty and other material statutory dues were in arrears as at 31 March 2010 for a period of more than six months from the date they became payable.
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Annexure to the Auditors’ Report
(c)
Further, there were no dues on account of Cess under Section 441A of the Companies Act, 1956, since the date from which the aforesaid section comes into force has not yet been notified by the Central Government.
(d)
According to the information and explanations given to us, the dues set out in Appendix 1 in respect of Income tax, Sales tax, Service tax, Customs duty and Excise duty have not been deposited with the appropriate authorities on account of disputes.
x.
The Company does not have any accumulated losses at the end of the financial year and has not incurred cash losses during the financial year and in the immediately preceding financial year.
xi.
In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to its bankers or to any financial institutions.
xii.
The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
xiii. In our opinion and according to the information and explanations given to us, the Company is not a chit fund / nidhi / mutual fund / society. xiv. According to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable. xv. In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given guarantees for loans taken by others from banks or financial institutions are not prejudicial to the interests of the Company. xvi. In our opinion and according to the information and explanations given to us and on the basis of our examination of the books of account, the term loans obtained by the Company were applied for the purpose for which such loans were obtained. xvii. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we are of the opinion that no funds raised on short-term basis have been used for long term investment. xviii. The Company has not made any preferential allotment of shares to companies, firms or parties covered in the register maintained under Section 301 of the Companies Act, 1956. xix. The Company did not have any outstanding debentures during the year. xx. We have verified the end-use of money raised by public issues as disclosed in the notes to the financial statements.
xxi. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. However, an attempt, for misappropriation of funds amounting to Rs. 30 million by a third party was detected and rendered unsuccessful by the Company.
for B S R & Co. Chartered Accountants Firm Registration No.: 101248W
S Sethuraman Partner Membership No.: 203491
Place: Hyderabad Date: 6 May 2010
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Appendix 1 as referred to in para ix (d) of Annexure to the Auditors’ Report
NAME OF THE STATUTE NATURE OF THE DUES AMOUNT (RS.’000) PERIOD TO WHICH THE AMOUNT RELATED FORUM WHERE DISPUTE IS PENDING
Income Taxes Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Income Tax Act,1961 Sales Tax (Including Central Sales Tax and Local Sales Tax) Central Sales Tax Act, 1956 – Andhra Pradesh Central Sales Tax Act, 1956 – Andhra Pradesh Andhra Pradesh Value Added Tax Act, 2005 Central Sales Tax Act, 1956 – Gujarat Central Sales Tax Act, 1956 – Gujarat Central Sales Tax Act, 1956 – Gujarat Central Sales Tax Act, 1956 – Gujarat Central Sales Tax Act, 1956 – Kerala Kerala General Sales Tax Act, 1963 Kerala General Sales Tax Act, 1963 Kerala General Sales Tax Act, 1963 Kerala General Sales Tax Act, 1963 Kerala General Sales Tax Act, 1963 Kerala General Sales Tax Act, 1963 West Bengal Sales Tax Act, 1994 West Bengal Sales Tax Act, 1994 Central Sales Tax Act, 1956 – Tamil Nadu Uttar Pradesh Value Added Tax Act, 2008 Uttar Pradesh Value Added Tax Act, 2008 Central Sales Tax Act, 1956 – Assam Central Sales Tax Act, 1956 – Himachal Pradesh Service Tax Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Finance Act, 1994 Customs Duty Customs Act, 1962 Customs Act, 1962 Excise Duty Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944 Central Excise Act, 1944
High Court, Andhra Pradesh High Court, Andhra Pradesh High Court, Andhra Pradesh High Court, Andhra Pradesh Commissioner Appeals Income Tax Appellate Tribunal Commissioner Appeals High Court, Andhra Pradesh Assessing Officer Appellate Deputy Commissioner Appellate Deputy Commissioner Appellate Deputy Commissioner Sales Tax Tribunal Sales Tax Tribunal Appellate Deputy Commissioner Assessing Officer High Court, Kerala Assessing Officer Assessing Officer Assessing Officer Assessing Officer Assessing Officer Appellate Deputy Commissioner Appellate Deputy Commissioner Appellate Deputy Commissioner Assessing Officer Appellate Deputy Commissioner Appellate Deputy Commissioner Sales Tax Tribunal Custom Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore CESTAT, Bangalore Commissioner of Customs & Central Excise (Appeals) CESTAT, Bangalore Commissioner of Customs & Central Excise (Appeals) Commissioner of Customs & Central Excise (Appeals) Commissioner of Customs & Central Excise (Appeals) CESTAT, Bangalore Commissioner of Customs & Central Excise (Appeals) Commissioner of Customs & Central Excise (Appeals) Commissioner of Central Excise, Hyderabad-II CESTAT, Bangalore Additional Commissioner, Hyderabad-I Additional Commissioner, Hyderabad-I Additional Commissioner, Hyderabad-I Commissioner Appeals, Hyderabad Commissioner of Central Excise, Hyderabad-I Commissioner of Central Excise, Hyderabad-I Commissioner of Central Excise, Hyderabad-I CESTAT, Bangalore Commissioner of Central Excise, Hyderabad-I Assistant Commissioner of Central Excise Nalgonda Commissioner of Central Excise, Hyderabad-III Assistant Commissioner of Central Excise, Vizianagaram Additional Commissioner of Central Excise, Vishakapatnam Additional Commissioner of Central Excise, Vishakapatnam CESTAT, Bangalore Commissioner of Central Excise, Hyderabad-I Commissioner of Central Excise, Hyderabad-I CESTAT, Bangalore Commissioner of Central Excise, Hyderabad Additional Commissioner, Hyderabad-I CESTAT, Mumbai Commissioner of Central Excise, Vishakapatnam-II CESTAT, Bangalore Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Assistant Commissioner of Central Excise Assistant Commissioner of Central Excise Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Commissioner of Central Excise, Hyderabad-IV Additional Commissioner, Hyderabad-IV Additional Commissioner, Hyderabad-IV Asst. Commissioner, Hyderabad-L Division Asst. Commissioner, Hyderabad-L Division Commissioner of Central Excise, Hyderabad-III Commissioner of Central Excise, Hyderabad-III Assistant Commissioner of Central Excise Assistant Commissioner of Central Excise CESTAT, Chennai Assistant Commissioner of Central Excise, Palghar Assistant Commissioner of Central Excise, Thane-II CESTAT, Chennai Commissioner of Central Excise, Hyderabad-III Commissioner Appeals, Hyderabad Assistant Commissioner of Central Excise, Hyderabad Assistant Commissioner of Central Excise, Hyderabad CESTAT, Bangalore
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Balance Sheet A S
AT 31 M A R C H 2 010
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT SCHEDULE 31 MARCH 2010 AS AT 31 MARCH 2009
SOURCES OF FUNDS
Shareholders’ funds Share capital Reserves and surplus Loan funds Secured loans Unsecured loans 3 4 8 5,624 5,632 Deferred tax liability, net 20(3) 750 65,528
APPLICATION OF FUNDS
1 2
844 58,302 59,146
842 51,749 52,591 26 6,377 6,403 904 59,898
Fixed assets Gross block Less: Accumulated depreciation and amortisation Net block Capital work-in-progress (including capital advances)
Investments Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances Current liabilities and provisions Current liabilities Provisions Net current assets Notes to Accounts The schedules referred to above form an integral part of the Balance Sheet
6 7 8 9 10
25,551 8,974 10,605 3,680 13,001 36,260
11 12
14,475 2,418 16,893 19,367 65,528
20
A s p er o u r r e p o r t a t t a ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Profit and Loss Account F O R T H E Y E A R
ENDED 31 MARCH 2010
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED SCHEDULE 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
INCOME
Sales, gross Less: Excise duty on sales Sales, net License fees, net Service income Other income
EXPENDITURE
Material costs Conversion charges Excise duty Personnel costs Operating and other expenses Research and development expenses Provision for decline in the value of long-term investments Finance charges Depreciation and amortization Profit before taxation Income tax expense Profit after taxation Balance in profit and loss account brought forward Less: Adjustment on account of merger of Perlecan Pharma Private Limited Amount available for appropriation
APPROPRIATIONS:
Proposed dividend on equity shares Tax on proposed dividend Dividend of previous years Transferred to General Reserve Balance carried forward Earnings per share Basic – Par value Rs. 5 per share 20 Diluted – Par value Rs. 5 per share Notes to accounts The schedules referred to above form an integral part of the Profit and Loss Account 20(4)
50.15 49.81
A s p e r o u r r e p o r t a t ta ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Cash Flow Statement
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation Adjustments: Depreciation and amortization Provision for wealth tax Dividend from mutual fund units Amortization of deferred stock compensation expense, net Unrealised foreign exchange (gain) / loss (Profit) / loss on sale of investments, net Provision for decline in the value of long-term investments Reversal of provision for decline in the value of long-term investments Interest income Finance charges (Profit) / loss on sale of fixed assets, net Inventory write-down Provision for doubtful debts Provision for doubtful advances Bad debts written off Operating cash flows before working capital changes (Increase) / Decrease in sundry debtors (Increase) / Decrease in inventories (Increase) / Decrease in loans and advances Increase / (Decrease) in current liabilities and provisions Cash generated from operations Income taxes paid Net cash provided by operating activities
CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
Purchase of fixed assets Proceeds from sale of fixed assets Purchase of investments Cash paid for acquisition of Perlecan Pharma Private Limited Proceeds from sale of investments Dividend from mutual fund units Loans and advances given to subsidiaries, joint ventures & associates Interest received Net cash (used in) investing activities
CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES
Proceeds from issue of share capital Repayment of long-term borrowings Repayment of short-term borrowings Proceeds from short-term borrowings Interest paid Dividend paid (including dividend tax) Net cash from / (used in) financing activities
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the period (Refer Schedule 9) Effect of exchange gain on cash and cash equivalents
A s p er o u r r e p o r t a t t a ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010
Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh
Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Schedules to the Balance Sheet F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 0
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 1: S H A R E C A P I TA L
Authorised 240,000,000 (previous year: 200,000,000) equity shares of Rs. 5/- each (Refer Note 22 of Schedule 20) Issued 168,845,585 (previous year: 168,468,977) equity shares of Rs. 5/- each fully paid-up Subscribed and paid-up 168,845,385 (previous year: 168,468,777) equity shares of Rs. 5/- each fully paid-up Add: Forfeited share capital (Note 2) 844 – 844 844 NOTES: 1. Subscribed and paid-up share capital includes: (a) 111,732,202 (previous year: 111,732,202) equity shares of Rs. 5/- each fully paid-up, allotted as bonus shares. Out of total, 34,974,400 shares were allotted by capitalisation of General Reserve and 76,757,802 equity shares allotted as bonus shares by capitalisation of the Securities Premium Account in earlier years. (b) 1,052,248 (previous year: 1,052,248) equity shares of Rs. 5/- each allotted pursuant to a scheme of amalgamation with Standard Equity Fund Limited without payments being received in cash. (c) 20,571,768 (previous year: 20,571,768) equity shares of Rs. 5/- each allotted and 82,800 (previous year: 82,800) equity shares of Rs. 5/- each extinguished pursuant to a scheme of amalgamation with erstwhile Cheminor Drugs Limited (CDL) without payments being received in cash. (d) 40,750,000 (previous year: 40,750,000) equity shares of Rs. 5/- each allotted against American Depository Shares (ADS). (e) 17,204,304 (previous year: 17,204,304) equity shares of Rs. 5/- each allotted against Global Depository Receipts (GDR) that were converted into ADS during the year ended 31 March 2002. (f) 226,776 (previous year: 226,776) equity shares of Rs. 5/- each allotted to the erstwhile members of American Remedies Limited (ARL) pursuant to a scheme of amalgamation with ARL without payments being received in cash. (g) 1,185,283 (previous year: 882,832) equity shares of Rs. 5/- each allotted to the eligible employees of the Company and its subsidiaries on exercise of the vested stock options in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”. (Refer Note 9, Schedule 20) (h) 146,583 (previous year: 72,426) equity shares of Rs. 5/- each allotted to the eligible employees of the Company and its subsidiaries on exercise of the vested stock options in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2007”. (Refer Note 9, Schedule 20) 2. Represents 200 (previous year: 200) equity shares of Rs. 5/- each, amount paid-up Rs. 500/- (rounded off in millions in the Schedule above) forfeited due to nonpayment of allotment money. 3. 885,007 (previous year: 914,896) 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 112,390 (previous year: 156,577) 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” (Refer Note 9, Schedule 20). 842 – 842 842 844 842 1,200 1,000
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 2: R E S E R V E S A N D S U R P L U S
Capital reserve Balance at the beginning of the year On account of amalgamation of Perlecan Pharma Private Limited (Refer Note 22, Schedule 20) 7 260 267 Securities premium account Balance at the beginning of the year Add: Received during the year on exercise of employee stock options 17,814 224 18,038 17,643 171 17,814 7 – 7
Employee stock options outstanding Balance at the beginning of the year Add: Options granted during the year Less: Options forfeited during the year Less: Options exercised during the year Balance at the end of the year (A) Deferred stock compensation cost Balance at the beginning of the year Add: Options granted during the year Less: Amortization during the year, net of forfeiture Less: Options forfeited during the year Balance at the end of the year (B) (A-B) General Reserve Balance at the beginning of the year Add: Transferred from profit and loss account 13,173 846 14,019 Foreign currency translation reserve Balance at the beginning of the year Additions / deductions during the year (Note 1) 246 (415) (169) Hedging Reserve Balance at the beginning of the year Additions / deductions during the year (Refer Note 18, Schedule 20) Profit and loss account Balance in profit and loss account 25,541 58,302 NOTE: 1. The foreign currency translation reserve comprises exchange difference on monetary items that in substance form part of the net investment in Industrias Quimicas Falcon de Mexico, S.A.de.C.V. (Mexico) and Lacock Holdings Limited, Cyprus, non – integral foreign operations as defined in Accounting Standard (AS) - 11 (Revised 2003) on “Accounting for the Effects of Changes in Foreign Exchange Rates”. 20,391 51,749 (237) 504 267 (10) (227) (237) 124 122 246 12,612 561 13,173 236 264 (193) (82) 225 339 254 278 (197) (99) 236 355 591 264 (82) (209) 564 579 278 (99) (167) 591
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 3: SECURED LOANS
From other than banks Loan from Indian Renewable Energy Development Agency Limited (Note 1) Finance lease obligations (Note 2) 1 7 8 NOTES: 1. Loan from Indian Renewable Energy Development Agency Limited is secured by way of hypothecation of specific movable assets pertaining to the Solar Grid Interactive Power Plant. The loan is repayable in quarterly instalments of Rs. 1.48 each quarter and carries an interest rate of 2% per annum. 2. Finance lease obligations represent present value of minimum lease rentals payable for the vehicles leased by the Company (Refer Note 26, Schedule 20). 7 19 26
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
SCHEDULE 4: UNSECURED LOANS
Sales tax deferment loan from the Government of Andhra Pradesh (interest free) From banks Packing credit loans (Note 1) Bank overdraft (Note 2) From others (Note 3)
55 5,530 39 – 5,624
60 5,715 218 384 6,377
NOTES: 1. Foreign Currency Packing Credit loan is from Standard Chartered Bank, The Bank of Nova Scotia, BNP Paribas, ABN Amro Bank and HSBC carrying interest rates of LIBOR plus 40 – 75 bps, repayable on expiry of 6 months from the date of drawdown. Rupee packing credit is from State Bank of India carrying interest rate of 5% per annum. Packing Credit loans for the previous year comprised foreign currency packing credit loan that were taken from Standard Chartered Bank, The Bank of Nova Scotia and Bank of Tokyo – Mitsubishi UFJ Ltd carrying interest rates of LIBOR plus 100 – 225 bps, repayable on expiry of 6 months from the date of drawdown. Rupee packing credit were from State Bank of India, BNP Paribas and ABN Amro Bank carrying interest rates of 8% – 9%, 7% and 7.25% per annum, respectively. 2. Bank overdraft is on the current accounts with Citibank, State Bank of India and HDFC Bank carrying interest rates of 10.50%, 10.25% and 14.50% per annum, respectively. (previous year interest rates were 13.75%, 10.25% and 14.50% per annum, respectively). 3. Refer Note 5 (c) (xxiii), Schedule 20
Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 5: FIXED ASSETS
GROSS BLOCK AS AT 1 APRIL 2009 ADDITIONS DELETIONS 31 MARCH 2010 1 APRIL 2009 FOR THE YEAR DELETIONS 31 MARCH 2010 31 MARCH 2010 AS AT AS AT AS AT AS AT DEPRECIATION / AMORTIZATION NET BLOCK AS AT 31 MARCH 2009
Patents, trademarks, etc. (including marketing / distribution rights)
Assets taken on finance lease
Vehicles
Total
Previous year
NOTES:
1.
The Company owns treated effluent discharge pipeline with a cost of Rs. 9 (previous year: Rs. 9) and net book value of Rs. Nil (previous year: Rs. Nil) in equal proportion jointly with a third party in Pydibheemavaram
pursuant to a mutual agreement.
2.
Depreciation for the year includes depreciation amounting to Rs. 374 (previous year: Rs. 366) on assets used for Research and Development. During the year, Company incurred Rs. 254 (previous year Rs. 365)
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
towards capital expenditure for Research and Development.
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 6: INVESTMENTS
Long term at cost, unless otherwise specified
I. QUOTED INVESTMENTS
Non-trade (a) Equity shares (fully paid-up) 12,000 (previous year: 12,000) equity shares of Rs. 10 each of State Bank of India (Note 1)
TOTAL QUOTED LONG TERM INVESTMENTS (I) II. UNQUOTED INVESTMENTS
3 3
3 3
Trade Equity and preference shares (fully paid-up) In Subsidiary Companies 50,000 (previous year: 50,000) equity shares of Rs. 10/- each of DRL Investments Limited, India 11,625,000 (previous year: 11,625,000) ordinary shares of HK$ 1 each of Reddy Pharmaceuticals Hong Kong Limited, Hong Kong Equity shares of OOO JV Reddy Biomed Limited, Russia (Note 2) 500,000 (previous year: 500,000) equity shares of US$ 1 each of Reddy Antilles N.V., Netherlands 6,059,231 (previous year: 6,059,231) shares of Real $ 1 each of Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil 400,750 (previous year: 400,750) ordinary shares of US$ 10 each of Dr. Reddy’s Laboratories Inc, USA 134,513 (previous year: 134,513) equity shares of Rs. 10/- each of Cheminor Investments Limited, India 2,500 (previous year: 2,500) ordinary shares of FF 100 each of Reddy Cheminor S.A., France 90,544,104 (previous year: 88,644,161) equity shares of Rs. 10/- each of Aurigene Discovery Technologies Limited, India 14,750,000 (previous year: Nil) 8% cumulative redeemable preference shares of Rs. 10/- each of Aurigene Discovery Technologies Limited, India 34,476 (previous year: 34,476) ordinary A shares of GBP 0.01 each of Dr. Reddy’s Laboratories (EU) Limited, UK 98,124 (previous year: 98,124) ordinary shares of GBP 0.01 each of Dr. Reddy’s Laboratories (EU) Limited, UK 360,000 (previous year: 360,000) preference shares of GBP 0.0001 each of Dr. Reddy’s Laboratories (EU) Limited, UK 34,022,070 (previous year: 34,022,070) equity shares of Rs. 10/- each of Dr. Reddy’s Bio-sciences Limited, India Equity shares of OOO Dr. Reddy’s Laboratories Limited, Russia (Note 2) 60 (previous year: 60) ordinary shares of Rand 1 each of Dr. Reddy’s Laboratories (Proprietory) Limited, South Africa (Note 3) 206 (previous year: 206) equity shares of US$ 0.01 each of Trigenesis Therapeutics Inc, USA 23,028 (previous year: 20,977 Euro 1.71 each) equity shares of Euro 1 each of Lacock Holdings Limited, Cyprus (Refer Note 24, Schedule 20) 140,526,270 (previous year: 140,526,270) Series “A” shares of Peso 1 each of Industrias Quimicas Falcon de Mexico, S.A.de.C.V., Mexico 5,566,000 (previous year: 5,566,000) ordinary shares of Euro 1 each of Reddy Pharma Iberia, Spain 1,000,000 (previous year: 700,000) ordinary shares of Aus $ 1 each of Dr. Reddy’s Laboratories (Australia) Pty. Limited., Australia 75,640,410 (previous year: 100,000) ordinary shares of CHF 1 each of Dr. Reddy’s Laboratories SA, Switzerland 49,999 (previous year: 49,999) ordinary shares of Macred India Private Limited, India Equity shares of Dr. Reddy’s Laboratories ILAC TICARET Limited SIRKETI, Turkey (Note 2 & 4) Nil (previous year: 17,464,703) equity shares of Re. 1/- each of Perlecan Pharma Private Limited, India (Note 6) 50,000 (previous year: Nil) equity shares of Re. 1/- each of Dr. Reddy’s Pharma SEZ Limited In joint venture Equity shares held in Kunshan Rotam Reddy Pharmaceutical Co. Limited, China (Note 2) Carried forward 429 22,877 429 18,058 1 58 7 18 97 175 1 2 974 147 142 493 23 266 72 – 497 15,428 709 321 64 2,951 1 – – 1 1 58 7 18 97 175 1 2 886 – 142 493 23 266 72 – 497 12,904 709 321 25 3 1 – 928 –
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 6: INVESTMENTS (CONTINUED)
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Brought forward Unquoted trade investments (continued) In other companies Ordinary shares of Roubles 1,000 each of Biomed Russia Limited, Russia (Note 2) In capital of partnership firm (a subsidiary) Globe Enterprises, India (A partnership firm with Dr. Reddy’s Holdings Limited organised under the Indian Partnership Act, 1932 wherein the Company and Dr. Reddy’s Holdings Limited share the profit / loss for the year in the ratio of 95:5, respectively) Partners capital account: Dr. Reddy’s Laboratories Limited – Rs. 2,396 thousands Dr. Reddy’s Holdings Limited – Rs. 101 thousands Non-trade In Equity Shares 200,000 (previous year: 200,000) ordinary shares of Rs.10/- each of Altek Engineering Limited, India 8,859 (previous year: 8,859) equity shares of Rs. 100/- each of Jeedimetla Effluent Treatment Limited, India 24,000 (previous year: 24,000) equity shares of Rs. 100/- each of Progressive Effluent Treatment Limited, India 20,000 (previous year: 20,000) equity shares of Rs.10/- each of Shivalik Solid Waste Management Limited, India (Note 5)
TOTAL UNQUOTED LONG TERM INVESTMENTS (II)
22,877
18,058
66 2
66 2
2 1 2 – 22,950
2 1 2 – 18,131
Current Investments at cost or fair value which ever is less
UNQUOTED INVESTMENTS
In Certificate of deposits 3,000 (previous year: Nil), Certificate of deposits of Rs. 99,481.1 each of State Bank of Mysore In Mutual Fund Nil (previous year: 11,168,576.78) units of HDFC Liquid Fund – Growth Nil (previous year: 32,121,245.10) units of Tata Floater Fund – Daily dividend 44,779,190.82 (previous year: Nil) units of SBNPP Flexible Fund ST Inst. 145,559.06 (previous year: Nil) units of HDFC Cash Management Fund – Treasury Adv Plan 50,449,814.27 (previous year: Nil) units of IDFC Money Manager Fund – Inv Plan 46,224,480.00 (previous year: Nil) units of IDFC Fixed Maturity Plan – Half Yearly Series 9 50,275,881.37 (previous year: Nil) units of Kotak Quarterly Interval Plan Series 6 49,972,515.12 (previous year: Nil) units of Reliance Monthly Interval Fund – Inst Div Plan 1,999.75 (previous year: Nil) units of Reliance Money Manage Fund – Inst Option 44,502,902.58 (previous year: Nil) units of SBI-SHDF-Short Term – Inst Plan 40,225,374.32 (previous year: Nil) units of UTI-Fixed Income Interval Fund – Series II
TOTAL UNQUOTED CURRENT INVESTMENTS (III) TOTAL INVESTMENTS (I + II + III)
Less: Provision for decline, other than temporary, in the value of long term investments (Refer Note 7) Total investments, net
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 6: INVESTMENTS (CONTINUED)
Aggregate cost of quoted investments Aggregate cost of unquoted investments Market value of quoted investments Market value of mutual funds Market value of Certificate of deposits NOTES: 1.
3 26,524 25 3,277 299
3 18,647 13 517 –
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.
2.
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.
3.
Represents 60 (previous year: 60) ordinary shares of Rand 1 each of Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa amounting to Rs. 3 thousands; previous year: Rs. 3 thousands (rounded off in millions in the Schedule above).
4.
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 Schedule above).
5.
Represents 20,000 (previous year: 20,000) equity shares of Rs. 10/- each of Shivalik Solid Waste Management Limited, India amounting to Rs. 200 thousands (previous year: Rs. 200 thousands) (rounded off in millions in the Schedule above).
6.
During the current year, 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 June 2009, Also refer Note 22 of Schedule 20.
7.
During the current year, a provision of Rs. 713 has been reversed since there is a rise in the value of investment in Aurigene Discovery Technologies Limited, India and an amount of Rs. 321 has been provided for decline other than temporary, in the value of investment in Reddy Pharma Iberia, Spain. Also, a provision of Rs. 245 towards decline in the value of the investment has been reversed in giving effect to the scheme of amalgamation of Perlecan Pharma Private Limited (Refer Note 22 of Schedule 20).
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 7: INVENTORIES
Stores, spares and packing materials Raw materials Work-in-process Finished goods
687 3,194 3,508 1,585 8,974
AS AT 31 MARCH 2010
646 2,785 2,599 1,321 7,351
AS AT 31 MARCH 2009
SCHEDULE 8: SUNDRY DEBTORS
(Unsecured) Debts outstanding for a period exceeding six months Considered good Considered doubtful Other debts Considered good Less: Provision for doubtful debts 10,156 10,834 (229) 10,605 12,386 14,381 (184) 14,197 449 229 1,811 184
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 9: CASH AND BANK BALANCES
Cash in hand Balances with scheduled banks In current accounts In EEFC current accounts In deposit accounts In unclaimed dividend accounts In unclaimed fractional share pay order accounts Balances with non-scheduled banks outside India In current accounts NOTES: 1. 2.
8 235 4 3,201 17 1
15 300 203 3,001 14 1
214 3,680
310 3,844
Deposits with scheduled and non-scheduled banks include Rs. 1 (previous year: Rs. 1) representing margin money for letters of credit and bank guarantees. Closing balances and maximum amounts outstanding at any time during the year on current accounts with banks outside India:
MAXIMUM BALANCE 31 MARCH 2010 31 MARCH 2009 BALANCE AS AT 31 MARCH 2010 31 MARCH 2009
Citibank, New York [Note (i)] Credit Bank of Moscow, Moscow [Note (i)] ABN Amro Bank, Romania Royal Bank of Scotland, Almaty Prior Bank, Belarus Societe Generale Yugoslav Bank Ad, Yugoslavia [Note (i)] Exim Bank HCMC, Vietnam Standard Chartered Grindlays Bank, Sri Lanka Citibank, Malaysia Citibank NA, China Ukreximbank, Ukraine National Bank of Dubai, UAE Standard Chartered Bank, Ghana [Note (i)] Union Bank of Switzerland, Basel National Bank for Foreign Economic Activity, Uzbekistan PJSCB “ALP JAMOL BANK”, Uzbekistan Myanma Investment And Commercial Bank, Yangoon Banca Canarias De, Venezuela Union Bank, Philippines Citibank, Moscow Bank of Shanghai, China [Note (i)] Banco Canarias, Venezuela Banco de Venezuela Banco Mercantil, Venezuela Banco Santander, Venezuela Mercantil Commerce Bank, Venezuela
NOTE: (i) Amounts in Rs. Thousands (rounded off in millions in the Schedule above)
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 9: CASH AND BANK BALANCES (CONTINUED)
MAXIMUM BALANCE* 31 MARCH 2010 31 MARCH 2009 BALANCE AS AT* 31 MARCH 2010 31 MARCH 2009
Citibank, New York Credit Bank of Moscow, Moscow Societe Generale Yugoslav Bank Ad, Yugoslavia Standard Chartered Bank, Ghana Bank of Shanghai, China * Amount in Rs. Thousands
382,240 54,000 – – 170
325,000 60,000 44 4 184
26 463 – – 16 505
129,000 36,000 – – 170 165,170
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
SCHEDULE 10: LOANS AND ADVANCES
(Unsecured) Considered good Loans and advances to wholly owned subsidiary companies, step down subsidiary companies, joint venture and associates Advances to material suppliers Staff loans and advances Interest accrued but not due Other advances recoverable in cash or in kind or for value to be received Advance tax (net of provision for income taxes Rs. 7,504, previous year: Rs. 5,321) MAT credit entitlement (net of provision for income tax Rs. Nil, previous year: Rs. 25) Balances with customs, central excise etc. Deposits Considered doubtful Advance towards investment Loans and advances to a wholly owned subsidiary companies, step down subsidiaries, joint venture and associates Other advances recoverable in cash or in kind or for value to be received Less: Provision for doubtful loans and advances Staff loans and advances include: Loans to an officer of the Company Rs. Nil (previous year: Rs. Nil) [Maximum amount outstanding at anytime during the year Rs. Nil (previous year: Rs. Nil)] 8 763 58 13,830 (829) 13,001 8 827 75 13,995 (910) 13,085 8,269 515 38 18 2,130 81 – 1,698 252 9,574 329 66 6 1,538 113 – 1,333 126
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 10: LOANS AND ADVANCES (CONTINUED)
Loans and advances to wholly owned subsidiary companies, step down subsidiary companies, joint ventures and associates comprise:
BALANCE AS AT MAXIMUM AMOUNT OUTSTANDING AT ANY TIME DURING THE YEAR ENDED 31 MARCH 2010 31 MARCH 2009
31 MARCH 2010
31 MARCH 2009
Aurigene Discovery Technologies Limited, India DRL Investments Limited, India Cheminor Investments Limited, India (Note 3) Reddy Antilles N.V., Netherlands Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil Dr. Reddy’s Bio-sciences Limited, India Dr. Reddy’s Laboratories Inc., USA Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa APR LLC, USA Lacock Holdings Limited, Cyprus (Refer Note 24, Schedule 20) Industrias Quimicas Falcon de Mexico, SA de C.V., Mexico Dr. Reddy’s Laboratories SA, Switzerland (Note 4) Dr. Reddy’s Laboratories (Australia) Pty Limited, Australia Macred India Private Limited, India Dr. Reddy’s Laboratories ILAC TICARET Limited SIRKETI, Turkey (Note 3) Perlecan Pharma Private Limited, India Dr. Reddy’s New Zealand Limited, New Zealand (formerly Affordable Health Care Limited) Dr. Reddy’s Laboratories (EU) Limited, UK (Note 3) Chirotech Technologies Limited, UK Dr. Reddy’s Laboratories (UK) Limited, UK
NOTES: 1. The loans and advances in the nature of loans to the subsidiaries and step down subsidiaries are repayable on demand except for Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil, Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa and Lacock Holdings Limited, Cyprus, where the repayment schedule is beyond seven years. In respect of amounts receivable from Industrias Quimicas Falcon de Mexico, SA de C.V., Mexico and Lacock Holdings Limited, Cyprus settlement is neither planned nor likely to occur in foreseeable future. All these loans are interest free loans except for the following loans:
LOAN TO INTEREST RATE PER ANNUM
Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa Lacock Holdings Limited, Cyprus Industrias Quimicas Falcon de Mexico, S.A.de.C.V. (Falcon) Dr. Reddy’s Laboratories (Australia) Pty. Limited, Australia Dr. Reddy’s Laboratories SA, Switzerland Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil 2.
6% 4.75% – 5% MXN TIIE 28d plus 1.5% 9% LIBOR plus 200 bps 6%
There are no investments made by the loanees in the Company and in any of its subsidiaries except in respect of Aurigene Discovery Technologies Limited, Dr. Reddy’s Laboratories Inc., Reddy Antilles N.V., Reddy Holding GmbH, Dr. Reddy’s Laboratories SA, Switzerland, Dr. Reddy’s Laboratories (EU) Limited and Lacock Holdings Limited which have made investments in their wholly owned subsidiaries or subsidiaries.
3.
Amounts in Rs. thousands (rounded of in millions in the Schedule above).
MAXIMUM AMOUNT OUTSTANDING AT ANY TIME DURING THE YEAR ENDED 31 MARCH 2010 31 MARCH 2009
BALANCE AS AT
31 MARCH 2010
31 MARCH 2009
Cheminor Investments Limited, India Dr. Reddy’s Laboratories ILAC TICARET Limited SIRKETI, Turkey Dr. Reddy’s Laboratories (EU) Limited, UK 4.
7 – 15,733 15,740
7 112 16 135
7 – 15,733
7 112 16
Includes advance towards share application money pending allotment Rs. Nil (previous year: Rs. 2,948)
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Schedules to the Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 11: CURRENT LIABILITIES
Sundry creditors Due to medium and small enterprises (Note 1-2) Others (Note 3) Payable to subsidiary companies, step down subsidiaries, joint ventures and associates Interest accrued but not due on loan Unclaimed dividends * Trade deposits Other Liabilities 166 11,777 2,385 – 17 50 80 14,475 * Investor Protection and Education Fund is being credited by the amounts of unclaimed dividends after seven years from the due date. NOTES: 1. The principal amount paid and that remaining unpaid as at 31 March 2010 in respect of enterprises covered under the “Micro, Small and Medium Enterprises Development Act, 2006” (MSMDA) are Rs. 2,960 (previous year: Rs. 1,187) and Rs. 154 (previous year: Rs. 45) respectively. The interest amount computed based on the provisions under Section 16 of the MSMDA Rs. 12 (previous year: Rs. 5) is remaining unpaid as of 31 March 2010. The interest that remained unpaid as at 31 March 2009 was paid during the year. 2. The list of undertakings covered under MSMDA were determined by the Company on the basis of information available with the Company and have been relied upon by the auditors. 3. Sundry creditors others, includes certain obligations under research and development arrangements, refer Note 21 of Schedule 20. 50 7,750 2,577 10 14 37 64 10,502
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
SCHEDULE 12: PROVISIONS
Proposed dividend Tax on proposed dividend Provision for Gratuity (Refer Note 19, Schedule 20) Compensated absences Long service award benefits (Refer Note 19, Schedule 20)
1,900 316 3 146 53 2,418
1,053 178 64 40 – 1,335
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Schedules to the Profit and Loss Account
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 13: OTHER INCOME
Interest income On fixed deposits (gross, tax deducted at source: Rs. 24; previous year: Rs. 43) On loans to subsidiaries and joint venture On non-trade investments (gross, tax deducted at source: Rs. Nil; previous year: Rs. 1) On others Dividend from mutual fund units Sale of spent chemicals Profit on sale of fixed assets, net Profit on sale of investments Royalty income from subsidiary Reversal of provision for decline in the value of long-term investments (Refer Note 7 of Schedule 6) Foreign exchange gain, net Miscellaneous income 188 351 – 41 48 209 – – 10 713 340 224 2,124
FOR THE YEAR ENDED 31 MARCH 2010
164 320 4 49 53 211 13 87 6 – – 96 1,003
FOR THE YEAR ENDED 31 MARCH 2009
Raw materials consumed Stores, chemicals, spares and packing material consumed Purchase of traded goods
NOTES: 1. Raw materials consumed include Rs. 1,077 (previous year: Rs. 486) being stocks written-off / written-down, Rs. 170 (previous year: Rs. 191) being cost of samples issued and is net of Rs. 2,596 (previous year: Rs. 2,166) being sale of raw materials. 2. Raw material consumption is net of DEPB credit availed amounting to Rs. 166 (previous year: Rs. 534).
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Schedules to the Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 15: PERSONNEL COSTS
Salaries, wages and bonus Contribution to provident and other funds Workmen and staff welfare expenses Amortization of deferred stock compensation cost
4,156 234 517 193 5,100
FOR THE YEAR ENDED 31 MARCH 2010
3,243 250 443 197 4,133
FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 16: OPERATING AND OTHER EXPENSES
Power and fuel Repairs and maintenance Buildings Plant and machinery Others Rent Rates and taxes Insurance Travelling and conveyance Communication Advertisements Commission on sales Carraige outwards Other selling expenses Printing and stationery Donations Legal and professional charges Bad debts written-off (is net of adjustment against provision for doubtful debts of Rs. 34; previous year: Rs. 21) Provision for doubtful debt, net Advance written off (is net of adjustment against provision for doubtful advances Rs. Nil; previous year: Rs. 7) Provision for doubtful advances, net Foreign exchange loss, net Directors’ sitting fees (Rs. 339 thousands; previous year: Rs. 250 thousands, rounded off in millions) Directors’ remuneration Auditors’ remuneration Bank charges Loss on sale of fixed assets, net Sundry expenses
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 17: RESEARCH AND DEVELOPMENT EXPENSES
Personnel costs Clinical trial expenses Consumables / spares Legal and professional charges Power and fuel Other expenses
1,088 615 1,083 81 91 685 3,643
FOR THE YEAR ENDED 31 MARCH 2010
1,167 860 839 73 112 796 3,847
FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 18: FINANCE CHARGES
Interest on packing credit loan Other finance charges
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS
1. a)
SIGNIFICANT A CCOUNTING POLICIES Basis of preparation The financial statements of Dr. Reddy’s Laboratories Limited (“DRL” or “the Company”) have been prepared and presented in accordance with Indian Generally Accepted Accounting Principles (GAAP) under the historical cost convention on the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956, other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India. The financial statements are rounded off to the nearest million.
b)
Use of estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements and reported amounts of revenues and expenses for the year. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in the current and future periods.
c)
Fixed assets and depreciation Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation. The cost of fixed assets includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets not ready for their intended use before such date are disclosed under capital work-in-progress. Depreciation on fixed assets is provided using the straight-line method at the rates specified in Schedule XIV to the Companies Act, 1956 or based on the useful life of the assets as estimated by Management, whichever is higher. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed. Individual assets costing less than Rs. 5,000/- are depreciated in full in the year of acquisition. Assets acquired on finance leases are depreciated over the period of the lease agreement or the useful life whichever is shorter. The Management’s estimates of the useful lives for various categories of fixed assets are given below:
YEARS
Buildings – Factory and administrative buildings – Ancillary structures Plant and machinery Electrical equipment Laboratory equipment Furniture, fixtures and office equipment (other than computer equipment) Computer equipment Vehicles Library Leasehold vehicles d) Intangible assets and amortization Intangible assets are recorded at the consideration paid for acquisition. Intangible assets are amortised over their estimated useful lives on a straight-line basis, commencing from the date the asset is available to the Company for its use. The management estimates the useful lives for the various intangible assets as follows:
YEARS
20 to 30 3 to 10 3 to 15 5 to 15 5 to 15 4 to 8 3 4 to 5 2 3
Long-term investments are carried at cost less any other-than-temporary diminution in value, determined separately for each individual investment. The reduction in the carrying amount is reversed when there is a rise in the value of the investment or if the reasons for the reduction no longer exist. Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investment.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
1. f)
SIGNIFICANT A CCOUNTING POLICIES (CONT INUED) Inventories Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The methods of determining cost of various categories of inventories are as follows:
Raw materials Stores and spares and packing materials Work-in-process and finished goods (manufactured) Finished goods (traded) g) Research and development
First-in-first-out (FIFO) Weighted average method FIFO and including an appropriate share of production overheads Specific identification method
Revenue expenditure on research and development is expensed as incurred. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Company. h) Employee benefits Contributions payable to an approved gratuity fund (a defined benefit plan), determined by an independent actuary at the balance sheet date, are charged to the Profit and Loss Account. Provision for compensated absences is made on the basis of actuarial valuation at the balance sheet date, carried out by an independent actuary. Contributions payable to the recognised provident fund and approved superannuation scheme, which are defined contribution schemes, are charged to the Profit and Loss Account. All actuarial gains and losses arising during the year are recognized in the Profit and Loss Account of the year. i) Foreign currency transactions and balances Foreign currency transactions are recorded using the exchange rates prevailing on the dates of the respective transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the Profit and Loss Account. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date, not covered by forward exchange contracts, are translated at yearend rates. The resultant exchange differences are recognised in the Profit and Loss Account. Non-monetary assets are recorded at the rates prevailing on the date of the transaction. Income and expenditure items at representative offices are translated at the respective monthly average rates. Monetary assets at representative offices at the balance sheet date are translated using the year-end rates. Non-monetary assets are recorded at the rates prevailing on the date of the transaction. Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date. The premium or discount on all such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognised as income or expense for the period. In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date, the exchange difference is calculated and recorded in accordance with AS-11 (revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Profit and Loss Account in the reporting period in which the exchange rates change. Exchange differences arising on a monetary item that, in substance, forms part of an enterprise’s net investment in a non-integral foreign operation has been accumulated in a foreign currency translation reserve in the enterprise’s financial statements until the disposal of the net investment, at which time they should be recognised as income or as expense. j) Derivative instruments and hedge accounting The Company uses foreign exchange forward contracts and options to hedge its movements in foreign exchange rates and does not use the foreign exchange forward contracts and options for trading or speculative purposes. Pursuant to ICAI Announcement “Accounting for Derivatives” on the early adoption of Accounting Standard AS-30 “Financial Instruments: Recognition and Measurement”, the Company has adopted the Standard, 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 Company classifies foreign currency options in respect of the forecasted transactions at the inception of each contract meeting the hedging criterion, as cash flow hedges. Changes in the fair value of options classified as cash flow hedges are recognised directly in shareholders’ funds (under the head “Hedging Reserves”) and are reclassified into the Profit and Loss Account upon the occurrence of the hedged transaction. The gains / losses on options designated as cash flow hedges are included along with the underlying hedged forecasted transactions. The exchange differences relating to options not designated as cash flow hedges are recognised in the Profit and Loss Account as they arise. Further, the changes in fair value relating to the ineffective portion of the cash flow hedges are recognised in the Profit and Loss Account as they arise.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
1. k)
SIGNIFICANT A CCOUNTING POLICIES (CONT INUED) Revenue recognition Revenue from sale of goods is recognised when significant risks and rewards in respect of ownership of products are transferred to customers. Revenue from domestic sales of generic products is recognized upon delivery of products to stockists by clearing and forwarding agents of the Company. Revenue from domestic sales of active pharmaceutical ingredients and intermediates is recognized on delivery of products to customers, from the factories of the Company. Revenue from export sales is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which is based upon the terms of the applicable contract. Revenue from product sales is stated exclusive of returns, sales tax and applicable trade discounts and allowances. Service income is recognised as per the terms of contracts with customers when the related services are performed, or the agreed milestones are achieved. Dividend income is recognised when the unconditional right to receive the income is established. Income from interest on deposits, loans and interest bearing securities is recognised on the time proportionate method. Export entitlements are recognised as income when the right to receive credit as per the terms of the scheme is established in respect of the exports made and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds. The Company enters into certain dossier sales, licensing and supply arrangements with certain third parties. These arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognized in the period in which the Company completes all its performance obligations.
l)
Income-tax expense Income tax expense comprises current tax and deferred tax charge or credit. Current tax The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company. Deferred tax Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carry forward of losses, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed at each balance sheet date and is written-down or written-up to reflect the amount that is reasonably / virtually certain (as the case may be) to be realised. The break-up of the major components of the deferred tax assets and liabilities as at balance sheet date has been arrived at after setting off deferred tax assets and liabilities where the Company has a legally enforceable right to set-off assets against liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws.
m)
Earnings per share The basic earnings per share (“EPS”) is computed by dividing the net profit after tax for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the period, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares).
n)
Employee stock option schemes In accordance with the Securities and Exchange Board of India guidelines, the excess of the market price of shares, at the date of grant of options under the Employee stock option schemes, over the exercise price is treated as employee compensation and amortised over the vesting period.
o)
Provisions and contingent liabilities The Company creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
p)
Impairment of assets The Company assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Profit and Loss Account. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
1. q)
SIGNIFICANT A CCOUNTING POLICIES (CONT INUED) Leases Assets taken on lease where the company acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the present value of minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected as secured loans. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense as and when the payments are made over the lease term.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
2.
COMMITME N TS AND CONTINGENT LIABIL IT IES
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
i)
Commitments / contingent liabilities: (a) (b) (c) (d) Guarantees issued by banks Guarantees issued by the Company on behalf of subsidiaries, associates and joint venture Letters of credit outstanding Contingent consideration payable in respect of subsidiaries acquired 94 16,527 20 12 90 17,749 329 12
ii)
Claims against the Company not acknowledged as debts in respect of: (a) (b) (c) (d) (e) (f) Income tax matters, pending decisions on various appeals made by the Company and by the Department Excise matters, under dispute Custom matters, under dispute Sales tax matters, under dispute Other matters, under dispute 521 1 97 151 5 541 1 36 28 –
Demand for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 which is being contested by the Company in respect of few of its products: 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) iv) v)
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Commitment under Export Promotion Capital Goods (EPCG) scheme
2,859 3,835
993 –
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 such matters pending that the Company expects to be material in relation to its business.
3.
DEFERRED TA XATION Deferred tax liability, net included in the balance sheet comprises the following:
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Deferred tax assets Sundry debtors Current liabilities and Provisions Current assets, loans and advances Deferred tax liability Sundry debtors Losses on cash flow hedging Excess of depreciation allowable under Income tax law over depreciation provided in accounts (56) – (907) (963) Deferred tax liability, net (750) – (80) (1,051) (1131) (904) – 190 23 213 61 56 110 227
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
4.
EARNINGS PE R S HARE (EPS) The computation of EPS is set out below:
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Earnings Net profit for the year Shares Number of shares at the beginning of the year Add: Equity shares issued on exercise of vested stock options Total number of equity shares outstanding at the end of the year Weighted average number of equity shares outstanding during the year – Basic Add: Weighted average number of equity shares arising out of outstanding stock options (net of the stock options forfeited) that have dilutive effect on the EPS Weighted average number of equity shares outstanding during the year – Diluted Earnings per share of par value Rs. 5 – Basic (Rs.) Earnings per share of par value Rs. 5 – Diluted (Rs.) 168,468,777 376,608 168,845,385 168,706,977 1,152,320 169,859,297 50.15 49.81 168,172,746 296,031 168,468,777 168,349,139 1,046,791 169,395,930 33.32 33.11 8,461 5,609
5. a.
RELATED PARTY DISCLOSURES 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;
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5.
RELATED PA RTY DISCLOSURES (CONTINUED) 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 Joint venture 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 % equity stake. 100% Holding in class ‘B’ equity shares
Enterprises where principal shareholders have control or significant influence (“Significant interest entities”) Dr. Reddy’s Research Foundation (“Research Foundation”) Dr. Reddy’s Holdings Limited Institute of Life Sciences Others Diana Hotels Limited Ms. K Samrajyam Ms. G Anuradha Ms. Deepti Reddy Dr. Reddy’s Heritage Foundation Dr. Reddy’s Foundation for Human and Social development S R Enterprises K K Enterprises A. R. Life Sciences Private Limited Enterprise owned by relative of a director Spouse of Chairman Spouse of Vice Chairman and Chief Executive Officer Spouse of Managing Director and Chief Operating Officer Enterprise in which the Chairman is a director Enterprise where principal shareholders are trustees Enterprise in which relative of a director has significant influence Enterprise in which relative of a director has significant influence Enterprise in which relative of a director has significant influence Enterprise over which the principal shareholders (“Research Foundation”) have significant influence Enterprise owned by principal shareholders Enterprise over which principal shareholders have significant influence
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5.
RELATED PARTY DISCLOSURES (CONTINUED)
Key Management Personnel represented on the Board Dr. K Anji Reddy Mr. G V Prasad Mr. K Satish Reddy 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) Chairman Vice Chairman and Chief Executive Officer Managing Director and Chief Operating Officer
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5. c.
RELATED PA RTY DISCLOSURES (CONTINUED) Particulars of related party transactions
The following is a summary of significant related party transactions:
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
i. Sales to: Subsidiaries including step down subsidiaries and joint ventures: Dr. Reddy’s Laboratories Inc., USA OOO Dr. Reddy’s Laboratories Limited, Russia Dr. Reddy’s Laboratories (UK) Limited, UK Others Total Others: A. R. Life Sciences Private Limited ii. Interest income from subsidiary including step down subsidiaries: Lacock Holdings Limited, Cyprus Industrias Quimicas Falcon de Mexico, S.A.de.C.V., Mexico Others Total iii. Royalty income from subsidiary: Dr. Reddy’s Laboratories (Proprietary) Limited, South Africa iv. Service Income: Dr. Reddy’s Laboratories Inc., USA Dr. Reddy’s Laboratories (UK) Limited, UK Others (Rs. Nil; previous year: Rs. 134 thousands, rounded off in millions) Total v. Licence fees, net: Dr. Reddy’s Laboratories Inc., USA Others Total vi. Purchases from: Subsidiaries: Dr. Reddy’s Laboratories SA, Switzerland Others A. R. Life Sciences Private Limited Others Total vii. Operating expenses paid / reimbursed to Subsidiaries: Industrias Quimicas Falcon de Mexico, S.A.de.C.V., Mexico Dr. Reddy’s Laboratories Inc., USA Dr. Reddy’s Laboratories SA, Switzerland Others Total 3 172 15 19 209 – 181 202 34 417 275 1 276 284 6 290 253 653 649 4 653 1,597 – 1,597 139 6 – 145 165 43 – 208 10 6 155 150 46 351 149 144 27 320 156 135 11,011 3,013 1,131 3,015 18,170 10,205 2957 1,073 1,978 16,213
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5. c.
RELATED PARTY DISCLOSURES (CONTINUED) Particulars of related party transactions
The following is a summary of significant related party transactions:
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
viii. Contributions made to others for social development: Dr. Reddy’s Foundation for Human and Social development Dr. Reddy’s Research Foundation ix. Contribution made to subsidiaries and others for research: Reddy US Therapeutics Inc., USA Others Total x. Hotel expenses paid to: Diana Hotels Limited xi. Rent paid to: Key management personnel: Dr. K Anji Reddy Mr. K Satish Reddy Total Others Ms. G Anuradha Ms. Deepti Reddy Ms. K Samrajyam Total Rent deposit repaid: Dr. K Anji Reddy xii. Executive Directors’ remuneration Directors’ sitting fees (Rs. 339 thousands; previous year: Rs. 250 thousands, rounded off in millions) xiii. Investment in subsidiaries, joint venture and associates during the year: Lacock Holdings Limited, Cyprus Dr. Reddy’s Laboratories SA, Switzerland Perlecan Pharma Private Limited, India (Also refer Note 22 of Schedule 20) Macred India Private Limited, India Dr. Reddy’s ILAC Ticaret Limited, Turkey (Rs. Nil; previous year: Rs. 161 thousands, rounded off in millions) Dr. Reddy’s Laboratories (Australia) Pty. Limited, Australia Aurigene Discovery Technologies Limited, India Dr. Reddy’s Pharma SEZ Limited Total xiv. Sale of assets to subsidiaries: Aurigene Discovery Technologies Limited, India xv. Provision for decline in the value of long-term investments: Perlecan Pharma Private Limited, India Reddy Pharma Iberia, Spain – 321 112 – 147 – 2,524 2,948 (927) – – 38 235 1 4,819 1,325 – 758 1 – – – – 2,084 1 236 – – 170 – 11 2 1 14 10 2 1 13 – 13 13 1 12 13 13 13 – 4 4 195 37 232 97 1 104 –
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5. c.
RELATED PA RTY DISCLOSURES (CONTINUED) Particulars of related party transactions
The following is a summary of significant related party transactions:
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
xvi. Reversal of provision for decline in the value of long-term investments: Aurigene Discovery Technologies Limited, India Perlecan Pharma Private Limited, India (Refer Note 22 of Schedule 20) xvii. Provision for loans given to subsidiary and associate: Dr. Reddy’s Farmaceutica Do Brasil Ltda., Brazil xviii. Reversal of provision for loans given to subsidiary and associate: Aurigene Discovery Technologies Limited, India xix. Bad debts written off: OOO Dr. Reddy’s Laboratories Limited, Russia xx. Advance made to Dr. Reddy’s Holdings Limited towards acquisition of land xxi. Guarantee given / (released) on behalf of a subsidiary / joint venture: Dr. Reddy’s Laboratories SA, Switzerland Dr. Reddy’s Laboratories Inc., USA Lacock Holdings Limited, Cyprus Aurigene Discovery Technologies Limited, India Dr. Reddy’s Laboratories SA, Switzerland Others Total xxii. Reimbursement of operating and other expenses by an subsidiary / associate: Dr. Reddy’s Laboratories SA, Switzerland Others Total xxiii. Loan from Perlecan Pharma Private Limited, India a) Loan taken and repaid during the year from Dr. Reddy’s Holding Limited, India b) Interest on above 1,331 48 1,379 – – – 655 – 655 384 360 2 782 (59) (1,663) (224) – (58) (1,222) – (112) 953 (5) 212 2 1,050 – 367 55 400 64 – – 466 713 245 – –
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
5. d.
RELATED PARTY DISCLOSURES (CONTINUED) The Company has the following amounts dues from / to related parties:
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
i. Due from related parties: Subsidiaries including step down subsidiaries, associates and joint ventures (included in sundry debtors): betapharm Arzneimittel GmbH, Germany Dr. Reddy’s Laboratories SA, Switzerland Dr. Reddy’s Laboratories (UK) Limited, UK Dr. Reddy’s Laboratories Inc., USA OOO Dr. Reddy’s Laboratories Limited, Russia Others Total Significant interest entities: Dr. Reddy’s Holdings Limited, India (included in capital work-in-progress) Others (included in sundry debtors): A. R. Life Sciences Private Limited Total ii. Provision outstanding at the end of the year towards dues from subsidiaries including step down subsidiaries, associates and joint ventures (included in sundry debtors): OOO Dr. Reddy’s Laboratories Limited, Russia Reddy Cheminor S.A., France Total iii. Due to related parties (included in current liabilities): Subsidiaries including step down subsidiaries, associates and joint ventures: Dr. Reddy’s Laboratories SA, Switzerland Dr. Reddy’s Laboratories Inc., USA Promius Pharma LLC, USA Reddy US Therapeutics Inc., USA Others Total Significant interest entities: Dr. Reddy’s Research Foundation Others: A. R. Life Sciences Private Limited iv. Due to related parties (included in unsecured loans): Perlecan Pharma Private Limited, India e. f. Details of remuneration paid to the whole-time and non-whole-time directors are given in Note 6, Schedule 20. Equity held in subsidiaries, associates and a joint venture have been disclosed under “Investment”, (Schedule 6). Loans and advances to subsidiaries, joint venture and an associate have been disclosed under “Loans and advances”, (Schedule 10). – 384 20 68 21 20 1,907 195 135 23 104 2,364 1,464 941 68 54 50 2,577 7 – 7 7 – 7 – – 43 43 1,447 1,080 438 1,039 479 1,778 1,267 577 5,578 415 1,033 508 5,402 1,507 332 9,197
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P S TA N D A L O N E F I N A N C I A L S |
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
6.
PARTICULA RS O F MANAGERIAL REMUNERAT ION
The remuneration paid to managerial personnel during the year:
CHAIRMAN PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 2009 VICE-CHAIRMAN & CEO FOR THE YEAR ENDED 31 MARCH 2010 2009 MANAGING DIRECTOR & COO FOR THE YEAR ENDED 31 MARCH 2010 2009 NON-EXECUTIVE / INDEPENDENT DIRECTORS FOR THE YEAR ENDED 31 MARCH 2010 2009
Salaries and allowances Commission Other perquisites
5 100 1 106
5 75 – 80
4 60 1 65
4 40 1 45
4 60 1 65
4 40 1 45
– 21 – 21
– 19 – 19
The executive directors are covered under the Company’s gratuity policy along with the other employees of the Company. Proportionate amount of gratuity is not included in the aforementioned disclosure.
Computation of net profit and directors’ commission under section 309(5) of the Companies Act, 1956 and commission payable to directors:
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Profit after taxation as per profit and loss account Add: Income tax expense Provision for wealth tax Managerial remuneration to directors Director sitting fee (Rs. 339 thousands; previous year: Rs. 250 thousands) Depreciation as per books of account Loss on sale of fixed assets, net Less: Depreciation as envisaged under Section 350 of the Companies Act, 1956 (Refer Note 1 below) Profit on sale of fixed assets, net Profit for the purpose of calculating directors’ commission as per the provisions of the Companies Act, 1956 Commission payable to whole-time directors @ 1.95% (previous year: @ 2.08%) Commission payable to non-whole-time directors: Maximum allowed as per the Companies Act, 1956 (1%) Maximum approved by the shareholders (0.5 %) Commission approved by the Board NOTES: 1.
The Company depreciates fixed assets based on estimated useful lives that are lower than those implicit in Schedule XIV to the Companies Act, 1956. Accordingly, the rates of depreciation used by the Company are higher than the minimum rates prescribed by Schedule XIV.
2.
Stock compensation cost amounting to Rs. 11 (previous year: Rs. 10) pertaining to stock options issued to non-whole time directors have not been considered as remuneration in the table above. The stock options were issued pursuant to shareholders’ resolutions on various dates.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
7.
AUDITOR’S R E MUNERATION
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
a) Audit fees b) Other charges Taxation matters Other matters c) Reimbursement of out of pocket expenses
8 4 3 1 16
7 – 1 – 8
8.
INTEREST IN J O INT VENTURE The Company has a 51.33 percent interest in Reddy Kunshan, a joint venture in China. Reddy Kunshan is engaged in manufacturing and marketing of active pharmaceutical ingredients and intermediates and formulations in China. The contractual arrangement between shareholders of Reddy Kunshan indicates joint control as the minority shareholders, along with the Company, have significant participating rights such that they jointly control the operations of Reddy Kunshan. The aggregate amounts of the assets, liabilities, income and expenses related to the Company’s share in Reddy Kunshan as at and for the year ended 31 March 2010 are given below:
PARTICULARS BALANCE SHEET
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Secured loan Foreign currency translation reserve Fixed assets, net Deferred tax assets, net Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances Current liabilities Current liabilities Net current assets Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)
22 – 82 11 32 118 10 29 97 92 2
78 3 74 9 35 106 33 13 115 72 2
PARTICULARS
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Income statement Income Sales Other income (previous year: Rs. 341 thousands, rounded off in millions) Expenditure Material costs Personnel costs Operating and other expenses Research and development expenses Finance charges Depreciation Profit / (Loss) before taxation Provision for taxation – Deferred tax (expense) / benefit Profit / (Loss) after taxation 13 73 (5) 17 130 83 135 5 3 2 60 107 60 113 4 5 3 22 405 13 314 –
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P S TA N D A L O N E F I N A N C I A L S |
125
Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
9.
EMPLOYEE S TO CK 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. The date of grant, number of options granted, exercise price fixed by the Compensation Committee for respective options and the market price of the shares of the Company on the date of grant is given below:
MARKET PRICE (RUPEES) (AS PER SEBI GUIDELINES)
DATE OF GRANT
NUMBER OF OPTIONS GRANTED
EXERCISE PRICE (RUPEES)
18 May 2009
359,840
5.00
612.95
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.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
9.
EMPLOYEE S TO CK OPTION SCHEME (CONTINU ED) Stock option activity under the DRL 2002 Plan was as follows: Stock option activity under the DRL 2002 Plan for the two categories of options was as follows:
CATEGORY A – FAIR MARKET VALUE OPTIONS SHARES ARISING OUT OF OPTIONS
YEAR ENDED 31 MARCH 2010 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Grants during the year Expired / forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY A – FAIR MARKET VALUE OPTIONS
YEAR ENDED 31 MARCH 2009 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Grants during the year Expired / forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY B – PAR VALUE OPTIONS
YEAR ENDED 31 MARCH 2010 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY B – PAR VALUE OPTIONS
778,486 359,840 (83,608) (269,711) 785,007 79,647
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
72 91 – – 72 41
YEAR ENDED 31 MARCH 2009 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
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.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P S TA N D A L O N E F I N A N C I A L S |
127
Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
9.
EMPLOYEE S TO CK OPTION SCHEME (CONT INUED) 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. The date of grant, number of options granted, exercise price fixed by the Committee for respective options and the market price of the shares of the Company on the date of grant is given below:
MARKET PRICE (RUPEES) (AS PER SEBI GUIDELINES)
DATE OF GRANT
NUMBER OF OPTIONS GRANTED
EXERCISE PRICE (RUPEES)
18 May 2009 Stock option activity under the DRL 2007 Plan was as follows:
CATEGORY B – PAR VALUE OPTIONS SHARES ARISING OUT OF OPTIONS
74,600
5.00
612.95
YEAR ENDED 31 MARCH 2010 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY B – PAR VALUE OPTIONS
156,577 74,600 (44,630) (74,157) 112,390 2,250
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
71 91 – – 74 47
YEAR ENDED 31 MARCH 2009 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
182,778 74,400 (28,175) (72,426) 156,577 24,012
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
73 89 – – 71 52
The Company has followed intrinsic method of accounting based on which a compensation expense of Rs. 193 (previous year: Rs. 197) has been recognized in the Profit and Loss Account (Refer Schedule 15).
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
10. U TILISATION O F FUNDS RAISED ON ADS ISSU E 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. The utilisation of the funds raised on ADS issue is as follows:
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Working capital requirements Advance towards investment in: Dr. Reddy’s Laboratories SA, Switzerland Total utilization during the year NOTE: Foreign exchange loss has not been considered above. The information required as per clause 4C and 4D and notes thereon of Part II of Schedule VI to the Companies Act, 1956
Nil Nil Nil
3,060 2,948 6,008
11. CAPACITY AN D P RODUCTION Installed capacity and production
AS AT 31 MARCH 2010 CLASS OF GOODS UNIT INSTALLED CAPACITY (ii) ACTUAL PRODUCTION AS AT 31 MARCH 2009 INSTALLED CAPACITY (ii) ACTUAL PRODUCTION
Formulations (iii) Active pharmaceutical ingredients and intermediates (API) (iv) Generics Biotechnology** * On single shift basis
Million units Tonnes Million Units Grams
5,581* 3,831 10,014 –
4,282 3,267 6,578 6,951
3,440* 3,912 9,200 –
4,298 3,327 4,770 4,787
** Exempted from the licensing provisions of industries (Development and Regulation) Act, 1951 in terms of notification No. S.O. 477(E) dated 25 July 1991. Installed capacities are variable and subject to changes in product mix, and utilisation of manufacturing facilities given the nature of production NOTES: (i) In terms of press Note no 4 (1994 series) dated October 25, 1994 issued by the department of Industrial Development, Ministry of Industry, Government of India and Notification no. S.O. 137 (E) dated March 01, 1999 issued by the Department of industrial Policy and Promotion, Ministry of Industry, Government of India, Industrial licencing has been abolished in respect of bulk drugs and formulations. Hence there are no registered / Licenced capacities for these bulk drugs and formulations. (ii) (iii) (iv) Installed capacities are as certified by Management and have not been verified by the auditors as this is a technical matter. Actual production of Formulations includes 292 million units (previous year: 326 million units) produced on loan licensing basis from outside parties. Actual production of API includes 822 tonnes (previous year: 722 tonnes) produced on loan licensing basis from outside parties.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P S TA N D A L O N E F I N A N C I A L S |
129
Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
12. PARTICULARS O F PRODUCTION, SALE AND STOCK
OPENING STOCK CLASS OF GOODS QUANTITY VALUE PRODUCTION QUANTITY PURCHASES TRADED GOODS (UNITS) VALUE SALES ** QUANTITY VALUE CLOSING STOCK QUANTITY VALUE
Formulations (Million units) Active pharmaceutical ingredients and intermediates (Tonnes) Generics (Million units) Biotechnology (Grams) Custom Pharmaceutical Services (Kgs) Total Less: Inter segmental Sales Sales (Gross of excise duty) as per profit and loss account Previous year
* Includes captive consumption of active pharmaceutical ingredients 1,215 tonnes (previous year: 722 tonnes) ** Sales are net of samples, rejections and damages but include inter segmental sales. Figures in brackets represent the numbers for the previous year.
13. RAW MATE RIA LS CONSUMED DURING TH E Y EAR
2010 RAW MATERIALS QUANTITY (KGS) VALUE QUANTITY (KGS) VALUE 2009
‘Others’ include no item which in value individually accounts for 10 percent or more of the total value of raw materials consumed.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
14. DETAILS OF IMP ORTED AND INDIGENOUS RAW MATERIALS, SPARE PARTS, CHEMICALS, PACKING MATER IALS AND COMPONENTS CONSUMED
FOR THE YEAR ENDED 31 MARCH 2010 PARTICULARS VALUE % OF TOTAL CONSUMPTION FOR THE YEAR ENDED 31 MARCH 2009 VALUE % OF TOTAL CONSUMPTION
15. CIF VALUE O F IMPORTS
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
Raw materials Capital equipment (including spares and components)
4,864 1,107 5,971
5,538 1,355 6,893
16. EARNINGS IN FO REIGN CURRENCY
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
Exports on FOB basis Interest on deposits with banks Interest on loan to subsidiaries Service income and license fees Royalty income Others
30,138 – 351 1,111 10 4 31,614
28,925 – 320 1,979 6 3 31,233
17. EXPENDITUR E IN FOREIGN CURRENCY
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
Travelling Legal and professional fees Bio-studies expenses Other expenditure
60 666 206 3,311 4,243
100 523 56 4,237 4,916
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
18. HEDGING A N D DERIVATIVES
YEAR ENDED 31 MARCH 2010 CATEGORY CURRENCY CROSS CURRENCY AMOUNT BUY / SELL PURPOSE
Forward Contract
YEAR ENDED 31 MARCH 2009 CATEGORY
The following are the outstanding foreign currency options, which are classified as cash flow hedges and effective as at:
YEAR ENDED 31 MARCH 2010 CURRENCY CROSS CURRENCY NO OF CONTRACTS AMOUNT GAIN / (LOSS)
USD
INR
6
USD 180
Rs. 267
YEAR ENDED 31 MARCH 2009 CURRENCY CROSS CURRENCY NO OF CONTRACTS AMOUNT GAIN / (LOSS)
USD
INR
2
USD 120
Rs. (237)
The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below:
CURRENCY FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
EURO GBP The above exposures represent amounts receivable in foreign currency.
18 8
5 –
19. EMPLOYEE BE N EFIT PLANS The following table set out the status of the gratuity plan as required under AS-15 (Revised) Reconciliation of opening and closing balances of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gain) Liabilities assumed on account of acquisition / (Settled on Divestiture) Benefits paid Closing defined benefit obligation
398 48 29 17 (10) (30) 452
319 41 27 44 – (33) 398
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
19. EMPLOYEE B E N E FIT PLANS (CONTINUED) Change in the Fair value of assets
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening fair value of plan assets Expected return on plan assets Actuarial gains / (losses) Contributions by employer Benefits paid Closing fair value of plan assets Amount recognized in Balance Sheet
PARTICULARS
334 25 26 94 (30) 449
289 21 (7) 64 (33) 334
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Net Liability Amounts in the balance sheet Provision for gratuity Net liability / (asset) Expense recognized in statement of Profit and Loss Account
PARTICULARS
452 (449) 3 3 3
398 (334) 64 64 64
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in year Amount, included in “Employee benefit expense” Actual return on plan assets Asset Information
CATEGORY OF ASSETS
49 29 (26) (9) 43 52
41 27 (21) 51 98 14
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Government of India securities Corporate bonds Insurer managed funds Others Total
2% 1% 96% 1% 100%
3% 1% 95% 1% 100%
The approximate market value of the assets as at 31 March 2010 was Rs. 449 (previous Year: Rs. 334), a breakup of the same is as follows:
CATEGORY OF ASSETS AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Government of India securities Corporate bonds Insurer managed funds Others Total
10 4 433 2 449
12 5 316 1 334
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
19. EMPLOYEE BE N EFIT PLANS (CONTINUED) Summary of Actuarial Assumptions Financial assumptions at the valuation date:
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Discount Rate Expected Rate of Return on Plan Assets Salary Escalation Rate
7.50% p.a 7.50% p.a 8% p.a for next 2 years and 6% p.a thereafter
7.15% p.a 7.50% p.a 8% p.a for next 3 years & 6% p.a thereafter
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. Expected Rate of Return on Plan Assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations. Salary Escalation Rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
The following table set out the status of the long service award benefit plan as required under AS-15 (Revised) Reconciliation of opening and closing balances of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gain) Past service cost Liabilities assumed on account of acquisition Benefits paid Closing defined benefit obligation Amount recognized in Balance Sheet
PARTICULARS
– – – – 53 – – 53
– – – – – – – –
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Net Liability Amounts in the balance sheet Provision for Earned leave Net liability / (asset)
– – 53 53 53 53
– – – – – –
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
19. EMPLOYEE B E N E FIT PLANS (CONTINUED) Expense recognized in statement of Profit and Loss Account
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in year Past service cost Amount, included in “Employee benefit expense” Actual return on plan assets Summary of Actuarial Assumptions Financial assumptions at the valuation date:
– – – – 53 53 –
– – – – – – –
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount Rate Expected Rate of Return on Plan Assets Salary Escalation Rate
7.50% p.a – 8% p.a for first 2 years and 6% p.a thereafter
– – –
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. Expected Rate of Return on Plan Assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations. Salary Escalation Rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
20. DIVIDEND R E MITTANCE 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.
21. RESEARCH A N D 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. 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. 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.
22. SCHEME OF A MALGAMATION OF PERLEC AN 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 immediately 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 financial 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.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
22. SCHEME OF A MA LGAMATION OF PERLECAN PHARMA PRIVATE LIMITED WITH THE COMPANY UNDER SEC TION 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 shall 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:
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
22. SCHEME OF A MALGAMATION OF PERLEC AN PHARMA PRIVATE LIMITED WITH THE COMPANY UNDER SECTION 391 AND 394 OF THE COMPANIES ACT, 1956 ( CONTINUED)
FOR THE YEAR ENDED 31 MARCH PARTICULARS 2006 2007 2008 2009
Income Sales, gross Less: Excise duty on sales Sales, net License fees Service income Other income Expenditure Material costs Conversion charges Excise duty Personnel costs Operating and other expenses Research and development expenses Loss on sale of non-trade investments, net Provision for decline in the value of long-term investments Investments written off Finance charges Depreciation and amortization Profit before taxation Income tax expense Profit after taxation Profit after tax before effect of merger Difference Cumulative difference [(a) + (b) + (c) + (d)] 214 1,113 18,963 2,403 (516) 1,887 2,111
(a)
The effect of the merger on the balances in the profit and loss account as on 31 March 2009 is as follows:
PARTICULARS (EXPENSE) / INCOME
Research and development expenses recognised Operating and other expenses recognised Intra group service income de-recognised Interest income recognised Provision for decline in investment in Perlecan Pharma de-recognised on account of amalgamation Income tax benefit arising on account of the above transactions Total
(693) (32) (179) 130 245 281 (248)
The investment in equity shares of the transferor Company held by shareholders other than DRL (hereinafter referred as ‘Partners’) aggregated to Rs.1,018. During the year, the Company purchased the shares (all except two shares) from the Partners for an aggregate consideration of Rs. 758. The excess of the investment in equity shares by Partners in Perlecan Pharma over the aggregate consideration paid was credited to capital reserve. The details are as follows:
PARTICULARS AMOUNT
Investment in equity shares of Perlecan Pharma by Partners Less: Consideration paid to partners Excess credited to capital reserve
1,018 (758) 260
Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
23. RES EARCH AND DE VELOPME NT FIXED ASSETS (INC LUDED IN SCHEDULE 5)
GROSS BLOCK DEPRECIATION NET BLOCK
DESCRIPTION
AS AT 1 APRIL 2009 ADDITIONS DELETIONS FOR THE YEAR DELETIONS
24. Investments include an equity investment of Rs. 15,428 (previous year: Rs. 12,904) in Lacock Holdings Limited, Cyprus (‘Lacock’), a wholly-owned subsidiary of the Company. As at 31 March 2010, the
Company has also extended advances aggregating to Rs. 3,640 (previous year: Rs. 3,355) 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’).
During the past 18-24 months, there have been certain significant changes in the German generics market such as reference price cuts, increased presence of discount contracts, announcement of large sales
tender from AOK etc. Pursuant to these changes, including the adverse outcome of the AOK sales tender (in which betapharm had participated), the profitability of betapharm is expected to get impacted. The
step-down subsidiaries of Lacock have a negative networth as at 31 March 2010. In view of the above, management has commenced the process of restructuring its European operations. These efforts inter
alia include operational restructuring of the German betapharm business through reduction of sales force, etc and deriving financial synergies from consolidation of other European operations at the Lacock
level. In view of the above, management believes that the advances granted to Lacock would be recovered and that there is no diminution other than temporary in the value of the investment in Lacock as at
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
31 March 2010. Accordingly, the Company’s advances to and investment in Lacock have been carried at cost.
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Schedules to the Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 20: NOTES TO ACCOUNTS (CONTINUED)
25. SEGMENT IN FO RMATION 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. 26. FINANCE LE A S E The Company has acquired vehicles on finance lease. The future minimum lease payments and their present values as at 31 March 2010 are as follows.
PARTICULARS PRESENT VALUE OF MINIMUM LEASE PAYMENTS FUTURE INTEREST MINIMUM LEASE PAYMENTS
Not later than 1 year Later than 1 year and not later than 5 years Total The future minimum lease payments and their present values as at 31 March 2009 are as follows:
PARTICULARS
7 – 7
1 – 1
8 – 8
PRESENT VALUE OF MINIMUM LEASE PAYMENTS
FUTURE INTEREST
MINIMUM LEASE PAYMENTS
Not later than 1 year Later than 1 year and not later than 5 years Total
11 8 19
7 1 8
18 9 27
27. OPERATING LE ASE The Company has taken vehicles on non-cancellable operating lease. The total future minimum lease payments under this non-cancellable lease are as follows:
31 MARCH 2010 31 MARCH 2009
Not later than 1 year Later than 1 year and not later than 5 years Total
97 198 295
32 54 86
Lease rentals on the said lease amounting to Rs. 69 (previous year: Rs. 26) has been charged to the profit and loss account. Lease rent under cancellable lease amounts to Rs. 47 (previous year: Rs. 102).
28. 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.
29. COMPARATIVE FIGURES Previous year’s figures have been regrouped / reclassified wherever necessary to conform to current year’s classification.
A s p e r o u r r e p o r t a t ta ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Balance Sheet Abstract and Company’s General Business Profile
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
2. Capital raised during the year (Amount in Rs. millions) Public Issue: Bonus Issue: N N I I L L Rights Issue: Private Placement:
ADR Issue
N N
I I
L L
Preferential offer of shares under Employees Stock Option Scheme
1
.
8
8
3. Position of Moblisation and Deployment of Funds (Amount in Rs. millions) To t a l L i a b i l i t i e s : S o u rc e s o f F u n d s : Paid-up Capital: S e c u re d L o a n s : D e f e r re d t a x l i a b i l i t y, n e t : Application of Funds: Net Fixed Assets: N e t C u r re n t A s s e t s : 2 1 0 9 6 3 1 6 0 7 Investments: Miscellaneous Exp.: N 2 I 5 L 5 5 1 7 5 8 4 4 8 0 Reserves and Surplus: U n s e c u re d L o a n s : 5 8 5 3 6 0 2 2 4 6 5 5 2 8 To t a l A s s e t s : 6 5 5 2 8
4. Performance of the Company (Amount in Rs. millions) Tu r n o v e r ( n e t ) : License Fees & Service Income P ro f i t B e f o re Ta x : E a r n i n g P e r S h a re i n R s . 1 5 4 4 1 0 0 0 1 8 . 1 1 4 1 1 1 8 5 Other Income: To t a l E x p e n d i t u re : P ro f i t A f t e r Ta x : Dividend Rate % 3 2 6 8 1 3 4 2 2 9 6 2 4 8 1 5
5. Generic Names of Three Principal Products / Services of Company (as per the monetary terms) Item Code No.: (ITC Code) P ro d u c t D e s c r i p t i o n : Item Code No.: (ITC Code) P ro d u c t D e s c r i p t i o n : Item Code No.: (ITC Code) P ro d u c t D e s c r i p t i o n : Omeprazole Norfloxacin 3 0 0 4 9 0 3 8 Ciprofloxacin Hydrochloride 2 9 4 2 0 0 0 1 2 9 4 1 9 0 0 3
IGA A P CONSOL I DATED FI NA N C I ALS 144 CONSOLIDATED PROFIT AND LOSS ACCOUNT 145 CONSOLIDATED CASH FLOW STATEMENT 154 SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
146 SCHEDULES TO THE CONSOLIDATED BALANCE SHEET 142 AUDITORS’ REPORT 152 SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
143 CONSOLIDATED BALANCE SHEET
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Auditors’ Report to the Board of Directors of Dr. Reddy’s Laboratories Limited on the Consolidated Financial Statements of Dr. Reddy’s Laboratories Limited and its subsidiaries
1. We have audited the attached Consolidated Balance Sheet of Dr. Reddy’s Laboratories Limited (“the Company”) and its subsidiaries (collectively referred to as the “Dr. Reddy’s Group”) as at 31 March 2010 and also the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement for the year ended on that date, annexed thereto. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We did not audit the financial statements and other financial information of certain subsidiaries, which have been audited by other auditors whose reports have been furnished to us, and our opinion is based on the report of other auditors. The attached consolidated financial statements include net assets of Rs. 5,735 million as at 31 March, 2010, revenues of Rs. 14,437 million and net cash inflows amounting to Rs. 172 million in respect of the aforementioned subsidiaries for the year then ended. 4. The consolidated financial statements have been prepared by the Company’s management in accordance with the requirements of Accounting Standard 21– Consolidated Financial Statements, Accounting Standard 23– Accounting for Investments in Associates in Consolidated Financial Statements and Accounting Standard 27– Financial Reporting of Interests in Joint Ventures, issued by the Companies (Accounting Standards) Rules, 2006.
5.
In our opinion and to the best of our information and according to the explanations given to us, the said consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of Dr. Reddy’s Group as at 31 March 2010; (ii) in the case of Consolidated Profit and Loss Account, of the consolidated results of operations of Dr. Reddy’s Group for the year ended on that date; and (iii) in the case of Consolidated Cash Flow Statement, of the consolidated cash flows of Dr. Reddy’s Group for the year ended on that date.
for B S R & Co. Chartered Accountants Firm Registration No.: 101248W
S Sethuraman Partner Membership No.: 203491
Place: Hyderabad Date: 6 May 2010
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Consolidated Balance Sheet A S
AT 31 M A R C H 2 010
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT SCHEDULE 31 MARCH 2010 AS AT 31 MARCH 2009
SOURCES OF FUNDS
Shareholders’ funds Share capital Reserves and surplus Loan funds Secured loans Unsecured loans Deferred tax liabilities 3 4 19(8) 269 14,571 14,840 750 53,358
APPLICATION OF FUNDS
1 2
844 36,924 37,768
842 34,419 35,261 386 19,590 19,976 914 56,151
Fixed assets and intangibles Gross block Less: Accumulated depreciation Net block Capital work-in-progress (including capital advances)
Deferred tax assets Investments Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances Current liabilities and provisions Current liabilities Provisions Net current assets Notes to consolidated accounts
The schedules referred to above form an integral part of the Consolidated Balance Sheet
A s p e r o u r r e p o r t a t ta ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Consolidated Profit and Loss Account F O R T H E Y E A R
ENDED 31 MARCH 2010
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED SCHEDULE 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
INCOME
Sales, gross Less: Excise duty and other similar duties and taxes on sales Sales, net Service income License fees Other income
EXPENDITURE
Material costs Conversion charges Excise duty and other similar duties and taxes Personnel costs Operating and other expenses Research and development expenses Finance charges Depreciation and amortization Profit before exceptional item and taxation Exceptional item (Refer Note 18, Schedule 19) – Impairment of Goodwill and Intangibles Profit / (loss) before taxation Income tax expense Profit / (loss) before minority interest and equity in loss of associates Minority interest Equity in loss of associates Profit / (loss) for the year Balance in profit and loss account brought forward Less: Adjustment on account of merger of Perlecan Pharma Private Limited Amount available for appropriation Appropriations: Proposed dividend on equity shares Tax on proposed dividend Dividend of previous years (including tax) Transferred to general reserve Balance carried forward Earnings per share Basic – Par value Rs. 5 per share Diluted – Par value Rs. 5 per share Notes to consolidated accounts
The schedules referred to above form an integral part of the Consolidated Profit and Loss Account
A s p er o u r r e p o r t a t t a ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Consolidated Cash Flow Statement
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Profit / (loss) before taxation Adjustments: Depreciation and amortization Provision for wealth tax Profit from sale of investments Dividend from mutual fund units Unrealized foreign exchange (gain) / loss Impairment of Goodwill and Intangibles Amortization of deferred stock based compensation expense, net Interest income Interest expense (Profit) / loss on sale of fixed asset, net Inventory write-down Bad debts written-off Provision for doubtful debts Provision for doubtful advances, net Operating cash flows before working capital changes (Increase) / decrease in sundry debtors (Increase) / decrease in inventories (Increase) / decrease in loans and advances Increase / (decrease) in current liabilities and provisions Cash generated from operations Income taxes paid Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets and intangibles Proceeds from sale of fixed assets Purchase of investments Proceeds from sale of investments Interest received Cash paid for acquisition, net of cash acquired Cash paid for acquisition of equity accounted investee, net of cash acquired Rs. 386 Acquisition of Minority Interest Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of share capital Proceeds from long-term borrowings Repayment of long-term borrowings Repayment of short-term borrowings Proceeds from short-term borrowings Interest paid Dividends paid (including dividend tax) Net cash used in financing activities
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the year (Refer Schedule 9) Effect of exchange gain on cash and cash equivalents Cash and cash equivalents at the end of the year (Refer Schedule 9)
A s p e r o u r r e p o r t a t ta ch e d for B S R & Co.
for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010
Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh
Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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Schedules to the Consolidated Balance Sheet
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 1: S H A R E C A P I TA L
Authorised 240,000,000 (previous year: 200,000,000) equity shares of Rs. 5/- each (Refer Note 20 of Schedule 19) Issued 168,845,585 (previous year: 168,468,977) equity shares of Rs. 5/- each fully paid-up Subscribed and paid-up 168,845,385 (previous year: 168,468,777) equity shares of Rs. 5/- each fully paid-up Add: Forfeited share capital (Note 2) 844 – 844 844 NOTES: 1. Subscribed and paid-up share capital includes: (a) 111,732,202 (previous year: 111,732,202) equity shares of Rs. 5/- each fully paid-up, allotted as bonus shares. Out of total, 34,974,400 shares were allotted by capitalisation of General Reserve and 76,757,802 equity shares allotted as bonus shares by capitalisation of the Securities Premium Account in earlier years. (b) 1,052,248 (previous year: 1,052,248) equity shares of Rs. 5/- each allotted pursuant to a scheme of amalgamation with Standard Equity Fund Limited without payments being received in cash. (c) 20,571,768 (previous year: 20,571,768) equity shares of Rs. 5/- each allotted and 82,800 (previous year: 82,800) equity shares of Rs. 5/- each extinguished pursuant to a scheme of amalgamation with erstwhile Cheminor Drugs Limited (CDL) without payments being received in cash. (d) 40,750,000 (previous year: 40,750,000) equity shares of Rs. 5/- each allotted against American Depository Shares (ADS). (e) 17,204,304 (previous year: 17,204,304) equity shares of Rs. 5/- each allotted against Global Depository Receipts (GDR) that were converted into ADS during the year ended 31 March 2002. (f) 226,776 (previous year: 226,776) equity shares of Rs. 5/- each allotted to the erstwhile members of American Remedies Limited (ARL) pursuant to a scheme of amalgamation with ARL without payments being received in cash. (g) 1,185,283 (previous year: 882,832) equity shares of Rs. 5/- each allotted to the eligible employees of the Company and its subsidiaries on exercise of the vested stock options in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2002”. (Refer Note 13, Schedule 19) (h) 146,583 (previous year: 72,426) equity shares of Rs. 5/- each allotted to the eligible employees of the Company and its subsidiaries on exercise of the vested stock options in accordance with the terms of exercise under the “Dr. Reddy’s Employees Stock Option Plan, 2007”. (Refer Note 13, Schedule 19) 2. Represents 200 (previous year: 200) equity shares of Rs. 5/- each, amount paid-up Rs. 500/- (rounded off in millions in the Schedule above) forfeited due to nonpayment of allotment money. 3. 885,007 (previous year: 914,896) 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 112,390 (previous year: 156,557) 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” (Refer Note 13, Schedule 19). 842 – 842 842 844 842 1,200 1,000
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Schedules to the Consolidated Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 2: R E S E R V E S A N D S U R P L U S
Capital Reserve Balance at the beginning of the year On account of amalgamation of Perlecan Pharma Private Limited (Refer Note 20 of Schedule 19) Securities premium account Balance at the beginning of the year Add: Received during the year on exercise of employee stock options 17,813 224 18,037 Employees stock options outstanding Balance at the beginning of the year Add: Options granted during the year Less: Options forfeited during the year Less: Options excercised during the year Balance at the end of the year (A) Deferred stock compensation cost Balance at the beginning of the year Add: Options granted during the year Less: Amortization during the year, net of forfeitures Less: Options forfeited during the year Balance at the end of the year (B) (A) – (B) General reserve Balance at the beginning of the year Add: Transferred from profit and loss account 13,212 846 14,058 Hedge Reserve Balance at the beginning of the year Movement for the year Foreign Currency Translation Reserve Balance at the beginning of the year Movement for the year 2,192 343 2,535 Balance in consolidated profit and loss account 1,162 36,924 1,478 714 2,192 1,036 34,419 (237) 745 508 (10) (227) (237) 12,651 561 13,212 239 264 (198) (82) 223 350 264 278 (204) (99) 239 389 628 264 (82) (237) 573 616 278 (99) (167) 628 17,642 171 17,813 14 260 274 14 – 14
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Schedules to the Consolidated Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 3: S E C U R E D L O A N S
Loans from banks (Note 1) Loans from institutions Finance lease obligations (Note 2) Loan from Indian Renewable Energy Development Agency Limited (Note 3)
15 253 1 269
79 300 7 386
NOTES: 1. Loan from Kunshan Rural Commercial Bank taken by Kunshan Rotam Reddy Pharmaceutical Company Limited (“Reddy Kunshan”), a consolidated joint venture carries an interest rate of 5.0445% per annum. Also, loan from the ICICI Bank taken by Aurigene Discovery Technologies Limited (“Aurigene”) is secured by way of hypothecation of vehicles acquired by Aurigene, the loan carries an interest rate of 7 % per annum. 2. Finance lease obligations represent present value of minimum lease rental payable for the building and vehicles taken by the Company and its subsidiary companies respectively. (Refer Note 16, Schedule 19) 3. Loan from Indian Renewable Energy Development Agency Limited is secured by way of hypothecation of specific movable assets pertaining to the Solar Grid Interactive Power Plant. The loan is repayable in quarterly installments of Rs. 1.48 each quarter and carries an interest rate of 2% per annum.
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 4: U N S E C U R E D L O A N S
Sales tax deferment loan from the Government of Andhra Pradesh (interest free) From Banks Packing credit loan (Note 1) Long term foreign currency loan (Note 2) Bank Overdraft (Note 3) Others (Note 4)
55 5,530 8,899 38 49 14,571
60 5,715 13,457 218 140 19,590
NOTES: 1. Foreign Currency Packing Credit loan is from Standard Chartered Bank, The Bank of Nova Scotia, BNP Paribas, ABN Amro and HSBC carrying interest rates of LIBOR plus 40 – 75 bps, repayable on expiry of 6 months from the date of drawdown. Rupee packing credit were from State Bank of India carrying interest rate of 5% per annum. Packing Credit loans for the previous year comprised foreign currency packing credit loan that were taken from Standard Chartered Bank, The Bank of Nova Scotia and Bank of Tokyo – Mitsubishi UFJ Ltd carrying interest rates of LIBOR plus 100 – 225 bps, repayable on expiry of 6 months from the date of drawdown. Rupee packing credit from State Bank of India, BNP Paribas and ABN Amro Bank carrying interest rates of 8% – 9%, 7% and 7.25% per annum, respectively. 2. Long term foreign currency loan has been guaranteed by the Company and certain subsidiaries of the Group. The loan carried an interest rate of EURIBOR plus 150 basis points. Effective 24 November 2006, the interest rate has been changed to EURIBOR plus 70 basis points on euro portion of the loan and LIBOR plus 70 basis points on dollar portion of the loan. 3. Bank overdraft is on the current accounts with Citibank, State Bank of India and HDFC Bank carrying interest rates of 10.75%, 10.25% and 14.50% per annum, respectively. (Previous year interest rates were 13.75%, 10.25% and 14.50% per annum, respectively) 4. Loan from the State Bank of India taken by Aurigene is covered by way of Corporate Guarantee given by Parent Company. The loan carries an interest rate of 11.75% per annum. Fund based working capital loan taken from State Bank of India by Kunshan Rotam Reddy Pharmaceutical Company Limited (“Reddy Kunshan”), a consolidated joint venture carries an interest rate of 2.74875% per annum.
Schedules to the Consolidated Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
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Vehicles
Total
65,027
149
Previous year
54,878
NOTES: 1. In pursuance of an allotment letter (“the letter”) dated 16 October 2001, received from Karnataka Industrial Area Development Board, Aurigene Discovery Technologies Limited, a consolidated subsidiary, acquired land located at Electronics City, Bangalore, on a lease-cum-sale basis. In terms of the letter, the lease shall be converted into a sale at the end of six years subject to fulfilment of all the terms and conditions of the allotment. Pending completion of the period of six years and fulfilment of the terms and conditions of the allotment, the amount incurred on the land acquisition aggregating to Rs. 50 (previous year: Rs. 50) has been accounted as leasehold land. Since the period of six years has been completed, converting lease into sale is under process.
2.
The Group owns a treated effluent discharge pipeline with a cost of Rs. 9 (previous year: Rs. 9) and net book value of Rs. Nil (previous year: Rs. Nil) in equal proportion jointly with a third party in Pydibheemavaram pursuant to a mutual agreement.
3.
Foreign exchange adjustments represents exchange differences resulting from translation of fixed assets relating to non-integral foreign operations.
4.
The details of impairment losses have been set out in the Note 18 of Schedule 19.
5.
The details of the deletions to goodwill have been set out in Note 5 and 20 of Schedule 19.
6.
During the year, DRL acquired 1,899,943 shares from the shareholders of Aurigene Discovery Technologies Limited at an agreed price of Rs. 46 per share, which resulted in a goodwill of Rs. 40.
7.
During the year, DRL entered into an agreement with Biogenerics Australia Pty. Limited for acquisition of their interest in Dr. Reddy’s Laboratories (Australia) Pty. Limited (DRLA) resulting in a goodwill of Rs. 38. The total purchase consideration payable includes an amount of Rs. 25 which is contingent upon either DRLA achieving certain sales targets on or before 31 December 2010 or upon the listing of a certain number of products under the Pharmaceutical Benefit Scheme in Australia by 31 March 2012.
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Schedules to the Consolidated Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 6: INVESTMENTS
Long term, unless otherwise specified Investment in associates (see Note 5 of Schedule 19) Other investments (at cost) Aggregate cost of quoted investments (Note 1) Aggregate cost of unquoted investments Current Investments, at the lower of cost or fair value Mutual funds Certificate of deposits Less: Provision for decline, other than temporary, in the value of investments Market value of quoted investments Market value of current investments Market value of Certificate of deposits NOTE: 1. 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.
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
– 3 71
– 3 71
3,276 298 3,648 (68) 3,580 25 3,277 299
517 – 591 (68) 523 13 517 –
SCHEDULE 7: INVENTORIES
Stores, spares and packing materials Raw materials Work-in-process Finished goods
988 4,051 3,901 4,454 13,394
AS AT 31 MARCH 2010
879 3,769 2,989 5,613 13,250
AS AT 31 MARCH 2009
SCHEDULE 8: SUNDRY DEBTORS
(Unsecured) Debts outstanding for a period exceeding six months Considered good Considered doubtful Other debts Considered good Less: Provision for doubtful debts 10,810 12,018 (419) 11,599
AS AT 31 MARCH 2010
789 419
452 342 13,954 14,748 (342) 14,406
AS AT 31 MARCH 2009
SCHEDULE 9: CASH AND BANK BALANCES
Cash in hand Balances with banks In current accounts In EEFC current accounts In deposit accounts In unclaimed dividend accounts In unclaimed fractional share pay order accounts Deposits with banks include:
9 3,298 4 3,271 17 1 6,600
15 2,389 203 3,001 14 1 5,623
(i) Deposits with scheduled and non-scheduled banks include Rs. 1 (previous year: Rs. 1) representing margin money for letters of credit and bank guarantees.
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Schedules to the Consolidated Balance Sheet ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 10: LOANS AND ADVANCES
(Unsecured) Considered good Advances to material suppliers Staff loans and advances Interest accrued on investments Other advances recoverable in cash or in kind or for value to be received Advance tax, net of provision for current taxes Balances with statutory authorities Deposits Considered doubtful Other advances recoverable in cash or in kind or for value to be received Advances towards investment Less: Provision for doubtful advances 51 8 6,668 (59) 6,609
AS AT 31 MARCH 2010
515 47 22 3,491 221 1,995 318 6,609
397 79 7 2,768 148 1,885 235 5,519 68 8 5,595 (76) 5,519
AS AT 31 MARCH 2009
SCHEDULE 11: CURRENT LIABILITIES
Sundry creditors and accrued expenses (Note 1 – 3) Interest accrued but not due on loan Unclaimed dividends Trade deposits
16,679 – 17 50 16,746
15,056 10 14 38 15,118
NOTES: 1. The principal amount paid and that remaining unpaid as at 31 March 2010 in respect of enterprises covered under the “Micro, Small and Medium Enterprises Development Act, 2006” (MSMDA) are Rs. 2,960 (previous year: Rs. 1,187) and Rs. 154 (previous year: Rs. 45) respectively. The interest amount computed based on the provisions under Section 16 of the MSMDA Rs. 12 (previous year: Rs. 5) is remaining unpaid as of 31 March 2010. The interest that remained unpaid as at 31 March 2009 was paid during the year. 2. 3. The list of undertakings covered under MSMDA were determined by the Company on the basis of information available with the Company and have been relied upon by the auditors. Sundry creditors and accrued expenses include certain obligations under research and development arrangements. (Refer Note 14 of Schedule 19)
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
SCHEDULE 12: PROVISIONS
Proposed dividend Tax on proposed dividend Provision for Gratuity Long service award benefit plan Pension, Seniority and Severance Indemnity plan Compensated absences Taxation, net of advance taxes
1,900 316 26 53 59 151 997 3,502
1,053 178 70 – 68 42 583 1,994
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Schedules to the Consolidated Profit and Loss Account
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 13: OTHER INCOME
Interest Income: On fixed deposits (gross, tax deducted at source: Rs. 24; previous year: Rs. 43) On non-trade investments (gross, tax deducted at source: Nil; previous year: Rs. 1) On others Profit on sale of fixed assets, net Dividend from mutual fund units Sale of spent chemicals Profit on sale of Investments Foreign exchange gain, net Miscellaneous income 197 – 52 – 47 209 – 73 436 1,014
FOR THE YEAR ENDED 31 MARCH 2010
164 4 179 14 53 211 87 – 282 994
FOR THE YEAR ENDED 31 MARCH 2009
Raw materials consumed (Note 2 and 3) Stores, chemicals, spares and packing material consumed Purchase of traded goods
NOTES: 1. During the previous year, stock added on acquisition include Rs. 231 on acquisition of an unit of The Dow Chemical Company, Rs. 249 on acquisition of BASF Corporation’s manufacturing facility in Shreveport, Louisiana, USA and related pharmaceutical contract manufacturing business and Rs. 29 on acquisition of Dr. Reddy’s SRL (formerly Jet Generici SRL) (Refer Note 7 of Schedule 19). 2. Raw materials consumed include Rs. 2,489 (previous year: Rs. 833) being stocks written-off / written-down, Rs. 170 (previous year: Rs. 192) being cost of samples issued and is net of Rs. 2,596 (previous year: Rs. 2,166) being sale of raw materials. 3. Raw material consumption is net of DEPB credit availed amounting to Rs. 166 (previous year: Rs. 534).
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 15: PERSONNEL COSTS
Salaries, wages and bonus Contribution to provident and other funds Workmen and staff welfare expenses Amortization of deferred stock compensation expense
9,477 614 1,543 198 11,832
8,195 706 815 204 9,920
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Schedules to the Consolidated Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 16: OPERATING AND OTHER EXPENSES
Power and fuel Rent Rates and taxes Repairs and maintenance Buildings Plant and machinery Others Insurance Travelling and conveyance Communication Advertisements Commission on sales Carriage outwards Other selling expenses Printing and stationery Legal and professional charges Donations Bad debts written-off (is net of adjustment against provision for doubtful debts of Rs. 34; previous year: Rs. 21) Provision for doubtful advances, net Provision for doubtful debts, net Advances written off (is net of adjustment against provision for doubtful advances Rs. Nil; previous year: Rs. 7) Directors’ sitting fees (Rs. 339 thousands; Rs. 250 thousands previous year, rounded off in millions) Directors’ remuneration Auditors’ remuneration Bank charges Loss on sale of fixed assets, net Foreign exchange loss, net Settlement of legal Claim from Innovator (Refer note 4 of Schedule 19) Sundry expenses
1,415 519 243 68 1,015 913 262 760 273 477 401 1,703 4,329 117 1,688 152 91 (17) 77 – – 257 16 73 24 – – 1,164 16,020
FOR THE YEAR ENDED 31 MARCH 2010
1,227 383 298 78 871 747 296 860 294 675 349 1,699 3,790 119 2,099 148 119 23 28 – – 189 8 110 – 602 916 1,277 17,205
FOR THE YEAR ENDED 31 MARCH 2009
SCHEDULE 17: FINANCE CHARGES
Interest on packing credit loan Interest on long term loan Other finance charges
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Consolidated Balance Sheet | Profit and Loss Account
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS
1. a)
SIGNIFICANT A CCOUNTING POLICIES Basis of preparation of consolidated financial statements The consolidated financial statements have been prepared and presented in accordance with the Indian Generally Accepted Accounting Principles (“GAAP”) under the historical cost convention on the accrual basis. GAAP comprises accounting standards notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956, other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India.
b)
Use of estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities on the date of the consolidated financial statements and reported amounts of revenues and expenses for the year. Actual results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in the current and future periods.
c)
Principles of consolidation The consolidated financial statements include the financial statements of Dr. Reddy’s Laboratories Limited (“DRL or the Company”), the parent company and all of its subsidiaries (collectively referred to as “the Group” or “Dr. Reddy’s Group”), in which the Company has more than one-half of the voting power of an enterprise or where the Company controls the composition of the board of directors. In accordance with AS 27 – “Financial Reporting of Interests in Joint Ventures”, issued under Companies (Accounting Standards) Rules, 2006, the Group has accounted for its proportionate share of interest in a joint venture by the proportionate consolidation method. The joint venture arrangement has been more fully described in Note 6 below. The consolidated financial statements have been prepared on the following basis: The financial statements of the parent company and the subsidiaries have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses after eliminating intra-group balances / transactions and resulting unrealised profits in full. Unrealised losses resulting from intra-group transactions have also been eliminated except to the extent that recoverable value of related assets is lower than their cost to the group. The amounts shown in respect of reserves comprise the amount of the relevant reserves as per the balance sheet of the parent company and its share in the post-acquisition increase in the relevant reserves of the subsidiaries. The Group accounts for investments by the equity method of accounting where it is able to exercise significant influence over the operating and financial policies of the investee. Inter company profits and losses have been proportionately eliminated until realised by the investor or investee. Pursuant to the adoption of AS 27 “Financial Reporting of Interest in Joint Ventures”, the Group does not consolidate entities where, regardless of the share of capital contributions, the minority shareholders have significant participating rights jointly with the Group, that provide for effective involvement in significant financial and operating decisions in the ordinary course of business. The proportionate share of Group’s interest in Joint Ventures is combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses after eliminating intra-group transactions and resulting unrealised profits, to the extent it pertains to the Group. The excess / deficit of cost to the parent company of its investment in the subsidiaries, joint ventures and associates over its portion of equity at the respective dates on which investment in such entities were made is recognised in the financial statements as goodwill / capital reserve. The parent company’s portion of equity in such entities is determined on the basis of the book values of assets and liabilities as per the financial statements of such entities as on the date of investment and if not available, the financial statements for the immediately preceding period adjusted for the effects of significant transactions, up to the date of investment. Goodwill / capital reserve arising on the acquisition of an associate by the parent company is included in the carrying amount of investment in the associate but is disclosed separately. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent company for its separate financial statements. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
d)
Fixed assets and depreciation Fixed assets are carried at the cost of acquisition or construction, less accumulated depreciation. The cost of fixed assets includes non-refundable taxes, duties, freight and other incidental expenses related to the acquisition and installation of the respective assets. Borrowing costs directly attributable to acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalised. Advances paid towards the acquisition of the fixed assets outstanding at each balance sheet date and the cost of fixed assets not ready for their intended use before such date are disclosed under capital work-in-progress.
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155
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
1. d)
SIGNIFICAN T A CCOUNTING POLICIES (CONT INUED) Fixed assets and depreciation (continued) Depreciation on fixed assets is provided using the straight-line method at the rates specified in schedule XIV to the Companies Act, 1956 or based on the useful lives of the assets as estimated by Management, whichever is higher. Depreciation is calculated on a pro-rata basis from the date of installation till the date the assets are sold or disposed off. Individual assets costing less than Rs. 5,000/- are depreciated in full in the year of acquisition. The Management’s estimates of the useful lives for various categories of fixed assets are given below:
YEARS
Buildings – Factory and administrative buildings – Ancillary structures Plant and machinery Electrical equipment Laboratory equipment Furniture, fixtures and office equipment (other than computer equipment) Computer equipment Vehicles Library Leased vehicles lease agreement or the useful life, whichever is shorter. e) Intangible assets and amortization Intangible assets are recorded at the consideration paid for acquisition. Intangible assets are amortised over their estimated useful lives on a straight-line basis, commencing from the date the asset is available to the Group for its use. The management estimates the useful lives for the various intangible assets as follows:
YEARS
20 to 30 3 to 10 3 to 15 5 to 15 5 to 15 4 to 8 3 4 to 5 2 3
Leasehold land and buildings are being amortised over the primary period of the lease. Vehicles acquired on finance leases are depreciated over the period of the
Goodwill Patents, trademarks, etc. (including marketing / distribution rights) Customer contracts Technical know-how Non-compete fees f) Investments
5 to 20 3 to 10 2 to 10 10 1.5 to 10
Long-term investments, other than investments in associates, are stated at cost. A provision for diminution is made to recognise a decline, other than temporary, in the value of long-term investments. Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investment. Investments in associates, accounted under the equity method of accounting, are initially recorded at cost, identifying any goodwill / capital reserve at the time of acquisition. The carrying amount of such investments is adjusted thereafter for the post acquisition change in the Group’s share of net assets of the investee unless there is an agreement to the contrary. The carrying amount of investment in an associate is reduced to recognise a decline, other than temporary, in the value of the investment, such reduction being determined and made for each investment individually. g) Inventories Inventories are valued at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The methods of determining cost of various categories of inventories are as follows: Raw materials Stores and spares and packing materials Work-in-process and finished goods (manufactured) Finished goods (traded) h) Research and development Revenue expenditure on research and development is expensed as incurred. Capital expenditure incurred on research and development is capitalised as fixed assets and depreciated in accordance with the depreciation policy of the Group. First in first out (FIFO) Weighted average method FIFO and including an appropriate share of production overheads Specific identification method
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
1. i)
SIGNIFICANT A CCOUNTING POLICIES (CONT INUED) Employee benefits Contributions payable to an approved gratuity fund (a defined benefit plan) and certain defined benefit plans at overseas subsidiaries determined by independent actuaries at the balance sheet date are charged to the profit and loss account. Provision for compensated absences cost is made on the basis of actuarial valuation at the balance sheet date, carried out by an independent actuary. Contributions payable to recognised provident funds, approved superannuation scheme, employee pension and social security schemes in certain overseas subsidiaries, which are defined contribution schemes, are charged to the profit and loss account. All actuarial gains and losses arising during the year are recognized in the profit and loss account for the year.
j)
Foreign currency transactions, balances and translation of financial statements of foreign subsidiaries and joint venture Foreign currency transactions are recorded using the exchange rates prevailing on the dates of the respective transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the profit and loss account. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date not covered by forward exchange contracts are translated at yearend rates. The resultant exchange differences are recognised in the profit and loss account. Non-monetary assets are recorded at the rates prevailing on the date of the transaction. Forward contracts are entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date. The premium or discount on all such contracts arising at the inception of each contract is amortised as expense or income over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognised as income or expense for the period. In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding at the balance sheet date, the exchange difference is calculated and recorded in accordance with AS – 11 (revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange rate at the reporting date, or the settlement date where the transaction is settled during the reporting period, and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the profit and loss account in the reporting period in which the exchange rates change. The financial statements of the foreign integral subsidiaries and joint venture, representative offices and ‘collectively referred to as the ‘foreign integral operations’ are translated into Indian rupees as follows: Revenue items, except depreciation are translated at the respective monthly average rates. Depreciation is translated at the rates used for the translation of the values of the assets on which depreciation is calculated. Monetary items are translated using the closing rate. Non-monetary items are translated using the exchange rate at the date of transaction i.e., the date when they were acquired. The net exchange difference resulting from the translation of items in the financial statements of foreign integral operations is recognised as income or as expense for the year. Contingent liabilities are translated at the closing rate. The following consolidated foreign subsidiaries have been identified as non- integral operations in accordance with the requirements of AS –11(Revised 2003): Reddy US Therapeutics Inc. Dr. Reddy’s Laboratories (EU) Limited Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC) Dr. Reddy’s SRL (formerly Jet Generici SRL) Aurigene Discovery Technologies Inc. Industrias Quimicas Falcon de Mexico S.A.de.C.V. Reddy Holding GmbH betapharm Arzneimittel GmbH
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
157
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
1. j)
SIGNIFICAN T A CCOUNTING POLICIES (CONT INUED) Foreign currency transactions, balances and translation of financial statements of foreign subsidiaries and joint venture (continued) beta institut fur sozialmedizinische Forschung und Entwicklung GmbH beta Healthcare Solutions GmbH Lacock Holdings Limited Reddy Pharma Iberia SA Reddy Pharma Italia SpA Kunshan Rotam Reddy Pharmaceutical Company Limited Chirotech Technology Limited Dr. Reddy’s Laboratories Louisiana LLC In accordance with AS –11 (Revised 2003) “The Effect of Changes in Foreign Exchange rates”, the financial statements of such non-integral foreign operations are translated into Indian rupees as follows: All assets and liabilities, both monetary and non-monetary, are translated using the closing rate. Revenue items are translated at the respective monthly average rates. The resulting net exchange difference is credited or debited to a foreign currency translation reserve. However, an exchange difference arising out of intragroup monetary item, whether short term or long term is recognised in the profit and loss account. Contingent liabilities are translated at the closing rate.
k)
Derivative instruments and hedge accounting The Group uses foreign exchange forward contracts and options to hedge its movements in foreign exchange rates and does not use the foreign exchange forward contracts and options for trading or speculative purposes. Pursuant to ICAI Announcement ‘’Accounting for Derivatives’’ on the early adoption of Accounting Standard AS 30 ‘’Financial Instruments: Recognition and Measurement’’, the Group has adopted the Standard 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 Group classifies foreign currency options in respect of the forecasted transactions at the inception of each contract meeting the hedging criterion, as cash flow hedges. Changes in the fair value of options classified as cash flow hedges are recognised directly in shareholders’ funds (under the head “Hedging Reserves”) and are reclassified into the profit and loss account upon the occurrence of the hedged transaction. The gains / losses on options designated as cash flow hedges are included along with the underlying hedged forecasted transactions. The exchange differences relating to options not designated as cash flow hedges are recognised in the profit and loss account as they arise. Further, the changes in fair value relating to the ineffective portion of the cash flow hedges are recognised in the profit and loss account as they arise.
l)
Revenue recognition Revenue from sale of goods is recognised when significant risks and rewards in respect of ownership of products are transferred to customers. Revenue from domestic sales of generic products is recognized upon delivery of products to stockists by clearing and forwarding agents of the Company. Revenue from domestic sales of active pharmaceutical ingredients and intermediates is recognized on delivery of products to customers, from the factories of the Company. Revenue from export sales is recognized when the significant risks and rewards of ownership of products are transferred to the customers, which is based upon the terms of the applicable contract. Revenue from product sales is stated exclusive of returns, sales tax and applicable trade discounts and allowances. Accrual for chargeback, rebates, discounts and medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Accrual for such chargeback are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers / other customers and estimated inventory holding by the wholesaler. Such provisions are presented as a reduction of trade receivable. Revenue from services rendered, which primarily relate to contract research, is recognized in profit or loss as the underlying services are performed. Upfront nonrefundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
1. l)
SIGNIFICANT A CCOUNTING POLICIES (CONT INUED) Revenue recognition (continued) Dividend income is recognised when the unconditional right to receive the income is established. Income from interest on deposits, loans and interest bearing securities is recognised on the time proportionate method. Export entitlements are recognised as income when the right to receive credit as per the terms of the scheme is established in respect of the exports made and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
m)
Income tax expense Income tax expense comprises current tax and deferred tax charge or credit. Current tax The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the entities in the Group. Deferred tax Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future; however, where there is unabsorbed depreciation or carry forward of losses, deferred tax assets are recognised only if there is a virtual certainty of realisation of such assets. Deferred tax assets are reviewed at each balance sheet date and written-down or written-up to reflect the amount that is reasonably or virtually certain (as the case may be) to be realised. The break-up of the major components of the deferred tax assets and liabilities as at the balance sheet date have been arrived at after setting off deferred tax assets and liabilities where the Group has a legally enforceable right to set-off assets against liabilities, and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws.
n)
Earnings per share The basic earnings per share (“EPS”) is computed by dividing the net profit after tax for the year by the weighted average number of equity shares outstanding during the year. For the purpose of calculating diluted earnings per share, net profit after tax for the year and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. The dilutive potential equity shares are deemed converted as of the beginning of the year, unless they have been issued at a later date. The diluted potential equity shares have been adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. the average market value of the outstanding shares).
o)
Employee stock option schemes In accordance with the Securities and Exchange Board of India guidelines, the excess of the market price of shares, at the date of grant of options under the Employee stock option schemes, over the exercise price is treated as employee compensation and amortised over the vesting period.
p)
Impairment of assets The Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the profit and loss account. If at the balance sheet date there is an indication that if a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.
q)
Provisions and contingent liabilities The Group creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
r)
Leases Assets taken on lease where the Group acquires substantially the entire risks and rewards incidental to ownership are classified as finance leases. The amount recorded is the lesser of the present value of the minimum lease rental and other incidental expenses during the lease term or the fair value of the assets taken on lease. The rental obligations, net of interest charges, are reflected in secured loan. Leases that do not transfer substantially all of the risks and rewards of ownership are classified as operating leases and recorded as expenses as and when payments are made over the lease term.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
159
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
2.
DESCRIPTIO N O F THE GROUP The Dr. Reddy’s Group is a leading India-based pharmaceutical group headquartered in Hyderabad, India. The Group’s principal areas of operation are pharmaceutical services and active ingredients, global generics, custom pharmaceutical services and proprietary products. The Company’s principal research and development facilities are located in Andhra Pradesh, India and in the United States; its principal manufacturing facilities are located in Andhra Pradesh, India, Himachal Pradesh, India, Cuernavaca-Cuautla, Mexico, Mirfield, the United Kingdom and Louisiana, the United States; and its principal marketing facilities are located 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, since 11 April 2001, also on the New York Stock Exchange in the United States. Dr. Reddy’s subsidiaries, step-down subsidiaries, associates and joint venture are listed below:
ENTITY
COUNTRY OF INCORPORATION
PERCENTAGE HOLDING (%)
Subsidiaries OOO JV Reddy Biomed Limited (“RBL”) Reddy Pharmaceuticals Hong Kong Limited Reddy Cheminor S.A. Reddy Antilles N.V. (“RANV”) Dr. Reddy’s Farmaceutica Do Brasil Ltda. Aurigene Discovery Technologies Limited Cheminor Investments Limited DRL Investments Limited OOO Dr. Reddy’s Laboratories Limited Dr. Reddy’s Laboratories (Proprietary) Limited Dr. Reddy’s Bio-Sciences Limited Trigenesis Therapeutics Inc. Industrias Quimicas Falcon de Mexico S.A.de.C.V.(“Falcon”) Dr. Reddy’s Laboratories (Australia) Pty. Limited Reddy Pharma Iberia SA Lacock Holdings Limited (“Lacock”) Dr. Reddy’s Laboratories SA Macred India Private Limited Dr. Reddy’s Laboratories ILAC TICARET Limited SIRKETI Dr. Reddy’s Pharma SEZ Limited Step-down subsidiaries Reddy Netherlands B.V. Reddy US Therapeutics Inc. (“Reddy US”) Dr. Reddy’s Laboratories Inc. (“DRLI”) Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC) Dr. Reddy’s Laboratories (EU) Limited (“DREU”) Dr. Reddy’s Laboratories (UK) Limited (“DRUK”) Aurigene Discovery Technologies Inc. (“AI”) Reddy Holding GmbH (“RHG”) betapharm Arzneimittel GmbH beta Healthcare Solutions GmbH beta institut fur sozialmedizinische Forschung und Entwicklung GmbH Reddy Pharma Italia SPA Eurobridge Consulting B.V. OOO DRS LLC A subsidiary of Reddy Antilles N.V., organised under the laws of Netherlands A subsidiary of Reddy Antilles N.V., organised under the laws of Atlanta, USA A subsidiary of Dr. Reddy’s Laboratories SA, organised under the laws of New Jersey, USA A subsidiary of Dr. Reddy’s Laboratories Inc., organised under the laws of Delaware, USA A subsidiary of Dr. Reddy’s Laboratories SA, organised under the laws of the United Kingdom A subsidiary of Dr. Reddy’s Laboratories (EU) Limited, organised under the laws of the United Kingdom A subsidiary of Aurigene Discovery Technologies Limited, organised under the laws of Massachusetts, USA A subsidiary of Lacock Holdings Limited organised under the laws of Germany A subsidiary of Reddy Holding GmbH organised under the laws of Germany A subsidiary of Reddy Holding GmbH organised under the laws of Germany A subsidiary of Reddy Holding GmbH organised under the laws of Germany A subsidiary of Lacock Holdings Limited organised under the laws of Italy A subsidiary of Reddy Antilles N.V. organised under the laws of Netherlands A subsidiary of Eurobridge Consulting B.V. organised under the laws of Russia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 A Company organised under the laws of Russia A Company organised under the laws of Hong Kong A Company organised under the laws of Chartres, France A Company organised under the laws of Antilles, Netherlands A Company organised under the laws of Brazil A Company organised under the laws of India A Company organised under the laws of India A Company organised under the laws of India A Company organised under the laws of Russia A Company organised under the laws of the Republic of South Africa A Company organised under the laws of India A Company organised under the laws of New Jersey, USA A Company organised under the laws of Mexico A Company organised under the laws of Australia A Company organised under the laws of Spain A Company organised under the laws of Cyprus A Company organised under the laws of Switzerland A Company organised under the laws of India A Company organised under the laws of Turkey A Company organised under the laws of India 100 100 100 100 100 100 100 100 100 60 100 100 100 100 100 100 100 100 100 100
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
2.
DESCRIPTION O F THE GROUP (CONTINUED)
COUNTRY OF INCORPORATION PERCENTAGE HOLDING (%)
ENTITY
Aurigene Discovery Technologies (Malaysia) Sdn bhd Dr. Reddy’s New Zealand Limited (formerly Affordable Health Care Limited) Dr. Reddy’s SRL (formerly Jet Generici SRL) Chirotech Technology Limited Dr. Reddy’s Laboratories Louisiana LLC Dr. Reddy’s Laboratories International SA Partnership firms
A subsidiary of Aurigine Discovery Technologies Limited organised under the laws of Malaysia A subsidiary of Dr. Reddy’s Laboratories SA organised under laws of New Zealand A subsidiary of Reddy Pharma Italia SPA organised under the laws of Italy A subsidiary of Dr. Reddy’s Laboratories (EU) Limited organised under the laws of United Kingdom A subsidiary of Dr. Reddy’s Laboratories Inc. organised under the laws of New Jersey, USA A subsidiary of Reddy Holding GmbH and Dr. Reddy’s Laboratories SA organised under laws of Switzerland A partnership firm with Dr. Reddy’s Holdings Limited organised under the laws of
100 100 100 100 100 100
Globe Enterprises Joint Venture Kunshan Rotam Reddy Pharmaceutical Company Limited (“Reddy Kunshan” or “KRRP”) Associates APR LLC, USA
India, wherein the Company and Dr. Reddy’s Holdings Limited share the profits in the ratio of 95:5
95
A Company organised under the laws of China
51.33
Enterprise over which the Group has significant influence, through 100% of Class B interest Enterprise over which the Company had significant influence through 14.31% of shareholding and through representation on the Board of Directors of Perlecan Pharma Private Limited. (Refer Note 5 and 20)
Perlecan Pharma Private Limited, India (till 30 July 2008)
3.
COMMITMEN TS AND CONTINGENT LIABILIT IES
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
(i)
Commitments / contingent liabilities: (a) (b) (c) Guarantees issued by banks Letters of credit outstanding Contingent consideration payable in respect of subsidiaries acquired Income tax matters, pending decisions on various appeals made by the Group and by the Department Excise matters, under dispute Customs matter, under dispute Sales tax matters, under dispute Other matters, under dispute 94 20 12 90 329 12
(ii)
Claims against the Group not acknowledged as debts in respect of: (a) (b) (c) (d) (e) (f) 521 1 97 151 5 541 1 36 28 –
Demand for payment to the credit of the Drug Prices Equalisation Account under Drugs (Price Control) Order, 1995 which is being contested by the Company in respect of few of its products. 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.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
161
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
3.
COMMITMEN TS AND CONTINGENT LIABI L IT IES (CONTINUED)
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
(iii) (iv) (v)
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) Commitment under Export Promotion Capital Goods (EPCG) Scheme
2,950 3,835
997 –
In April 2006, the Company launched its fexofenadine hydrochloride 30 mg, 60 mg and 180 mg tablet products, which are generic versions of SanofiAventis’ (“Aventis”) Allegra® tablets. The Company is presently defending patent infringement actions brought by Aventis in the United States District Court for the District of New Jersey. There are three formulation patents, three use patents, and two active pharmaceutical ingredients (“API”) patents which are at issue in the litigation. The Company has obtained summary judgment in respect of each of the formulation patents. Teva Pharmaceuticals Industries Limited (“Teva”) and Barr Pharmaceuticals, Inc. (“Barr”) have been defending a similar action in the same court. In September 2005, pursuant to an agreement with Barr, Teva launched its fexofenadine hydrochloride 30 mg, 60 mg and 180 mg tablet products, which are AB-rated (bioequivalent) to Aventis’ Allegra® tablets. Aventis has brought patent infringement actions against Teva and its API supplier in the United States District Court for the District of New Jersey. There are three formulation patents, three use patents, and two API patents at issue in the litigation. Teva has obtained summary judgment in respect of each of the formulation patents. On 27 January 2006, the District Court denied Aventis’ motion for a preliminary injunction against Teva and its API supplier on the three use patents, finding those patents likely to be invalid, and one of the API patents, finding that patent likely to be not infringed. The issues presented during Teva’s hearing are likely to be substantially similar to those which will be presented with respect to Company’s tablet products. Subsequent to the preliminary injunction hearing, Aventis sued Teva and Barr for infringement of a new patent claiming polymorphic forms of fexofenadine. The Company utilizes an internally developed polymorph and has not been sued for infringement of the new patent. On 18 November 2008, Teva and Barr announced settlement of their litigation with Aventis. Litigation between the Company and Aventis continues. No trial has been scheduled at this time. If Aventis is ultimately successful in its allegation of patent infringement, the Company could be required to pay damages related to fexofenadine hydrochloride tablet sales made by the Company, and could also be prohibited from selling these products in the future.
(vi)
Additionally, the Group 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. The Group believes that there are no such pending matters that are expected to have any material adverse effect on its financial statements in any given accounting period.
4.
SETTLEMEN T O F LEGAL CLAIM FROM INNOVATOR During the year ended 31 March 2008, Eli Lilly’s German patent covering olanzapine was invalidated by the German Patent Court. Eli Lilly, the innovator, appealed this decision before the German Federal Court of Justice. The Company’s German subsidiary betapharm and certain other competitors had launched olanzapine products in Germany pending the decision from the German Federal Court of Justice. Eli Lilly filed an application for an interim order against betapharm claiming patent infringement at the court in Düsseldorf, Germany. However, in August 2008, the court decided not to grant the interim order due to lack of urgency. In December 2008, the Federal Court of Justice overruled the German Patent Court and decided to maintain the olanzapine patent in favor of Eli Lilly, the innovator. The Company subsequently stopped marketing this product in the German market. In March 2009, Eli Lilly, as part of the litigation has claimed damages from the Company. During the previous year, the Company has recorded a liability towards the damage claim amounting to Rs. 916 under the head operating and other expenses.
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
5.
ACCOUNTING FO R ASSOCIATES The details of the accounting for its investments under the equity method as per AS 23 – “Accounting for Investments in Associates in Consolidated Financial Statements” are as below: APR LLC (“APR”) The Group exercises significant influence over the financial and operating policy decisions of this entity. On 30 January 2004, the Group invested Rs. 21 in the Class B Interest of APR. APR is a development stage Company in the process of developing an active pharmaceutical ingredient. In accordance with a Development and Supply Agreement between the Group and APR, the Group has agreed to fund APR’s development expenses, provided certain milestones are achieved. Such funding is repayable by APR upon successful commercialisation of the product in the future. In addition to its equity investment of Rs. 21 the Group has advanced Rs. 106 to APR through 31 March 2010 including Rs. Nil for the year ended 31 March 2010. The Company’s investment and advances were adjusted against the Group’s share of losses, thereby reducing the Group’s investment to Rs. Nil as at 31 March 2010. Perlecan Pharma Private Limited Pursuant to a share purchase agreement dated 30 July 2008, the Company had acquired all the shares (except two shares) held by parties other than DRL, for an aggregate consideration of Rs. 758. Consequently, Perlecan became 99.99% subsidiary of the Company with effect from 31 July 2008. The Group accounted for its investment in Perlecan under the equity method until 30 July 2008. The Group’s share of loss of Perlecan amounting to Rs. 1 has been recognised in the financial statement till 30 July 2008. Effective from 31 July 2008, Perlecan became a subsidiary; the results of its operation were consolidated on a line-by-line basis. Subsequently as more fully discussed in Note 20 of Schedule 19, Perlecan was merged with the Company as per the High Court order dated 12 June 2009.
6.
ACCOUNTING FO R INTEREST IN A JOINT V ENT URE (JV) Kunshan Rotam Reddy Pharmaceuticals Company Limited (“Reddy Kunshan”) The Group has a 51.33 % interest in Reddy Kunshan, a joint venture (JV) in China. Reddy Kunshan is engaged in manufacturing and marketing of active pharmaceutical ingredients and intermediates and formulations in China. The contractual arrangement between shareholders of Reddy Kunshan indicates joint control as the minority shareholders, along with the Group, have significant participating rights such that they jointly control the financial and operating policies of Reddy Kunshan in the ordinary course of business. The Group has, in accordance with AS 27 “Financial Reporting of Interests in Joint Ventures” issued under the Companies (Accounting Standards) Rules 2006, accounted for its 51.33% interest in the JV by the proportionate consolidation method. Thus the Group’s income statement, balance sheet and cash flow statement incorporate the Group’s share of income, expenses, assets, liabilities and cash flows of the JV on a line-by-line basis. The aggregate amount of the assets, liabilities, income and expenses related to the Group’s share in the JV included in these financial statements as of and for the year ended 31 March 2010 are given below:
AS AT AS AT 31 MARCH 2009
PARTICULARS 31 MARCH 2010
BALANCE SHEET
Secured loan Foreign currency translation reserve Fixed assets, net Deferred tax assets, net Current assets, loans and advances Inventories Sundry debtors Cash and bank balances Loans and advances Current liabilities and provisions Current liabilities Net current assets Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances)
22 – 82 11
78 3 74 9
32 118 10 29
35 106 33 13
97 92 2
115 72 2
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
6.
ACCOUNTIN G FOR INTEREST IN A JOINT V ENTURE (JV) (CONTINUED)
FOR THE YEAR ENDED FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS 31 MARCH 2010
INCOME STATEMENT
Income Sales Other income (previous year Rs. 341 thousands, rounded off in millions) Expenditure Material costs Personnel costs Operating and other expenses Research and development expenses Finance charges Depreciation Profit / (Loss) before taxation Provision for taxation – Deferred tax (expense) / benefit Profit / (Loss) after taxation 13 73 (5) 17 130 83 135 5 3 2 60 107 60 113 4 5 3 22 405 13 314 –
7. (a)
ACQUISITIO N S Acquisition of a unit of The Dow Chemical Company During the previous year, the Company, through its wholly owned subsidiary Dr. Reddy’s Laboratories (EU) Limited (“DRL EU”), acquired a unit of The Dow Chemical Company (Dowpharma) associated with its United Kingdom sites in Mirfield and Cambridge for a total cash consideration of Rs. 1,302 (US$ 32 million), including direct acquisition cost of Rs. 13. The acquisition includes the Dowpharma’s Small Molecules facilities located in Mirfield, United Kingdom (a unit of Dowpharma) and in Cambridge, United Kingdom (Chirotech Technology Limited, a Dowpharma subsidiary). The acquisition of Chirotech Technology Limited also included customer contracts / relationships, associated API products, process technology and know-how, technology licensing rights, etc. The Company also took over the existing work force as a part of the acquisition. This acquisition results in technology related synergies for Pharmaceutical Services and Active Ingredients segment and gives access to an experienced research and development team. The details of the acquired assets and liabilities and the resultant goodwill are as follows:
Purchase consideration Fixed assets Intangible assets Inventories Net Current liabilities Resultant goodwill 722 3 231 (132)
1,302
824 478
(b) Acquisition of BASF Corporation’s manufacturing facility in Shreveport, Louisiana, USA and related pharmaceutical contract manufacturing business During the previous year, the Company acquired BASF Corporation’s pharmaceuticals contract manufacturing business and its manufacturing facility in Shreveport, Louisiana, USA for a total cash consideration of Rs. 1,639 (US$ 40 million), including direct acquisition cost of Rs. 31. The acquisition includes customer and product related intangibles, trademarks in addition to 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 business. The details of the acquired assets and liabilities and the resultant goodwill are as follows: Purchase consideration Fixed assets Intangible assets Inventories Resultant goodwill 755 482 249 1,486 153 1,639
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
7. (c)
ACQUISITION S (CONTINUED) Dr. Reddy’s SRL (formerly Jet Generici SRL) During the previous year, the Company acquired Dr. Reddy’s SRL (formerly 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 million). This acquisition resulted in the Company gaining entry in the Italian market, acquisition of product related intangibles, employee workforce and access to customers. The excess of the purchase consideration over the net assets and liabilities acquired resulted in goodwill of Rs. 139 net of assets and liabilities acquired.
8.
DEFERRED TA XATION
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Deferred tax assets Tax losses carried forward Sundry debtors Provisions Inventories Loans and advances Current liabilities Deferred tax liability Sundry debtors Stock based compensation expense Excess of depreciation allowable under Income tax law over depreciation provided in accounts Losses on cash flow hedging Deferred tax liability, net (59) (76) (1,009) – (1,144) (70) – (85) (1,157) (89) (1,331) (538) 380 – 191 70 259 174 1,074 438 100 64 10 106 75 793
The net deferred tax liability of Rs. 70 (previous year: Rs. 538) has the following breakdown.
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Deferred tax asset Deferred tax liabilities
680 (750) (70)
376 (914) (538)
9.
EARNINGS P E R S HARE (EPS) The computation of EPS is set out below:
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Earnings Net profit / (loss) for the year Shares Number of shares at the beginning of the year Add: Equity shares issued on exercise of vested stock options Total number of equity shares outstanding at the end of the year Weighted average number of equity shares outstanding during the year – Basic Add: Weighted average number of equity shares arising out of outstanding stock options (net of the stock options forfeited) that have dilutive effect on the EPS Weighted average number of equity shares outstanding during the year – Diluted Earnings per share of par value Rs. 5 – Basic (Rs.) Earnings per share of par value Rs. 5 – Diluted (Rs.) 168,468,777 376,608 168,845,385 168,706,977 1,152,320 169,859,297 20.83 20.69 168,172,746 296,031 168,468,777 168,349,139 1,046,791 169,395,930 (54.48) (54.48) 3,515 (9,172)
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165
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
10. RELATED PA RTY DISCLOSURES a. The related parties where control exists are the subsidiaries, step-down subsidiaries and partnership firms as described in Note 2. There are no other parties over which the Group has control. b. Other related parties with whom transactions have taken place during the year: Associates APR LLC, USA Enterprise over which the Group has significant influence, through 100% of Class B interest. Joint Venture Kunshan Rotam Reddy Pharmaceutical Company Limited (“Reddy Kunshan”), China Enterprise over which the group exercises 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 (“Research Foundation”) Dr. Reddy’s Holdings Limited Institute of Life Sciences Others Diana Hotels Limited Ms. K Samrajyam Ms. G Anuradha Ms. Deepti Reddy Dr. Reddy’s Heritage Foundation Dr. Reddy’s Foundation for Human and Social development S R Enterprises K K Enterprises A. R. Life Sciences Private Limited Key management personnel represented on the Board Dr. K Anji Reddy Mr. G V Prasad Mr. K Satish Reddy Non-Executive and Independent directors on the Board Dr. Omkar Goswami Mr. Ravi Bhoothalingam Mr. Anupam Puri Ms. Kalpana Morparia Dr. J P Moreau Dr. Bruce L A Carter Dr. Ashok Sekhar Ganguly (from 23 October 2009) Chairman Vice Chairman and Chief Executive Officer Managing Director and Chief Operating Officer Enterprise owned by relative of a director Spouse of the Chairman Spouse of the Vice Chairman and Chief Executive Officer Spouse of the Managing Director and Chief Operating Officer Enterprise in which the Chairman is a director Enterprise where principal shareholders are trustees Enterprise in which relative of a director has significant influence Enterprise in which relative of a director has significant influence Enterprise in which relative of a director has significant influence Enterprise over which the principal shareholders have significant influence Enterprise owned by principal shareholders Enterprise over which principal shareholders having significant influence
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
10. RELATED PARTY DISCLOSURES (CONTINUED) c. Particulars of related party transactions The following is a summary of significant related party transactions:
FOR THE YEAR ENDED PARTICULARS 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
i.
Sales to: Others A. R. Life Sciences Private Limited 156 4 135 –
ii. iii.
Service income from: Institute of Life Sciences Purchases from: Others A. R. Life Sciences Private Limited Others 275 1 97 1 50 13 284 6 104 – 20 13
iv.
Contributions made to others for social development: Dr. Reddy’s Foundation for Human and Social development Research Foundation
v. vi. vii.
Contribution made for research Institute of Life Sciences Hotel expenses paid to: Diana Hotels Limited Rent paid to: Key management personnel Dr. K Anji Reddy Mr. K Satish Reddy Others: Ms. G Anuradha Ms. Deepti Reddy Ms. K Samrajyam Rent Deposit repaid: Dr. K Anji Reddy 1 236 – – 367 – – – 170 – 1 400 360 2 11 2 1 10 2 1 – 13 1 12
viii.
Executive Directors’ Remuneration Directors’ sitting fees (Rs. 339 thousands; previous year: Rs. 250 thousands, rounded off in millions) (See Note 1 below)
ix. x. xi.
Loss pick up of associates Advance made to Dr. Reddy’s Holding Limited towards acquisitions of land a) Loans taken and repaid during the year from Dr.Reddy’s Holding Limited b) Interest on above
d. The Group has the following amounts due from / to related parties:
AS AT PARTICULARS 31 MARCH 2010 31 MARCH 2009 AS AT
i.
Due from related parties (included in loans and advances and sundry debtors): Significant interest entities: Dr. Reddy’s Holdings Limited Institute of Life Sciences Others: A. R. Life Sciences Private Limited – 21 20 43 20 68 1,447 3 1,080 –
ii.
Due to related parties (included in current liabilities): Research Foundation A. R. Life Sciences Private Limited
Note 1: Details of remuneration paid to the whole-time and non-whole-time directors are given in Note 12 to Schedule 19.
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
11. SEGMENT RE P O RTING The primary and secondary reportable segments are business and geographic segments, respectively. Business segments: In view of certain changes in the business operations, organisational structure and management reporting to the Board of Directors and to the Chief Executive Officer, the Company has revised the structure of its segments which was reported earlier. This change in segment is effective from 1 April, 2008. Accordingly, the Group is organised on a worldwide basis into the following businesses which are reportable segments: 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. This segment was formed by aggregating our former Active pharmaceutical ingredients and intermediates segment and Custom pharmaceutical services segment. 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 segment includes the Company’s former formulations and generics segments. Proprietary Products: This segment involves the discovery of new chemical entities for subsequent commercialization and out-licensing. It also involves the Company’s speciality pharmaceuticals business which has launched sales and marketing operations for in-licensed and co-developed dermatology products. Geographic segments: The Group’s business is organised into five key geographic segments. Revenues are attributable to individual geographic segments based on the location of the customer. Segment revenues and expenses: All segment revenues and expenses are directly attributable to the segments. Segment assets and liabilities: All segment assets are directly attributable to segments. According to the internal organisation and management structure of the Group and its system of internal financial reporting, the Chief Operating Decision Maker does not review the liabilities for each reportable segment. These liabilities are not fully identifiable with / allocable to individual reportable segments. Consequently, the Management believes that it is not practicable to provide segmental disclosures relating to total liabilities by primary segments. Inter-segment transfers: Segment revenue, segment expenses and segment result include transfers between business segments. Inter-segment transfers are accounted for at cost to the transferring segment. Such transfers are eliminated on consolidation. Accounting policies: The accounting policies consistently used in the preparation of the financial statements are also applied to items of revenues and expenditure in individual segments. Unallocable and Head office expenses: General administrative expenses, head-office expenses, and other expenses that arise at the corporate level and relate to the Group as a whole, are shown as unallocable items.
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S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
11. SEGMENT REP O RTING (CONTINUED) Segment information for the year ended 31 March 2010
PARTICULARS PSAI GLOBAL GENERICS PROPRIETARY PRODUCTS OTHERS ELIMINATIONS UNALLOCABLE ITEMS TOTAL
External sales (Gross) Inter – segment sales Less: Excise duty and other similar duties and taxes on sales Total Sales Income from services License fees Sale of spent chemicals Miscellaneous income Segment revenues Interest income Other unallocable income Total revenue Segment result Unallocated expense Finance charges Profit / (loss) before taxation Income tax expense Profit / (loss) before minority interest and equity in loss of associates Equity in loss of associates Minority interest Profit for the year Segment information for the year ended 31 March 2009
PARTICULARS
External sales (Gross) Inter – segment sales Less: Excise duty and other similar duties and taxes on sales Total sales Income from services License fees Sale of spent chemicals Miscellaneous income Segment revenues Interest income Other unallocable income Total revenue Segment result Unallocated expense Finance charges Profit / (loss) before taxation Income tax expense Profit / (loss) before minority interest and equity in loss of associates Equity in loss of associates Minority interest Loss for the year
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169
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
11. SEGMENT RE P O RTING (CONTINUED) Analysis of assets by business segments
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
PSAI Global Generics Proprietary Products Others
26,746 37,402 103 9,355 73,606
23,889 42,346 1,294 5,734 73,263
Analysis of depreciation and amortization by business segments
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
PSAI Global Generics Proprietary Products Others
1,287 2,453 125 266 4,131
1,079 3,490 191 217 4,977
The following table shows the distribution of the Group’s sales by geographical markets, based on the location of the customer: Sales by markets: Sales revenues by geographic markets (Gross of excise and other similar duties)
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
India North America Russia and other CIS countries Europe Others
11,559 20,852 9,119 16,604 10,699 68,833
10,689 23,683 7,415 17,931 8,608 68,326
Analysis of assets by geography
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
India North America Russia and other CIS countries Europe Others
45,001 10,819 3,613 13,051 1,122 73,606
36,327 12,821 3,477 19,349 1,289 73,263
Cost of tangible and intangible fixed assets acquired by geography
FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
India North America Russia and other CIS countries Europe Others
3,616 290 11 130 20 4,067
4,784 1,683 45 1,602 19 8,133
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
12. PARTICULAR S O F MANAGERIAL REMUNERAT ION The remuneration paid to managerial personnel during the year:
FOR THE YEAR ENDED PARTICULARS 31 MARCH 2010 31 MARCH 2009 FOR THE YEAR ENDED
Remuneration and Commission to whole-time directors Salaries and allowances Commission Other perquisites Commission to non-whole-time directors 13 220 3 236 21 257 included in the aforementioned disclosure. Note: Computation of Net Profits under Section 309(5) of the Companies Act, 1956 (“the Act”) and the computation of limit on commission payable to nonwhole-time directors have not been disclosed as the limits prescribed under the Act do not apply to the consolidated financial statements of the Company. 13 155 2 170 19 189
The executive directors are covered under the Company’s gratuity policy along with the other employees of the Company. Proportionate amount of gratuity is not
13. EMPLOYEE S TO CK 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 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. The date of grant, number of options granted, exercise price fixed by the Committee for respective options and the market price of the shares of the Company on the date of grant is given below:
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171
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
13. EMPLOYEE S TO CK OPTION SCHEME (CONT INUED)
MARKET PRICE (RUPEES) DATE OF GRANT NUMBER OF OPTIONS GRANTED EXERCISE PRICE (RUPEES) (AS PER SEBI GUIDELINES)
18 May 2009 other than fair market value and par value of the equity shares. Stock option activity under the DRL 2002 Plan was as follows:
359,840
5.00
612.95
The Compensation Committee may, after obtaining the approval of the shareholders in the Annual General Meeting, grant options with a per share exercise price
Stock Options activity under the DRL 2002 Plan for the two categories of options was as follows:
CATEGORY A – FAIR MARKET VALUE OPTIONS SHARES ARISING OUT OF OPTIONS YEAR ENDED 31 MARCH 2010 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Grants during the year (Expired / forfeited)during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY A – FAIR MARKET VALUE OPTIONS
YEAR ENDED 31 MARCH 2009 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Grants during the year (Expired / forfeited)during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
CATEGORY B – PAR VALUE OPTIONS
YEAR ENDED 31 MARCH 2010 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
778,486 359,840 (83,608) (269,711) 785,007 79,647
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
72 91 – – 72 41
CATEGORY B – PAR VALUE OPTIONS SHARES ARISING OUT OF OPTIONS
YEAR ENDED 31 MARCH 2009 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
13. EMPLOYEE S TO CK OPTION SCHEME (CONTINU ED) 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 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. 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. The date of grant, number of options granted, exercise price fixed by the Compensation Committee for respective options and the market price of the shares of the Company on the date of grant is given below:
MARKET PRICE (RUPEES) DATE OF GRANT NUMBER OF OPTIONS GRANTED EXERCISE PRICE (RUPEES) (AS PER SEBI GUIDELINES)
18 May 2009
74,600
5.00
612.95
Stock option activity under the 2007 Plan was as follows:
CATEGORY B – PAR VALUE OPTIONS SHARES ARISING OUT OF OPTIONS YEAR ENDED 31 MARCH 2010 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year
156,577 74,600 (44,630) (74,157) 112,390 2,250
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
71 91 – – 74 47
CATEGORY B – PAR VALUE OPTIONS SHARES ARISING OUT OF OPTIONS
YEAR ENDED 31 MARCH 2009 RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the period Exercisable at the end of the year
182,778 74,400 (28,175) (72,426) 156,577 24,012
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
Rs. 5.00 5.00 5.00 5.00 Rs. 5.00 Rs. 5.00
73 89 – – 71 52
The Company has followed intrinsic method of accounting based on which a compensation expense of Rs. 193 (previous year: Rs. 197) has been recognized in the profit and loss account (Schedule 15) Aurigene Discovery Technologies Ltd. Employee Stock Option Plan (the “Aurigene ESOP Plan”): In fiscal 2004, Aurigene Discovery Technologies Limited (“Aurigene”), a consolidated subsidiary, adopted the Aurigene ESOP Plan to provide for issuance of stock options to employees. 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 a price per share as may be determined by the Compensation Committee. The options vest from a period ranging from 1 to 3 years, including certain options which vest immediately on grant.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
173
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
13. EMPLOYEE S TO CK OPTION SCHEME (CONT INUED) Stock option activity under the Aurigene ESOP Plan was as follows:
YEAR ENDED 31 MARCH 2010 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year Exercised during the year (Expired / forfeited) during the year Outstanding at the end of the year Exercisable at the end of the year
YEAR ENDED 31 MARCH 2009 SHARES ARISING OUT OF OPTIONS RANGE OF EXERCISE PRICES WEIGHTED-AVERAGE EXERCISE PRICE WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE (MONTHS)
Outstanding at the beginning of the year (Expired / forfeited) during the year Outstanding at the end of the year Exercisable at the end of the year
Aurigene has followed intrinsic method of accounting based on which a compensation expense of Rs. 5 (previous year: Rs. 7) has been recognized in the profit and loss account (Schedule 15 – Deferred stock compensation cost). Aurigene Discovery Technologies Ltd. Management Group Stock Grant Plan (the “Management Plan”): In fiscal 2004, Aurigene adopted the Aurigene Discovery Technologies Limited Management Group Stock Grant Plan (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. The plan was closed by a resolution of the shareholders in January 2008. Accordingly, as of 31 March 2010, there were no stock options outstanding under the Aurigene Management Plan.
14. RESEARCH A N D DEVELOPMENT ARRANGEMENT 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”) 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. 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. 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.
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
15. OPERATING LE A SE The Group leases offices, residential facilities and vehicles under operating lease agreements that are renewable on a periodic basis at the option of both the lessor and the lessee. Rental expense under those leases was Rs. 519 (previous year: Rs. 383). The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below:
AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Not later than 1 year Later than 1 year and not later than 5 years Beyond 5 years
154 332 – 486
173 345 – 518
16. FINANCE LEAS E The Company has taken buildings and vehicles under finance lease. Future minimum lease payments under finance leases as at 31 March 2010 are as follows:
PRESENT VALUE OF PARTICULARS MINIMUM LEASE PAYMENTS FUTURE INTEREST MINIMUM LEASE PAYMENTS
Not later than 1 year Later than 1 year and not later than 5 years Beyond 5 years
15 43 195 253
1 – 1 2
16 43 196 255
Future minimum lease payments under finance leases as at 31 March 2009 are as follows:
PARTICULARS PRESENT VALUE OF MINIMUM LEASE PAYMENTS FUTURE INTEREST MINIMUM LEASE PAYMENTS
Not later than 1 year Later than 1 year and not later than 5 years Beyond 5 years
18 43 239 300
6 2 1 9
25 45 239 309
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
175
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE BE N EFIT PLANS 17.1 GRATUITY P LA N OF DR. REDDY’S LABORAT ORIES LIMITED The disclosure particulars of Dr. Reddy’s Laboratories Limited are shown in the tables below: Reconciliation of opening and closing balance of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gains) Liabilities assumed on account of acquisition Benefits paid Closing defined benefit obligation Change in the Fair value of assets
PARTICULARS
398 49 29 17 (10) (30) 452
319 41 27 44 – (33) 398
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Opening fair value of plan assets Expected return on plan assets Actuarial gains / (losses) Contributions by employer Benefits paid Closing defined benefit obligation Amount recognized in Balance Sheet
PARTICULARS
334 25 26 95 (30) 449
289 21 (7) 64 (33) 334
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Net liability Amounts in the balance sheet Provision for gratuity Net liability / (asset) Expense recognized in statement of Profit and Loss Account
PARTICULARS
452 (449) 3 3 3
398 (334) 64 64 64
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in the year Amount, included in employee benefit expense Actual return on plan assets Asset Information
CATEGORY OF ASSETS
49 29 (26) (9) 43 52
41 27 (21) 51 98 14
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Government of India securities Corporate bonds Insurer managed funds Others Total
2% 1% 96% 1% 100%
3% 1% 95% 1% 100%
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE B E N E FIT PLANS (CONTINUED) 17.1 GRATUITY PLA N OF DR. REDDY’S LABOR AT ORIES LIMITED (CONTINUED) The approximate market value of the assets as at 31 March 2010 was Rs. 449 (previous year: Rs. 334), breakup of the same is as follows:
CATEGORY OF ASSETS AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Government of India securities Corporate bonds Insurer managed funds Others Total Summary of Actuarial Assumptions Financial assumptions at the valuation date:
10 4 433 2 449
12 5 316 1 334
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount rate Expected rate of return on plan assets Salary escalation rate
7.50% p.a 7.50% p.a 8% p.a for next 2 years and 6% p.a thereafter
7.15% p.a 7.50% p.a 8% p.a for next 3 years & 6% p.a thereafter
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. Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations. Salary escalation rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
17.2 GRATUITY P LA N OF AURIGENE DISCOVERY T ECHNOLOGIES LIMITED The disclosure particulars of Aurigene Discovery Technologies Limited are shown in the below tables: Reconciliation of opening and closing balance of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gain) Liabilities assumed on account of acquisition Benefits paid Closing defined benefit obligation Amount recognized in Balance Sheet
PARTICULARS
6 3 1 1 11 (1) 21
3 1 1 1 – – 6
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of unfunded obligations Net liability Amounts in the balance sheet Provision for gratuity Net liability / (asset)
21 21 21 21
6 6 6 6
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
177
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE BE N EFIT PLANS (CONTINUED) 17.2 GRATUITY P LA N OF AURIGENE DISCOVERY TECHNOLOGIES LIMITED (CONTINUED) Expense recognized in statement of Profit and Loss Account
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Net actuarial losses / (gains) recognized in the year Amount, included in employee benefit expense Summary of Actuarial Assumptions Financial assumptions at the valuation date:
3 1 1 5
1 – 2 3
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount rate Salary escalation rate
7.50% p.a 8.00% p.a
7.15% p.a 8.00% p.a
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 estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
17.3 LONG SER VICE AWARD BENEFIT PLAN OF DR. REDDY’S LABORATORIES LIMITED The disclosure particulars of Dr. Reddy’s Laboratories Limited are shown in the below tables: Reconciliation of opening and closing balances of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gain) Past service cost Liabilities assumed on account of acquisition Benefits paid Closing defined benefit obligation Amount recognized in Balance Sheet
PARTICULARS
– – – – 53 – – 53
– – – – – – – –
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Net Liability Amounts in the balance sheet Provision for Earned leave Net liability / (asset)
– – 53 53 53 53
– – – – – –
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE B E N E FIT PLANS (CONTINUED) 17.3 LONG SER VICE AWARD BENEFIT PLAN OF DR. REDDY’S LABORATORIES LIMITED (CONTINUED) Expense recognized in statement of Profit and Loss Account
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in year Past service cost Amount, included in “Employee benefit expense” Actual return on plan assets Summary of Actuarial Assumptions Financial assumptions at the valuation date:
– – – – 53 53 –
– – – – – – –
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount Rate Salary Escalation Rate
7.50% p.a 8% p.a for next 2 years and 6% p.a thereafter
– –
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 estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
179
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE BE N EFIT PLANS (CONTINUED) 17.3 EMPLOYEE BE NEFIT PLAN OF INDUSTRI AS QUIMICAS FALCON DE MEXICO S.A. DE. C.V. 17.3. (A) PENS IO N PLAN One of the Subsidiaries provides for seniority, a defined benefit retirement plan covering certain categories of employees. The disclosure particulars of Industrias Quimicas Falcon de Mexico are shown in the below tables: Reconciliation of opening and closing balance of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gains) Benefits paid Closing defined benefit obligation
209 11 21 33 (4) 270
189 9 15 26 (30) 209
PARTICULARS
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Opening fair value of plan assets Expected return on plan assets Actuarial gains / (losses) Contributions by employer Benefits paid Closing fair value of plan assets Amount recognized in Balance Sheet
PARTICULARS
168 19 36 19 (4) 238
203 15 (44) 24 (30) 168
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Net liability Amounts in the balance sheet Provision for pension Net liability / (asset) Expense recognized in statement of Profit and Loss Account
PARTICULARS
270 (238) 32 32 32
210 (168) 42 42 42
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in the year Amount not recognised as an asset Amount, included in employee benefit expense Actual return on plan assets Asset Information
CATEGORY OF ASSETS
11 21 (19) (3) – 10 55
9 15 (15) 75 – 84 (23)
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Corporate bonds Equity shares of listed companies Total
49% 51% 100%
53% 47% 100%
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE B E N E FIT PLANS (CONTINUED) The approximate market value of the assets as at 31 March 2010 was Rs. 238 (previous year Rs. 168), a breakup of the same is as follows:
CATEGORY OF ASSETS AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Corporate bonds Equity shares of listed companies Total Summary of Actuarial assumptions Financial assumptions at the valuation date:
115 123 238
89 79 168
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount rate Expected rate of return on plan assets Salary escalation rate
7.91% p.a 10.50%p.a 4.50% p.a
9.50% p.a 10.50% p.a 4.50% p.a
Discount rate: The discount rate is based on the market yields prevailing in Mexico as at the balance sheet date for the estimated term of the obligations. Expected rate of return on plan assets: This is based on our expectation of the average long term rate of return expected on investments of the Fund during the estimated term of the obligations. Salary escalation rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
17.3. (B) SENIOR ITY PAY PLANS One of the Subsidiaries provides for seniority, a defined benefit retirement plan covering certain categories of employees. The disclosure particulars of Industrias Quimicas Falcon de Mexico are shown in the below tables: Reconciliation of opening and closing balance of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gains) Benefits paid Closing defined benefit obligation
10 1 1 1 (1) 12
FOR THE YEAR ENDED 31 MARCH 2010
13 1 1 (5) – 10
FOR THE YEAR ENDED 31 MARCH 2009
PARTICULARS
Opening fair value of plan assets Expected return on plan assets Actuarial gains / (losses) Contributions by employer Benefits paid Closing fair value of plan assets Amount recognized in Balance Sheet
PARTICULARS
9 1 (1) 1 – 10
10 1 (2) 1 (1) 9
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Present value of funded obligations Fair value of plan assets Net liability Amounts in the balance sheet Provision for seniority pay Net liability / (asset)
12 (10) 2 2 2
10 (9) 1 1 1
A N N U A L R E P O R T 2 0 0 9 – 1 0 I G A A P C O N S O L I D AT E D F I N A N C I A L S |
181
Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE BE N EFIT PLANS (CONTINUED) Expense recognized in the statement of Profit and Loss Account
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Expected return on plan assets Net actuarial losses / (gains) recognized in the year Total, included in employee benefit expense Actual return on plan assets Asset Information
CATEGORY OF ASSETS
1 1 (1) 1 2 –
1 1 (1) (3) (2) (1)
AS AT 31 MARCH 2010
AS AT 31 MARCH 2009
Corporate bonds Equity shares of listed Companies Total
53% 47% 100%
53% 47% 100%
The approximate market value of the assets as at 31 March 2010 was Rs. 10 (previous year Rs. 9), a breakup of the same is as follows:
CATEGORY OF ASSETS AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Corporate bonds Equity shares of listed Companies Total Summary of actuarial assumptions Financial assumptions at the valuation date:
5 5 10
5 4 9
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount rate Expected rate of return on plan assets Salary escalation rate
7.91% p.a 10.50% p.a 4.50% p.a
9.50% p.a 10.50% p.a 4.50% p.a
Discount rate: The discount rate is based on the market yields prevailing in Mexico as at the balance sheet date for the estimated term of the obligations. Expected rate of return on plan assets: This is based on our expectation of the average long term rate of return expected on investments of the Fund during the estimated term of the obligations. Salary escalation rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors.
17.3 (C) SEVERA N CE PAY PLAN One of the subsidiaries has a scheme of severance pay for the employees who are dismissed from the services of the Employer without any justifiable reason. The disclosure particulars of Industrias Quimicas Falcon de Mexico are shown in the below tables: Reconciliation of opening and closing balance of the present value of the defined benefit obligation
PARTICULARS FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009
Opening defined benefit obligation Current service cost Interest cost Actuarial losses / (gains) Benefits paid Closing defined benefit obligation
25 2 2 (2) (2) 25
50 4 4 (22) (11) 25
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
17. EMPLOYEE B E N E FIT PLANS (CONTINUED) Amount recognized in Balance Sheet
PARTICULARS AS AT 31 MARCH 2010 AS AT 31 MARCH 2009
Present value of unfunded obligations Net liability Amounts in the balance sheet Provision for severance pay Net liability / (asset) Expense recognized in the statement of Profit and Loss Account
PARTICULARS
25 25 25 25
25 25 25 25
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Current service cost Interest on defined benefit obligation Net actuarial losses / (gains) recognized in the year Amount, included in employee benefit expense The severance pay scheme liabilities of the company are unfunded and hence there are no assets held to meet the liabilities. Summary of Actuarial Assumptions Financial assumptions at the valuation date:
2 2 (2) 2
4 4 (22) (14)
FOR THE YEAR ENDED 31 MARCH 2010
FOR THE YEAR ENDED 31 MARCH 2009
Discount rate Salary escalation rate
7.91% p.a 4.50% p.a
9.50% p.a 4.50% p.a
Discount rate: The discount rate is based on the market yields prevailing in Mexico as at the balance sheet date for the estimated term of the obligations. Salary escalation rate: The estimates of future salary increases considered takes into account the inflation, seniority, promotion and other relevant factors
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
18. EXCEPTIONA L ITEM – IMPAIRMENT OF GOODWILL AND INTANGIBLES During the past 18-24 months, there have been certain significant changes in the German generics market such as reference price cuts, increased presence of discount contracts, announcement of large sales tender from AOK, etc. Pursuant to these changes including the developments during the current year such as further deterioration in market conditions and adverse outcome of the more recent tenders, the Company has tested the carrying values of betapharm’s intangibles (primarily product related) and goodwill for impairment as at 31 March 2010. The recoverable amount was determined to be the Value-In-Use (“ViU”) The impairment testing indicated that the carrying value of certain product related intangibles was higher than its recoverable amount and accordingly, the Group has recorded an impairment loss with respect to such intangible assets amounting to Rs. 887 as at 31 March 2010 (previous year Rs. 862). Additionally, as regards goodwill, the carrying value of the betapharm CGU was also higher than the recoverable amount resulting in a goodwill imparment of Rs. 3,696 (previous year Rs. 13,766). The aforesaid impairment losses (computed with the assistance of independent valuers) in the consolidated income statement for the year ended 31 March 2010 relate to the Company’s Global Generics segment. The key assumptions considered in the ViU calculation are as follows: Revenue projections are based on the approved revised budgets for the fiscal year ending 31 March 2011, based on management’s visibility of current order book and the actual performance during recent months. These projections take into account the expected long term growth rate in the German generics industry. Accordingly, based on the industry reports and other information, the Company projects a constant 1% decline in revenue on a year-on-year basis for existing products. The net cash flows have been discounted based on a post tax discounting tax rate of 7.44 to 9.34%
19. HEDGING & D E RIVATIVES The following are the outstanding forward exchange contracts entered into by the Company:
YEAR ENDED 31 MARCH 2010 CATEGORY CURRENCY CROSS CURRENCY AMOUNT BUY / SELL PURPOSE
Forward Contract
YEAR ENDED 31 MARCH 2009 CATEGORY
The following are the outstanding foreign currency options, which are classified as cash flow hedges and effective as at:
YEAR ENDED 31 MARCH 2010 CURRENCY CROSS CURRENCY NO OF CONTRACTS AMOUNT GAIN / (LOSS)
USD
YEAR ENDED 31 MARCH 2009 CURRENCY
INR
12
USD 410
Rs. 508
CROSS CURRENCY
NO OF CONTRACTS
AMOUNT
GAIN / (LOSS)
USD
INR
2
USD 120
Rs. (237)
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
20. SCHEME OF A MA LGAMATION OF PERLECAN PHARMA PRIVATE LIMITED (“PERLECAN PHARMA”) WITH THE COMPANY UN D E R SECTION 391 AND 394 OF T HE COMPANIES ACT, 1956 In October 2008, the Board of Directors approved a scheme of amalgamation (‘the Scheme’) of Perlecan Pharma (“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 immediately 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 financial 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. To the extent there are inter-corporate loans or balances between the transferor Company and the transferee Company, the obligations in respect thereof shall 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
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Schedules to the Consolidated Balance Sheet | Profit and Loss Account ( C O N T I N U E D )
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
SCHEDULE 19: NOTES TO CONSOLIDATED ACCOUNTS (CONTINUED)
20. SCHEME OF A MALGAMATION OF PERLECAN PHARMA PRIVATE LIMITED (“PERLECAN PHARMA”) WI TH THE COMPANY UNDER SEC TIO N 391 AND 394 OF THE COMPANIES ACT, 1956 (CONTINUED) The effect of the transactions on the balances in the profit and loss account balance as on 31 March 2009 is as follows:
PARTICULARS (EXPENSE)/ INCOME
Research and development expenses recognised Operating and other expenses recognised Intra group service income de-recognised Interest income recognised Reversal of the loss pick up of the prior year i.e. up to 31 March 2008 Amortization of the Goodwill Income tax benefit arising on account of the above transactions Total
(693) (32) (179) 130 109 58 281 (326)
The investment in equity shares of the transferor Company held by shareholders other than DRL (hereinafter referred as ‘Partners’) aggregated to Rs. 1,018. During the year, the Company purchased the shares (all except two shares) from the Partners for an aggregate consideration of Rs. 758. The excess of the investment in equity shares by Partners in Perlecan Pharma over the aggregate consideration paid was credited to capital reserve. The details are as follows:
PARTICULARS AMOUNT
Investment in equity shares of Perlecan Pharma by Partners Less: Consideration paid to partners Excess credited to capital reserve
1,018 (758) 260
21. 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 consolidated financial statements; as the proposed scheme is to be approved by the shareholders and the High Court.
22. COMPARATIVE FIGURES Previous year’s figures have been regrouped / reclassified wherever necessary, to conform to current year’s classification.
A s p e r o u r r e p o r t a t ta ch e d for B S R & Co. for DR. REDDY’S LABORATORIES LIMITED
Chartered Accountants Firm Registration No.: 101248W S Sethuraman Partner Membership No.: 203491 Place: Hyderabad Date: 6 May 2010 Dr. K Anji Reddy G V Prasad K Satish Reddy Umang Vohra V S Suresh Chairman Vice Chairman and CEO Managing Director and COO Chief Financial Officer Company Secretary
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IF R S CONSOL I DATED FI NA NC I A L S 188 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 189 CONSOLIDATED INCOME STATEMENT
189 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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Extract of Consolidated IFRS Financial Statements
We have adopted IFRS as issued by International Accounting Standards Board (IASB) for preparing our financial statements for the purpose of filings with SEC. We have furnished all our interim financial reports of fiscal 2010 with SEC which were prepared under IFRS. The Annual Report in Form 20-F will also be made available at the Company’s website. A hard copy of such Annual Report in Form 20-F will be made available to the shareholders, free of charge, upon request. For details visit www.drreddys.com The extract of the consolidated financial statements prepared under IFRS has been provided here under.
Consolidated Statement of Financial Position
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D P E R S H A R E D ATA AS OF 31 MARCH 2010 AS OF 31 MARCH 2009
ASSETS
Current assets Cash and cash equivalents Other investments Trade receivables, net Inventories Derivative financial instruments Current tax assets Other current assets Total current assets Non-current assets Property, plant and equipment Goodwill Other intangible assets Investment in equity accounted investees Deferred income tax assets Other non-current assets Total non-current assets Total assets
LIABILITIES AND EQUITY
Current liabilities Trade payables Derivative financial instruments Current income tax liabilities Bank overdraft Short-term borrowings Long-term borrowings, current portion Provisions Other current liabilities Total current liabilities Non-current liabilities Long-term loans and borrowings, excluding current portion Provisions Deferred tax liabilities Other liabilities Total non-current liabilities Total liabilities Equity Share capital Equity shares held by controlled trust Share premium Share based payment reserve Retained earnings Other components of equity Total equity attributable to: Equity holders of the Company Non-controlling interests Total equity Total liabilities and equity Rs. 42,915 – Rs. 42,915 Rs. 80,330 Rs. 42,045 – Rs. 42,045 Rs. 83,792 Rs. 844 (5) 20,429 692 18,035 2,920 Rs. 842 (5) 20,204 676 18,305 2,023 Rs. 5,385 39 2,720 249 Rs. 8,393 Rs. 37,415 Rs.10,132 42 4,670 350 Rs. 15,194 Rs. 41,747 Rs. 9,322 – 1,432 39 5,565 3,706 1,094 7,864 Rs. 29,022 Rs. 5,987 332 632 218 5,850 3,501 1,928 8,105 Rs. 26,553
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Consolidated Income Statement
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D P E R S H A R E D ATA FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009 FOR THE YEAR ENDED 31 MARCH 2008
Revenues Cost of revenues Gross profit Selling, general and administrative expenses Research and development expenses Impairment loss on other intangible assets Impairment loss on goodwill Other expense / (income), net Total operating expenses, net Results from operating activities Finance expense Finance income Finance (expense) / income, net Share of profit of equity accounted investees, net of income tax Profit / (loss) before income tax Income tax (expense) / benefit Profit / (loss) for the year Attributable to: Equity holders of the Company Non-controlling interests Profit / (loss) for the year Earnings / (loss) per share Basic Diluted Weighted average number of equity shares used in computing earnings / (loss) per equity share Basic Diluted
Consolidated Statement of Comprehensive Income
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D P E R S H A R E D ATA FOR THE YEAR ENDED 31 MARCH 2010 FOR THE YEAR ENDED 31 MARCH 2009 FOR THE YEAR ENDED 31 MARCH 2008
Profit / (loss) for the year Other comprehensive income / (loss) Changes in fair value of available for sale financial instruments Foreign currency translation adjustments Effective portion of changes in fair value of cash flow hedges, net Income tax on other comprehensive income Other comprehensive income / (loss) for the year, net of income tax Total comprehensive income / (loss) for the year Attributable to: Equity holders of the Company Non-controlling interests Total comprehensive income / (loss) for the year
Statement pursuant to Section 212 of the Companies Act, 1956
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
NAME OF THE SUBSIDIARY
THE FINANCIAL YEAR OF THE SUBSIDIARY COMPANY ENDED ON NUMBER OF SHARES IN THE SUBSIDIARY COMPANY HELD BY DR. REDDY’S LABORATORIES LIMITED AT THE ABOVE DATE
THE NET AGGREGATE OF PROFITS (LOSSES) OF THE SUBSIDIARY COMPANY FOR IT’S FINANCIAL YEAR SO FAR AS THEY CONCERN THE MEMBERS OF DR. REDDY’S LABORATORIES LIMITED (3)
THE NET AGGREGATE OF PROFITS (LOSSES) OF THE SUBSIDIARY COMPANY FOR IT’S PREVIOUS FINANCIAL YEARS SO FAR AS THEY CONCERN THE MEMBERS OF DR. REDDY’S LABORATORIES LIMITED (3)
CHANGES IN THE INTEREST OF DR. REDDY’S LABORATORIES LIMITED, BETWEEN THE END OF THE LAST FINANCIAL YEAR AND 31 MARCH 2010
MATERIAL CHANGES BETWEEN THE END OF THE LAST FINANCIAL YEAR AND 31 MARCH 2010
EQUITY SHARES
PREFERENCE SHARES
EQUITY HOLDING %
PREFERENCE HOLDING %
A) DEALT WITH B) NOT DEALT WITH IN THE ACCOUNT IN THE ACCOUNT OF DR. REDDY’S OF DR. REDDY’S LABORATORIES LABORATORIES LIMITED FOR THE LIMITED FOR THE YEAR ENDED YEAR ENDED 31.03.2010 31.03.2010
A) DEALT WITH IN THE ACCOUNT OF DR. REDDY’S LABORATORIES LIMITED FOR THE YEAR ENDED 31.03.2009
B) NOT DEALT WITH IN THE ACCOUNT OF DR. REDDY’S LABORATORIES LIMITED FOR THE YEAR ENDED 31.03.2009
Aurigene Discovery Technologies (Malaysia) SDN BHD Eurobridge Consulting B.V. OOO DRS LLC Dr. Reddy’s New Zealand Limited (formerly Affordable Healthcare Limited) Dr. Reddy’s Laboratories SA Dr. Reddy’s Laboratories Louisiana LLC Dr. Reddy’s Laboratories ILAC TICARET Limited Macred India Private Limited Dr. Reddy’s SRL (formerly Jet Generici SRL) Chirotech Technology Limited Dr. Reddy’s Pharma SEZ Limited Dr. Reddy’s Laboratories International SA 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 – – – – – – – –
100 – 100 100 – – 100 –
– – – – – – – –
– – – – – – – –
3,048 (513) – – (161) (44) – –
– – – – – – – –
1,953 (206) – – (207) 14 – –
– – – – – – New Subsidiary New Subsidiary
– – – – – – – –
S U S TA I N A B I L I T Y — C R E AT I N G A P O S I T I V E E C O N O M I C , S O C I A L A N D E N V I R O N M E N TA L I M PA C T
(1) Step down subsidiary (2) No concept of share capital (3) The amounts shown in this column represent the net aggregate amount of profits / (losses) of the subsidiary attributable to the direct holding of the Company. (4) Dr. Reddy’s Pharma SEZ Limited was incorporated on 8th July, 2009. (5) Dr. Reddy’s Laboratories International SA was incorporated on 24th March, 2010. G V Prasad Vice Chairman and CEO K Satish Reddy Managing Director and COO Umang Vohra Chief Financial Officer V S Suresh Company Secretary
Place: Hyderabad Date: 6 May 2010
for Dr. Reddy’s Laboratories Limited Dr. K Anji Reddy Chairman
Information on the financials of subsidiaries (Prepared as per IGAAP)
TOTAL ASSETS IN SUBSIDIARIES) LIABILITIES (EXCL. INVESTMENT BEFORE TAX FOR TAX TAX TURNOVER TOTAL INVESTMENTS PROFIT PROVISION PROFIT AFTER PROPOSED DIVIDEND
A L L A M O U N T S I N I N D I A N R U P E E S M I L L I O N S , E X C E P T S H A R E D ATA A N D W H E R E O T H E R W I S E S TAT E D
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betapharm Arzneimittel GmbH
beta Healthcare Solutions GmbH
191
beta Institut fur soziaimedizinische Forschung and Entwicklung GmbH
Reddy Holding GmbH
Reddy Pharma Italia SPA
Reddy Pharma Iberia SA
Dr. Reddy’s Laboratories (Australia) Pty. Ltd.
Aurigene Discovery Technologies (Malaysia) SDN BHD
Eurobridge Consulting B.V.
OOO DRS LLC
Dr. Reddy’s New Zealand Limited (formerly Affordable Healthcare Limited)
Dr. Reddy’s Laboratories SA
Dr. Reddy’s Laboratories Louisiana LLC
Dr. Reddy’s Laboratories ILAC TICARET Limited
Macred India Private Limited
Dr. Reddy’s SRL (formerly Jet Generici SRL)
Chirotech Technology Limited
Dr. Reddy’s Pharma SEZ Limited
Dr. Reddy’s Laboratories International SA
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Notice of Annual General Meeting
Notice is hereby given that the 26th Annual General Meeting of the members of the Company will be held on Friday, 23 July 2010 at 11.30 A.M. at the Grand Ball Room, Hotel Taj Krishna, Road No. 1, Banjara Hills, Hyderabad – 500 034 to transact the following business:
ORDINARY BUSINESS:
3.
The register of members and the share transfer books of the Company will remain closed from Tuesday, 6 July 2010 to Saturday, 10 July 2010 (both days inclusive).
4.
The Board of Directors in their meeting held on 6 May 2010 has recommended a dividend of Rs. 11.25 per share on equity share of Rs. 5 each as final dividend for the financial year 2009-10. Dividend, if declared, at the annual general meeting, will be paid on or after 23 July 2010.
1.
To receive, consider and adopt the Balance Sheet as at 31 March 2010 and the Profit & Loss Account of the Company for the year ended on that date along with the Reports of the Directors’ and Auditors’ thereon. 5.
The shareholders are requested to intimate immediately, any change in their address or bank mandates to their depository participants with whom they are maintaining their demat accounts or to the Company’s Share Transfer Agent, M/s. Bigshare Services Private Limited, if the shares are held by them in certificate form.
2. 3.
To declare dividend on the equity shares for the financial year 2009–10. To appoint a Director in place of Dr. J P Moreau, who retires by rotation, and being eligible, seeks re-appointment.
4.
To appoint a Director in place of Ms. Kalpana Morparia, who retires by rotation, and being eligible, seeks re-appointment.
6.
Shareholders desiring any information relating to the accounts are requested to write to the Company at an early date so as to enable the management to keep the information ready.
5.
To appoint the Statutory Auditors and fix their remuneration. The retiring Auditors B S R & Co., Chartered Accountants are eligible for re-appointment. 7.
For the convenience of members and for proper conduct of the meeting, entry to the place of meeting will be regulated by attendance slip, which is a part of the annual report. Members are requested to sign at the place provided on the attendance slip and hand it over at the entrance to the venue.
SPECIAL BUSINESS:
6.
APPOINTMENT OF DR. ASHOK SEKHAR GANGULY AS A DIRECTOR OF THE COMPANY 8. To consider and, if thought fit, to pass with or without modification, the following resolution as an Ordinary Resolution: “RESOLVED THAT pursuant to the provisions of Section 260 of the Companies Act, 1956 and Article 103 of the Articles of Association of the Company, Dr. Ashok Sekhar Ganguly, who was appointed as an Additional Director at the meeting of the Board of Directors of the Company and who holds office up to the date of ensuing Annual General Meeting of the Company and in respect of whom the Company has received notice from a member under Section 257 of the Companies Act, 1956 proposing his candidature, be and is hereby appointed as a Director of the Company, liable to retire by rotation.” 9.
Members are requested to kindly bring their copy of the Annual Report with them at the Annual General Meeting, as no extra copy of Annual Report would be made available at the Annual General Meeting. Consequent upon the introduction of Section 109A of the Companies Act, 1956, shareholders are entitled to make a nomination in respect of shares held by them in physical form. Shareholders desirous of making a nomination are requested to send their requests in Form No. 2B in duplicate (which will be made available on request) to the Registrar and Share Transfer Agent of the Company.
10. The brief profile of the Directors proposed to be appointed / re-appointed is given in the section on Corporate Governance.
NOTES:
1.
An explanatory statement pursuant to Section 173 (2) of the Companies Act, 1956 in respect of the special business is annexed hereto. By Order of the Board
2.
A member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of himself / herself and the proxy need not be a member of the Company. The instrument of proxy in order to be effective, must be deposited at the registered office of the Company, duly completed and signed not less than 48 hours before the meeting. Place: Hyderabad Date: 3 June 2010 V S Suresh Company Secretary
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Annexure to Notice
Explanatory statement pursuant to Section 173(2) of the Companies Act, 1956 ITEM NO. 6 The Board of Directors of the Company at their meeting held on 23 October 2009 had appointed Dr. Ashok Sekhar Ganguly as an Additional Director of the Company. Dr. Ganguly is the Chairman of Firstsource Solutions Limited and ABP Private Ltd. and was a Director on the Central Board of the Reserve Bank of India from 2001 to 2009. He also serves as a non-Executive Director of Mahindra & Mahindra Limited, Wipro Limited, Hemogenomics Private Limited and Tata AIG life Insurance Company Limited. He is a Director on the Advisory Board of Microsoft Corporation (India) Private Limited and the Blackstone Group. Dr. Ganguly’s principal professional career spanned 35 years with Unilever Plc / NV. He was the Chairman of Hindustan Lever Limited from 1980 to 1990, and member of the Unilever Board from 1990 to 1997 with responsibility for research and technology. He has served on several public bodies, principal among them being, as member of Science Advisory Council to the Prime Minister of India (1985-89) and the UK Advisory Board of Research Councils (1991-94). Currently, he is a member of the Prime Minister’s Council on Trade and Industry, Investment Commission (2004-09) and the India-USA CEO Council, set up by the Prime Minister of India and the President of the USA.
Dr. Ganguly has authored ‘Industry and Liberalization’ (1994), ‘Strategic Manufacturing for Competitive Advantage’ (1998) and ‘Business Driven R&D — Managing Knowledge to Create Wealth’ (1999), besides several publications in science, technology & management. He is a recipient of the Padma Bhushan as well as the Padma Vibhushan, two of India’s prestigious civilian honours. At present, he serves as a member of the Rajya Sabha, the upper house of the Parliament of India. As per the provisions of Section 260 of the Companies Act, 1956, he holds office of Director up to the date of the Annual General Meeting unless approved by the shareholders. The Company has received a notice as required under section 257 of the Companies Act, 1956 along with a deposit of Rs. 500 from a member of the Company, proposing his candidature for the office of the Director. The Board recommends the resolution set forth in item no. 6 for approval of the members. None of the Directors of the Company other than Dr. Ashok Sekhar Ganguly are deemed to be concerned or interested in the above resolution. By Order of the Board
Place: Hyderabad Date: 3 June 2010
V S Suresh Company Secretary
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Glossary
ACS ADR ADS AG AGM ANDA ANVISA API ARL AS AVWG BSE CAGR CCPM CDL CDSL CEO CESTAT CFO cGMP CIA CII CIS COBE COO CSR CTO DMF DP DPCO DRF DRFHE EBIDTA ECCE EPS ERC ERM ESOP ESOS EU FDAAA FI FII FTO FY GDR GRI HR IASB ICAI IFRS IGAAP IMS
American Chemical Society American Depository Receipt American Depository Share Authorized Generics Annual General Meeting Abbreviated New Drug Application Agência Nacional de Vigilância Sanitária Active Pharmaceutical Ingredients and Intermediates American Remedies Limited Accounting Standards Arzneimittelversorgungs-Wirtschaftlichkeisgestz (Economic Optimization of Pharmaceutical Care Act) Bombay Stock Exchange Limited Compounded Annual Growth Rate
Critical Chain Project Management
Cheminor Drugs Limited Central Depository Services (India) Limited Chief Executive Officer Customs Excise Service Tax Appellate Tribunal Chief Financial Officer Current Good Manufacturing Practices Chief Internal Auditor Confederation of Indian Industry Commonwealth of Independent States Code Of Business Conduct and Ethics Chief Operating Officer Corporate Social Responsibility Chemical Tech-Ops Drug Master File Depository Participant Drugs (Prices Control) Order, 1995 Dr. Reddy’s Foundation Dr. Reddy’s Foundation for Health Education Earnings Before Interest, Depreciation and Taxes Early Childhood Care and Education Earnings Per Share Education Resource Centre Enterprise-wide Risk Management Employees Stock Option Plan Employees Stock Option Scheme European Union Food and Drug Administration Amendments Act of 2007 Financial Institution Foreign Institutional Investor Formulation Tech-Ops Financial Year Global Depository Receipts Global Reporting Initiatives Human Resources International Accounting Standard Board Institute of Chartered Accountants of India International Financial Reporting Standards Indian Generally Accepted Accounting Principles IMS Health Inc.
IPDO IP IPO IREDA IT ITAT KARV LABS LAYD M&A MC MCA MHRA MoU NCEs NGO NRI NSDL NSE NYSE OBC OTC PSAI QBD R&D RC RoCE RoW Rs. SBP SEBI SEC SEFL SEZ SHE SMT SOX SRS SSA TDC TGA TMB UK UNEP US / USA US$ USFDA USGAAP VAT WHO WSG WTO ZLDP
Integrated Product Development Organization Intellectual Property Initial Public Offer Indian Renewable Energy Development Agency Information Technology Income Tax Appellate Tribunal Kallam Anji Reddy Vidyalaya Livelihood Advancement Business School Life at Your Door Step Mergers and Acquisitions Management Council Ministry of Corporate Affairs UK’s Medicines and Health products Regulatory Agency Memorandum of Understanding New Chemical Entity’s Non Government Organization Non Resident Indian National Securities Depository Limited National Stock Exchange of India Limited New York Stock Exchange, Inc. Overseas Bodies Corporate Over The Counter Pharmaceuticals Services and Active Ingredients Quality by Design Research and Development Risk Committee Return on Capital Employed Rest of the World Indian Rupees Strategic Business Partners Securities and Exchange Board of India Securities and Exchange Commission Standard Equity Fund Limited Special Economic Zone Safety, Health and Environment Self Managed Team Sarbanes Oxley Act, 2002 Solvent Recovery System Sarva Siksha Abhiyan Technology Development Centre Therapeutic Goods Administration Talent Management Board United Kingdom United Nations Environment Program United States of America United States Dollar United States Food and Drug Administration United States Generally Accepted Accounting Principles Value Added Tax World Health Organization Wettbewerbsstarkungsgesetz (Statutory Health Insurance Competition Strengthening Act) World Trade Organization Zero Liquid Discharge Plant
Dr. Reddy’s Laboratories Limited Regd. Office: 7-1-27, Ameerpet, Hyderabad – 500 016 Attendance Slip Regd. Folio No. / Client ID Name & Address of First / Sole Shareholder No. of Shares held : : :
I hereby record my presence at the 26th Annual General Meeting of the Company to be held on Friday, 23 July 2010 at 11.30 A.M. at the Grand Ball Room, Hotel Taj Krishna, Road No.1, Banjara Hills, Hyderabad – 500 034.
Signature of the Member / Proxy Notes: a) Only Member / Proxy can attend the meeting. No minors would be allowed at the meeting. b) Member / Proxy wish to attend the meeting must bring this attendance slip to the meeting and handover at the entrance duly filled in and signed. c) Member / Proxy should bring his / her copy of the Annual Report for reference at the meeting.
Dr. Reddy’s Laboratories Limited Regd. Office: 7-1-27, Ameerpet, Hyderabad – 500 016 Proxy Form Regd. Folio No. / Client ID No. of Shares held I / We of of the above named Company, hereby appoint failing him / her of being a member / members of or as my / our Proxy to attend and vote for me / us on my / our behalf at the 26th Annual General Meeting of the Company to be held on Friday, 23 July 2010 at 11.30 A.M. at the Grand Ball Room, Hotel Taj Krishna, Road No.1, Banjara Hills, Hyderabad – 500 034, and at any adjournment(s) thereof. Revenue Stamp Signed this Notes: a) Proxy need not be a member of the Company. b) The Proxy form duly filled in and signed by the member(s) across Revenue Stamp should reach the Company’s Registered Office: Dr. Reddy’s Laboratories Ltd., 7-1-27, Ameerpet, Hyderabad – 500 016 at least 48 hours before the time fixed for the meeting. c) Corporate members intending to send their authorised representative(s) to attend the meeting are requested to send a Certified Copy of the Board Resolution authorizing their representative(s) to attend and vote on their behalf at the meeting. day of 2010 : :
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