o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Exact name of Registrant as specified in its charter)

Not Applicable		ANDHRA PRADESH, INDIA
(Translation of Registrant’s name		(Jurisdiction of incorporation or
into English)		organization)

7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016, India
+91-40-23731946
(Address of principal executive offices)

Umang Vohra, Chief Financial Officer, +91-40-2373 1946, umangvohra@drreddys.com
7-1-27, Ameerpet, Hyderabad, Andhra Pradesh, India
(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class		Name of Each Exchange on which Registered
American depositary shares, each representing one equity share		New York Stock Exchange
Equity Shares*		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act. None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o		International Financial Reporting Standards as issued þ		Other o
		by the International Accounting Standards Board

     If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes o No þ

 

 

Currency of Presentation and Certain Defined Terms

     In this annual report on Form 20-F, references to “$” or “U.S.$” or “dollars” or “U.S. dollars” are to the legal currency of the United States and references to “Rs.” or “rupees” or “Indian rupees” are to the legal currency of India. Our financial statements are presented in Indian rupees and translated into U.S. dollars and are prepared in accordance with International Financial Reporting Standards, or “IFRS”, as issued by the International Accounting Standards Board, or “IASB”. References to “Indian GAAP” are to Indian Generally Accepted Accounting Principles and references to “U.S. GAAP” are to United States Generally Accepted Accounting Principles. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year. References to our “ADSs” are to our American Depositary Shares.

     References to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “EU” are to the European Union. All references to “we,” “us”, “our”, “DRL”, “Dr. Reddy’s” or the “Company” shall mean Dr. Reddy’s Laboratories Limited and its subsidiaries. “Dr. Reddy’s” is a registered trademark of Dr. Reddy’s Laboratories Limited in India. Other trademarks or trade names used in this annual report on Form 20-F are trademarks registered in the name of Dr. Reddy’s Laboratories Limited or are pending before the respective trademark registries.

     Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars are based on the noon buying rate in the City of New York on March 31, 2009 for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was Rs.50.87 per U.S.$1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. As of June 26, 2009, that rate was Rs.48.00 per U.S.$1.00.

     Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

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

Forward-looking and Cautionary Statement

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

TABLE OF CONTENTS

PART I			4
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			4
ITEM 3. KEY INFORMATION			4
ITEM 4. INFORMATION ON THE COMPANY			17
ITEM 4A. UNRESOLVED STAFF COMMENTS			45
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			46
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			68
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			93
ITEM 8. FINANCIAL INFORMATION			95
ITEM 9. THE OFFER AND LISTING			100
ITEM 10. ADDITIONAL INFORMATION			101
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			110
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			113
PART II			113
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			113
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			113
ITEM 15. CONTROLS AND PROCEDURES			113
ITEM 16. [RESERVED]			115
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT			115
ITEM 16.B. CODE OF ETHICS			115
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES			116
ITEM 16.D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			116
ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			116
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			116
ITEM 16.G. CORPORATE GOVERNANCE			116
PART III			118
ITEM 17. FINANCIAL STATEMENTS			118
ITEM 18. FINANCIAL STATEMENTS			118
ITEM 19. EXHIBITS			119
SIGNATURES			120
EX-8
EX-23.1
EX-99.1
EX-99.2
EX-99.3
EX-99.4

     Not applicable.

     Not applicable.

You should read the selected consolidated financial data below in conjunction with our consolidated financial statements and the related notes, as well as the section titled “Operating and Financial Review and Prospects,” all of which are included elsewhere in this Annual Report on Form 20-F. The selected consolidated statements of income for the two years ended March 31, 2009, and the selected consolidated balance sheet data as of March 31, 2009 and 2008, have been prepared and presented in accordance with IFRS and have been derived from our audited consolidated financial statements and related notes. The selected consolidated financial data below has been presented for the two most recent fiscal years in compliance with General Instruction G of Form 20-F. Historical results are not necessarily indicative of future results.

		For the year ended March 31,
		2009				2009				2008
		(Rs. in millions, U.S.$ in millions except share and per share data)
		U.S.$ Convenience
		Translation
		(Unaudited)
Revenues		U.S.$	1,365			Rs.	69,441			Rs.	50,006
Cost of revenues			648				32,941				24,598
Gross profit			718				36,500				25,408
Selling, general and administrative expenses			413				21,020				16,835
Research and development expenses			79				4,037				3,533
Impairment loss on other intangible assets			62				3,167				3,011
Impairment loss on goodwill			213				10,856				90
Other expense/(income), net			5				254				(402	)
Finance expense/(income), net			23				1,186				(521	)
Share of profit of equity accounted investees, net of income tax			—				24				2
Profit/(loss) before income tax			(79	)			(3,996	)			2,864
Income tax (expense)/benefit			(23	)			(1,172	)			972
Profit/(loss) for the period		U.S.$	(102	)		Rs.	(5,168	)		Rs.	3,836
Earnings/(loss) per share
Basic		U.S.$	(0.60	)		Rs.	(30.69	)		Rs.	22.88
Diluted		U.S.$	(0.60	)		Rs.	(30.69	)		Rs.	22.80
Weighted average number of equity shares used in computing earnings per equity share*
Basic			168,349,139				168,349,139				168,075,840
Diluted			168,349,139				168,349,139				168,690,774

		For the year ended March 31,
		2009				2009				2008
		(Rs. in millions, U.S.$ in millions)
		Convenience
		Translation in U.S.$
		(Unaudited)
Cash and cash equivalents			110			Rs.	5,596			Rs.	7,421
Total assets			1,647				83,792				85,634
Total long term debt, excluding current portion			199				10,132				12,698
Total equity			827			Rs.	42,045			Rs.	47,350

For the convenience of the reader, our consolidated financial statements as of March 31, 2009 have been translated into U.S. dollars at the noon buying rate in New York City on March 31, 2009 for cable transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of New York, of U.S.$1.00 = Rs.50.87. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate.

     The following table sets forth, for the fiscal years indicated, information concerning the number of Indian rupees for which one U.S. dollar could be exchanged based on the noon buying rate in the City of New York on business days during the period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The column titled “Average” in the table below is the average of the daily noon buying rate on the last business day of each month during the year.

Year Ended
March 31,		Period End		Average		High		Low
2008		40.02		40.00		43.05		38.48
2009		50.87		46.32		51.96		39.73

     The following table sets forth the high and low exchange rates for the previous six months and is based on the noon buying rates in the City of New York on business days of each month during such period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York:

Month		High				Low
October 2008			49.96				46.47
November 2008			50.12				47.25
December 2008			50.05				46.74
January 2009			49.07				48.25
February 2009			50.88				48.37
March 2009			51.96				50.21

On June 26, 2009 the noon buying rate in the city of New York was Rs.48.00 per U.S. dollar.

     Not applicable.

     Not applicable.

3.D. Risk factors

     You should carefully consider all of the information set forth in this Form 20-F and the following risk factors that we face and that are faced by our industry. The risks below are not the only ones we face. Additional risks not currently known to us or that we presently deem immaterial may also affect our business operations. Our business, financial condition or results of operations could be materially or adversely affected by any of these risks. This Form 20-F also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere. See “Forward-Looking Statements.”

RISKS RELATING TO OUR COMPANY AND OUR BUSINESS

Failure of our research and development efforts may restrict introduction of new products, which is critical to our business.

     Our future results of operations depend, to a significant degree, upon our ability to successfully commercialize additional products in our Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products segments. We must develop, test and manufacture generic products as well as prove that our generic products are bio-equivalent or bio-similar to their branded counterparts. All of our products must meet and continue to comply with regulatory and safety standards and receive regulatory approvals; we may be forced to withdraw a product from the market if health or safety concerns arise with respect to such product. The development and commercialization process, particularly with respect to proprietary products, is both time consuming and costly and involves a high degree of business risk. Our products currently under development, if and when fully developed and tested, may not perform as we expect, necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to successfully and profitably produce and market such products. Our approved products may not achieve expected levels of market acceptance.

     To develop our product pipeline, we commit substantial efforts, funds and other resources to research and development, both through our own dedicated resources and our collaborations with third parties. Our ongoing investments in new product launches and research and development for future products could result in higher costs without a proportionate increase in revenues. Our overall profitability depends on our ability to continue developing commercially successful products, and to introduce them on a timely basis in relation to competitor product introductions.

     Our dependence on research and development makes it highly important that we recruit and retain high quality researchers and development specialists. Should we fail in our efforts, this could adversely affect our ability to continue developing commercially successful products and, thus, our overall profitability.

If we fail to comply fully with government regulations or to maintain continuing regulatory oversight applicable to our research and development activities or regarding the manufacture of our products, it may delay or prevent us from developing or manufacturing our products.

Our research and development activities are heavily regulated. If we fail to comply fully with applicable regulations, then there could be a delay in the submission or approval of potential new products for marketing approval. In addition, the submission of an application to a regulatory authority does not guarantee that a license to market the product will be granted. Each authority may impose its own requirements and/or delay or refuse to grant approval, even when a product has already been approved in another country. In the United States, as well as many of the international markets into which we sell our products, the approval process for a new product is complex, lengthy and expensive. The time taken to obtain approval varies by country but generally takes from six months to several years from the date of application. This registration process increases the cost to us of developing new products and increases the risk that we will not be able to successfully sell such new products.

     Also, governmental authorities, including the U.S. Food and Drug Administration (“U.S. FDA”), heavily regulate the manufacture of our products. If we or our third party suppliers fail to comply fully with such regulations, then there could be a government-enforced shutdown of our production facilities, which in turn could lead to product shortages. Failure to comply fully with such regulations could also lead to a delay in the approval of our new products.

     The regulatory requirements are still evolving in many developing markets where we sell or manufacture products, including our bio-similar products. In these markets, the regulatory requirements and the policies and opinions of regulators may at times be unclear, inconsistent or arbitrary. As a result, there is increased risk of our inadvertent non-compliance with such regulations, which

could lead to government-enforced shutdowns and other sanctions, as well as the withholding or delay of regulatory approvals for new products.

If we are sued by consumers for defects in our products, it could harm our reputation and thus our profits.

     Our business inherently exposes us to potential product liability. From time to time, the pharmaceutical industry has experienced difficulty in obtaining desired amounts of product liability insurance coverage. Although we have obtained product liability coverage with respect to products that we manufacture, if any product liability claim sustained against us were to be not covered by insurance or were to exceed the policy limits, it could harm our business and financial condition. This risk is likely to increase as we develop our own new-patented products in addition to making generic versions of drugs that have been in the market for some time.

     In addition, product liability coverage for pharmaceutical companies is becoming more expensive. As a result, we may not be able to obtain the type and amount of coverage we desire at an acceptable price. Furthermore, the severity and timing of future claims are unpredictable. Our customers may also bring lawsuits against us for alleged product defects. The existence or even threat of a major product liability claim could also damage our reputation and affect consumers’ views of our other products, thereby negatively affecting our business, financial condition and results of operations.

If we cannot respond adequately to the increased competition we expect to face in the future, we will lose market share and our profits will go down.

     Our products face intense competition from products commercialized or under development by competitors in all our business segments based in India and overseas. Many of our competitors have greater financial resources and marketing capabilities than we do. Some of our competitors, especially multinational pharmaceutical companies, have greater experience than we do in clinical testing and human clinical trials of pharmaceutical products and in obtaining regulatory approvals. Our competitors may succeed in developing technologies and products that are more effective, more popular or cheaper than any we may develop or license. These developments could render our technologies and products obsolete or uncompetitive, which would harm our business and financial results. We believe some of our competitors have broader product ranges, stronger sales forces and better segment positioning than us, which enables them to compete effectively.

     To the extent that we succeed in being the first to market a generic version of a significant product, and particularly if we obtain the 180-day period of market exclusivity in the United States provided under the Hatch-Waxman Act of 1984, as amended, our sales and profit can be substantially increased in the period following the introduction of such product and prior to a competitor’s introduction of the equivalent product or the launch of an authorized generic. Selling prices of generic drugs typically decline, sometimes dramatically, as additional companies receive approvals for a given product and competition intensifies. Our ability to sustain our sales and profitability of any product over time is dependent on both the number of new competitors for such product and the timing of their approvals.

     Our generics business is also facing increasing competition from brand-name manufacturers who do not face any significant regulatory approvals or barriers to entry into the generics market. These brand-name companies sell generic versions of their products to the market directly or by acquiring or forming strategic alliances with our competitor generic pharmaceutical companies or by granting them rights to sell “authorized generics.” Moreover, brand-name companies continually seek new ways to delay the introduction of generic products and decrease the impact of generic competition, such as filing new patents on drugs whose original patent protection is about to expire, developing patented controlled-release products, changing product claims and product labeling, or developing and marketing as over-the-counter products those branded products which are about to face generic competition.

     We are constantly striving to build efficiency in our internal processes and cost structures and to build decisive competitive advantages to face increasing competition on product price and market share. However, these advantages and the long term beneficial impact from such initiatives may not sustain in future.

If we cannot maintain our position in the Indian pharmaceutical industry in the future, we may not be able to attract co-development, outsourcing or licensing partners and may lose market share.

     In order to attract multinational corporations into co-development and licensing arrangements, it is necessary for us to maintain the position of a leading pharmaceutical company in India. Multinational corporations have been increasing their outsourcing of both active pharmaceutical ingredients and generic formulations to highly regarded companies that can produce high quality products at

low cost that conform to standards set in developed markets. If we cannot maintain our current position in the market, we may not be able to attract outsourcing or licensing partners and may lose market share.

     In India and our key “rest of the world” markets (which are product detailing driven, as opposed to generics regulated markets which are distribution driven), we follow a business model that is largely dependent upon our products being prescribed by medical practitioners. Our competitors may engage in business practices or models that are competitive and/or contrary to our model that can impact our market share.

     Our success will depend in part on the extent to which government and health administration authorities, private health insurers and other third-party payors will pay for our products. Increasing expenditures for health care has been the subject of considerable public attention in almost every jurisdiction where we conduct business. Both private and governmental entities are seeking ways to reduce or contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products. In many countries in which we currently operate, including India, pharmaceutical prices are subject to regulation. The existence of price controls can limit the revenues we earn from our products. In the United States, numerous proposals that would affect changes in the United States health care system have been introduced or proposed in Congress and in some state legislatures, including the enactment in December 2003 of expanded Medicare coverage for drugs, which became effective in January 2006. The Obama administration has also indicated that it intends to propose legislation aimed at changing the U.S. healthcare system. While we cannot predict whether legislative or regulatory proposals will be adopted or what effect those proposals might have on our business, the announcement and/or adoption of such proposals could increase our costs and reduce our profit margins.

     In Germany, an important market for us, the government has introduced several healthcare reforms in order to control healthcare spending and promote the prescribing of generic drugs. As a result, the prices of generic pharmaceutical products in Germany have declined, impacting our revenues, and may further decline in the future. Furthermore, the shift to a tender (i.e., competitive bidding) based supply model in Germany may further reduce prices for our products and may impact our market opportunities in that country. Similar developments may take place in our other key markets. We cannot predict the nature of the measures that may be adopted or their impact on the marketing, pricing and demand for our products.

     In addition, governments throughout the world heavily regulate the marketing of our products. Most countries also place restrictions on the manner and scope of permissible marketing to physicians, pharmacies and other health care professionals. The effect of such regulations may be to limit the amount of revenue that we may be able to derive from a particular product. Moreover, if we fail to comply fully with such regulations, then civil or criminal actions could be brought against us.

Regulatory agencies may at any time reassess the safety and efficacy of our products based on new scientific knowledge or other factors. Such reassessments could result in the amendment or withdrawal of existing approvals to market our products, which in turn could result in a loss of revenue, and could serve as an inducement to bring lawsuits against us. In our bio-generics business, due to the intrinsic nature of biologics, our bio-similarity claims can always be contested by our competitors, the innovator company and/or the applicable regulators.

     Our overall profitability depends, among other things, on our ability to continuously and timely introduce new generic as well as proprietary products. Our success will depend, in part, on our ability in the future to obtain patents, protect trade secrets, intellectual property rights and other proprietary information and operate without infringing on the proprietary rights of others. Our competitors may have filed patent applications, or hold issued patents, relating to products or processes that compete with those we are developing, or their patents may impair our ability to successfully develop and commercialize new products.

     Our success with our proprietary products depends, in part, on our ability to protect our current and future innovative products and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have been issued patents covering our innovative products and processes and have filed, and

expect to continue to file, patent applications seeking to protect our newly developed technologies and products in various countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may even be challenged, invalidated or circumvented by competitors. In addition, such patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products.

     We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached and we will not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors or we may not be able to maintain the confidentiality of information relating to such products.

Changes in the regulatory environment may prevent us from utilizing the exclusivity periods that are important to the success of our generic products.

     The policy of the U.S. FDA regarding the award of 180 days of market exclusivity to generic manufacturers who challenge patents relating to specific products continues to be the subject of extensive litigation in the United States. During this 180-day market exclusivity period, nobody other than the generic manufacturer who won exclusivity relating to the specific product can market that product. The U.S. FDA’s current interpretation of the Hatch-Waxman Act of 1984 is to award 180 days of exclusivity to the first generic manufacturer who files a Paragraph IV certification under the Hatch-Waxman Act challenging the patent of the branded product, regardless of whether that generic manufacturer was sued for patent infringement.

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Prescription Drug Act”) amended the Hatch-Waxman Act and provides that the 180-day market exclusivity period is triggered by the commercial marketing of the product, as opposed to the old rule under which the exclusivity period was triggered by a final, non-appealable court decision. However, the Medicare Prescription Drug Act also contains forfeiture provisions, which, if met, will deprive the first Paragraph IV filer of exclusivity. As a result, under certain circumstances, we may not be able to exploit our 180-day exclusivity period since it may be forfeited prior to our being able to market the product.

     In addition, legal and administrative disputes with respect to triggering dates and shared exclusivities may also prevent us from fully utilizing the exclusivity periods.

If we are unable to defend ourselves in patent challenges, we could be subject to injunctions preventing us from selling our products, resulting in a decrease in revenues, or we could be subject to substantial liabilities that would lower our profits.

     There has been substantial patent related litigation in the pharmaceutical industry concerning the manufacture, use and sale of various products. In the normal course of business, we are regularly subject to lawsuits and the ultimate outcome of litigation could adversely affect our results of operations, financial condition and cash flow. Regardless of regulatory approval, lawsuits are periodically commenced against us with respect to alleged patent infringements by us, such suits often being triggered by our filing of an application for governmental approval, such as a new drug application. The expense of any such litigation and the resulting disruption to our business, whether or not we are successful, could harm our business. The uncertainties inherent in patent litigation make it difficult for us to predict the outcome of any such litigation.

     If we are unsuccessful in defending ourselves against these suits, we could be subject to injunctions preventing us from selling our products, resulting in a decrease in revenues, or to damages, which may be substantial. An injunction or substantial damages resulting from these suits could adversely affect our consolidated financial position, results of operations or liquidity.

If we elect to sell a generic product prior to the final resolution of outstanding patent litigation, we could be subject to liabilities for damages.

     At times we seek approval to market generic products before the expiration of patents for those products, based upon our belief that such patents are invalid, unenforceable, or would not be infringed by our products. As a result, we are involved in patent litigation, the outcome of which could materially adversely affect our business. Based upon a complex analysis of a variety of legal and commercial factors, we may elect to market a generic product even though litigation is still pending. This could be before any court decision is rendered or while an appeal of a lower court decision is pending. To the extent we elect to proceed in this manner, if

the final court decision is adverse to us, we could be required to cease the sale of the infringing products and face substantial liability for patent infringement. These damages may be significant as they may be measured by a royalty on our sales or by the profits lost by the patent owner and not by the profits we earned. Because of the discount pricing typically involved with generic pharmaceutical products, patented brand products generally realize a significantly higher profit margin than generic pharmaceutical products. In the case of a willful infringer, the definition of which is unclear, these damages may even be trebled.

     In April 2006, we launched, and continue to sell fexofenadine, the generic version of Allegra^®, despite the fact that litigation with the company that holds the patents for and sells this branded product is still ongoing. This is the only product that we have launched in the United States prior to the resolution of outstanding patent litigation. In the European Union, we also have generic launches that involve ongoing patent litigation, the outcome of which could adversely affect our business or profitability. During the year ended March 31, 2009, we incurred damages of approximately Rs.916 million as a result of the German Federal Court of Justice upholding the validity of an olanzapine patent held by Eli Lilly.

     Furthermore, there may be risks involved in entering into in-licensing arrangements for products, which are often conditioned upon the licensee’s sharing in the patent-related risks. For example, in the case of our brand ‘Oxycodon beta’ in Germany, our supplier, Cimex Pharma AG, required us to enter into a cost sharing agreement under which we will pay up to 20% of the losses resulting from any innovator damage claims.

     For business reasons, we continue to examine such product opportunities (i.e., involving non-expired patents) going forward and this could result in patent litigation, the outcomes of which may impact our profitability.

If we do not maintain and increase our arrangements for overseas distribution of our products, our revenues and net income could decrease.

     As of March 31, 2009, our products are marketed in more than 100 countries. Our products are marketed in most of these countries through our subsidiaries as well as joint ventures. Since we do not have the resources to market and distribute our products ourselves in all our export markets, we also market and distribute our products through third parties by way of marketing and agency arrangements. These arrangements may be terminated by either party providing the other with notice of termination or when the contract regarding the arrangement expires. We may not be able to successfully negotiate these third party arrangements or find suitable joint venture partners in the future. Any of these arrangements may not be available on commercially reasonable terms. Additionally, our marketing partners may make important marketing and other commercialization decisions with respect to products we develop without our input. As a result, many of the variables that may affect our revenues and net income are not exclusively within our control when we enter into arrangements like these.

If we fail to comply with environmental laws and regulations or face environmental litigation, our costs may increase or our revenues may decrease.

     We may incur substantial costs complying with requirements of environmental laws and regulations. In addition, we may discover currently unknown environmental problems or conditions. In all countries in which we have production facilities, we are subject to significant environmental laws and regulations which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations. If any of our plants or the operations of such plants are shut down, we may continue to incur costs in complying with regulations, appealing any decision to close our facilities, maintaining production at our existing facilities and continuing to pay labor and other costs which may continue even if the facility is closed. As a result, our overall operating expenses may increase and our profits may decrease.

Our equity shares and our ADSs may be subject to market price volatility, and the market price of our equity shares and ADSs may decline disproportionately in response to adverse developments that are unrelated to our operating performance.

     Market prices for the securities of Indian pharmaceutical companies, including our own, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as the following can have an adverse effect on the market price of our ADSs and equity shares:

	•		general market conditions,
	•		speculative trading in our shares and ADSs, and

•

developments relating to our peer companies in the pharmaceutical industry.

If the world economy is affected due to terrorism, wars or epidemics, it may adversely affect our business and results of operations.

     Several areas of the world, including India, have experienced terrorist acts and retaliatory operations recently. For example, Mumbai, India’s commercial capital, was the target of serial railway bombings in July 2006 as well as the recent “26/11” attacks on November 26, 2008. Hyderabad, the city in which we are headquartered, was also subjected to terrorist acts in May and August 2007. In May 2008, the city of Jaipur in the state of Rajasthan, India was subjected to a series of coordinated bombings. If the economy of our major markets is affected by such acts, our business and results of operations may be adversely affected as a consequence.

     In recent years, Asia has experienced outbreaks of avian influenza and Severe Acute Respiratory Syndrome, or “SARS”. Very recently, a rising death toll in Mexico from a new strain of Swine Flu has led the World Health Organization to declare a public health emergency of international concern. If the economy of our major markets is affected by such outbreaks or other epidemics, our business and results of operations may be adversely affected as a consequence.

If we have difficulty in identifying acquisition candidates or consummating acquisitions, our competitiveness and our growth prospects may be harmed.

     In order to enhance our business, we frequently seek to acquire or make strategic investments in complementary businesses or products, or to enter into strategic partnerships or alliances with third parties. It is possible that we may not identify suitable acquisition, strategic investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us or at all. We compete with others to acquire companies, and we believe that this competition has intensified and may result in decreased availability or increased prices for suitable acquisition candidates. Even after we identify acquisition candidates and/or announce that we plan to acquire a company, we may ultimately fail to consummate the acquisition. For example, we may be unable to obtain necessary acquisition financing on terms satisfactory to us or may be unable to obtain necessary regulatory approvals, including the approval of antitrust regulatory bodies. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions and the management and financial resources required to pursue such transactions may affect our competitiveness and our growth prospects.

If we acquire other companies, our business may be harmed by difficulties in integration and employee retention, unidentified liabilities of the acquired companies, or obligations incurred in connection with acquisition financings.

     All acquisitions involve known and unknown risks that could adversely affect our future revenues and operating results. For example:

	•		We may fail to successfully integrate our acquisitions in accordance with our business strategy.
	•		The initial rationale for the acquisition may not remain viable due to a variety of factors, including unforeseen regulatory changes and market dynamics after the acquisition, and this may result in a significant delay and/or reduction in the profitability of the acquisition.
	•		Integration of acquisitions may divert management’s attention away from our primary product offerings, resulting in the loss of key customers and/or personnel, and may expose us to unanticipated liabilities.
	•		We may not be able to retain the skilled employees and experienced management that may be necessary to operate the businesses we acquire. If we cannot retain such personnel, we may not be able to locate or hire new skilled employees and experienced management to replace them.
	•		We may purchase a company that has contingent liabilities that include, among others, known or unknown patent or product liability claims.
	•		Our acquisition strategy may require us to obtain additional debt or equity financing, resulting in additional leverage, or increased debt obligations as compared to equity, and dilution of ownership.

•

We may purchase companies located in jurisdictions where we do not have operations and as a result we may not be able to anticipate local regulations and the impact such regulations have on our business.

     In addition, if we make one or more significant acquisitions in which the consideration includes equity shares or other securities, equity interests in us held by holders of the equity shares may be significantly diluted and may result in a dilution of earnings per equity share. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a substantial portion of our available cash or incur a significant amount of debt or otherwise arrange additional funds to complete the acquisition, which may result in decrease in our net income and a consequential reduction in our earnings per equity share.

Our principal shareholders have significant control over us and, if they take actions that are not in your best interests, the value of your investment in our ADSs may be harmed.

     Our full time directors and members of their immediate families, in the aggregate, beneficially owned 26.4% of our issued shares as at March 31, 2009. As a result, these people, acting in concert, are likely to have the ability to exercise significant control over most matters requiring approval by our shareholders, including the election and removal of directors and significant corporate transactions. This significant control by these directors and their family members could delay, defer or prevent a change in control of us, impede a merger, consolidation, takeover or other business combination involving us, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even if that was in our best interest. As a result, the value of your ADSs may be adversely affected or you might be deprived of a potential opportunity to sell your ADSs at a premium.

If we improperly handle any of the dangerous materials used in our business and accidents result, we could face significant liabilities that would lower our profits.

     We handle dangerous materials including explosive, toxic and combustible materials like sodium azide, acrolein and acetyl chloride. If improperly handled or subjected to the wrong conditions, these materials could hurt our employees and other persons, cause damage to our properties and harm the environment. This, in turn, could subject us to significant litigation, which could lower our profits in the event we were found liable.

If there is delay and/or failure in supplies of materials, services and finished goods from third parties or failure of finished goods from our key manufacturing sites, it may adversely affect our business and results of operations.

     In some of our businesses, we rely on third parties for the timely supply of active pharmaceutical ingredients (“API”), specified raw materials, equipment, formulation or packaging services and maintenance services, and in some cases there could be a single source of supply. For instance, we rely on third party manufacturers for a part of the supply of finished dosages sold in Germany. Although, we actively manage these third party relationships to ensure continuity of supplies and services on time and to our required specifications, events beyond our control could result in the complete or partial failure of supplies and services or in supplies and services not being delivered on time. Any such failure could adversely affect our results of business and results of operations.

     In the event that we experience a shortage in our supply of raw materials, we might be unable to fulfill all of the API needs of our Global Generics segment, which could result in a loss of production capacity for this segment. In addition, this could result in a conflict between the API needs of our Global Generics segment and the needs of customers of our Pharmaceutical Services and Active Ingredients segment, some of whom are also our competitors in the Global Generics segment. In either case, we could potentially lose business from adversely affected customers and we could be subjected to lawsuits.

     Our key generics manufacturing sites also may have capacity constraints and, at times, we may not be able to generate sufficient supplies of finished goods, which may adversely affect our business or results of operations.

If, as we expand into new international markets, we may fail to adequately understand and comply with the local laws and customs, these operations may incur losses or otherwise adversely affect our business and results of operations.

     Currently, we operate our business in certain countries through subsidiaries and equity investees or through supply and marketing arrangements with our alliance partners. In those countries where we have limited experience in operating subsidiaries and in reviewing equity investees, we are subject to additional risks related to complying with a wide variety of national and local laws, including restrictions on the import and export of certain intermediates, drugs, technologies and multiple and possibly overlapping tax structures. In addition, we may face competition in certain countries from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different

countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. If we do not effectively manage our operations in these subsidiaries and review equity investees effectively, or if we fail to manage our alliances, we may lose money in these countries and it may adversely affect our business and results of operations.

Fluctuations in exchange rates and interest rate movements may adversely affect our business and results of operations.

     Our principal subsidiaries are located in the United States, United Kingdom, Germany, Switzerland, Mexico and Russia and each has significant local operations. A significant portion of our revenues are in currencies other than the Indian rupee, especially the U.S. dollar, euro, rouble and pound sterling, while a significant portion of our costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these other currencies, our revenues measured in rupees may decrease.

     We have entered into borrowing arrangements in connection with our acquisition of betapharm. In the future, we may enter into additional borrowing arrangements in connection with acquisitions or for general working capital purposes. In the event interest rates increase, our costs of borrowing will increase and our results of operations may be adversely affected.

Our success depends on our ability to retain and attract key qualified personnel and, if we are not able to retain them or recruit additional qualified personnel, we may be unable to successfully develop our business

     We are highly dependent on the principal members of our management and scientific staff, the loss of whose services might significantly delay or prevent the achievement of our business or scientific objectives. In India, it is not our practice to enter into employment agreements with our executive officers and key employees that are as extensive as are generally used in the United States, and each of those executive officers and key employees may terminate their employment upon notice and without cause or good reason. Currently, we are not aware of any executive officer’s or key employee’s departure which has had, or planned departure which is expected to have, any material impact on our operations. Competition among pharmaceutical companies for qualified employees is intense, and the ability to retain and attract qualified individuals is critical to our success. There can be no assurance that we will be able to retain and attract such individuals currently or in the future on acceptable terms, or at all, and the failure to do so would have a material adverse effect on our business, financial condition and results of operations. In addition, we do not maintain “key person” life insurance on any officer, employee or consultant.

We operate in a highly competitive and rapidly consolidating industry.

     We operate in a highly competitive and rapidly consolidating industry. Our competitors, which include major multinational corporations, are consolidating, and the strength of the combined companies could affect our competitive position in all of our business areas. Furthermore, if one of our competitors or their customers acquires any of our customers or suppliers, we may lose business from the customer or lose a supplier of a critical raw material.

We have grown at a very rapid pace. Our inability to properly manage or support this growth may have a material adverse effect on our business

     We have grown very rapidly over the past few years through our acquisitions of companies and brands. This growth has significantly increased demands on our processes, systems and people. We expect to make additional investments in personnel, systems and internal control processes to help manage our growth. Attracting, retaining and motivating key employees in various departments and locations to support our growth are critical to our business, and competition for these people can be intense. Furthermore, to facilitate our growth, we are carrying out reorganizations to improve our focus on delivery, to build decisive competitive advantages or/and to build sustainable cost structures. If we are unable to hire and retain qualified employees, or if we do not invest in systems and processes to manage and support our rapid growth, the failure to do so may have a material adverse effect on our business, financial condition and results of operations.

Fluctuations in our quarterly revenues, operating results and cash flows may adversely affect the trading price of our shares and ADSs.

     Our quarterly revenues, operating results and cash flows have fluctuated significantly in the past and may fluctuate substantially from quarter to quarter in the future. Such fluctuations may result in volatility in the price of our equity shares and our ADSs. Our quarterly revenues, operating results and cash flows may fluctuate as a result of a variety of factors, including but not limited to:

•

changes in demand for our products;

	•		the impact of seasons (weather severity, length and timing) on the price and availability of raw materials which we depend on;
	•		the timing of regulatory approvals and of launches of new products by us and our competitors, particularly where we obtain the 180-day period of market exclusivity in the United States provided under the Hatch-Waxman Act of 1984;
	•		changes in our pricing policies or those of our competitors;
	•		the magnitude and timing of our research and development investments;
	•		changes in the level of inventories maintained by our customers;
	•		the geographical mix of our sales and currency exchange rate fluctuations;
	•		adverse market events leading to impairment of any of our assets; and
	•		timing of our retailers’ promotional programs.

Due to all of the foregoing factors, our revenues, operating results and cash flows are difficult to predict and may not meet the expectations of market analysts and investors. In such an event, the trading price of our shares and ADSs may be materially adversely affected.

Significant disruptions of information technology systems could adversely affect our business.

     Our business is dependent upon increasingly complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. Any significant breakdown or interruption of these systems, whether due to computer viruses or other causes, may result in the loss of key information and/or disruption of production and business processes, which could materially and adversely affect our business.

A relatively small group of products may represent a significant portion of our net revenues, gross profit or net earnings from time to time.

     Sales of a limited number of products may represent a significant portion of our net revenues, gross profit and net earnings. If the volume or pricing of our largest selling products declines in the future, our business, financial position and results of operations could be materially adversely affected.

We enter into various agreements in the normal course of business which periodically incorporate provisions whereby we indemnify the other party to the agreement.

     In the normal course of business, we periodically enter into agreements with vendors, customers, alliance partners, innovators and others which incorporate indemnification provisions. Our indemnification obligations under such agreements may be unlimited in duration and amount. We maintain insurance coverage which we believe will effectively mitigate our obligations under certain of these indemnification provisions. However, should our obligations under an indemnification provision exceed our coverage or should coverage be denied, it could have a material adverse impact on our business, financial position and results of operations.

Current economic conditions may adversely affect our industry, financial position and results of operations.

     The global economy is currently undergoing a period of unprecedented volatility, and the future economic environment may continue to be less favorable than that of recent years. Reduced consumer spending may force our competitors and us to reduce prices. We have exposure to many different industries and counterparties, including our partners under our alliance, research and promotional services agreements, suppliers of raw materials, drug wholesalers and other customers, who may be unstable or may become unstable in the current economic environment.

     Significant changes and volatility in the consumer environment and in the competitive landscape may make it increasingly difficult for us to predict our future revenues and earnings.

     We are subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which impose restrictions and may carry substantial penalties.

     The U.S. Foreign Corrupt practices Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. These laws may require not only accurate books and records, but also sufficient controls, policies and processes to ensure business is conducted without the influence of bribery and corruption. Our policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. Given the high level of complexity of these laws, however, there is a risk that some provisions may be inadvertently breached, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise. Any violation of these laws or allegations of such violations, whether or not merited, could have a material adverse effect on our reputation and could cause the trading price of our ordinary shares and ADSs’ to decline.

     Finally, we operate in certain jurisdictions that have experienced governmental corruption to some degree and, in some circumstances, anti-bribery laws may conflict with some local customs and practices. As a result of our policy to comply with the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws, we may be at a competitive disadvantage to competitors that are not subject to, or do not comply with, such laws.

RISKS RELATING TO INVESTMENTS IN INDIAN COMPANIES

     We are an Indian company. Our headquarters are located in India, a substantial part of our operations are conducted in India and a significant part of our infrastructure and other assets are located in India. In addition, a significant part of our total revenues for the year ended March 31, 2009 were derived from sales in India. As a result, the following additional risk factors apply.

A slowdown in economic growth in India may adversely affect our business and results of operations.

     Our performance and the quality and growth of our business are necessarily dependent on the health of the overall Indian economy. The Indian economy has grown significantly over the past few years. Any future slowdown in the Indian economy could harm us, our customers and other contractual counterparties. In addition, the Indian economy is in a state of transition. The share of the services sector of the economy is rising while that of the industrial, manufacturing and agricultural sector is declining. It is difficult to gauge the impact of these fundamental economic changes on our business.

If communal disturbances or riots erupt in India, or if regional hostilities increase, this would adversely affect the Indian economy, which our business depends upon.

     India has experienced communal disturbances, terrorist attacks and riots during recent years. For example, Mumbai, India’s commercial capital, was the target of serial railway bombings in July 2006 as well as the recent “26/11” attacks on November 26, 2008. Hyderabad, the city in which we are headquartered, was also subjected to terrorist acts in May and August 2007. In May 2008, the city of Jaipur in the state of Rajasthan, India was subjected to a series of co-ordinated bombings. If such disturbances continue or are exacerbated, our operational, sales and marketing activities may be adversely affected. Additionally, India has from time to time experienced hostilities with neighboring countries. The hostilities have continued sporadically. The hostilities between India and Pakistan are particularly threatening, because both India and Pakistan are nuclear powers. Hostilities and tensions may occur in the future and on a wider scale. These hostilities and tensions could lead to political or economic instability in India and harm our business operations, our future financial performance and the price of our shares and our ADSs.

If wage costs or inflation rise in India, it may adversely affect our competitive advantages over higher cost countries and our profits may decline.

     Wage costs in India have historically been significantly lower than wage costs in developed countries and have been one of our competitive strengths. However, wage increases in India may increase our costs, reduce our profit margins and adversely affect our business and results of operations.

     Due to various macro-economic factors, the inflation level in the recent period has significantly decreased in India. According to the economic report released by the Department of Economic Affairs, Ministry of Finance in India, the annual inflation rate in India, as measured by the benchmark wholesale price index, Base 1993-94=100 was 0.26% for the week ended March 28, 2009 (as compared to 7.75% for the week ended March 29, 2008), which is one of the lowest in recent years. This trend may not continue and

the rate of inflation may further rise. We may not be able to pass these costs on to our customers by increasing the price we charge for our products. If this occurs, our profits may decline.

In the event that a natural disaster should occur in India, including drought, floods and earthquakes, it could adversely affect our production operations and cause our revenues to decline.

     Our main facilities are situated around Hyderabad, India. This region has experienced earthquakes, floods and droughts in the past and has experienced droughts in recent years. In the event of a drought so serious that the drinking water in the region is limited, the government could cut the supply of water to all industries, including our facilities. This would adversely affect our production operations and reduce our revenues. Even if we take precautions to provide back-up support in the event of such a natural disaster, the disaster may nonetheless affect our facilities, harming production and ultimately our business.

Stringent labor laws may adversely affect our ability to have flexible human resource policies; labor union problems could negatively affect our production capacity and overall profitability.

     Labor laws in India are more stringent than in other parts of the world. These laws may restrict our ability to have human resource policies that would allow us to react swiftly to the needs of our business. Approximately 7% of our employees belong to a number of different labor unions. If we experience problems with our labor unions, our production capacity and overall profitability could be negatively affected.

Indian law imposes certain restrictions that limit a holder’s ability to transfer the equity shares obtained upon conversion of ADSs and repatriate the proceeds of such transfer, which may cause our ADSs to trade at a premium or discount to the market price of our equity shares.

     Under certain circumstances, the Reserve Bank of India must approve the sale of equity shares underlying ADSs by a non-resident of India to a resident of India. The Reserve Bank of India has given general permission to effect sales of existing shares or convertible debentures of an Indian company by a resident to a non-resident, subject to certain conditions, including the price at which the shares may be sold. Additionally, except under certain limited circumstances, if an investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign currency and then repatriate that foreign currency from India, he or she will have to obtain an additional approval from the Reserve Bank of India for each such transaction. Required approval from the Reserve Bank of India or any other government agency may not be obtained on terms favorable to a non-resident investor or at all.

There are limits and conditions to the deposit of shares into the ADS facility.

     Indian legal restrictions may limit the supply of our ADSs. The only way to add to the supply of our ADSs will be through a primary issuance because the depositary is not permitted to accept deposits of our outstanding shares and issue ADSs representing those shares. However, an investor in our ADSs who surrenders an ADS and withdraws our shares will be permitted to redeposit those shares in the depositary facility in exchange for our ADSs. In addition, an investor who has purchased our shares in the Indian market will be able to deposit them in the ADS program, but only in a number that does not exceed the number of underlying shares that have been withdrawn from and not re-deposited into the depositary facility. Moreover, there are restrictions on foreign institutional ownership of our shares as opposed to our ADSs.

There may be less company information available in Indian securities markets than securities markets in developed countries.

     There is a difference between the level of regulation and monitoring of the Indian securities markets over the activities of investors, brokers and other participants, as compared to the level of regulation and monitoring of markets in the United States and other developed economies. The Securities and Exchange Board of India is responsible for improving disclosure and other regulatory standards for the Indian securities markets. The Securities and Exchange Board of India has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed countries, which could affect the market for our equity shares.

     The Indian securities markets are smaller than the securities markets in the United States and Europe and have experienced volatility from time to time. The regulation and monitoring of the Indian securities market and the activities of investors, brokers and other participants differ, in some cases significantly, from those in the United States and some European countries. Indian stock exchanges have at times experienced problems, including temporary exchange closures, broker defaults and settlement delays and if similar problems were to recur, they could affect the market price and liquidity of the securities of Indian companies, including our shares. Furthermore, any change in Indian Government regulations of stock markets could affect the market price and liquidity of our shares.

     The Indian markets and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. Any worldwide financial instability or any loss of investor confidence in the financial systems of Asian or other emerging markets could increase volatility in Indian financial markets or adversely affect the Indian economy in general. Either of these results could harm our business, our future financial performance and the price of our shares and ADSs.

     A company incorporated in India must offer its holders of shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any shares, unless these rights have been waived by at least 75.0% of the company’s shareholders present and voting at a shareholders’ general meeting. U.S. investors in our ADSs may be unable to exercise preemptive rights for the shares underlying our ADSs unless a registration statement under the Securities Act of 1933 is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with a registration statement as well as the perceived benefits of enabling U.S. investors in our ADSs to exercise their preemptive rights and any other factors we consider appropriate at the time. We might choose not to file a registration statement under these circumstances. If we issue any of these securities in the future, such securities may be issued to the depositary, which may sell them in the securities markets in India for the benefit of the investors in our ADSs. We cannot assure you as to the value, if any, the depositary would receive upon the sale of these securities. To the extent that you are unable to exercise preemptive rights, your proportional interests in us would be reduced.

     Currently, we enjoy various tax benefits and exemptions under Indian tax laws. Any changes in these laws, or their application in matters such as tax exemption on exportation income, research and development spending and transfer pricing, may increase our tax liability and thus adversely affect our financial results.

     Dr. Reddy’s Laboratories Limited was incorporated in India under the Companies Act, 1956, by its promoter and our current Chairman, Dr. K. Anji Reddy as a Private Limited Company on February 24, 1984. We were converted to a Public Limited Company on December 6, 1985 and listed on the Indian Stock Exchanges in August 1986 and on the New York Stock Exchange on April 11, 2001. We are registered with the Registrar of Companies, Andhra Pradesh, Hyderabad, India as Company No. 4507 (Company Identification No. U85195AP1984PTC004507). Our registered office is situated at 7-1-27, Ameerpet, Hyderabad — 500 016, Andhra Pradesh, India and the telephone number of our registered office is +91-40-23731946. The name and address of our registered agent in the United States is Dr. Reddy’s Laboratories, Inc., 200 Somerset Corporate Boulevard (Bldg II), Bridgewater, New Jersey 08807.

     Key business developments:

     In April 2008, we acquired BASF’s pharmaceutical contract manufacturing business and related facility in Shreveport, Louisiana, U.S.A. for a total consideration of Rs.1,639 million (U.S.$40 million). This business involves the contract manufacturing of generic prescription and over-the-counter products for branded and generic companies in the United States. The acquisition included the relevant business, customer contracts, certain supplier contracts, related Abbreviated New Drug Applications (“ANDAs”) and New Drug Applications (“NDAs”), trademarks, as well as the manufacturing facility and assets owned by BASF in Shreveport, Louisiana. The facility is designed to manufacture solid, semi-solid and liquid dosage forms. This business employs approximately 150 people and has a proven track record of compliance with regulatory authorities, including the U.S. Food and Drug Administration (“U.S. FDA”).

     In April 2008, we acquired from The Dow Chemical Company a portion of the Dowpharma Small Molecules business associated with its sites in Mirfield and Cambridge, United Kingdom, for a total cash consideration of Rs.1,302 million (U.S.$32 million). The acquisition included the relevant business, customer contracts, associated products, process technology and know-how, technology licensing rights, trademarks and other intellectual property, as well as the transfer of the facilities at Mirfield and Cambridge in the United Kingdom. We also took over the existing work force as a part of the acquisition. The two sites and the acquired business employ approximately 80 people. We also acquired a non-exclusive license to Dow’s Pfēnex Expression Technology™ for biocatalysis development.

     In April 2008, we acquired Jet Generici Srl, a company engaged in the sale of generic finished dosages in Italy, for a total cash consideration of Rs.148 million (Euro 2.3 million). The acquisition was completed through our Italian subsidiary, Reddy Pharma Italia SpA, which has been engaged in building a pipeline of registrations since its incorporation. The acquisition provided us with access to an essential product portfolio, and a sales and marketing organization.

     In July 2008, we purchased the equity holding of Citigroup Venture Capital International Mauritius Limited (“Citigroup Venture”), its nominees and ICICI Venture Funds Management Company Limited (“ICICI Venture”) in Perlecan Pharma Private Limited (“Perlecan Pharma”) for a total purchase price of Rs.758 million. As a result of this transaction, Perlecan Pharma became our wholly owned subsidiary. Perlecan Pharma was formed in September 2005 as a joint venture among us, Citigroup Venture and ICICI Venture. We, as a part of this joint venture, had out-licensed four NCE assets to Perlecan Pharma. Perlecan Pharma had been engaged in the clinical development and out-licensing of these four NCE assets.

     In September 2008, as part of our Proprietary Products segment, we launched our U.S. Specialty Business through Promius Pharma, LLC, our wholly-owned subsidiary located in Bridgewater, New Jersey. Promius Pharma will initially focus on the branded dermatology market and is based on a platform of strategic licensing initiatives and internal product development activities undertaken over the last several years. Promius Pharma’s product portfolio currently consists of three in-licensed dermatological products, of which two were launched during the year ended March 31, 2009 and a pipeline of topical products is being developed at our Integrated Product Development Facility in Hyderabad, India. Promius Pharma’s current portfolio contains innovative topical products for the treatment of psoriasis, atopic dermatitis and seborrheic dermatitis.

     In November 2008, we launched the authorized generic version of GlaxoSmithKline’s Imitrex^® (sumatriptan succinate) tablets 25 mg, 50 mg, and 100 mg in the United States. We are the first company to launch an authorized generic version of Imitrex^® tablets in the U.S. market. In October 2006, we settled patent litigation with GlaxoSmithKline relating to sumatriptan succinate tablets. GlaxoSmithKline’s Imitrex^® tablets, which are indicated for the acute treatment of migraine attacks in adults, had U.S. sales of approximately $1 billion for the 12 month period ended December, 2008 according to IMS Health, a company which provides information on the pharmaceutical industry, in its Moving Annual Total (“MAT”) report for the year ended December 2008.

     In December 2008, we entered into agreements with Schering Plough Inc. and Sepracor Inc. which will allow us to manufacture and market generic versions of the CLARINEX-D^®-12 hour and CLARINEX-D^®-24 hour products, with six months marketing exclusivity, and the CLARINEX^® REDITABS^® product, with six months marketing co-exclusivity, starting in 2012. We will also market a generic version of the CLARINEX^® 5 milligram tablet six months after the launch of the first generic version of that product. The agreements resolve all pending patent infringement actions filed by Schering Plough Inc. and Sepracor Inc. against Dr. Reddy’s in the U.S. District Court for the District of New Jersey.

     In December 2008, we announced that our German subsidiary, betapharm, had received information on the preliminary results of the competitive bidding (or “tender”) process by the Allgemeine Ortskrankenkassen (“AOK”), a large public health insurance company in Germany, for discount agreements pertaining to 64 pharmaceutical products for 2009 and 2010. betapharm was awarded 8

products (with 33 contracts) in different regions of Germany covering the AOK-insured persons, which represented 17% of the overall volume of the products covered by the AOK tender. betapharm was among the top 3 companies in terms of number of contracts awarded. The tender procedure was delayed pending resolution of a number of lawsuits filed by generic drug manufacturers. However, such suits were resolved and, starting in June 2009, the sales under this tender began.

     In March 2009, the U.S. District Court in the Southern District of New York granted a summary judgment in our favor, finding that the “Omeprazole Mg OTC” ANDA filed by us does not infringe the patents related to Astra Zeneca’s Prilosec OTC^®. We received approval from the U.S. FDA for our ANDA for Omeprazole Mg OTC on June 5, 2009. Omeprazole Mg is indicated for the treatment of heartburn and our formulation contains 20.6 mg of omeprazole magnesium salt. The Prilosec OTC^® brand product had annual sales of approximately $362 million in the United States for the 52 weeks ended July 13, 2008, based on sales data from Information Resources, Inc., a market research firm. Preparations for the launch of our product are under way.

     In March 2009, we announced a realignment of our Global Generics segment’s strategy for finished dosages to focus on certain key geographies, and that we would gradually exit from some of our very small, distributor driven markets. The markets being exited account for less than 1% of our total company revenues. In addition to the markets where our operations are already very large and account for a major share of our Global Generics segment’s revenues (i.e., United States, India, Russia and other countries of the former Soviet Union, and Germany), we will continue operations in 10-15 other markets in which our finished dosages sales are growing significantly. This realignment represents an important new focus in our Global Generics segment. Not only will this realignment result in consolidation and reduction in complexity of our operations, we believe that it will enable us to significantly enhance our customer service and to increase our market share in the key geographies where we already have a considerable presence.

     In order to build a robust generics and active pharmaceutical ingredients (“API”) pipeline, in the year ended March 31, 2009, we filed 20 ANDAs in the United States including seven Paragraph IV filings. In the year ended March 31, 2009, the U.S. FDA granted us 23 final ANDA approvals and four tentative ANDA approvals. As of March 31, 2009, cumulatively, we have filed 138 ANDAs out of which 68 ANDAs were pending approval at the U.S. FDA, including nine tentative approvals. With respect to APIs, we filed 55 Drug Master Files (“DMF”) in the year ended March 31, 2009 worldwide, 21 of which were filed in the United States, 5 in Canada, 19 in Europe and 10 in other countries. With these filings, we have a total of 148 U.S. DMFs filed as of March 31, 2009. Including the United States filings, as of March 31, 2009, we have made a total of 351 DMF filings worldwide.

     During the year ended March 31, 2009, we invested Rs.4,426 million (net of sales of capital assets) on capital expenditures for manufacturing, research and development facilities and other assets. These investments will create the capacity to support our strategic growth agenda.

     During the years ended March 31, 2007, 2008 and 2009, no third party made any public takeover offers in respect of our shares and we did not make any public offers to take over any other company.

4.B. Business overview

     We are an emerging global pharmaceutical company with proven research capabilities. We produce active pharmaceutical ingredients and intermediates and finished dosage forms and biologics products and market them globally, with a focus on India, the United States, Europe and Russia. We are vertically integrated and use our active pharmaceutical ingredients and intermediates in our own finished dosage products. We conduct basic research mainly in the areas of metabolic disorders, cardiovascular diseases and bacterial infection.

     Our total revenues for the year ended March 31, 2009 were Rs.69,441 million (U.S.$1,365 million). We derived 17% of these revenues from sales in India, 35% from the United States and Canada (“North America”), 11% from Russia and other countries of the former Soviet Union, 26% from Europe and 11% from other countries. Our net result for the year ended March 31, 2009 was a loss of Rs.5,168 million (U.S.$102 million).

OUR STRATEGY

     The high cost of many medicines puts them out of the reach of millions of people who desperately need them. Our core purpose is to provide affordable and innovative medicines to enable people to lead healthier lives. As a global pharmaceutical company, we take very seriously our responsibility to help alleviate the burden of disease on individuals and on the world. The strategy through which we intend to achieve this goal is as follows:

	•		Through our Global Generics segment, we offer lower-cost alternatives to highly-priced innovator brands, both directly and through key partnerships. Generic drugs hold great promise for the future. The growing acceptance of generics and favorable legislation in many countries, combined with the large volume of branded products losing patent protection over the coming years, is expanding the generic pharmaceuticals market. Today, we have a strong presence both in highly regulated markets, such as the United States, United Kingdom and Germany, and in emerging markets, including India, Russia, Venezuela, Romania, and certain countries of the former Soviet Union (Belarus, Ukraine and Kazakhstan). Moreover, we are steadily building our presence in other key markets. Our capabilities span the entire value chain — from process development of the API to submission of the finished dosage dossier to the regulatory agencies — giving us control over the supply chain and the ability to offer high quality products at the right time and at competitive prices. Our generics business is supported by our integrated product development infrastructure which is dedicated to bringing new medicines to the market. We will continue to leverage our existing global platforms of product development, manufacturing and supply chain management to add to our product pipeline and address the growing needs of our customers in each of these markets.
	•		Through our Pharmaceutical Services and Active Ingredients (“PSAI”) segment, which consists of our API business and our Custom Pharmaceutical Services (“CPS”) business, we offer intellectual property advantaged, rapid product development and cost-effective manufacturing services to our customers — both generic companies and innovators. This allows us to help make medicines available to more people around the world. For our API business, our goal is to always enable our customers to be the first to launch a generic product and to provide value added services to help them remain competitive and profitable for the entire life-cycle of the product. Our CPS business serves several innovators, both big pharmaceutical and emerging biotechnology companies, and a large number of emerging pharmaceutical companies. Our CPS business aims to be the preferred partner for innovator companies by providing a complete range of services, such as process development and manufacturing services, that are necessary to take their innovations to the market with greater speed and efficiency and lower capital expenditures.
	•		Our Proprietary Products segment consists of new chemical entity (“NCE”) research and our Differentiated Formulations business. In each of these areas, we are building world-class capabilities and partnerships to accelerate the discovery and development of new and improved therapies. NCE research is focused on building a robust NCE pipeline in the areas of metabolic diseases, cardiovascular diseases, and antibacterials. Our Differentiated Formulations efforts involve applying novel formulation and drug delivery technologies to improve or repurpose products that have a sizable track record of human clinical use. Our most advanced Differentiated Formulations efforts are in dermatology, where we have launched several effective and innovative products through our wholly-owned subsidiary, Promius Pharma.
	•		To supplement our internal growth initiatives for each of these businesses, we are continuously exploring external business development opportunities, including acquisitions and alliances.

     The following table shows our revenues and percentage of total revenues of our segments for the years ended March 31, 2008 and 2009, respectively:

		Year Ended March 31,
Segment		2008								2009
		(Rs. in millions, U.S.$ in millions)
Pharmaceutical Services and Active Ingredients		Rs.	16,623				33	%		Rs.	18,758				27	%		U.S.$	369
Global Generics			32,872				66	%			49,790				72	%			979
Proprietary Products			190				—	%			294				—	%			6
Others			321				1	%			599				1	%			11
Total revenues		Rs.	50,006				100	%		Rs.	69,441				100	%		U.S.$	1,365

     Our PSAI segment accounted for 27% of our total revenues for the year ended March 31, 2009. This segment includes active pharmaceutical ingredients, also known as active pharmaceutical products or bulk drugs, which are the principal ingredients for finished pharmaceutical products. Intermediates are the compounds from which active pharmaceutical ingredients are prepared.

Active pharmaceutical ingredients and intermediates (“API”) 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 API and steroids in accordance with the specific customer requirements. This segment has been formed by aggregating our former two segments of Active Pharmaceutical Ingredients and Intermediates and Custom Pharmaceutical Services. This aggregation is expected to help us improve synergies and provide focus to our chemicals business, which has significant market potential. There is a common manufacturing infrastructure and supply chain organization for this segment with the integration being done under our chemical technical operations team.

     We produce and market more than 100 different APIs in several markets. We export API to emerging as well as developed markets covering more than 100 countries. Our principal markets in this business segment include North America (the United States and Canada) and Europe. Our API business is operated independently from our Global Generics segment and, in addition to supplying API to our Global Generics segment, we sell API to third parties for use in creating generic products, subject to any patent rights of other third parties. Our API business also manufactures and supplies all of the API required in our custom pharmaceutical services business. The research and development group within our API business contributes to our business by creating intellectual property (principally with respect to novel and non-infringing manufacturing processes and intermediates), providing research intended to reduce the cost of production of our products and developing approximately 15-20 new products every year.

     The custom pharmaceutical (contract research and manufacturing) arm of our PSAI segment was established in 2001 to leverage our strength in process chemistry to serve the niche segment of the pharmaceutical and fine chemicals industry. Over the years, our business strategy in this area has evolved to focus on the marketing of process development and manufacturing services. Our objective is to be the preferred partner for innovator pharmaceutical companies, providing a complete range of services that are necessary to take their innovations to the market speedily and more efficiently. The focus is to leverage our skills in process development, analytical development, formulation development and Current Good Manufacturing Practice (“cGMP”) manufacturing to serve various needs of innovator pharmaceutical companies. We have positioned our CPS business to be the partner of choice for large and emerging innovator companies across the globe, with service offerings spanning the entire value chain of pharmaceutical services.

Sales, Marketing and Distribution

     Emerging Markets. India is an important emerging market, accounting for 13% of the segment’s revenues in the year ended March 31, 2009. In India, we market our API products to Indian and multinational companies who are also our competitors in our Global Generics segment. In India, our top six products are ciprofloxacin, ranitidine, clopidogrel, ramipril, losartan potassium and naproxen. The market in India is highly competitive, with severe pricing pressure and competition from cheaper Chinese imports in several products.

     In India, our sales team works closely with our sales agents to market our products. We market our products through these sales agents, commonly referred to as “indenting agents,” with a focus on regional sales and marketing. The sales are made directly from the factory and, to a limited extent, through clearing and forwarding agents. Distribution through clearing and forwarding agents is done to give better service to the customer.

     Our sales to other emerging markets were Rs.6,340 million for the year ended March 31, 2009. Our other key emerging markets include Israel, Turkey, South Korea, Mexico, Brazil, Bangladesh, Indonesia, Jordan, Argentina, China, Peru, Syria, Saudi Arabia, Chile, Egypt, Thailand, Malaysia, Colombia, Pakistan and Taiwan. While we work through our agents in these markets, our zonal marketing managers also interact directly with our key customers in order to service their requirements. Our strategy is to build relationships with top customers in each of these markets and partner with them in product launches by providing timely technical and analytical support.

     Developed Markets. Our principal markets are North America (the United States and Canada) and Europe. In the United States and Europe, over the next three to four years, a large number of products are expected to lose patent protection, providing growth opportunities for our API business. We have been marketing API in the United States for over a decade. We market through our subsidiaries in the United States and Europe. These subsidiaries are engaged in all aspects of marketing activity and support our customers’ pursuit of regulatory approval for their products, focusing on building long-term relationships with the customers.

     With respect to API, we filed 55 DMFs worldwide in the year ended March 31, 2009, 21 of which were filed in the United States, 5 in Canada, 19 in Europe and 10 in other countries. With these filings, we have a total of 148 U.S. DMFs filed as of March 31, 2009. Also, as of March 31, 2009, we had filed 83 DMFs in Europe and had 22 certificates of suitability granted by European authorities.

Including the United States and Europe filings, as of March 31, 2009, we have made a total of 351 DMF filings worldwide. For most of these, we are either already supplying commercial quantities or development quantities of API to various generic formulators.

     For our custom pharmaceutical services line of business, we have focused business development teams dedicated to our key geographies of North America (the United States and Canada), the European Union and Asia Pacific. These teams target large and emerging innovator companies to build long-term business relationships focused on catering to their outsourcing needs.

     The infrastructure for our PSAI segment consists of six U.S. FDA-inspected plants in India, a U.S. FDA-inspected plant in Mexico, a U.S. FDA-inspected plant in Mirfield, United Kingdom and three technology development centers, two of which are in Hyderabad, India and one of which is in Cambridge, United Kingdom.

     India. All of the facilities in India are located in the state of Andhra Pradesh. Six of these facilities have ISO 9001 certification, which is valid until December 5, 2009, at which time we will be reinspected. With over 740 reactors of different sizes offering 2.9 million litres of reaction volume annually, we have the flexibility to produce quantities that range from a few kilograms to several metric tons. The manufacturing process consumes a wide variety of raw materials that we obtain from sources that comply with the requirements of regulatory authorities in the markets to which we supply our products. We procure raw materials on the basis of our requirement planning cycles. We utilize a broad base of suppliers in order to minimize risk arising from dependence on a single supplier. Our Global Generics segment sources approximately 62% of its API purchases from our PSAI segment. We also source several APIs from third party suppliers for the emerging markets to optimally utilize our in-house manufacturing capacities for the developed markets, which are more profitable relative to the emerging markets. During the year ended March 31, 2009, approximately 5% of our total revenues resulted from sales of API procured from third-party suppliers. We maintain stringent quality controls when procuring materials from third-party suppliers.

     Our API outsourcing activities were improved during the year ended March 31, 2009 as a result of a new initiative to strengthen our relationships with our API vendors, who we view as our business partners, through a dedicated quality assurance team. This initiative has helped us maintain a strong and sustaining supply chain. In line with our philosophy of ensuring that our business partners grow with us, we have implemented a strong infrastructure to improve the performance of our partners, both in volume and quality. This includes a dedicated team of professionals from our technical, quality and commercial teams working with the partners, as well as a dedicated quality laboratory and a development laboratory. This has further helped us to mitigate risks due to a single source and quality related issues. During the quarter ended March 31, 2009, four of our manufacturing facilities in India were inspected by the U.S. FDA and no critical observations were made by them.

     Mexico. Our U.S. FDA inspected plant in Mexico was acquired from Roche during the year ended March 31, 2006. In addition to manufacturing the active pharmaceutical ingredients naproxen and naproxen sodium and a range of intermediates, the Mexico facility synthesizes steroids for use in pharmaceutical and veterinary products. Key raw materials for the manufacture of naproxen are procured from a unit that we established within an existing plant in India.

     For our contract research services, we have well-resourced synthetic organic chemistry laboratories, analytical laboratories and kilo laboratories at our technology development centers at Miyapur and Jeedimetla in Hyderabad. We have added a new crystallization laboratory which enhances our technical capability to study finishing stages of API manufacturing and process safety. Our chemists and engineers understand cGMP manufacturing and regulatory requirements for synthesis, manufacture and formulation of a NCE from the pre-clinical stage to commercialization. To complete the full value chain in development services, we also provide formulation development services. We now have facilities for pre-formulation and formulation development, analytical development, clinical trial supplies, pilot scale and product regulatory support. Larger quantities of APIs are sourced from API plants in India and Mexico.

     We acquired the Dowpharma Small Molecules business, now renamed asChirotech Technology Limited, from The Dow Chemical Company in April 2008. As a result, we now offer niche capabilities, such as biocatalysis, chemocatalysis and hydroformulation, to provide cost effective solutions for chiral molecules. The acquisition included the relevant business, customer contracts, associated API products, process technology and know-how, technology licensing rights trademarks and other intellectual property, as well as the transfer of the facilities at Mirfield and Cambridge in the United Kingdom. We also took over the existing work force as a part of the acquisition. The two sites and the business employ approximately 80 people. The acquired assets include a non-exclusive license to Dow’s Pfēnex Expression Technology™ for biocatalysis development. This technology offers us opportunities to provide technology leveraged manufacturing services to innovators, including major global pharmaceutical companies. Our contract research and

manufacturing business is uniquely positioned in the market where it utilizes assets (both in terms of physical assets and technical know-how) of a vertically integrated pharmaceutical company and combines this with the service model which we built in the last few years.

Competition

     The global API market can broadly be divided into highly regulated and less regulated markets. The less regulated markets offer low entry barriers in terms of regulatory requirements and intellectual property rights. The highly regulated markets, like the United States and Europe, have high entry barriers in terms of intellectual property rights and regulatory requirements, including facility approvals. As a result, there is a premium for quality and regulatory compliance along with relatively greater stability for both volumes and prices. During the year ended March 31, 2009, the competitive environment for the API industry underwent significant changes. These changes included increasing consolidation in the global generics industry and vertical integration of some key generic pharmaceutical companies. As an API supplier, we compete with a number of manufacturers within and outside India, which vary in size. Our main competitors in this segment are Hetero Drugs Limited, Divi’s Laboratories Limited, Aurobindo Pharma Limited, Ranbaxy Laboratories Limited, Cipla Limited, Matrix Laboratories Limited, Sun Pharmaceutical Industries Limited and MSN Laboratories Limited, all based in India. In addition, we experience competition from European and Chinese manufacturers, as well as from Teva Pharmaceuticals Industries Limited, based in Israel.

     With respect to our custom pharmaceuticals business, we believe that contract manufacturing is a significant opportunity for Indian pharmaceutical companies, based on their low-cost manufacturing infrastructure. Key competitors in India include Divis’s Laboratories Limited, Matrix Laboratories Limited, Dishman Pharmaceuticals & Chemicals Limited, Syngene Limited, Jubilant Organosys Limited and Nicholas Piramal India Limited. Key competitors from outside India include Lonza Group, Koninklijke DSM N.V., Albany Molecular Research, Inc., Patheon, Inc. and Cardinal Health, Inc. We distinguish ourselves from our key competitors by offering a wider range of cost effective services spanning the entire pharmaceutical value chain. Growth in contract manufacturing is likely to be driven by increasing outsourcing of late-stage and off-patent molecules by large pharmaceutical companies to compete with generics. India is emerging as an alliance and outsourcing destination of choice for global pharmaceutical companies. Companies such as Roche, Bayer, Aventis, Novartis, Eli Lilly and GlaxoSmithKline are all executing plans to make India the regional hub for API and supply of bulk drugs.

Government regulations

     All pharmaceutical companies that manufacture and market products in India are subject to various national and state laws and regulations, which principally include the Drugs and Cosmetics Act, 1940, the Drugs (Prices Control) Order, 1995, various environmental laws, labor laws and other government statutes and regulations. These regulations govern the testing, manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of pharmaceutical products.

     In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administration agencies are empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by the Drug Controller General of India (“DCGI”). Prior to granting licenses for any new drugs or combinations of new drugs, the DCGI clearance has to be obtained in accordance with the Drugs and Cosmetics Act, 1940.

     Our PSAI segment is subject to a number of government regulations with respect to pricing and patents as discussed below in our Global Generics segment.

     We submit a DMF for active pharmaceutical ingredients to be commercialized in the United States. Any drug product for which an ANDA is being filed must have a DMF in place with respect to a particular supplier supplying the underlying API. The manufacturing facilities are inspected by the U.S. FDA to assess compliance with Current Good Manufacturing Practice regulations (“cGMP”). The manufacturing facilities and production procedures utilized at the manufacturing facilities must meet U.S. FDA standards before products may be exported to the United States. Eight of our manufacturing facilities have been inspected by the U.S. FDA and found “Acceptable.” For European markets, we submit a European DMF and, where applicable, obtain a certificate of suitability from the European Directorate for the Quality of Medicines.

Global Generics Segment

     At the beginning of the year ended March 31, 2009, we made a detailed organizational announcement to integrate our worldwide finished dosages businesses, which had previously been included within our former Formulations segment or our former Generics segment, under our new Global Generics segment. The back-end manufacturing, development and regulatory infrastructure have been integrated. The performance review, evaluation and management reporting has also been integrated in order to facilitate potential product synergies across various geographies. We have also established a Global Generics portfolio management team (in addition to our existing Global Regulatory Affairs and Compliance team) which is responsible for the coordination of our product identification and selection processes, as well as the development of intellectual property and legal strategy, worldwide, in our Global Generics businesses.

     Today, we are one of the top generic pharmaceutical companies in the world. With the integration of our Global Generics business, our front-end business strategies in various markets and our support services in India are increasingly being developed with a view to leverage our global infrastructure. The production processes for finished dosages are similar to a certain extent, regardless of whether the finished dosages are to be marketed to highly regulated or less regulated markets. In many cases, the processes share common and interchangeable facilities and employee bases, and use similar raw materials. However, differences remain between highly regulated and less regulated markets in terms of manufacturing, packaging and labeling requirements and the intensity of regulatory oversight, as well as the complexity of patent regimes. While the degree of regulation in certain markets may impact product development, we are observing increasing convergence of development needs throughout both highly regulated and less regulated markets. As a result, when we begin the development of a product, we may not necessarily target it at a particular market, but will instead target the product towards a cluster of markets which will include both highly regulated and less regulated markets. Accordingly, a global manufacturing, distribution and supply strategy will be warranted.

     In March 2009, we announced a realignment of our Global Generics segment’s strategy for finished dosages to focus on certain key geographies, and that we would gradually exit from some of our very small, distributor driven markets. The markets being exited account for less than 1% of our total company revenues. In addition to the markets where our operations are already very large and account for a major share of our Global Generics segment’s revenues (i.e., United States, India, Russia and other countries of the former Soviet Union, and Germany), we will continue operations in 10-15 other markets in which our finished dosages sales are growing significantly. This realignment represents an important new focus in our Global Generics segment. Not only will this realignment result in consolidation and reduction in complexity of our operations, it will enable us to significantly enhance our customer service and to increase our market share in the key geographies where we already have a considerable presence.

     During the year ended March 31, 2009, our Global Generics segment generated revenues of Rs.49,790 million, accounting for 72% of our revenues, and grew by 51% on a year-on-year basis over the year ended March 31, 2008.

     The following is a discussion of the key markets in our Global Generic segment.

India

     Approximately 17% of our Global Generics segment’s revenues in the year ended March 31, 2009 were derived from sales in the Indian market. In India, we mainly focus on the therapeutic categories of cardiovascular, diabetes management, gastro-intestinal and pain management. As of March 31, 2009, we had a total of 184 brands in India. Our top ten brands together accounted for 39% of our revenues in India in the year ended March 31, 2009. According to Operations Research Group International Medical Statistics (“ORG IMS”) in its March Moving Annual Total (“MAT”) report for the 12-month period ended March 2009, our secondary sales (i.e., sales directly to end users) in India grew 2.6% in the year ended March 31, 2009. According to ORG IMS in its report referenced above, as of March 2009 we had 55 brands that were ranked either first or second in terms of (secondary) sales in India in their respective product categories. According to the Center for Marketing and Advertising Research Consultancy report for the period from November 2008 to February 2009, which measures doctors’ prescriptions, we were ranked ninth in terms of the number of prescriptions generated in India during such period.

     New product launches during the year ended March 31, 2009 accounted for 3% of our Global Generics segment’s revenues from sales in India. Key product launches included OMEZ Insta, our brand of omeprazole powder; PECEF 200, our brand of cefpodoxime; Telsartan AM, our brand of telsartan and amlodipine; Vantej, our brand of calcium sodium phospho silicate; and Xefta, our brand of gefitinib. We have also launched Combihale™, a treatment for asthma.

     The following tables summarize the position of our top 10 brands in the Indian market for the years ended March 31, 2008 and 2009, respectively:

		Year Ended March 31,
		2008								2009
BRAND		Revenues				% Total(1)				Revenues				% Total(1)
		(Rs. in millions)
Omez		Rs.	763				9	%		Rs.	776				9	%
Nise			626				8	%			605				7	%
Stamlo			403				5	%			422				5	%
Stamlo beta			305				4	%			301				4	%
Atocor			244				3	%			269				3	%
Razo			180				2	%			214				3	%
OMEZ-DSR			166				2	%			210				2	%
Reditux			154				2	%			199				2	%
Mintop			150				2	%			172				2	%
Enam			179				2	%			166				2	%
Others			4,890				61	%			5,144				61	%
Total		Rs.	8,060				100	%		Rs.	8,478				100	%

Sales, marketing and distribution network

     We generate demand for our products by detailing them to doctors who prescribe them, and meeting with pharmacists to ensure that the pharmacists stock our brands. While we do not sell directly to doctors or pharmacists, our approximately 2,248 sales representatives and front line managers frequently visit doctors and pharmacists throughout the country to detail our products. In addition, we sponsor medical conferences in different parts of the country and conduct seminars for doctors. During the year ended March 31, 2009, we increased our total sales personnel in India by approximately 298.

     We sell our products primarily through clearing and forwarding agents to approximately 2,196 wholesalers who decide which brands to buy based on demand. The wholesalers pay for our products in an agreed credit period and in turn sell these products to retailers. Our clearing and forwarding agents are responsible for transporting our products to the wholesalers and ensuring that the wholesalers maintain adequate supplies of our products. We pay our clearing and forwarding agents on a commission basis. We have insurance policies that cover our products during shipment and storage at clearing and forwarding locations.

Competition

     We compete with different companies in different countries, depending upon therapeutic and product categories and, within each category, upon dosage strengths and drug delivery. On the basis of sales, we were the 13th largest pharmaceutical seller in India, with a market share of 2.17%, according to the ORG IMS March MAT report for the 12-month period ended March 31, 2009. Of the top twenty participants in the Indian formulations market, three are multinational corporations and the rest are Indian corporations. We believe growth opportunities in India continue to exist.

     Some of the key observations on the performance of the Indian pharmaceutical market by ORG IMS set forth in their March MAT report for the 12-month period ended March 31, 2009 and similar reports published by ORG IMS during the year ended March 31, 2009 are as follows:

	§		The Indian pharmaceutical market, including retail and hospital sales, registered a growth of 10.1% during the year ended March 31, 2009.
	§		The overall growth rate during the year ended March 31, 2009 was lower than the forecasted growth rate.
	§		New products accounted for 6.5% of total Indian pharmaceutical sales during the year ended March 31, 2009.
	§		The number of new products in the Indian pharmaceutical market remained steady at approximately 3,900, while 20% of the new products account for 70% of total sales from new products.
	§		The top 300 existing brands grew at a rate of 11%, which was higher than the Indian pharmaceutical market’s overall average, and continued to account for 33% of the market’s total sales.
	§		Approximately 800 existing brands (more than Rs.100 million in value) accounted for 50% of the market’s total sales and recorded a growth rate of more than 11% during the year ended March 31, 2009.
	§		There is an increasing emergence of bio-similars to address the needs of patients in the oncology therapeutic area.

     Our Global Generic segment’s principal competitors in the Indian market include Cipla Limited, Glaxo SmithKline Pharmaceuticals Limited, Ranbaxy Laboratories Limited, Nicholas Piramal India Limited, Sun Pharmaceuticals Industries Limited, Zydus-Cadila Limited, Lupin Limited, Mankind Limited, Alkem Limited, Aristo Pharma Limited and Abbott Limited.

     All pharmaceutical companies that manufacture and market products in India are subject to various national and state laws and regulations, which principally include the Drugs and Cosmetics Act, 1940, the Drugs (Prices Control) Order, 1995 (DPCO), various environmental laws, labor laws and other government statutes and regulations. These regulations govern the testing, manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of pharmaceutical products.

     In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administration agencies are empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by the DCGI. Prior to granting licenses for any new drugs or combinations of new drugs, DCGI clearance has to be obtained in accordance with the Drugs and Cosmetics Act, 1940.

     Pursuant to the amendments in May 2005 to the Schedule Y of the Drugs and Cosmetics Act, 1940, manufacturers of finished dosages are required to submit additional technical data to the DCGI in order to obtain a no-objection certificate for conducting clinical trials as well as to manufacture new drugs for marketing.

     All pharmaceutical manufacturers that sell products in India are subject to regulations issued by its ministry of health (“MoH”). These regulations govern or influence the testing, manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of products.

     MoH approval of an application is required before a generic equivalent of an existing or referenced brand drug can be marketed. When processing a generics application, the MoH waives the requirement of conducting complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. “Bioequivalence” compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and levels of concentration of the active drug substance in the body are the equivalent for the generic drug and the previously approved drug. A generic application may be submitted for a drug on the basis that it is the equivalent of a previously approved drug. Before approving a generic product, the MoH also requires that our procedures and operations conform to cGMP regulations, relating to good manufacturing practices as defined by various countries. We must follow the cGMP regulations at all times during the manufacture of our products. We continue to spend significant time, money and effort in the areas of production and quality testing to help ensure full compliance with cGMP regulations.

     The timing of final MoH approval of a generic application depends on various factors, including patent expiration dates, sufficiency of data and regulatory approvals.

     Under the present drug policy of the Government of India, certain drugs have been specified under the DPCO as subject to price control. The Government of India established the National Pharmaceutical Pricing Authority (“NPPA”) to control pharmaceutical prices. Under the DPCO, the NPPA has the authority to fix the maximum selling price for specified products. At present, more than 70

drugs and their formulations are categorized as specified products under the DPCO. A limited number of our formulation products fall in this category. Adverse changes in the DPCO list or in the span of price control can affect pricing, and hence, our Indian revenues.

     On March 22, 2005, the Government of India passed the Patents (Amendment) Bill 2005 (the “Amendment”), introducing a product patent regime for food, chemicals and pharmaceuticals in India. The Amendment specifically provides that new medicines (patentability of which is not specifically excluded) for which a patent has been applied for in India on or after January 1, 1995 and for which a patent is granted cannot be manufactured or sold in India by other than the patent holder and its assignees and licensees. This will result in a reduction of the new product introductions in India, as well as other countries where similar legislation has been introduced, for all Indian pharmaceutical companies engaged in the development and marketing of generic finished dosages and APIs. Processes for the manufacture of APIs and formulations were patentable in India even prior to the Amendment, so no additional impact is anticipated from patenting of such processes.

     The biotechnology sector in India is governed by the guidelines and rules formulated by the Department of Biotechnology (“DBT”), under the Indian Government’s Ministry of Science and Technology. The guidelines cover the entire requirements of various other related ministries/statutory departments of the Government of India.

     A business which intends to manufacture and market biotechnology products is required to form an Institutional Bio Safety Committee (“IBSC”) consisting of internal experts on related fields as well as a nominee of the DBT and Central Pollution Control Board (“CPCB”). The IBSC reviews, verifies and approves the product application before submitting it to the Review Committee of Genetic Manipulation (“RCGM”) under the Indian Government’s Ministry of Science and Technology. The RCGM verifies and approves all the data included in the application including the protocol and final reports on animal toxicity and human clinical trials.

     Once clearance is obtained from the RCGM, the business is required to obtain clearance from the Genetic Engineering Approval Committee (“GEAC”) under the Ministry of Environment and Forest, Government of India. The GEAC forwards its recommendation to the DBT and DCGI. Upon receipt of a “No Objection Certificate” from the DCGI, the business is required to obtain a manufacturing license from the State Drugs Authority and, thereafter, can commence commercial marketing.

     We are making required investments for scaling up our manufacturing infrastructure and enhancing our development capabilities to leverage the global opportunity available in biogenerics.

Russia

     Russia accounted for 12% of our Global Generics segment’s revenues in the year ended March 31, 2009. Pharmexpert, a market research firm, ranked us 17th in sales in Russia with a market share of 1.25% as of March 31, 2009 in its moving annual total report for first quarter 2009 (the “Pharmexpert MAT Q1 2009 Report”). Pharmexpert also reported that Russia’s pharmaceutical market growth during the year ended March 31, 2009 was 16%. All of the companies ranked ahead of us by Pharmexpert were either multinational corporations or of European origin. Accordingly, we were the top ranked Indian pharmaceutical company in Russia.

     The following table provides a summary of the revenues of our top 10 brands in the Russian market for the years ended March 31, 2008 and 2009, respectively:

		Year Ended March 31,
		2008								2009
		Revenues in								Revenues in
Brand		millions				% Total(1)				millions				% Total(1)
Omez		Rs.	849				21	%		Rs.	1,281				21	%
Nise			799				20	%			1,249				21	%
Ketorol			797				20	%			1,078				18	%
Ciprolet			550				13	%			701				12	%
Enam			255				6	%			315				5	%
Cetrine			199				5	%			339				6	%
Exifine			140				3	%			210				3	%

		Year Ended March 31,
		2008								2009
		Revenues in								Revenues in
Brand		millions				% Total(1)				millions				% Total(1)
Mitotax			105				3	%			148				2	%
Bion			62				2	%			171				3	%
Mycoflucan			51				1	%			95				2	%
Others			257				6	%			216				7	%
Total		Rs.	4,064				100	%		Rs.	5,803				100	%

     Our top four brands, Omez, Nise, Ketorol and Ciprolet, accounted for 72% of our generics revenues in Russia in the year ended March 31, 2009. Omez (an anti-ulcerant product), Nise and Ketorol (pain management products) and Ciprolet (an anti-infective product) are ranked as the 45th, 40th, 64th and 131st best selling formulation brands, respectively, in the Russian market as of March 2009 by Pharmexpert in its MAT Q1 2009 Report.

     Our strategy in Russia is to focus on the therapeutic areas of gastro-intestinal, pain management, anti-infectives and cardiovascular. Our focus is on building brand leaders in these therapeutic segments. Omez, Ciprolet, Nise and Ketorol continued to be brand leaders in their respective categories, as reported by the Pharmexpert MAT Q1 2009 Report.

     Growth during the year was driven by sales and marketing initiatives to target specialists through field sale forces focused on these specialists, increased participation in hospital business and an over-the-counter (“OTC”) initiative for certain brands. During the year ended March 31, 2009, we further expanded our Russian sales force. Our Russian hospital division has 31 hospital specialists and 16 key account managers, and is focused on expanding our present network of hospitals and institutes. Our Russian OTC division has 52 medical representatives, and is focused on establishing a network of relationships with OTC distributors in preparation for future OTC product launches.

Sales, marketing and distribution network

     In Russia, we sell our products to some of the principal national distributors directly as well as through our wholly-owned subsidiary located in Russia, OOO Dr. Reddy’s Laboratories, Russia. Our sales and marketing efforts are driven by a team of 315 marketing representatives, 25 regional managers, 4 zonal managers and 21 key account managers to detail our products to doctors in 63 cities in Russia. During the year ended March 31, 2009, we increased our sales personnel in Russia by approximately 65.

     In the Russian market, credit is generally extended only to customers after they have established a satisfactory history of payment with us. The credit ratings of these customers are based on turnover, payment record and the number of the customers’ branches or pharmacies, and are reviewed on a periodic basis. During the year ended March 31, 2009, we reviewed the credit terms offered to our key customers and modified them to take into account the current macro-economic scenario in Russia.

Competition

     Our Global Generics segment’s principal competitors in the Russian market include Berlin Chemi AG, Gedeon Richter Limited, Krka, Pliva, Lek, Ranbaxy, Nycomed and Egis Pharmaceuticals Limited.

North America (United States and Canada)

     In North America (the United States and Canada), we sell generic drugs which are the chemical and therapeutic equivalents of reference brand drugs, typically sold under their generic chemical names at prices below those of their brand drug equivalents. Generic drugs are finished pharmaceutical products ready for consumption by the patient. These drugs are required to meet the U.S. FDA standards that are similar to those applicable to their brand-name equivalents and must receive regulatory approval prior to their sale in any given country.

     Generic drugs may be manufactured and marketed only if relevant patents on their brand name equivalents and any additional government-mandated market exclusivity periods have expired, been challenged and invalidated, or otherwise validly circumvented.

     Generic pharmaceutical sales have increased significantly in recent years, due in part to an increased awareness and acceptance among consumers, physicians and pharmacists that generic drugs are the equivalent of brand-name drugs. Among the factors contributing to this increased awareness are the passage of legislation permitting or encouraging substitution and the publication by regulatory authorities of lists of equivalent drugs, which provide physicians and pharmacists with generic drug alternatives. In addition, various government agencies and many private managed care or insurance programs encourage the substitution of generic drugs for brand-name pharmaceuticals as a cost-savings measure in the purchase of, or reimbursement for, prescription drugs. We believe that these factors, together with the large volume of branded products losing patent protection over the coming years, should lead to continued expansion of the generic pharmaceuticals market as a whole. We intend to capitalize on the opportunities resulting from this expansion of the market by leveraging our product development capabilities, manufacturing capacities inspected by various international regulatory agencies and access to our own APIs, which offer significant supply chain efficiencies.

     Revenues from North America (the United States and Canada) generics sales increased by 152% to Rs.19,843 million during the year ended March 31, 2009 from Rs.7,873 million in the year ended March 31, 2008. During the year ended March 31, 2009, North America (the United States and Canada) accounted for 40% of the total Global Generics segment’s sales. This significant contribution and year-on-year increase in sales was primarily due to increases in revenues from the launch of sumatriptan, our authorized generic version of Imitrex^®, which generated revenues of Rs.7,188 million. Excluding the revenues from sumatriptan sales and excluding the revenue contributed by our acquisition of BASF’s facility in Shreveport, Lousiana, our revenues from North America (the United States and Canada) grew by 39% compared to the year ended March 31, 2008.

     Through the coordinated efforts of our teams in the United States and India, we constantly seek to expand our pipeline of generic products. In order to build a robust generics pipeline, in the year ended March 31, 2009, we filed 20 ANDAs in the United States, including seven Paragraph IV filings. In the year ended March 31, 2009, the U.S. FDA granted us 23 final ANDA approvals and four tentative ANDA approvals. As of March 31, 2009, cumulatively, we have filed 138 ANDAs in U.S. out of which 68 ANDAs were pending approval at the U.S. FDA, including nine tentative approvals.

     During the year ended March 31, 2005, we entered into an agreement with I-VEN Pharma Capital Limited (“I-VEN”) for the joint development and commercialization of generic drug products for the U.S. markets. The agreement gives I-VEN the right to fund up to fifty percent of the project costs (development, registration and legal costs) related to these products and the related U.S. Abbreviated New Drug Applications (“ANDA”). Under this agreement, we received Rs.985 million in March 2005 which was applied in part to our research and development costs for the years ended March 31, 2005, 2006 and 2007. During the year ended March 31, 2007, we signed an amendment to the agreement with I-VEN to reflect a change in the product portfolio and the royalty rate.

Sales, Marketing and Distribution Network

     Dr. Reddy’s Laboratories, Inc., our wholly-owned subsidiary in the United States, is engaged in the marketing of our generic products in North America (the United States and Canada). In early 2003, we commenced sales of generic products under our own label. We have our own sales and marketing team to market these generic products. During the year ended March 31, 2009, we launched sumatriptan AG, divalproex sodium, divalproex sodium sprinkles, glycopyrrolate, ramipril, venlafaxine, nabumetone, risperidone, risperidone ODT, levetracetam, lamotrigine chewable, lamotrigine tablets, naproxen OTC and famotidine OTC. Our key account representatives for generic products call on purchasing agents for chain drug stores, drug wholesalers, health maintenance organizations and pharmacy buying groups.

     In January 2006, we entered into an agreement with Merck & Co., Inc. allowing us to distribute and sell authorized generic versions of finasteride and simvastatin (sold by Merck under the brand names Proscar^® and Zocor^®), upon the expiration of Merck’s patents covered by these products, provided that some other company obtains 180-day exclusivity after the expiration of the patents for either product. Subsequently, the patents for both of these products expired and other companies obtained 180-day exclusivity. Accordingly, we launched sales of these products on June 19, 2006 and June 23, 2006, respectively. After expiration of the period of exclusivity, we continued to distribute and sell these products and, in the year ended March 31, 2009, we earned revenue of Rs.648 million from sales of these products. During the year ended March 31, 2008, we received ANDA approvals for the generic versions of finasteride and simvastatin manufactured at our facility in India and currently sell those products also in the U.S. market.

     In 2001, we entered into a profit sharing marketing alliance with Par Pharmaceuticals, Inc. to market certain prescription generic formulations, none of which are over-the-counter products. As of March 31, 2009, we marketed two generic products through Par Pharmaceuticals, Inc.

     We formerly marketed generic versions of famotidine (Pepcid^®) tablets, ranitidine (Zantac^®) tablets and naproxen sodium (Aleve^®) tablets/caplets, through Leiner Health Products, LLC (“Leiner”). In 2002, we entered into a 15-year exclusive agreement with Leiner to market these and additional OTC products in the United States pursuant to which we launched our first new OTC product under this agreement, ibuprofen/pseudoephedrine, during the year ended March 31, 2007. However, we terminated our OTC product agreements with Leiner on April 18, 2007 after Leiner suspended all of its packaging, production and distribution activities at its facilities in the United States in response to a list of inspection observations on a Form 483 from the U.S. FDA. In the year ended March 31, 2008, we launched our own OTC products division and successfully introduced ranitidine 150 mg OTC in September 2007 and cetirizine 10 mg OTC in January 2008. During the year ended March 31, 2009, two more OTC products launches were made and the sales of our OTC business in the United States during the year ended March 31, 2009 generated revenues of Rs.992 million.

     In Canada, in the year ended March 31, 2002, we entered into a profit sharing arrangement with Cobalt Pharmaceuticals Inc. and Pharmascience Inc. to market certain of our generic products.

     In April 2008, we acquired BASF’s pharmaceutical contract manufacturing business and related facility in Shreveport, Louisiana, U.S.A. This business involves contract manufacturing of generic prescription drugs and OTC products for branded and generic companies in the United States. The acquisition strengthened our supply chain for North America (the United States and Canada) and provides a strong platform for pursuing additional growth opportunities. This business generated revenues of Rs.1,684 million during the year ended March 31, 2009.

Competition

     Revenues and gross profit derived from the sales of generic pharmaceutical products are affected by certain regulatory and competitive factors. As patents and regulatory exclusivity for brand name products expire, the first off-patent manufacturer to receive regulatory approval for generic equivalents of such products is generally able to achieve significant market penetration. As competing off-patent manufacturers receive regulatory approvals on similar products, market share, revenues and gross profit typically decline, in some cases significantly. Accordingly, the level of market share, revenues and gross profit attributable to a particular generic product is normally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval and launch, in relation to competing approvals and launches. Consequently, we must continue to develop and introduce new products in a timely and cost-effective manner to maintain our revenues and gross margins. In addition, the other competitive factors critical to this business include price, product quality, prompt delivery, customer service and reputation. Many of our competitors seek to participate in sales of generic products by, among other things, collaborating with other generic pharmaceutical companies or by marketing their own generic equivalent to their branded products. Our major competitors in the U.S. market include Teva Pharmaceutical Industries Limited, Mylan Laboratories Inc., Andrx Corporation, Watson Laboratories Inc., Sandoz, a division of Novartis Pharma A.G, Ranbaxy Laboratories Limited and Caraco Pharmaceuticals.

     Brand-name manufacturers have devised numerous strategies to delay competition from lower cost generic versions of their products. One of these strategies is to change the dosage form or dosing regimen of the brand product prior to generic introduction, which may reduce the demand for the original dosage form as sought by a generic ANDA dossier applicant or create regulatory delays, sometimes significant, while the generic applicant, to the extent possible, amends its ANDA dossier to match the changes in the brand product. In many of these instances, the changes to the brand product may be protected by patent or data exclusivities, further delaying generic introduction. Another strategy is the launch by the innovator or its licensee of an “authorized generic” during the 180-day generic exclusivity period, resulting in two generic products competing for the market rather than just the product that obtained the generic exclusivity. This may result in reduced revenues for the generic company which has been awarded the generic exclusivity period.

Government regulations

U.S. Regulatory Environment

     All pharmaceutical manufacturers that sell products in the United States are subject to extensive regulation by the U.S. federal government, principally pursuant to the Federal Food, Drug and Cosmetic Act, the Hatch-Waxman Act, the Generic Drug Enforcement Act and other federal government statutes and regulations. These regulations govern or influence the testing,

manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of products.

     Our facilities and products are periodically inspected by the U.S. FDA, which has extensive enforcement powers over the activities of pharmaceutical manufacturers. Non-compliance with applicable requirements can result in fines, criminal penalties, civil injunction against shipment of products, recall and seizure of products, total or partial suspension of production, sale or import of products, refusal of the U.S. government to enter into supply contracts or to approve new drug applications and criminal prosecution. The U.S. FDA also has the authority to deny or revoke approvals of drug active ingredients and dosage forms and the power to halt the operations of non-complying manufacturers. Any failure by us to comply with applicable U.S. FDA policies and regulations could have a material adverse effect on the operations in our generics business.

     U.S. FDA approval of an ANDA is required before a generic equivalent of an existing or referenced brand drug can be marketed. The ANDA process is abbreviated because when processing an ANDA, the U.S. FDA waives the requirement of conducting complete clinical studies, although it normally requires bio-availability and/or bio-equivalence studies. An ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.

     An ANDA applicant in the United States is required to review the patents of the innovator listed in the U.S. FDA publication entitled Approved Drug Products with Therapeutic Equivalence Evaluations, popularly known as the “Orange Book,” and make an appropriate certification. There are several different types of certifications that can be made. A Paragraph IV filing is made when the ANDA applicant believes its product or the use of its product does not infringe on the innovator’s patents listed in the Orange Book or where the applicant believes that such patents are not valid or enforceable. The first generic company to file a Paragraph IV filing may be eligible to receive a six-month marketing exclusivity period from the date a court rules the patent is invalid or not infringed. A Paragraph III filing is made when the ANDA applicant does not intend to market its generic product until the patent expiration. A Paragraph II filing is made where the patent has already expired. A Paragraph I filing is made when the innovator has not submitted the required patent information for listing in the Orange Book. Another type of certification is made where a patent claims a method of use, and the ANDA applicant’s proposed label does not claim that method of use. When an innovator has listed more than one patent in the Orange Book, the ANDA applicant must file separate certifications as to each patent. Generally, Paragraph IV and Paragraph III filings are made before the product goes off patent, and Paragraph II and Paragraph I filings are made after the patent has expired.

     Before approving a product, the FDA also requires that our procedures and operations conform to cGMP regulations, relating to good manufacturing practices as defined in the U.S. Code of Federal Regulations. We must follow cGMP regulations at all times during the manufacture of our products. We continue to spend significant time, money and effort in the areas of production and quality testing to help ensure full compliance with cGMP regulations.

     The timing of final U.S. FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the U.S. FDA may be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date. For example, in certain circumstances the U.S. FDA may now extend the exclusivity of a product by six months past the date of patent expiration if the manufacturer undertakes studies on the effect of their product in children, a so-called pediatric extension.

     In June 2003, the U.S. FDA announced reforms in its generic drug review program with the goal of providing patients with greater and more predictable access to effective, low cost generic alternatives to brand name drugs.

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Act of 2003”) has modified certain provisions of the Hatch-Waxman Act. In particular, significant changes have been made to provisions governing 180-day exclusivity and forfeiture thereof. The new statutory provisions governing 180-day exclusivity may or may not apply to an ANDA, depending on whether the first Paragraph IV certification submitted by any applicant for the drug was submitted prior to the enactment of the Medicare Amendments on December 8, 2003.

     Where the first Paragraph IV certification was submitted on or after December 8, 2003, the new statutory provisions apply. Under these provisions, 180-day exclusivity is awarded to each ANDA applicant submitting a Paragraph IV certification for the same drug with regard to any patent on the first day that any ANDA applicant submits a Paragraph IV certification for the same drug. The 180-day exclusivity period begins on the date of first commercial marketing of the drug by any of the first applicants. However, a first applicant may forfeit its exclusivity in a variety of ways, including, but not limited to (a) failure to obtain tentative approval within 30

months after the application is filed or (b) failure to market its drug by the later of two dates calculated as follows: (x) 75 days after approval or 30 months after submission of the ANDA, whichever comes first, or (y) 75 days after each patent for which the first applicant is qualified for 180-day exclusivity is either (1) the subject of a final court decision holding that the patent is invalid, not infringed, or unenforceable or (2) withdrawn from listing with the U.S. FDA (court decisions qualify if either the first applicant or any applicant with a tentative approval is a party; a final court decision is a decision by a court of appeals or a decision by a district court that is not appealed). The foregoing is an abbreviated summary of certain provisions of the Medicare Act, and accordingly it should be consulted for a complete understanding of both the provisions described above and other important provisions related to 180-day exclusivity and forfeiture thereof.

     Where the first Paragraph IV certification was submitted prior to enactment of the Medicare Act, the statutory provisions governing 180-day exclusivity prior to the Medicare Act still apply. The U.S. FDA interprets these statutory provisions to award 180-day exclusivity to each ANDA applicant submitting a Paragraph IV certification for the same drug on the same day with regard to the same patent on the first day that any ANDA applicant submits a Paragraph IV certification for the same drug with regard to the same patent. The 180-day exclusivity period begins on the date of first commercial marketing of the drug by any of the first applicants or on the date of a final court decision holding that the patent is invalid, not infringed, or unenforceable, whichever comes first. A final court decision is a decision by a court of appeals or a decision by a district court that is not appealed.

Canada Regulatory Environment

     In Canada, we are required to file product dossiers with the country’s regulatory authority for permission to market the generic formulation. The regulatory authorities may inspect our manufacturing facility before approval of the dossier.

Europe

     The European Union (the “EU”) presents significant opportunities for the sale of generic drugs. In the EU, the manufacture and sale of pharmaceutical products is regulated in a manner substantially similar to that in the United States. Legal requirements generally prohibit the handling, manufacture, marketing and importation of any pharmaceutical product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain medical data related to product efficacy and safety, including results of clinical testing and references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel the registration of a product if it is found to be harmful or ineffective, or manufactured and marketed other than in accordance with registration conditions.

     Our sales of generic drugs in Europe for the year ended March 31, 2009 were Rs.11,886 million, which accounted for 24% of our Global Generics segment’s sales, and represented an increase of 16% as compared to sales of generic drugs in Europe for the year ended March 31, 2008. Within Europe, significant sales are generated by beta Holding GmbH (“betapharm”), our German subsidiary. In March 2006, we acquired 100% of betapharm from 3i Group plc, a European private equity firm. This acquisition allowed us to enter the German generics market.

Sales, Marketing and Distribution Network

     Germany. Over last three years, the German pharmaceutical market underwent a significant change. The new healthcare reform (the Statutory Health Insurance — Competition Strengthening Act or Wettbewerbsstärkungsgesetz (“GKV – WSG”) (an act to strengthen the competition in public health insurance) which was effective as of April 1, 2007, has significantly increased the power of insurance companies and statutory health insurance funds (“SHI funds”) to influence dispensing of medicines. Pursuant to the new law, pharmaceutical products covered by rebate contracts with insurance companies have to be prescribed by physicians and dispensed by pharmacies. This has increased the power of insurance funds. As a result, several SHI funds have entered into rebate contracts with pharmaceutical companies, causing pressure on margins.

     During fiscal 2009, Allgemeinen Ortsrankenkassen (“AOK”), one of the largest SHI funds (with 18.2 million members and 7 million dependents, covering approximately 40% of the German insurance market), announced a competitive bidding (or “tender”) process from pharmaceutical companies for 64 pharmaceutical products for 2009 and 2010. betapharm was awarded 8 products and 33 contracts covering AOK-insured persons in various regions of Germany, which represented 17% of the overall volume of the products covered by the AOK tender. betapharm was among the top 3 companies in terms of number of contracts awarded. The tender procedure was delayed pending resolution of a number of lawsuits filed by generic drug manufacturers. However, these lawsuits were

settled in favor of AOK and, starting in June 2009, the sales under this tender began. After AOK’s tender, two other SHIs also announced their own tender processes, and this process appears to be emerging as a significant trend in the German generics market.

     In addition to AOK, betapharm continues to have contracts with other major SHI funds. Traditionally, the SHI fund contracts had the elements of basic rebate and incremental rebates on additional prescriptions generated through persons insured by these SHI funds. Since the new healthcare reforms, the SHI funds have been aggressive in negotiating rebates for their contracts. Consequently, in recent months they have negotiated higher discounts.

     We sell a broad and diversified range of generic pharmaceutical products, under the “betapharm” brand. Our sales force targets primary care physicians and pharmacists and our key account management team targets insurance companies, various doctors and pharmacist associations. These efforts are supported by a direct marketing team and a public relations program. Value-added services provided by the beta institut gemeinnützige GmbH, also known as the beta Institute for Sociomedical Research, are fully integrated into the sales and marketing effort and provide a unique differentiation point for our sales calls. The beta Institute for Sociomedical Research is a non-profit organization engaged in research and development in order to seek means of improving the healthcare process in ways that promote the psychological welfare of patients.

     With the above-mentioned discount contracts being effective, long term changes in the German structural framework conditions are ongoing. betapharm is in the process of a comprehensive restructuring of its sales force. The German generics market has seen a visible shift to a tender based supply model from that of a prescription based market, where the key driver for generating sales was doctors’ equity and influence enjoyed by generic companies with the pharmacists. Since the business model is changing, we intend to realign our sales force to evolve into a sustainable structure which adapts to the current market situation. Negotiations with the Works Council of betapharm, a local organization representing its workers, have been recently concluded to facilitate a suitable restructuring of the sales force.

     During the year ended March 31, 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. 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. We subsequently stopped marketing this product in the German market. As part of the litigation, Eli Lilly claimed damages resulting from the sales of our olanzapine product. In settlement of such claims, we agreed to pay compensation to Eli Lilly in the amount of Euros 13.95 million (Rs.916 million).

     United Kingdom and Other countries within Europe. We market our generic products in the United Kingdom and other EU countries through our U.K. subsidiary, Reddy’s Laboratories (U.K.) Limited. This subsidiary was formed in the year ended March 31, 2003 after our acquisition of Meridian Healthcare Limited, a United Kingdom based generic pharmaceutical company. We currently market approximately 23 generic products in such countries, representing over 89 dosage strengths. New product launches in the year ended March 31, 2009 included fexofenadine, the generic version of Allegra^®.

     We also seek to expand our presence to other European countries, either directly or through strategic alliances. Other European countries where we have physical presence and have been able to build our franchise include Romania, Spain and Italy. We have a representative office in Romania, and our sales in Romania during the year ended March 31, 2009 were Rs.465 million.

     We entered the Spain market through our acquisition of marketing authorizations and marketing authorization applications for certain specialty pharmaceutical products, along with the related trademark rights and physical inventories of the products, from Laboratorios Litaphar, S.A. (“Litaphar”) in the year ended March 31, 2007. As a result of this acquisition, we acquired an opportunity to sell those products using their existing brand names through our generics sales and marketing network. We have also filed marketing authorization applications in Spain to permit us to shift manufacturing of these acquired products from the current provider to our facilities in India.

     We incorporated a subsidiary in Italy, Reddy Pharma Italia SpA, in the year ended March 31, 2007, to build a pipeline of registrations and initiate marketing activities within the Italian generics market. In April 2008, we acquired Jet Generici Srl, a company engaged in the sale of generic finished dosages in Italy. The acquisition provided us with access to an essential product portfolio, and a sales and marketing organization.

Competition

     In Germany, the companies with the largest generics market shares are losing their generics market shares to companies having rebate contracts with SHI funds. The top four generics companies (including their subsidiaries) in Germany hold an aggregate market share of approximately 44%, according to Insight Health’s NPI-Gx (Sales March 2009) report. Our key competitors within the German generics market include Sandoz group (including its Hexal, Sandoz and 1A Pharma subsidiaries), Ratiopharm group (including its Ratiopharm and CT Arzneimittel subsidiaries) and Stada group (including its Stada and Aliud subsidiaries). With the discount contracts with SHI funds becoming effective, long term structural changes are ongoing in the German market. Many companies have decided to cut their sales force to reduce fixed costs; others still believe that sales representatives remain a useful differentiating factor in this highly competitive environment.

Government regulations

European Union Regulatory Environment

     The activities of pharmaceutical companies within the European Union are governed by Directive 2001/83EC as amended. This Directive outlines the legislative framework, including the legal basis of approval, specific licensing procedures, and quality standards including manufacture, patient information and pharmaco-vigilance activities. Our U.K. facilities are licensed and periodically inspected by the U.K. Medicines and Health Care Products Regulatory Agencies (“MHRA”) Inspectorate, which has extensive enforcement powers over the activities of pharmaceutical manufacturers. Non-compliance can result in product recall and closure. In addition, the U.K. MHRA Inspectorate has approved and periodically inspected our manufacturing facility based in Andhra Pradesh, India for the manufacture of generic tablets and capsules for supply to Europe.

     All pharmaceutical companies that manufacture and market products in Germany are subject to the rules and regulations defined by the German drug regulator, the Bundesinstitut für Arzneimittel und Medizinprodukte (“BfArM”) and the Federal Drug Authorities. All the licensed facilities of pharmaceutical companies in Germany are periodically inspected by the Federal Drug Authorities, which has extensive enforcement powers over the activities of pharmaceutical companies. Non-compliance can result in closure of the facility. Prior approval of a Marketing Authorization is required to supply products within the European Union. Such Marketing Authorizations may be restricted to one member state then recognized in other member states or can cover the whole of the European Union, depending upon the form of registration elected. In Germany, Marketing Authorizations have to be submitted for approval to the BfArM.

     Generic or abridged applications omit full non-clinical and clinical data but contain limited non-clinical and clinical data, depending upon the legal basis of the application or to address a specific issue. The majority of our generic applications are made on the basis of essential similarity although other criteria may be applied. In the case of an essentially similar application, the applicant is required to demonstrate that its generic product contains the same active pharmaceutical ingredients in the same dosage form for the same indication as the innovator product. Specific data is included in the application to demonstrate that the proposed generic product is essentially similar to the innovator product with respect to quality, safe usage and continued efficacy. The applicant is also required to demonstrate bioequivalence with the reference product. Once all these criteria are met, a Marketing Authorization may be considered for grant.

     Unlike in the United States, there is no regulatory mechanism within the European Union to challenge any patent protection. Nor is any period of market exclusivity conferred upon the first generic approval. In situations where the period of data exclusivity given to the innovator of a branded product expires before their patent expires, the launch of our product would then be delayed until patent expiration.

     In Germany, the government is currently focused on reducing health care spending. During the year ended March 31, 2007, the German government passed the Economic Optimization of Pharmaceutical Care Act (“Arzneimittelversorgungs-Wirtschaftlichkeisgestz” or “AVWG”) which became effective as of May 1, 2006, which is designed to contain increased pharmaceutical costs. The AVWG’s provisions include, among other things: prohibitions on the provision of free goods to health professionals (including wholesalers, pharmacists, medical institutions, physicians etc.); limitations on the payment of rebates to wholesalers and pharmacists; prohibitions on price increases for medicinal products prior to March 31, 2008; implementation of additional mandatory rebates of 10% if pharmaceutical prices are not 30% below the reference prices as published by the Federal Associations of Healthcare Insurance funds; and empowering the statutory health insurance funds to waive copayments by patients.

Due to the AVWG, insurance companies operating in Germany have the power to influence prices, and they have done so by releasing several products from co-payment.

     Further, the government passed a new healthcare reform, the Statutory Health Insurance - Competition Strengthening Act or Wettbewerbsstärkungsgesetz (“WSG”), which became effective as of April 1, 2007. Highlights of this new act are:

	•		private insurance funds cannot refuse to provide health insurance to anyone who is without private health insurance coverage or who wants to switch from the public system; for these patients, private insurance funds need to offer basic rates in the future;
	•		insurance funds are encouraged to enter into contracts with doctors, pharmacies and the pharmaceutical industry designed to lower the costs for the supply of patients with medicinal products (e.g., rebate agreements with the pharmaceutical industry and pharmacists) and integrating different fields of care to lower medical treatment costs;
	•		insurance funds can cause drugs that are covered by rebate contracts with the pharmaceutical industry to be exempt from co-payments by patients;
	•		in filling prescriptions, pharmacists are required to give preference to drugs subject to rebates, unless the physician has explicitly excluded replacement of the prescribed drug;
	•		rebated medicinal products might, depending on individual agreements with physicians, be exempted from individual prescribing limits of the physicians (in Germany, physicians are given prescribing limits by insurance funds based on their number of patients, and if those limits are exceeded, the physicians can be penalized);
	•		patients included in integrated care routes (see above) shall preferably receive rebated medicinal products; and
	•		in making decisions pertaining to the prescription of drugs or filling of prescriptions, drugs will be evaluated not only from a benefit perspective but also from a cost perspective.

Impairment

     During the year ended March 31, 2009, there were significant changes in the generics market related to our German subsidiary betapharm.  These changes included the announcement of a large competitive bidding (or “tender”) process from AOK (the largest German SHI fund), a continuing decrease in the reference prices of pharmaceutical products and an increased quantity of discount contracts being negotiated with SHI funds. AOK’s tender process represents a visible shift to a tender based supply model within the German generics market. We were awarded 8 products representing 33 contracts covering the AOK-insured persons in various regions within Germany, which represented 17% of the overall volume of the products covered by the AOK tender. betapharm was among the top three companies in terms of number of contracts awarded. While our future sales volumes are expected to increase for the products awarded to us under the tender, the expected overall percentage margin under the tender arrangement will be significantly lower due to decreased prices per unit of product. Also, the products awarded did not include our key products.

     Due to these developments, as at March 31, 2009, we tested the carrying value of our product related intangibles and goodwill for impairment.  The impairment testing indicated that the carrying values of certain product-related intangibles were higher than their recoverable value, resulting in us recording an impairment loss on certain product related intangibles amounting to Rs.3,167 million during the year ended March 31, 2009.  

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

     Furthermore, due to the above adverse market developments and consequential impairment losses recorded by us in our betapharm cash generating unit, we also reviewed the useful life of our indefinite life intangible asset trademark/brand –‘beta’. We believe that the significant decline in reference prices, together with the increased use by SHIs of discount contracts and tender bidding processes, is resulting in the German market moving towards a non-branded price competition market model, and therefore diminishing the importance of the Company’s trademark/ brand ‘beta’. Accordingly, as at March 31, 2009, we re-assessed our trademark/brand ‘beta’ to be a finite life intangible asset, and determined its useful life to be 12 years.

Other markets of our Global Generics segment

     In March 2009, we announced a realignment of our Global Generics segment’s strategy for finished dosages to focus on certain key geographies, and that we would gradually exit from some of our very small, distributor driven markets. The markets being exited would account for less than 1% of our total company revenues. In addition to the markets where our operations are already very large and account for a major share of our Global Generics segment’s revenues (i.e., United States, India, Russia and other countries of the former Soviet Union, and Germany), we will continue operations in 10-15 other markets in which our finished dosages sales are growing significantly. In Venezuela, one of our key markets in this segment, during the year ended March 31, 2009 we re-acquired distribution rights for our products from our existing distributor and established our own distribution operations.

     The realignment resulting from the exit from small distribution driven markets represents an important new focus in our Global Generics segment. Not only will this realignment result in consolidation and reduction in complexity of our operations, it will enable us to significantly enhance our customer service and to increase our market share in the key geographies where we already have a considerable presence.

Global Generics Manufacturing and Raw Materials

     Manufacturing for our Global Generics segment entails converting APIs into finished dosages and packaging in individual doses for consumption by the patients. We have seven facilities for the manufacturing of formulation products, six of which are in India and one of which is in the United States. One of the Indian facilities in Hyderabad is U.S. FDA compliant and is utilized to manufacture products for the highly regulated markets of the United States, United Kingdom, Germany and South Africa in accordance with the approvals obtained from respective authorities. This facility is designed for the manufacture of tablets and hard gelatin capsules for sale in highly regulated markets.

     We manufacture most of our finished products at these facilities and also use third-party manufacturing facilities as we determine necessary. We also purchase some products from approved third parties based on the necessity and requirement of our markets. For each of our products, we endeavor to identify alternate suppliers of our products and the processes applicable to our products. The main difference between active pharmaceutical ingredients as compared to finished dosages is the form in which they are produced and the way they are packaged. Active pharmaceutical ingredients are manufactured and distributed in bulk. In generics, these bulk ingredients are converted into finished dosages by adding other ingredients, called excipients, and packaged into individual doses that are ready for consumption by the patient. In the year ended March 31, 2009, our PSAI segment provided approximately 62% of the active pharmaceutical ingredients and intermediates requirements of our Global Generics business, with the balance coming from various other suppliers.

     For the manufacturing of products intended to be sold in the United States, we are required to identify the suppliers of all the raw materials for our products in the drug applications that we file with the U.S. FDA. If raw materials for a particular product became unavailable from an approved supplier specified in a drug application, we would be required to qualify a substitute supplier with the U.S. FDA, which would likely interrupt manufacturing of the affected product. To the extent practicable, we attempt to identify more than one supplier in each drug application. However, some raw materials are available only from a single source and, in some of our drug applications, only one supplier of raw materials has been identified, even in instances where multiple sources exist. In addition, we obtain a significant portion of our inactive pharmaceutical ingredients from foreign suppliers. Arrangements with international raw material suppliers are subject to, among other things, U.S. FDA regulations, various import duties and other government clearances. Our facility at Beverley in the United Kingdom is designed for the packaging and warehousing of pharmaceutical products in a variety of dosage forms, including tablets, capsules, liquids and creams. The facility holds all relevant licenses and authorizations required to conduct all necessary activities, including the supply of materials for use in clinical studies. In addition, the quality systems for ensuring product quality planning and control are ISO 9000 accredited. We closed our other U.K. facility, which had been located at Battersea, in the year ended March 31, 2007. We transferred the manufacturing of most of the products manufactured at the Battersea facility to our facilities in India. In Germany, manufacturing of betapharm’s products is now partly through our facilities in Bachupally, India and also outsourced to third party manufacturers. As of March 31, 2009, we shifted manufacturing of sixteen key product groups to India. In the year ended March 31, 2010, we intend to continue shifting the manufacturing of betapharm products to our facilities in India. The logistics services for storage and distribution in Germany is outsourced to a third party service provider.

     Our manufacture of finished dosages for less regulated markets is subject to strict quality and contamination controls throughout the manufacturing process. In our facilities, we manufacture formulations in various dosage forms including tablets, capsules, injections and liquids. These dosage forms are then packaged and quarantined to be tested for quality and contamination. The Ministries of Health of Brazil, Ukraine, Gulf Co-operation Council group, Kirgystan and World Health Organization have visited

during the year ended march 31, 2009 and approved our facilities. We manufacture our key brands for our Indian markets at our facilities in Baddi and Yanam to take advantage of certain fiscal benefits offered by the Government of India, which include exemption from income tax and excise duty, in the case of Baddi, and exemption from income tax, in the case of Yanam, for a specified period.

     All pharmaceutical manufacturers that sell products in any country are subject to regulations issued by the ministry of health (“MoH”) of the respective country. These regulations govern, or influence the testing, manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of products. Our facilities and products are periodically inspected by various regulatory authorities such as the U.S. FDA, U.K. MHRA, the South African Medicines Control Council, the Brazilian National Agency of Sanitary Surveillance (also known as “ANVISA”), the Romanian National Medicines Agency, and the World Health Organization, all of which have extensive enforcement powers over the activities of pharmaceutical manufacturers operating within their jurisdiction.

Proprietary Products Segment

     Our Proprietary Products segment involves the discovery of new chemical entities for subsequent commercialization and out-licensing. It also involves our specialty pharmaceuticals business which launched sales and marketing operations for in-licensed dermatology products in the year ended March 31, 2009.

Discovery Research business

     In the discovery research part of the Proprietary Products segment, we are actively pursuing discovery and development of new molecules, sometimes referred to as “New Chemical Entities” or “NCEs.” Our research programs focus on the following therapeutic areas:

	•		Metabolic disorders
	•		Cardiovascular disorders
	•		Bacterial infections

     Our principle research laboratory is based in Hyderabad, India. As of March 31, 2009, we employed a total of 185 scientists, including approximately 40 scientists who held Ph.D. degrees. We pursue an integrated research strategy at our laboratories, focusing on discovery of new molecular targets and designing of screening assays to screen for promising lead molecules followed by selection and optimization of lead molecules and further clinical development of those optimized leads.

     While we continue to seek licensing and development arrangements with third parties to further develop our pipeline products, we also conduct clinical development of some of the candidate drugs ourselves where it is economically and technically feasible. Our long-term strategy for drug discovery is to increasingly undertake clinical testing ourselves, as we believe that this will enable us to derive higher value for our compounds. Our goal is to balance internal development of our own product candidates with in-licensing of promising compounds that complement our strengths. We also pursue licensing and joint development of some of our lead compounds with companies looking to implement their own product portfolio.

     In September 2005, we entered into a co-development and commercialization agreement with Denmark based Rheoscience A/S for the joint development and commercialization of Balaglitazone (DRF 2593), a partial PPAR-gamma agonist, for the treatment of type 2 diabetes. In the year ended March 31, 2009, we agreed with Rheoscience to amend the terms of this agreement. Under the terms of the amended agreement, we and Rheoscience will share costs for phase III development according to certain pre-determined formulas. The parties will also share eventual revenues, whether from direct sales of products by either party or from third parties who may be responsible for marketing the product in certain countries. The agreement is valid for a period of ten years from the date of commercialization. We retain the right to supply clinical development and commercial quantities of the requisite active pharmaceutical ingredients on an arm’s-length basis to all parties that commercialize DRF 2593. DRF 2593 commenced the first phase III clinical trials in August 2007. In order to obtain approval from either the U.S. FDA or its European counterpart, the European Medicines Agency, many phase III clinical trials will be required to be conducted over several years (the precise duration of which will be decided by the applicable regulatory authorities, after reviewing some of our phase III clinical trials data).

     In September 2005, we announced the formation of an integrated drug development company, Perlecan Pharma Private Limited (“Perlecan Pharma”), as a joint venture with Citigroup Venture Capital International Growth Partnership Mauritius Limited

(“Citigroup Venture”) and ICICI Venture Funds Management Company (“ICICI Venture”). The terms of the joint venture were amended in March 2006. The joint venture agreement granted us the first right to conduct product development and clinical trials on behalf of Perlecan Pharma on an arm’s length basis, subject to the final decision by the board of directors of Perlecan Pharma. During the year ended March 31, 2007, we entered into a Research Services Agreement with Perlecan Pharma pursuant to which we provide Perlecan Pharma with clinical development support and services. Perlecan Pharma has certain development rights with respect to additional NCE assets that we discovered and we have certain commercialization rights with respect to products that Perlecan Pharma developed. In addition, as part of this arrangement, we transferred all rights and title, including the development and commercialization rights, of four NCE assets to Perlecan Pharma. On July 30, 2008, we acquired the entire equity holding of Citigroup Venture and ICICI Venture in Perlecan Pharma for a total consideration of Rs.758 million. As a result of this transaction, Perlecan Pharma became our wholly owned subsidiary.

     In September 2006, we entered into an agreement with ClinTec International for the joint development of an anti-cancer compound, DRF 1042, belonging to the topoisomerase inhibitors class of compounds for use as potential treatment of various types of cancer. Phase I studies in India have been completed, although additional long-term toxicology studies are required in order to support Phase II clinical studies. Phase II studies are anticipated to commence once these additional toxicology studies are completed. The agreement is structured such that territories are split between us and ClinTec International, with milestones and royalties flowing between the parties based on successes achieved in their respective territories. In the quarter ended March 31, 2009, this agreement was restructured such that we ceased to be a joint development partner and Clintec International and its affiliates were given an option to in-license the product by a specific date. In order to exercise this option, ClinTec International must pay us an agreed initial amount plus certain milestone payments which are subject to achievement of specified development, launch and sales thresholds in the future.

     As part of our research program, we pursue collaborations with leading institutions and laboratories all over the world. We enter into these collaborations to utilize the expertise and facilities these institutions and laboratories provide. We have collaborated with the National Cancer Institute in Maryland, which is a part of the United States National Institutes of Health. In February 2006, we entered into an agreement with Argenta Discovery Limited (“Argenta”) for the joint development and commercialization of a novel approach to the treatment of Chronic Obstructive Pulmonary Disease (“COPD”). Under the terms of the agreement, the parties agreed to collaborate to identify clinical candidates from a certain class of our compounds for use as potential treatments for COPD. Both parties agreed to jointly develop the selected candidates from the pre-clinical stage up to Phase IIa (proof-of-concept). Upon successful completion of a Phase IIa trial, the parties may either license-out the candidate for further development and commercialization to a larger pharmaceutical company or continue the further co-development and commercialization themselves. We and Argenta have agreed to fund the joint collaboration up to proof-of-concept and share the development expenses equally and profits at a predetermined ratio. A molecule candidate was identified that could be developed for COPD, and Good Laboratory Practices toxicity studies are ongoing for this molecule. We commenced Phase I studies for this candidate in March 2009.

     In March 2008, we entered into an agreement with 7TM Pharma for drug discovery collaboration on selected drug targets. We will collaborate with 7TM Pharma to identify clinical candidates for pre-selected targets and will jointly develop these candidates from the pre-clinical stage up to Phase IIa (proof-of-concept). Upon successful completion of a Phase IIa trial, the parties may either license out the candidate for further development and commercialization to a larger pharmaceutical company or continue the further co-development and commercialization themselves. 7TM Pharma is a Denmark based biotechnology company focusing on discovery and development of new drugs targeting 7TM receptors. 7TM Pharma’s primary therapeutic area is metabolic diseases, including obesity, Type 2 diabetes and cardiovascular diseases.

     Our investments into research and development of NCEs have been consistently focused towards developing promising therapeutics. The compounds currently under active development in our pipeline include:

Compound		Therapeutic Area		Status		Development partner		Remarks
DRF 2593		Metabolic disorders		Phase III		Rheoscience		In Phase III clinical testing for type 2 diabetes
Several compounds		Respiratory disorders		Phase I		Argenta		Targeted for Chronic Obstructive Pulmonary Disease
DRL 17822		Metabolic disorders/Cardiovascular disorders		Phase I		N/A		Targeting dyslipidemia and atherosclerosis

     Patents. The status of our patents filed and issued as of March 31, 2009 is summarized below:

		USPTO(1)				USPTO(1)				PCT(2)				India				India
Category		(Filed)				(Granted)				(Filed)				(Filed)				(Granted)
Anti-diabetic			83				53				61				116				44
Anti-cancer			17				8				14				45				15
Anti-bacterial			8				5				10				21				4
Anti-inflammation/Cardiovascular			38				18				26				20				1
Anti-ulcerant			1				1				—				1
Miscellaneous			4				1				3				23				8
TOTAL			151				86				114				226				72

     Stages of Testing Development. The stages of testing required before a pharmaceutical product can be marketed in the United States are generally as follows:

Stage of Development		Description
Preclinical		Animal studies and laboratory tests to evaluate safety and efficacy, demonstrate activity of a product candidate and identify its chemical and physical properties.
Phase I		Clinical studies to test safety and pharmacokinetic profile of a drug in humans.
Phase II		Clinical studies conducted with groups of patients to determine preliminary efficacy, dosage and expanded evidence of safety.
Phase III		Larger scale clinical studies conducted in patients to provide sufficient data for statistical proof of efficacy and safety.

     For ethical, scientific and legal reasons, animal studies are required in the discovery and safety evaluation of new medicines. Preclinical tests assess the potential safety and efficacy of a product candidate in animal models. The results of these studies must be submitted to the U.S. FDA as part of an Investigational New Drug (“IND”) application before human testing may proceed.

     U.S. law further requires that studies conducted to support approval for product marketing be “adequate and well controlled.” In general, this means that either a placebo or a product already approved for the treatment of the disease or condition under study must be used as a reference control. Studies must also be conducted in compliance with good clinical practice requirements, and adverse event and other reporting requirements must be followed.

     The clinical trial process can take five to ten years or more to complete, and there can be no assurance that the data collected will be in compliance with good clinical practice regulations, will demonstrate that the product is safe or effective, or, in the case of a biologic product, pure and potent, or will provide sufficient data to support U.S. FDA approval of the product. The U.S. FDA may place clinical trials on hold at any point in this process if, among other reasons, it concludes that clinical subjects are being exposed to an unacceptable health risk. Trials may also be terminated by institutional review boards, who must review and approve all research involving human subjects. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing authorization.

Competition

     The pharmaceutical and biotechnology industries are highly competitive. We face intense competition from organizations such as large pharmaceutical companies, biotechnology companies and academic and research organizations. The major pharmaceutical organizations competing with us have greater capital resources, larger overall research and development staff and facilities and considerably more experience in drug development. Biotechnology companies competing with us may have these advantages as well.

In addition to competition for collaborators and investors, these companies and institutions also compete with us in recruiting and retaining highly qualified scientific and management personnel.

Government regulations

     Virtually all pharmaceutical and biologics products that we or our collaborative partners develop will require regulatory approval by governmental agencies prior to commercialization. The nature and extent to which these regulations apply varies depending on the nature of the products and also vary from country to country. In particular, human pharmaceutical products are subject to rigorous pre-clinical and clinical testing and other approval procedures by the relevant regulatory agency. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely from country to country.

     In India, under the Drugs and Cosmetics Act, 1940, the regulation of the manufacture, sale and distribution of drugs is primarily the concern of the state authorities while the Central Drug Control Administration is responsible for approval of new drugs, clinical trials in the country, laying down the standards for drugs, control over the quality of imported drugs, coordination of the activities of state drug control organizations and providing expert advice with a view of bringing about the uniformity in the enforcement of the Drugs and Cosmetics Act, 1940.

     For marketing a drug in the United States, we or our partners will be subject to regulatory requirements governing human clinical trials, marketing approval and post-marketing activities for pharmaceutical products and biologics. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record-keeping and marketing of these products. The process of obtaining these approvals and the subsequent compliance with applicable statutes and regulations is time consuming and requires substantial resources, and the approval outcome is uncertain.

     Generally, in order to gain U.S. FDA approval, a company first must conduct pre-clinical studies in the laboratory and in animal models to gain preliminary information on a compound’s activity and to identify any safety problems. Pre-clinical studies must be conducted in accordance with U.S. FDA regulations. The results of these studies are submitted as part of an IND application that the U.S. FDA must review before human clinical trials of an investigational drug can start. If the U.S. FDA does not respond with any questions, a drug developer can commence clinical trials thirty days after the submission of an IND.

     In order to eventually commercialize any products, we or our collaborator first will be required to sponsor and file an IND and will be responsible for initiating and overseeing the clinical studies to demonstrate the safety and efficacy that are necessary to obtain U.S. FDA marketing approval. Clinical trials are normally done in three phases and generally take several years, but may take longer to complete. The clinical trials have to be designed taking into account the applicable U.S. FDA guidelines. Furthermore, the U.S. FDA may suspend clinical trials at any time if the U.S. FDA believes that the subjects participating in trials are being exposed to unacceptable risks or if the U.S. FDA finds deficiencies in the conduct of the trials or other problems with our product under development.

     After completion of clinical trials of a new product, U.S. FDA marketing approval must be obtained. If the product is classified as a new pharmaceutical, we or our collaborator will be required to file a New Drug Application (“NDA”), and receive approval before commercial marketing of the drug. The testing and approval processes require substantial time and effort. NDAs submitted to the U.S. FDA can take several years to obtain approval and the U.S. FDA is not obligated to grant approval at all.

     Even if U.S. FDA regulatory clearances are obtained, a marketed product is subject to continual review. If and when the U.S. FDA approves any of our or our collaborators’ products under development, the manufacture and marketing of these products will be subject to continuing regulation, including compliance with cGMP, adverse event reporting requirements and prohibitions on promoting a product for unapproved uses. Later discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Various federal and, in some cases, state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products.

     Our research and development processes involve the controlled use of hazardous materials and controlled substances. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and waste products.

Recent announcements

     In May 2009, we announced the acceptance of our three Investigational New Drug (“IND”) filings by the U.S. FDA. The first human subjects were successfully treated in a phase I study with DRL 17822, a selective inhibitor of cholesterylester transfer protein (or “CETP”), for the treatment of dyslipidemia, atherosclerosis and associated cardiovascular diseases. The compound shows potent elevation in high-density lipoprotein (or “HDL”) cholesterol and reduction of atherosclerotic plaques in animals, and has a clean safety profile in preclinical studies. The two other INDs are for the treatment of chronic obstructive pulmonary disease (or “COPD”) and dyslipidemia.

     We also announced that effective July 1, 2009 our drug discovery operations at Hyderabad will be absorbed into Aurigene Discovery Technologies Limited (“Aurigene”), another of our wholly-owned subsidiaries. Aurigene is a partnership based drug discovery biotechnology company headquartered in Bangalore. Our Discovery Research business resources (i.e., employees, facility and infrastructure) will be suitably transferred and leased to Aurigene, which will now operate out of two sites - Bangalore and Hyderabad.

     In addition, we will be creating a new group to focus on proprietary products development, which will be responsible for building our proprietary, branded research and development portfolio in collaboration with various partners and service providers. This organization will work with Aurigene and other discovery biotechnology companies to ensure effective management of our ongoing and future drug discovery programs. All the existing intellectual property of our drug discovery operations will be owned and managed by this new group. This group will also have responsibility for our research and development portfolio and our differentiated formulations efforts. As part of the reorganization, we will close our research facility in Atlanta, Georgia, U.S.A.

Promius Pharma

     Promius Pharma is our subsidiary in Bridgewater, New Jersey, U.S.A. focusing on our U.S. Specialty Business — i.e., development and sales of branded specialty products. It has a portfolio of in-licensed patented dermatology products and off-patent cardiovascular products. It also has an internal pipeline of dermatology products that are in different stages of development. Promius Pharma’s current portfolio contains innovative products for the treatment of seborrheic dermatitis, onychomycosis, acne, psoriasis and androgenic alopecia. It has commercialized two products, namely EpiCeram, which is a skin barrier emulsion for the treatment of atopic dermatitis, and Scytera, which is a foam for the treatment of psoriasis. Over the last year, since the business has been launched, Promius Pharma has been able to enter into successful partnerships with companies such as Ceragenix, Foamix, Sinclair and Antares for in-licensing of products. It also leverages on the research, development and manufacturing facilities at Hyderabad, India. Promius Pharma also works with various third party research organizations in conducting product development, pre-clinical and clinical studies. Promius Pharma has approximately 50 sales representatives in the field. Its sales force targets physicians in the field of dermatology and is supported by a direct marketing team and a public relations program. In addition to its sales force, Promius Pharma’s account managers also call on purchasing agents for drug wholesalers and chain drug stores.

     The manufacturing of Promius Pharma’s products has been outsourced to third party manufacturers based in the United States. The third party manufacturers are responsible for sourcing the raw materials required for manufacturing the products. However, in some cases we source the active pharmaceutical ingredients and supply it to the third party manufacturer. The logistics services for storage and distribution have also been outsourced to a third party service provider.

     On March 13, 2006, we acquired trademark rights to three off-patent products, along with all the physical inventories of the products, from PDL Biopharma, Inc. (“PDL”), for a total consideration of Rs.123 million. PDL was a company focused on the development and commercialization of novel therapies for treatment of inflammation and autoimmune diseases, acute cardiac conditions and cancer. As a result of the acquisition, we acquired an opportunity to sell these products using their existing brand names through our generics sales and marketing network. PDL’s operations were subsequently integrated with those of Promius Pharma.

     The revenues generated by Promius Pharma as well as from the sale of PDL products during the year ended March 31, 2009 of Rs.294 million have been accounted under our Proprietary Products segment.

4.C. Organizational structure

     Dr. Reddy’s Laboratories Limited is the parent company in our group. We had the following subsidiary companies where our direct and indirect ownership was more than 50% as of March 31, 2009:

				Percentage of Direct/
		Country of		Indirect Ownership
Name of Subsidiary		Incorporation		Interest
DRL Investments Limited		India			100	%
Reddy Pharmaceuticals Hong Kong Limited		Hong Kong			100	%
OOO JV Reddy Biomed Limited		Russia			100	%
Reddy Antilles N.V.		Netherlands			100	%
Reddy Netherlands B.V.		Netherlands			100	%(1)
Reddy US Therapeutics, Inc.		U.S.A.			100	%(1)
Dr. Reddy’s Laboratories, Inc.		U.S.A.			100	%
Dr. Reddy’s Farmaceutica do Brasil Ltda		Brazil			100	%
Cheminor Investments Limited		India			100	%
Aurigene Discovery Technologies Limited		India			100	%
Aurigene Discovery Technologies, Inc.		U.S.A.			100	%(3)
Kunshan Rotam Reddy Pharmaceutical Co. Limited		China			51.33	%(4)
Dr. Reddy’s Laboratories (EU) Limited		United Kingdom			100	%
Dr. Reddy’s Laboratories (U.K.) Limited		United Kingdom			100	%(5)
Dr. Reddy’s Laboratories (Proprietary) Limited		South Africa			60	%
Reddy Cheminor S.A.		France			100	%(2)
OOO Dr. Reddy’s Laboratories Limited		Russia			100	%
Dr. Reddy’s Bio-sciences Limited		India			100	%
Promius Pharma LLC (formerly Reddy Pharmaceuticals, LLC)		U.S.A.			100	%(6)
Trigenesis Therapeutics, Inc.		U.S.A.			100	%
Industrias Quimicas Falcon de Mexico, SA de CV		Mexico			100	%
Reddy Holding GmbH		Germany			100	%(7)
Lacock Holdings Limited		Cyprus			100	%
betapharm Arzneimittel GmbH		Germany			100	%(8)
beta Healthcare Solutions GmbH		Germany			100	%(8)
beta institut fur sozialmedizinische Forschung und Entwicklung GmbH		Germany			100	%(8)
Reddy Pharma Iberia SA		Spain			100	%
Reddy Pharma Italia SPA		Italy			100	%(7)
Dr. Reddy’s Laboratories (Australia) Pty Ltd.		Australia			70	%
Dr. Reddy’s Laboratories SA		Switzerland			100	%
Eurobridge Consulting B.V.		Netherlands			100	%(1)
OOO DRS LLC		Russia			100	%(9)
Aurigene Discovery Technologies(Malaysia) Sdn, Bhd		Malaysia			100	%(3)
Dr. Reddy’s New Zealand Limited (formerly Affordable Healthcare Limited)(12)		New Zealand			100	%(10)
Macred India Private Limited		India			100	%
Dr. Reddy’s Laboratories Ilac Ticaret Limited		Turkey			100	%
Perlecan Pharma Private Limited		India			99.99	%
Dr. Reddy’s SRL (formerly Jet Generici SRL)		Italy			100	%(11)
Chirotech Technology Limited		United Kingdom			100	%(5)
Dr. Reddy’s Laboratories Louisiana LLC		U.S.A.			100	%(6)

4.D. Property, plants and equipment

     The following table sets forth current information relating to our principal facilities:

		Approximate				Built up						Installed				Actual
Location		Area				Area				Certifications		Capacity				Production
		(Square feet)				(Square feet)
Pharmaceutical Services and Active Ingredients													3,912(9)(12)				3,327(9)(12)
Bollaram, Andhra Pradesh, India			734,013				191,558			U.S. FDA and EuGMP		See above (12)				See above (12)
Bollaram, Andhra Pradesh, India			648,173				346,622			U.S. FDA and EuGMP		See above (12)				See above (12)
Bollaram, Andhra Pradesh, India			285,235				204,556			U.S. FDA and EuGMP		See above (12)				See above (12)
Jeedimetla, Andhra Pradesh, India			228,033				102,464			U.S. FDA and EuGMP		See above (12)				See above (12)
Miryalaguda, Andhra Pradesh, India			3,402,907				414,553			U.S. FDA and EuGMP		See above (12)				See above (12)
Pydibheemavaram, Andhra Pradesh, India			8,523,466				972,490			U.S. FDA and EuGMP		See above (12)				See above (12)
Pydibheemavaram, Andhra Pradesh, India (5)			737,134				53,918					See above (12)				See above (12)
Miyapur, Andhra Pradesh, India			113,256				85,736			ISO 27001: 2005 Information Security Management System			N/A				N/A
Jeedimetla, Andhra Pradesh, India			68,825				23,538			ISO 27001: 2005 Information Security Management System			N/A				N/A
Cuernavaca, Mexico			2,774,378				1,345,488			(1)			3,500(9)				2,000(9)
Mirfield, United Kingdom			1,785,960				653,400			ISO 9001:2008, MHRA
										(UK) and U.S. FDA			(13)				(13)
Cambridge, United Kingdom (6)			9,383				9,383						N/A				N/A
Global Generics													3,440(7)(8)(14)				4,298(7)(14)
Bollaram, Andhra Pradesh, India			217,729				103,894			(2)		See above (14)				See above (14)
Bachupally, Andhra Pradesh, India			1,306,372				387,030			(3)		See above (14)				See above (14)
Yanam, Pondicherry, India			457,000				26,226			—		See above (14)				See above (14)
Baddi, Himachal Pradesh, India			765,542				148,711			—		See above (14)				See above (14)
Bachupally, Andhra Pradesh, India			798,982				41,891			(2)			13,852(10)				4,309(10)
Bachupally, Andhra Pradesh, India (5)			783,823				336,308			(4)			9,200(7)(11)				4,770(7)
Beverley, East Yorkshire, United Kingdom			81,000				32,500			U.K. Medicine
										Control Agency, British
										Retail Consortium			N/A				N/A
Shreveport, Lousiana, United States			1,817,123				258,709			U.S. FDA			5,875(7)(11)				1,825(7)
Proprietary Products (11)
Miyapur, Andhra Pradesh, India			445,401				153,577			—			N/A				N/A
Georgia, United States (6)			24,733				24,733			—			N/A				N/A

     Except as indicated in the notes above, we own all of our facilities. All properties mentioned above, including leased properties, are either used for manufacturing and packaging of pharmaceutical products or for research and development activities. In addition, we have sales, marketing and administrative offices, which are leased properties. We believe that our facilities are optimally utilized.

     Global Generics

     In the year ended March 31, 2009, we commissioned the construction of a facility at our plant in Baddi, Himachal Pradesh for the manufacture of injectable and ointment finished doseages for our Global Generics segment. This project is eligible for certain financial benefits, including exemption from income tax and excise duty for a specific period, offered by the Government of India to encourage industrial growth in the state of Himachal Pradesh, India.

     We have completed construction of a facility at a Special Economic Zone located in Visakhapatnam, Andhra Pradesh, India for the manufacture of oral and injectable cytotoxic finished dosages for our Global Generics segment. We are in the process of obtaining certification for this facility from the U.S. FDA. During the initial visit to our facility in February 2008, the U.S. FDA inspectors gave us a Notice on Form 483 of certain deficiencies. This was a part of the regular pre-ANDA approval inspection that the U.S. FDA conducts for all potential U.S. ANDA filers and pursuant to which the entire manufacturing site is audited. We promptly responded to this Notice. Subsequently, the U.S. FDA had certain follow-on inquiries and asked for the facility to be reinspected. We filed a reply to these follow-on inquiries in January 2009 and informed the U.S. FDA that a facility upgrade will be undertaken to support our business plan and expanded scope for other products to be manufactured at this facility. We are working with the U.S. FDA on these matters and anticipate that we will receive approval for the facility upon completion of the reinspection.

     We are in the process of setting up a manufacturing facility in Medak District, Andhra Pradesh, India, where our property has been designated as a Special Economic Zone under the applicable laws of the Government of India.

     PSAI

     We are in the process of establishing a plant in a Special Economic Zone in Andhra Pradesh, India for the manufacture of APIs. The plant will be adjacent to an existing plant, in a newly acquired area of approximately 250 acres under a Pharmaceutical-Sector specific Special Economic Zone for fiscal benefits. The formal governmental approval for designating the property as a Special Economic Zone has been obtained. The project is envisaged to be developed in a phased manner, subject to all statutory clearances.

     We have working capital facilities with banks and, in order to secure those facilities, we have created encumbrance charges on certain of our immovable and movable properties. We are subject to significant national and state environmental laws and regulations which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations at the above facilities. Non-compliance with the applicable laws and regulations may subject us to penalties and may also result in the closure of our facilities.

ITEM 4A. UNRESOLVED STAFF COMMENTS

     None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

     We are an emerging global pharmaceutical company with proven research capabilities. We derive our revenues from the sale of finished dosage forms, active pharmaceutical ingredients and intermediates, development and manufacturing services provided to innovator pharmaceutical and biotechnology companies, and license fees from our drug discovery operations.

     The Chief Operating Decision Maker (“CODM”) evaluates our performance and allocates resources based on an analysis of various performance indicators by reportable segments. Our reportable segments are as follows:

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

     During the year ended March 31, 2009, we transitioned into a new organization structure, which has resulted in changes in our composition of reportable segments as well as the financial information reviewed by the CODM. Accordingly, the segment information for the current year ended March 31, 2009 and the previous year ended March 31, 2008 has been presented based on the new reportable segments as mentioned above.

     Pharmaceutical Services and Active Ingredients (“PSAI”): 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 has been 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 reportable segment includes our 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 our specialty pharmaceuticals business, which launched sales and marketing operations for in-licensed dermatology products during the year ended March 31, 2009.

     Accordingly, disclosures relating to the previous period have been reclassified/regrouped to conform to the current period presentation. The explanations below have been suitably modified in line with such changes.

Critical Accounting Policies

     Critical accounting policies are those most important to the portrayal of our financial condition and results and that require the most exercise of our judgment. We consider the policies discussed under the following paragraphs to be critical for an understanding of our financial statements. Our significant accounting policies and application of these are discussed in detail in Notes 2 and 3 to our Consolidated Financial Statements.

     Accounting estimates and judgments

     While preparing financial statements in conformity with IFRS, we make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, disclosure of contingent liabilities at the balance sheet date and the reported amount of income and expenses for the reporting period. Financial reporting results rely on our estimate of the effect of certain matters that are inherently uncertain. Future events rarely develop exactly as forecast and the best estimates require adjustments, as actual results may differ from these estimates under different assumptions or conditions. We continually evaluate these estimates and assumptions based on the most recently available information.

Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are as below:

	•		Assessment of functional currency for foreign operations;
	•		Financial instruments;
	•		Measurement of recoverable amounts of cash-generating units;
	•		Provisions;
	•		Sales returns, rebates and charge back provisions;
	•		Evaluation of recoverability of deferred tax assets;
	•		Business combinations; and
	•		Contingencies.

Revenue

Sale of goods

     Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.

     Revenue from domestic sales of generic products is recognized upon delivery of products to distributors by our clearing and forwarding agents. Revenue from domestic sales of active pharmaceutical ingredients and intermediates is recognized on delivery of products to customers, from our factories. 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.

     Sales of generic products in India are made through clearing and forwarding agents to distributors. Significant risks and rewards in respect of ownership of generic products are transferred by us when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them.

     Sales of active pharmaceutical ingredients and intermediates in India are made directly to the end customers (generally formulation manufacturers) from our factories. Significant risks and rewards in respect of ownership of active pharmaceuticals ingredients are transferred by us on delivery of the products to the customers. Sales of active pharmaceutical ingredients and intermediates outside India are made directly to the end customers (generally distributors or formulations manufacturers) from our parent company or our consolidated subsidiaries.

     We have entered into marketing arrangements with certain marketing partners for sale of goods in certain overseas territories. Under such arrangements, we sell generic products to the marketing partners at a price agreed upon in the arrangement and is also entitled to a profit share which is over and above the agreed price, on the basis of the marketing partner’s ultimate net sale proceeds. Revenue in an amount equal to the agreed price is recognized on these transactions upon delivery of products to the marketing partners. An additional amount representing the profit share is recognized as revenue only when realization is certain.

     Provision for chargeback, rebates, discounts and medicaid payments are estimated and provided for in the period 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 us. Provision for such chargebacks 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.

     We account for sales returns by recording a provision based on our estimate of expected sales returns. We deal in various products and operate in various markets. Accordingly, our estimate of sales returns is determined primarily by our experience in these markets. In respect of established products, we determine an estimate of sales returns provision primarily based on historical experience of such sales returns. Additionally, other factors that we consider in determining the estimate include levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and introduction of competitive new products, to the extent each of these factors impact our business and markets. We consider all these factors and adjust the sales return provision to reflect our actual experience. With respect to new products introduced by us, those have historically been either extensions of an existing product line where we have historical experience or in a general therapeutic category where established products exist and are sold either by us or our competitors.

     We have not yet introduced products in a new therapeutic category where the sales returns experience of such products by us or our competitors (as we understand based on industry publications) is not known. The amount of sales returns for our newly launched products have not historically differed significantly from sales returns experience of the then current products marketed by us or our competitors (as we understand based on industry publications). Accordingly, we do not expect sales returns for new products to be significantly different from expected sales returns of current products. We evaluate sales returns of all our products at the end of each reporting period and record necessary adjustments, if any.

Services

     Revenue from services rendered, which primarily relate to contract research, is recognized in profit or loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.

Export entitlements

     Export entitlements from government authorities are recognized in profit or loss when the right to receive credit as per the terms of the government entitlement is established in respect of the exports made by us, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.

Financial instruments

Non-derivative financial instruments

     Non-derivative financial instruments consists of investments in equity and debt securities, trade receivables, certain other assets, cash and cash equivalents, loans and borrowings, and trade payables and certain other liabilities.

     Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

Cash and cash equivalents

     Cash and cash equivalents consists of current cash balances and time deposits with banks. Bank overdrafts that are repayable on demand and form an integral part of our cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Held-to-maturity investments

     If we have the positive intent and ability to hold debt securities to maturity, then they are classified as held-to-maturity. Held-to-maturity investments are measured at amortized cost using the effective interest method, less any impairment losses. At March 31, 2009, we did not have any held-to-maturity investments.

Available-for-sale financial assets

     Our investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognized directly in equity. When an investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss.

Financial assets at fair value through profit or loss

     An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if we manage such investments and make purchase and sale decisions based on their fair value in accordance with our documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

Others

     Other non-derivative financial instruments are measured at amortized cost using the effective interest method, less any impairment losses.

Derivative financial instruments

     We hold derivative financial instruments to hedge our foreign currency exposure. Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedges

     Changes in the fair value of a derivative hedging instrument designated as a cash flow hedge are recognized directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognized in equity is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss.

Economic hedges

     We do not apply hedge accounting to certain derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognized in profit or loss as part of foreign currency gains and losses

Foreign currency

Functional currency

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

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

     In respect of subsidiaries whose operations are self contained and integrated within their respective countries/regions, the functional currency has been determined to be the local currency of those countries/regions.

Foreign currency transactions

     Transactions in foreign currencies are translated to the respective functional currencies of entities within our company group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising upon retranslation are recognized in profit or loss, except for differences arising upon qualifying cash flow hedges, which are recognized directly in equity.

Foreign operations

     The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising upon acquisition, are translated to reporting currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Indian rupee at the monthly average exchange rates prevailing during the year.

     Foreign currency differences are recognized directly in equity. Such differences have been recognized in the foreign currency translation reserve (“FCTR”). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.

     Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognized directly in equity in the FCTR.

Intangible assets

Goodwill

     Goodwill (negative goodwill) arises upon the acquisition of subsidiaries, associates and joint ventures.

Acquisitions prior to April 1, 2007

     As part of our transition to IFRS, we elected to restate only those business combinations that occurred on or after April 1, 2007. In respect of acquisitions prior to April 1, 2007, goodwill represents the amount recognized under U.S. GAAP, which is considered our “previous GAAP” under IFRS.

Acquisitions on or after April 1, 2007

     For acquisitions on or after April 1, 2007, goodwill represents the excess of the cost of the acquisition over our interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (“negative goodwill”), it is recognized immediately in profit or loss.

Acquisitions of minority interests

     Goodwill arising upon the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.

Subsequent measurement

     Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment.

Research and development

     Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and we intend to and have sufficient resources to complete development and to use or sell the asset. The expenditures capitalized include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognized in profit or loss as incurred.

     Our internal drug development expenditures are capitalized only if they meet the capitalization criteria as mentioned above. Where regulatory and other uncertainties are such that the criteria are not met, the expenditures are recognized in profit or loss as incurred. This is almost invariably the case prior to approval of the drug by the relevant regulatory authority. Where, however, the capitalization criteria are met, intangible assets are capitalized and amortized on a straight-line basis over their useful economic lives from product launch. As of March 31, 2009, no internal drug development expenditure amounts have met the capitalization criteria.

     Payments to in-license products and compounds from third parties generally taking the form of up-front payments and milestones are capitalized and amortized, generally on a straight-line basis, over their useful economic lives from product launch.

     Intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each balance sheet date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. Any impairment losses are recognized immediately in the income statement.

Other intangible assets

     Other intangible assets that are acquired by us, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate.

Amortization

     Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than for goodwill, intangible assets not available for use and intangible assets having indefinite life, from the date that they are available for use.

Impairment

Financial assets

     A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

     An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.

     Individually significant financial assets are tested for impairment on an individual basis.

     All impairment losses are recognized in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in equity is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the reversal is recognized in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognized directly in equity.

Non-financial assets

     The carrying amounts of our non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

     The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

     An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

     An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Income tax

     Income tax expense consists of current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

     Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising upon the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

     A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Litigation

     We are involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. We assess, in consultation with our counsel, the need to make a provision for a liability for such claims and record a provision when we determine that a loss related to a matter is both probable and reasonably estimable.

     Because litigation and other contingencies are inherently unpredictable, our assessment can involve judgments about future events. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss are difficult to ascertain. We also believe that disclosure of the amount of damages sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any.

     Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. In these cases, we disclose information with respect to the nature and facts of the case.

Other provisions

     We recognize a provision if, as a result of a past event, we have a present legal or constructive obligation that can be estimated reliably, and it is probable (i.e., more likely than not) that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Restructuring

     A provision for restructuring is recognized when we have approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.

Onerous contracts

     A provision for onerous contracts is recognized when the expected benefits to be derived by us from a contract are lower than the unavoidable cost of meeting our obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, we recognize any impairment loss on the assets associated with that contract.

Business Combination

     Business combinations have been accounted using the purchase method under the provisions of IFRS 3, “Business Combinations”. Cash and amounts of consideration that are determinable at the date of acquisition are included in determining the cost of the acquired business. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the dates of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the date of acquisition. Goodwill represents the cost of business acquisition in excess of our interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative, we recognize the same immediately in the income statement.

5.A. Operating results

     The following table sets forth, for the periods indicated, our consolidated revenues and gross profits by segment:

		(Rs. in millions)																(Rs. in millions)
		For the year ended March 31, 2009																For the year ended March 31, 2008
														Gross
						Revenues								profit %																Gross
						% to								to								Revenues				Gross				profit % to
		Revenues				total				Gross profit				revenues				Revenues				% to total				profit				revenues
Pharmaceutical Services and Active Ingredients		Rs.	18,758				27	%		Rs.	5,595				30	%		Rs.	16,623				33	%		Rs.	5,645				34	%
Global Generics			49,790				72	%			30,448				61	%			32,872				66	%			19,567				60	%
Proprietary Products			294				0	%			196				67	%			190				0	%			109				57	%
Others			599				1	%			261				44	%			321				1	%			87				27	%
Total		Rs.	69,441				100	%		Rs.	36,500				53	%		Rs.	50,006				100	%		Rs.	25,408				51	%

     The following table sets forth, for the periods indicated, financial data as percentages of total revenues and the increase (or decrease) by item as a percentage of the amount over the comparable period in the previous year.

		Percentage of Sales								Percentage
		For the year ended March 31,								Increase/(Decrease)
		2009				2008
Revenues			100				100				39
Gross profit			53				51				44
Selling, general and administrative expenses			30				34				25
Research and development expenses			6				7				14
Impairment loss on other intangible assets			5				6				5
Impairment loss on goodwill			16				—			NC
Other (income)/expense, net			—				(1	)		NC
Results from operating activities			(4	)			5			NC
Finance (income)/expense, net			2				(1	)		NC
Profit/(loss) before income taxes			(6	)			6			NC
Income tax (expense)/benefit, net			(2	)			2			NC
Profit/(loss) for the period			(7	)			8			NC

Revenues

•

Our overall revenues increased by 39% to Rs.69,441 million in the year ended March 31, 2009, from Rs.50,006 million in the year ended March 31, 2008. Excluding revenues from a unit of the Dow Chemical Company associated with its United Kingdom sites in Mirfield and Cambridge (hereinafter referred to as the “Dow Pharma Unit”), BASF’s manufacturing facility in Shreveport, Louisiana, U.S.A. and related pharmaceutical contract manufacturing business (hereinafter referred to as the “Shreveport facility”) and Jet Generici SRL (hereinafter referred to as “Jet Generici”), each of which was acquired in April 2008, revenues grew by 33% to Rs.66,644 million during the year ended March 31, 2009. During the year ended March 31, 2009, we launched sumatriptan (an authorized generic version of Imitrex®) in the United States, which accounted for Rs.7,188 million of our consolidated revenues. Excluding the revenues from sumatriptan and revenues from the Dow Pharma Unit, the Shreveport facility and Jet Generici, our revenues increased by 19% to Rs.59,456 million during the year ended March 31, 2009.

•

Revenues from our Pharmaceutical Services and Active Ingredients segment increased by 13% to Rs.18,758 million during the year ended March 31, 2009, from Rs.16,623 million during the year ended March 31, 2008. Excluding revenues from the Dow Pharma Unit acquired in April 2008 of Rs.1,021 million, revenues from this segment increased by 7% compared to the year ended March 31, 2008. The increase primarily resulted from growth in revenues from our “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 20% and from North America (the United States and Canada) by 16%.

•

Revenues from our Global Generics segment increased by 51% to Rs.49,790 million during the year ended March 31, 2009, from Rs.32,872 million in the year ended March 31, 2008. The increase primarily resulted from an increase in revenues from North America (the United States and Canada), Russia and our “rest of the world” markets. Excluding revenues of Rs.1,684 million from the Shreveport facility and Rs.92 million from Jet Generici, each of which was acquired in April 2008, revenues from our Global Generics segment increased by 46% to Rs.48,014 million during the year ended March 31, 2009. During the year ended March 31, 2009, we launched sumatriptan (an authorized generic version of Imitrex®) in the United States, which accounted for Rs.7,188 million of our consolidated revenues. Excluding the revenues from sumatriptan sales and revenues from the Shreveport facility and Jet Generici, our Global Generics revenues grew by 24% to Rs.40,826 million during the year ended March 31, 2009.

•

For the year ended March 31, 2009, we received 35% of our total revenues from North America (the United States and Canada), 26% of our revenues from Europe, 17% of our revenues from India, 11% of our revenues from Russia and other countries of the former Soviet Union and 11% of our revenues from other countries.

•

The provision for sales returns created during the year ended March 31, 2009 was Rs.663 million, as compared to Rs.164 million during the year ended March 31, 2008. Consistent with our accounting policy for creating allowances for sales returns (referred to in Note 3.k. of our consolidated financial statements), we assess the provision for sales returns at every reporting period based on the historical trend of returns. Please refer to Note 23 of our consolidated financial statements for the changes to our sales returns provisions during the years ended March 31, 2008 and 2009. The increase in our sales return provision for the year ended March 31, 2009 as compared to the year ended March 31, 2008 was mainly attributable to:

	-		A 39% increase in our total sales in the year ended March 31, 2009 over the year ended March 31, 2008. Please refer to the discussion on revenues in this section for a more detailed analysis. Our increase in the provision for sales returns during the year ended March 31, 2009 was, in part, linked to this increase in our total sales.
	-		Furthermore, our estimates of expected future sales returns allowances varies in different geographic markets, based on their historical trends. Generally, our sales returns in our North America (the United States and Canada) generics business are higher than our sales returns in other businesses and geographies. Revenues from North America (the United States and Canada) within our Global Generics segment increased by 152% to Rs.19,843 million for the year ended March 31, 2009, from Rs.7,873 million in the year ended March 31, 2008. Please refer to the discussion on revenues in this section for a more detailed analysis.
	-		As mentioned above, in addition to assessing the adequacy of our allowance for sales returns based on sales returns percentages during historical periods, our assessment is also based upon sales returns processed at every reporting period. As we progressed through the year ended March 31, 2008, we noted a decline in our trend of returns and, accordingly, reevaluated our estimate. This assessment during the year ended March 31, 2008 resulted in a reversal of Rs.166 million from our opening allowance for sales returns. This change in the estimate for allowance for sales returns was primarily due to smaller than expected returns processed by us during the year ended March 31, 2008, as compared to our opening estimate based on historical trends. This reversal reduced our net provision for the year ended March 31, 2008 to Rs.164 million, which was significantly lower than our actual sales returns of Rs.284 million in the year ended March 31, 2008. Accordingly, our initial provision for sales returns in the year ended March 31, 2009 reflected our increased estimate for sales returns based upon actual returns in the prior fiscal year. In addition, as we progressed through the year ended March 31, 2009, there was a further increase in our trend of sales returns (from Rs.284 million in the year ended March 31, 2008 to Rs.475 million in the year ended March 31, 2009) which was also reflected in our estimate for sales return provision.

For further information regarding our sales return provisions, see Note 23 to our consolidated financial statements.

•

For the year ended March 31, 2009, on an average basis, the Indian rupee depreciated by approximately 14% against the U.S. dollar compared to the average exchange rate for the year ended March 31, 2008. This depreciation had a positive impact on our sales because of the increase in rupee realization from sales denominated in U.S. dollars. However, this positive impact was partially offset due to mark to market losses upon maturity of foreign currency derivative contracts, which were acquired to mitigate the risks of foreign currency volatility. The foregoing mark to market losses on foreign currency derivative contracts resulted in a net decrease in our revenues by Rs.1,455 million during the year ended March 31, 2009. Excluding the impact of such mark to market losses, our total revenues grew by 42% to Rs.70,896 for the year ended March 31, 2009 from Rs.50,006 million for the year ended March 31, 2008.

Revenues Segment analysis

     Pharmaceutical Services and Active Ingredients (“PSAI”)

     For the year ended March 31, 2009, this segment accounted for 27% of our total revenues, as compared to 33% for the year ended March 31, 2008. Revenues in this segment increased by 13% to Rs.18,758 million for the year ended March 31, 2009, as compared to Rs.16,623 million for the year ended March 31, 2008. Excluding revenues from the Dow Pharma Unit acquired in April 2008, revenues from this segment increased to Rs.17,737 million for the year ended March 31, 2009 from Rs.16,623 million for the year ended March 31, 2008. This increase was primarily due to increases in revenues from sales of gemcitabine, naproxen, clopidogrel, montelukast, rabeprazole sodium, ropinirole hydrochloride, and sumatriptan succinate, which increases were partially offset by decreases in sales of escitalopram oxalate, amlodipine besilate and olanzapine

     For the year ended March 31, 2009, revenues in this segment from India accounted for 13% of our revenues from this segment, as compared to 14% for the year ended March 31, 2008. Revenues in this segment from India increased by 1% to Rs.2,383 million for the year ended March 31, 2009, as compared to Rs.2,352 million for the year ended March 31, 2008.

     Revenues in this segment from outside India constituted 87% of our total revenues in this segment for the year ended March 31, 2009, as compared to 86% for the year ended March 31, 2008. Revenues in this segment from outside India increased by 15% to Rs.16,375 million for the year ended March 31, 2009 from Rs.14,271 million for the year ended March 31, 2008.

     Revenues in this segment from North America (the United States and Canada) increased by 16% to Rs.3,875 million for the year ended March 31, 2009 from Rs.3,350 million for the year ended March 31, 2008. The increase was primarily due to increased sales of montelukast, rabeprazole sodium and naproxen, which were partially offset by a decrease in sales of ranitidine hydrochloride and ibuprofen.

     Revenues in this segment from Europe increased by 9% to Rs.6,160 million for the year ended March 31, 2009 from Rs.5,647 million for the year ended March 31, 2008. The increase was primarily due to increased sales of gemcitabine and sumatriptan, which were partially offset by a decrease in the sales of olanzapine and ramipril.

     Revenues in this segment from our “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) increased by 20% to Rs.6,340 million for the year ended March 31, 2009 from Rs.5,274 million for the year ended March 31, 2008. This increase was primarily due to an increase in sales of naproxen and ciprofloxacin and the launch of the new product clopidogrel during the year ended March 31, 2009.

     We entered into derivative contracts to hedge certain foreign currency risks on forecasted sales transactions. We followed hedge accounting principles in the accounting for these derivative contracts, which require the gain/loss on maturity of derivative contracts designated as hedges to be recognized in the same fiscal period as the underlying transaction is recorded. In accordance with these principles, we have recorded a loss in this segment of Rs.655 million for the year ended March 31, 2009. Excluding the impact of hedging, this segment’s revenue increased by 17% to Rs.19,413 for the year ended March 31, 2009 from Rs.16,623 million for the year ended March 31, 2008.

     Global Generics

     For the year ended March 31, 2009, this segment accounted for 72% of our total revenues, as compared to 66% for the year ended March 31, 2008. Revenues in this segment increased by 51% to Rs.49,790 million for the year ended March 31, 2009 from Rs.32,872 million for the year ended March 31, 2008. Excluding revenues from the Shreveport facility and Jet Generici, each of which was acquired in April 2008, revenues in this segment increased by 46% to Rs.48,014 million for the year ended March 31, 2009 from Rs.32,872 million for the year ended March 31, 2008.

     Revenues from India constituted 17% of this segment’s total revenues for the year ended March 31, 2009, as compared to 25% for the year ended March 31, 2008. Revenues in this segment from India increased by 5% to Rs.8,478 million for the year ended March 31, 2009 from Rs.8,060 million for the year ended March 31, 2008. The increase in revenues was due to increases in sales volumes of key brands such as Stamlo, our brand of amlodipine, Omez and Omez DR, our brands of omeprazole, Reditux, our brand of rituximab, and Razo, our brand of rabeprazole, which increases were partially offset by decreases in sales volumes of Nise, our brand of

nimesulide. New products launched in India during the year ended March 31, 2009 generated revenues of Rs.232 million in this segment for such period.

     Revenues from outside India constituted 83% of this segment’s total revenues for the year ended March 31, 2009, as compared to 75% for the year ended March 31, 2008. Revenues in this segment from outside India increased by 67% to Rs.41,312 million for the year ended March 31, 2009 from Rs.24,812 million for the year ended March 31, 2008.

     Revenues from North America (the United States and Canada) in this segment increased by 152% to Rs.19,843 million for the year ended March 31, 2009, from Rs.7,873 million in the year ended March 31, 2008. This increase was primarily due to increases in revenues from the launch of sumatriptan, our authorized generic version of Imitrex^®, in the year ended March 31, 2009, which generated revenues of Rs.7,188 million for such period. Excluding the revenues from sumatriptan sales, our revenues in this segment from North America (the United States and Canada) grew by 61% to Rs.12,655 million for the year ended March 31, 2009. The increase was mainly due to strengthening of the U.S. dollar as compared to the Indian rupee and higher volumes for our key products such as fexofenadine, simvastatin, omeprazole, pravastatin, and citalopram.

     Revenues from Europe in this segment increased by 16% to Rs.11,886 million for the year ended March 31, 2009, as compared to Rs.10,216 million for the year ended March 31, 2008. Revenues of betapharm increased to Rs.9,854 million for the year ended March 31, 2009 from Rs.8,189 million for the year ended March 31, 2008. This increase was primarily due to favorable exchange rates, higher volumes for key products and seasonal sales of Grippeimpfstoff beta (vaccine).

     Revenues from Russia in this segment increased by 43% to Rs.5,803 million for the year ended March 31, 2009, from Rs.4,064 million for the year ended March 31, 2008. This increase was due to higher sales volumes as well as higher prices of our key brands Nise, our brand of nimesulide, Omez, our brand of omeprazole, Cetrine, our brand of cetrizine, and Ketorol, our brand of ketorolac.

     Revenues from other countries of the former Soviet Union in this segment increased by 25% to Rs.1,821 million for the year ended March 31, 2009, as compared to Rs.1,461 million for the year ended March 31, 2008. This increase was primarily due to an increase in revenues from Ukraine, Kazakhstan and Uzbekistan.

     Revenues from other markets in this segment increased by 64% to Rs.1,959 million for the year ended March 31, 2009, as compared to Rs.1,197 million for the year ended March 31, 2008. This increase was due to increases in revenues from Venezuela and South Africa as a result of the launch of clopidogrel and higher sales of Ciproc and Omez.

     We entered into derivative contracts to hedge certain foreign currency risks on forecasted sales transactions. We followed hedge accounting principles in the accounting for these derivative contracts, which require the gain/loss on maturity of derivative contracts designated as hedges to be recognized in the same fiscal period as the underlying transaction is recorded. In accordance with these principles, we have recorded a loss of Rs.800 million in this segment for the year ended March 31, 2009. Excluding the impact of hedging, this segment’s revenue increased by 54% to Rs.50,590 million for the year ended March 31, 2009, from Rs.32,872 million for the year ended March 31, 2008.

Gross Margin

     Total gross margin as a percentage of total revenues was 53% for the year ended March 31, 2009, as compared to 51% for the year ended March 31, 2008. Total gross margin increased to Rs.36,500 million for the year ended March 31, 2009, from Rs.25,408 million for the year ended March 31, 2008.

     Pharmaceutical Services and Active Ingredients

     Gross margin of this segment decreased to 30% of this segment’s revenues for the year ended March 31, 2009, as compared to 34% of this segment’s revenues for the year ended March 31, 2008. The decrease in gross margin was mainly due to hedging losses (i.e., losses on foreign currency derivatives) of Rs.655 million. Excluding the impact of hedging losses, the gross margin of this segment was 33% of this segment’s revenues for the year ended March 31, 2009, as compared to 34% of this segment’s revenues for the year ended March 31, 2008. The decrease in gross margin was due to a change in product mix (i.e., an increase in the proportion of sales of lower gross margin products, such as Naproxen and Naproxen sodium, and a decrease in the proportion of sales of higher gross margin products, such as olanzapine and finasteride) for the year ended March 31, 2009.

     Global Generics

     Gross margin of this segment increased to 61% of this segment’s revenues for the year ended March 31, 2009, as compared to 60% of this segment’s revenues for the year ended March 31, 2008. The increase was primarily due to the launch of sumatriptan, our authorized generic version of Imitrex^®, which increase was partially offset by the decrease due to hedging losses (i.e., losses on foreign currency derivatives) of Rs.800 million.

Selling, general and administrative expenses

     Selling, general and administrative expenses as a percentage of total revenues were 30% for the year ended March 31, 2009, as compared to 34% for the year ended March 31, 2008. Selling, general and administrative expenses increased by 25% to Rs.21,020 million for the year ended March 31, 2009, from Rs.16,835 million for the year ended March 31, 2008. The increase was in part attributable to an increase in employee costs by 19% due to annual raises and increases in head count arising both out of our three acquisitions and normal additions, as well as an increase in legal and professional expenses due to product related regulatory activities undertaken during the year ended March 31, 2009. The increase was also partly attributable to an increase in marketing expenses by 30% as a result of higher marketing expenses of our Proprietary Products business, growth in shipping costs, higher commission on sales (due to increased revenues), and higher advertisement expenses for campaigns undertaken in Russia, Belarus and Ukraine and Germany.

     Furthermore, amortization expenses decreased by 6% to Rs.1,503 million for the year ended March 31, 2009, from Rs.1,588 million for the year ended March 31, 2008. The reduction was primarily due to reduced amortization at betapharm for certain product related intangibles due to write-downs recorded in March 31, 2008, and was partially offset by an increase in amortization expenses of Rs.165 million for the year ended March 31, 2009 due to our acquisition of the Dow Pharma Unit, the Shreveport facility and Jet Generici.

Research and development expenses

     Research and development costs increased by 14% to Rs.4,037 million for the year ended March 31, 2009, from Rs.3,533 million for the year ended March 31, 2008. As a percentage of revenues, research and development expenditures accounted for 6% of our total revenue in the year ended March 31, 2009, as compared to 7% for the year ended March 31, 2008. This increase in costs was primarily due to an increase in development activities in our Global Generics and Proprietary Products segments during the year ended March 31, 2009.

Impairment loss on other Intangible Assets and Goodwill

     During the year ended March 31, 2009, there were significant changes in the generics market related to our German subsidiary betapharm.  These changes included the announcement of a large competitive bidding (or “tender”) process from AOK (the largest German State Healthcare (“SHI”) fund), a continuing decrease in the reference prices of pharmaceutical products and increased quantity of discount contracts being negotiated with SHI funds. AOK’s tender process represents a visible shift to a tender based supply model within the German generics market. We were awarded 8 products representing 33 contracts covering the AOK-insured persons in various regions within Germany, which represented 17% of the overall volume of the products covered by the AOK tender. While our future sales volumes are expected to increase for the products awarded to us under the tender, the expected overall price realization under the tender arrangement will be significantly lower due to decreased price per unit of product. Also, the products awarded did not include our key products.

     Due to these developments, as at March 31, 2009, we tested the carrying value of our product related intangibles for impairment.  The impairment testing indicated that the carrying values of certain product-related intangibles were higher than their recoverable value, resulting in us recording an impairment loss on certain product related intangibles amounting to Rs.3,167 million during the year ended March 31, 2009.  

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

Other (income)/expense, net

     Other expense was Rs.254 million for the year ended March 31, 2009, as compared to income of Rs.402 million for the year ended March 31, 2008. This was primarily due to the Rs.916 million provided as payable to Eli Lilly to settle its patent infringement claims arising from our sales of olanzapine in Germany. This was partially offset by income of Rs.150 million on account of negative goodwill resulting from the acquisition of the Dowpharma Small Molecule business and Mirfield plant, as well as an increase in other income by Rs.512 million primarily due to an increase in sales of spent chemicals, royalty income and other miscellaneous income.

Results from operating activities

     As a result of the foregoing, our results from operating activities decreased to a loss of Rs.2,834 million for the year ended March 31, 2009, as compared to a profit of Rs.2,341 million for the year ended March 31, 2008.

Finance income/(expense), net

     For the year ended March 31, 2009, our net finance expense was Rs.1,186 million, as compared to net finance income of Rs.521 million for the year ended March 31, 2008.

     For the year ended March 31, 2009, our finance income, excluding foreign exchange gain/loss, decreased by 44% to Rs.482 million from Rs.862 million for the year ended March 31, 2008. The decrease was attributable to a decrease in our interest income from fixed deposits resulting from a decrease in our fixed deposits base, which was partially offset by an increase in gains on sales of investments. For the year ended March 31, 2009, our interest expense decreased by 4% to Rs.1,034 million, from Rs.1,080 million for the year ended March 31, 2008.

     Foreign exchange loss was Rs.634 million for the year ended March 31, 2009 as compared to a foreign exchange gain of Rs.738 million for the year ended March 31, 2008, primarily due to depreciation of the Indian rupee/U.S. dollar exchange rate by 14% during the year ended March 31, 2009. Such depreciation resulted in losses on short U.S.$/INR derivative contracts and translation losses on outstanding packing credit loans in foreign currencies.

Inflation

     Due to various macro-economic factors, the inflation level in the recent period has significantly decreased in India. According to the economic report released by the Department of Economic Affairs, Ministry of Finance in India, the annual inflation rate in India, as measured by the benchmark wholesale price index, Base 1993-94=100 was 0.26% for the week ended March 28, 2009 (as compared to 7.75% for the week ended March 29, 2008), which is one of the lowest in recent years. This trend may not continue and the rate of inflation may further rise.

Profit/(loss) before income taxes

     The foregoing resulted in a loss (before income tax) of Rs.3,996 million for the year ended March 31, 2009, as compared to profit of Rs.2,864 million for the year ended March 31, 2008.

Income tax expense

     Income tax expense was Rs.1,172 million for the year ended March 31, 2009, as compared to an income tax benefit of Rs.972 million for the year ended March 31, 2008. The increase in the tax expense for the year ended March 31, 2009 was largely due to higher taxable profits in our North America (United States and Canada) and India businesses, which were partially offset by certain tax benefits. These tax benefits included a benefit attributable to losses in our German operations (primarily due to Rs.916 million paid to Eli Lilly to settle its patent infringement claims arising from our sales of olanzapine in Germany) and a benefit due to reversal of deferred tax liability of Rs.983 million as a result of an impairment charge of betapharm intangibles of Rs.3,167 million. The tax benefit in the year ended March 31, 2008 was primarily on account of a reversal of deferred tax liability of Rs.1,505 million, which was due to a reduction in tax rates in Germany, and a release of a deferred tax liability of Rs.895 million, which was due to the write-down of intangibles amounting to Rs.2,883 million.

     As a result of the foregoing, our net result was a loss of Rs.5,168 million for the year ended March 31, 2009, as compared to net profit of Rs.3,836 million for the year ended March 31, 2008.

     A number of new IFRS standards and interpretations, and amendments to IFRS standards and interpretations, are not yet effective for the year ended March 31, 2009, and have not been applied in preparing our consolidated financial statements:

	§		Revised IAS 1, “Presentation of Financial Statements” (2007) introduces the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for our March 31, 2010 consolidated financial statements, is expected to have a significant impact on the presentation of the consolidated financial statements. We plan to provide total comprehensive income in a single statement of comprehensive income for our March 31, 2010 consolidated financial statements.
	§		Revised IAS 23, “Borrowing Costs” removes the option to expense borrowing costs and requires that an entity capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for our March 31, 2010 consolidated financial statements. As we currently follow a policy of capitalizing borrowing costs, this new standard will not have any impact on our consolidated financial statements.
	§		Amendments to IAS 32, “Financial Instruments: Presentation” and IAS 1, “Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation” require puttable instruments, and instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation, to be classified as equity if certain conditions are met. The amendments, which become mandatory for our March 31, 2010 consolidated financial statements, with retrospective application required, are not expected to have any material impact on our consolidated financial statements.
	§		Revised IFRS 3, “Business Combinations” (2008) incorporates the following changes that are likely to be relevant to our operations:

	–		The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.
	–		Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss.
	–		Transaction costs, other than share and debt issue costs, will be expensed as incurred.
	–		Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss.
	–		Any non-controlling (minority) interest will be measured either at fair value or its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

			Revised IFRS 3, which becomes mandatory for our March 31, 2011 consolidated financial statements, will be applied prospectively for all business combinations on or after April 1, 2010.
	§		Amendments to IAS 27, “Consolidated and Separate Financial Statements” (2008) requires accounting for changes in ownership interests by us in a subsidiary, while maintaining control, to be recognized as an equity transaction. When we lose control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to IAS 27, which become mandatory for our March 31, 2011 consolidated financial statements, are not expected to have a significant impact on our consolidated financial statements.
	§		Amendments to IFRS 2, “Share-based Payment – Vesting Conditions and Cancellations” clarify the definition of vesting conditions, introduce the concept of non-vesting conditions, require non-vesting conditions to be reflected in grant-date fair value and provide the accounting treatment for non-vesting conditions and cancellations. These amendments to IFRS 2 will become mandatory for our March 31, 2010 consolidated financial statements, with retrospective application. We are currently

			in the process of evaluating the potential impact of the revised standard on our consolidated financial statements.
	§		Amendments to IAS 39, “Financial Instruments: Recognition and Measurement: Eligible Hedged Items” deal with two situations where diversity in practice exists on the designation of inflation as a hedged risk and the treatment of ‘one-sided’ risks on hedged items. These amendments are effective for accounting periods beginning on or after July 1, 2009 and will be applicable for our March 31, 2011 consolidated financial statements. We are currently in the process of evaluating the potential impact of the revised standards on our consolidated financial statements.
	§		IFRIC Interpretation 18, “Transfers of Assets from Customers,” defines the treatment for property, plant and equipment transferred by customers to companies or for cash received to be invested in property, plant and equipment that must be used either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. The item of property, plant and equipment is to be initially recognized by the company at fair value with a corresponding credit to revenue. If an ongoing service is identified as a part of the agreement, the period over which revenue shall be recognized for that service would be determined by the terms of the agreement with the customer. If the period is not clearly defined, then revenue should be recognized over a period no longer than the useful life of the transferred asset used to provide the ongoing service. This interpretation is to be applied prospectively to transfers of assets from customers received on or after July 1, 2009. Earlier application is permitted provided the valuations and other information needed to apply the information to past transfers were obtained at the time the transfer occurred. We would prospectively adopt this interpretation for all assets transferred after July 1, 2009. This Interpretation is not expected to have a significant impact on our consolidated financial statements.

Standards early adopted

§

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

5.B. Liquidity and capital resources

Liquidity

     We have primarily financed our operations through cash flows generated from operations and through short-term borrowings for working capital. Our principal liquidity and capital needs are for making investments, the purchase of property, plant and equipment, regular business operations and drug discovery.

     Our principal sources of short-term liquidity are internally generated funds and short-term borrowings, which we believe are sufficient to meet our working capital requirements and currently anticipated capital expenditures over the near term. As part of our growth strategy, we continue to review opportunities to acquire companies, complementary technologies or product rights. To fund the acquisition of betapharm in Germany in the year ended March 31, 2006, we borrowed Euro400 million under a bank loan facility with a maturity period of five years. If our future acquisitions involve significant cash payments, rather than the issuance of shares, we may need to further borrow from banks or raise additional funds from the debt or equity markets.

     The following table summarizes our statements of cash flows for the periods presented:

		Year Ended March 31,
		2009				2008
		Rs. in millions
Net cash provided by/(used in):
Operating activities		Rs.	4,505			Rs.	6,528
Investing activities			(3,472	)			(9,367	)
Financing activities			(2,527	)			(7,865	)
Net increase/(decrease) in cash and cash equivalents		Rs.	(1,494	)		Rs.	(10,704	)
Effect of exchange rate changes on cash		Rs.	(114	)		Rs.	(372	)

Cash Flow from Operating Activities

     Net cash provided by operating activities decreased from Rs.6,528 million in the year ended March 31, 2008 to Rs.4,505 million in the year ended March 31, 2009. This was primarily due to a significant increase in our working capital balance, attributable to increases in our receivables. We had a higher operating profit in the year ended March 31, 2009 compared to the year ended March 31, 2008 (excluding the impact of impairment losses).

     The higher operating profit was largely on account of high-margin sales generated by the launch of sumatriptan, our authorized generic version of Imitrex^® in the United States during the year ended March 31, 2009. As a result of limited competition, the percentage margin for this product was above our average company level margins. However, the benefits of a higher operating profit for the year ended March 31, 2009 on cash flow from operating activities were offset by an increase in our trade receivables from Rs. 6,823 million as on March 31, 2008 to Rs. 14,592 million as on March 31, 2009.

     Sumatriptan was launched in November 2008. As a result of limited competition, this product generated significant sales during a short period, mostly occurring during the quarter ended March 31, 2009. In accordance with our average credit period for this product, a major part of the sales generated in that quarter were not due until after the subsequent quarter, resulting in a substantial increase in our receivables as of March 31, 2009.

Cash Flow from Investing Activities

     Net cash used in investing activities during the year ended March 31, 2009 was Rs.3,472 million, as compared to Rs.9,367 million in the year ended March 31, 2008. This was primarily on account of:

	•		Expenditures on property, plant and equipment of Rs.4,507 million during the year ended March 31, 2009, as compared to Rs.6,263 million in the year ended March 31, 2008;
	•		Net proceeds from sales of investment securities of Rs.4,377 million, as compared to a net expenditure for purchase of investment securities of Rs.3,382 million during the year ended March 31, 2008; and
	•		Cash paid for acquisition of businesses and our equity accounted investee of Rs.3,461 million during the year ended March 31, 2009. There were no such acquisitions during the year ended March 31, 2008.

     Cash outflows from investing activities were significantly lower during the year ended March 31, 2009 as compared to the year ended March 31, 2008, largely on account of cash inflows from sales of investment securities. As a result of the need to fund our acquisitions and other working capital needs, a large part of our investment securities portfolio was liquidated. The expenditures on property, plant and equipment during the year ended March 31, 2009 were in line with our need to build capacities to support our strategic growth agenda.

Cash Flows from Financing Activities

     There was a net cash outflow of Rs.2,527 million as a result of financing activities during the year ended March 31, 2009, as compared to an outflow of Rs.7,865 million during the year ended March 31, 2008. This was primarily due to our repayment of long

term debt of Rs.1,925 million during the year ended March 31, 2009, as compared repayment of long term debt of Rs.7,719 million during the year ended March 31, 2008(largely attributable to the repayment of debt for our betapharm acquisition).

Principal obligations

     The following table summarizes our principal debt obligations (excluding capital lease obligations) outstanding as of March 31, 2009:

		Payments due by period
		(Rs. in millions)
														More
						Less than								than
Financial Contractual Obligations		Total				1 year				1-5 years				5 years				Annual Interest Rate
Short-term borrowings from banks		Rs.	6,068			Rs.	6,068			Rs.	—				—			7.5% for rupee borrowings and LIBOR + 100 – 225 bps for foreign currency denominated loans
Long term debt
From Indian Renewable Energy Development Agency *			7				6				1				—			2.00%
Foreign currency loan (for betapharm acquisition)			13,326				3,477				9,849				—			EURIBOR + 70 bps LIBOR + 70 bps
Total obligations		Rs.	19,401			Rs.	9,551			Rs.	9,850				—

     Subject to obtaining certain regulatory approvals, there are no legal or economic restrictions on the transfer of funds between us and our subsidiaries or for the transfer of funds in the form of cash dividends, loans or advances.

     The maturities of our short-term borrowings from banks vary from one month to approximately six months. Our objective in determining the borrowing maturity is to ensure a balance between flexibility, cost and the continuing availability of funds.

     Cash and cash equivalents are primarily held in Indian rupees, U.S. dollars, U.K. pounds sterling, Brazilian real, Euros, Russian roubles, South African rand, Hong Kong dollars, New Zealand dollars, Malaysian ringgits and Swiss francs.

     As of March 31, 2009 and March 31, 2008, we had committed to spend approximately Rs.996 million and Rs.1,552 million, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchases.

5.C. Research and development, patents and licenses, etc.

Research and Development

     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 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.

•

Proprietary Products, where we are actively pursuing discovery and development of NCEs. Our research programs focus on the following therapeutic areas:

	o		Metabolic disorders
	o		Cardiovascular disorders
	o		Bacterial infections

•

In the years ended March 31, 2008 and 2009, we expended Rs.3,533 million and Rs.4,037 million, respectively, on research and development activities.

Patents, Trademarks and Licenses

     We have filed and been issued numerous patents in our principal areas of operations: Pharmaceutical Services and Active Ingredients and Proprietary Products. We expect to continue to file patent applications seeking to protect our innovations and novel processes in several countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may even be challenged, invalidated or circumvented by our competitors. In addition, such patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products. As of March 31, 2009, we had registered more than 500 trademarks with the Registrar of Trademarks in India. We have also filed registration applications for non-U.S. trademarks in other countries in which we do business. We market several products under licenses in several countries where we operate.

5.D. Trend information

Global Generics

     The United States of America, Germany, India and Russia are the four key strategic markets for our Global Generics business, generating roughly 92% of the revenues of this segment for the year ended March 31, 2009. In all of these markets, we continue to grow our revenues consistently year after year as a result of our product franchise and customer and distributor relationships built over the years.

     United States. In the United States, our revenues for the year ended March 31, 2009 represented an increase of 152%, as compared to our revenues for the year ended March 31, 2008. This increase was primarily due to growth of our existing products and the successful launch of new products, particularly sumatriptan (our authorized generic version of Imitrex^®), as well as revenues from the Shreveport facility that we acquired in April 2008. We are also looking at new channels of growth in the coming years, through our over-the-counter business and government business, to further increase the scale of our generics business in the United States. The acquisition of the Shreveport facility in the United States was a strategic move in building manufacturing and packaging capability in the United States. In the next few years, a large number of patents are set to expire and we have adequately positioned our pipeline and infrastructure capabilities to address a majority of these expirations. We intend to expand our portfolio over the next few years by adding solid dosage forms, as well as alternate dosage forms, and by complementing our internal product development effort through business alliances. We intend to broaden not only our customer base but also our products by focusing more on difficult-to-make and limited competition products.

     In the past several years, we have settled multiple Paragraph IV lawsuits. The settlements will result in guaranteed product launches, and with other Paragraph IV and difficult-to-make generics, we are working towards the goal of at least one opportunity with limited competition every year for the next five years. We expect that these product launches will augment our growing base revenues. As of March 31, 2009, we had filed a total of 138 ANDAs with the U.S. FDA. We had 68 ANDAs pending approval with the U.S. FDA as of March 31, 2009.

     Germany. In Germany, the pharmaceutical industry continues to go through health care reforms which have put pressure on prices. As of April 1, 2007, the Statutory Health Insurance - Competition Strengthening Act (also known as the “GKV-WSG Act”) took effect in Germany with the purpose of strengthening competition in public health insurance to regulate the German health care system. The law has significantly increased the power of the insurance companies and statutory health insurance (“SHI”) funds by allowing them to enter into direct rebate contracts with suppliers of pharmaceuticals. It further incentivizes doctors to prescribe generic drugs covered by such rebate contracts. The pharmacist is also required, when dispensing drugs, to give a preference to such drugs as are covered by rebate contracts. Thus, successfully concluding rebate contracts with insurance companies is a factor critical to succeeding in the competition for market share in the German generic prescription drug market. betapharm has signed rebate contracts with a large number of SHI funds, covering a major part of the insured population in the aggregate.

     In January 2008, new reference prices became effective under the GKV-WSG Act. Subsequently, new co-payment release prices were announced and which became effective June 1, 2008. During the year ended March 31, 2009, we reduced our dependence upon products from our single largest supplier in Germany by shifting the sourcing to our own internal supply network in Europe and India. During the year ended March 31, 2009, we successfully completed the transfer of the manufacturing processes for most of our key German products to our manufacturing facility in India. The benefits of this transfer include reduced product manufacturing costs and supply assurance. We have begun to realize the benefits from the easing of supply pressures, and the market share of betapharm in Germany has recovered to 2.8% in March 2009, as compared with a low of 1.74% in April 2007, according to Insight Health, a company which provides information on the German pharmaceutical industry, in its NVI market report for March 2009.

     In August 2008, Allgemeinen Ortskrankenkassen (“AOK”), one of the largest SHI funds, announced a competitive bidding (or “tender”) process for pharmaceutical companies for 64 products for 2009 and 2010. In this tender, betapharm was awarded 8 products translating to 33 contracts covering AOK-insured persons in various regions of Germany, which represented 17% of the overall volume of the products covered by the AOK tender. betapharm was among the top 3 companies in terms of number of contracts awarded. The tender procedure was delayed pending resolution of a number of lawsuits filed by generic drug manufacturers. However, these lawsuits were settled in favor of AOK and, starting in June 2009, the sales under this tender began. We believe that ongoing health care reforms and changing market dynamics, in terms of a move to a commoditized market environment, will continue to cause pressure on price realization for our product portfolio in Germany, leading to a business model in Germany today of “high volumes and low margins”. We are in the process of realigning our organizational structure in betapharm to remain competitive in this emerging scenario.

     India. In India, Operations Research Group International Medical Statistics (“ORG IMS”) in its March 2009 MAT report has noted that the Indian pharmaceutical market continues to be highly fragmented and dominated by Indian companies. The industry recorded retail sales of approximately U.S.$7 billion (Rs.354 billion) for the 12 months ended March 31, 2009, representing a growth of 10.1% over the previous 12 months. According to this ORG IMS report, the Indian pharmaceutical market is projected to grow at 12-14% per annum between 2008 and 2020, achieving a terminal market value of U.S.$30 billion. The major growth influencers will be population dynamics, high disease prevalence, increased health care access, changing health care models and greater capacity to spend. According to ORG IMS in its March MAT 2009 report, the market share of the No. 1 ranked Indian retail sales pharmaceutical company was approximately 5.3%. In this competitive scenario, we are the 13^th ranked Indian pharmaceutical company, with a market share of 2.2%.

     Six brands continue to be ranked among the top 300 brands in India in terms of sales. Our leading brand Omez, including the umbrella of all products launched under Omez brand, reached sales of approximately Rs.1 billion for the year ended March 31, 2009. However, our growth for the year ended March 31, 2009 was below the industry growth rate. Some of this lower growth was attributed to ordinary sales execution issues (e.g., sales generation, servicing, etc.) with new product launches during the year. India still continues to deliver competitive and attractive profitability in absolute terms because of the strong brand franchise that we enjoy with our customers. Also contributing to the profitability of sales in India is our growing and niche presence in dermatology, dental, urology and oncology therapeutic areas, especially our biologics products in the oncology area.

     Russia. In Russia, we continue to match the industry growth rate in the retail segment. According to Pharmexpert, a market research firm, in its April-March 2009 report, we grew by 16.4%, as compared to a market growth rate of 16.0% in Russia for such period. We are the fastest growing international branded generic company by sales volumes in Russia, and our total sales grew by 11.2% as compared to the industry decrease of 0.2% for such period. In the Pharmexpert MAT report for the quarter ended March 31, 2009, we were ranked No. 17 in sales in Russia with a market share of 1.25% for the year ended March 31, 2009. We also consolidated our new hospitals and over the counter product businesses, which account for slightly more than 25% of our Russian revenues and which are supplementing the growth led by our prescription business. The sales growth in Russia was led by our top 3 brands – Omez, Nise and Ketorol, each of which currently holds a market share greater than 50%, and also by the success of our in-

licensed over the counter product Bion. During the year ended March 31, 2009, the rouble depreciated sharply against the U.S. dollar. However, we took proactive steps to minimize this currency loss by constantly tracking the currency movement, focusing on receivables and adjusting our prices accordingly.

Pharmaceutical Services and Active Ingredients

     In this segment, we are focused on acquiring new customers and increasing our level of engagement with existing customers in global key markets, by marketing additional products from our product portfolio. We are also focused on identifying unique product opportunities in key markets and protecting them through patenting strategies. In this segment, we also market process development and manufacturing services to customers, primarily consisting of innovator pharmaceutical and biotechnology companies, with an objective to become their preferred partner of choice. Our focus is to leverage our skills in process development, analytical development, formulation development and Current Good Manufacturing Practice (“cGMP”) manufacturing to serve the customer’s needs. Changes in the business model for our services business are beginning to take shape, and we are switching to a more product based service offering based on our rich pipeline of APIs combined with our intellectual property expertise.

     For this segment, our revenues for the year ended March 31, 2009 increased by approximately 13%. The growth was mainly led by the active pharmaceutical ingredients division, as well as the acquisition of the Dow Pharma Unit. There were no major product patent expiries in the year ended March 31, 2009, and the credit crisis impacted our growth later in the fiscal year. We have experienced some loss of business from the emerging markets as a result of clients adjusting their inventories for the active ingredients segment. Our portfolio of drug master filings (“DMFs”) and intellectual property expertise provide us a platform to become a partner of choice to innovators and large pharmaceutical companies. As of March 31, 2009, we had a pipeline of 351 DMFs, of which 148 were in the United States. With patent expirations in several markets in the next few years, we intend to promote growth in the year ended March 31, 2010 and beyond by leveraging our strong intellectual property expertise and DMF pipeline. The success of our products in our key markets is contingent upon the extent of competition in the generics market, and we anticipate that such competition will continue to be significant.

Proprietary Products

     Our investments in research and development of new chemical entities (“NCEs”) have been consistently focused towards developing promising therapeutics. Strategically, we continue to seek licensing and development arrangements with third parties to further develop our pipeline products. As part of our research program, we also pursue collaborations with leading institutions and laboratories all over the world. Currently, we have a pipeline of three NCEs in clinical development and three NCEs in pre-clinical development. Some of these compounds are being developed in partnership with our partners, and the others are being developed in-house. As we make progress in advancing our pipeline through various stages of clinical development, we are also building capabilities in drug development. We believe this will help to enhance the value of our NCE assets. We expect to further complement our internal research and development efforts by pursuing strategic partnerships and alliances in our key focus areas.

     Building a specialty branded business in the United States is one of the important aspects of our innovation strategy. The specialty business has launched its own sales and marketing operations for in-licensed products in the dermatology therapeutic area in the United States while continuing to work on development of new in-house products. This is the result of our continued efforts over the last few years to establish this business through a combination of in-licensing initiatives as well as internal pipeline development programs. Consequently, through our subsidiary Promius Pharma, we launched “Epiceram”, our first dermatology prescription product in the United States, in October 2008. In January 2009, Promius Pharma launched our second dermatology prescription product “Scytera”. While initially we do not anticipate this to be a very significant business, it is an important step in our journey of building a business based on proprietary products.

5.E. Off-balance sheet arrangements

     Our equity accounted investee, Kunshan Rotam Reddy Pharmaceuticals Co. Limited (“Reddy Kunshan”), secured a credit facility of Rs.36 million from Agricultural Bank of China (“Agricultural Bank”). As at March 31, 2009, we had issued a corporate guarantee of Rs.36 million in favor of Agricultural Bank to enhance the credit standing of Reddy Kunshan. The guarantee is required to be renewed every year and our liability may arise in the event of non-payment by Reddy Kunshan of the amount withdrawn under its credit facility.

     The following summarizes our contractual obligations as of March 31, 2009 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

		Payments Due by Period
		(Rs. in millions)
						Less than								More than
Contractual Obligations		Total				1 year				1-5 years				5 years
Operating lease obligations			518				173				345				—
Capital lease obligations			300				18				44				238
Purchase obligations
Agreements to purchase property and equipment and other capital commitments(1)			996				996				—				—
Borrowings from banks			6,068				6,068				—				—
Long term debt obligations			13,333				3,483				9,850				—
Estimated interest payable on long-term debt (2)			529				271				258				—
Post retirement benefits obligations (3)			951				86				361				504
Total contractual obligations			22,814				11,095				10,977				742

     See page 2.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. Directors and senior management

     The list of our directors and executive officers and their respective age and position as of March 31, 2009 was as follows:

Directors

Name(1)		Age (in yrs)				Position
Dr. K. Anji Reddy(2)			70			Chairman
Mr. G.V. Prasad(2),(3)			49			Chief Executive Officer and Vice Chairman
Mr. Satish Reddy(2),(4)			42			Chief Operating Officer and Managing Director
Mr. Anupam Puri			63			Director
Dr. J.P. Moreau			61			Director
Ms. Kalpana Morparia			60			Director
Dr. Omkar Goswami			52			Director
Mr. Ravi Bhoothalingam			63			Director
Dr. Bruce L. A. Carter (5)			66			Director

Executive Officers

     Our policy is to classify our officers as “executive officers” if they have membership on our Management Council. Our Management Council consists of various business and functional heads and is our senior management organization. As of March 31, 2009, the Management Council consisted of:

Date of

Education/

Experience in

commencement of

Particulars of last

Name and Designation

Degrees Held

Age

years

employment

employment

G.V. Prasad(1) Vice Chairman and Chief Executive Officer

B. Sc.(Chem. Eng.), M.S. (Indl. Admn.)

49

25

June 30, 1990

Promoter Director, Benzex Labs Private Limited

Satish Reddy (2) Managing Director and Chief Operating Officer

B. Tech., M.S. (Medicinal Chemistry)

42

17

January 18, 1993

Director, Globe Organics Limited

Abhijit Mukherjee President — Pharmaceutical Services and Active Ingredients

B. Tech. (Chem.)

51

29

January 15, 2003

President, Atul Limited

Amit Patel, Senior Vice President — North America Generics

B.A.S, BS (Eco), MBA

35

11

August 6, 2003

V P Corporate Development, CTIS Inc

Date of

Education/

Experience in

commencement of

Particulars of last

Name and Designation

Degrees Held

Age

years

employment

employment

Dr. C. Cartikeya Reddy, Senior Vice President and Head of Biologics

B Tech, MS and PhD

39

18

July 20, 2004

Senior Engineer, Genetech Inc.

Jaspal Singh Bajwa President — Branded Formulations (Rest Of the World)(3)

B.Sc., PGDM

57

32

April 10, 2003

Executive Director and COO, Marico Industries Limited

Jeffrey Wasserstein Executive Vice President — Specialty Operations

B.A., J.D.

50

26

January 31, 2005

EVP and Chief Business Officer -Avigenics, Inc.

K. B. Sankara Rao Executive Vice President — Integrated Product Development

M. Pharma.

55

31

September 29, 1986

Production Executive, Cipla Limited

Mr. Prabir Kumar Jha Senior Vice President and Global Chief of Human Resources

M.A., PGDM

42

20

November 29, 2002

Regional HR Head-Mahindra British Telecom Ltd.

Raghu Cidambi Advisor

B.Sc., PGDBM, LLB.

58

39

October 1, 2001

Director — Eenadu, Margadarsi Group

Dr. Rajinder Kumar President — Discovery Research, Development and Commercialization (4)

M.Sc., MBBS, PG Dip in Psychiatry and Neurology

54

26

April 30, 2007

Chief Executive Officer and Founding Member, MeRaD Pharmaceuticals Ltd.

Saumen Chakraborty President – Corporate and Global Generics Operations

B.Sc. (H), PGDM

48

25

July 2, 2001

Vice President, Tecumseh Products India Private Limited

V. S. Vasudevan President — European Generics Business

B. Com. ACA

58

35

April 1, 1986

Finance Head, Standard Equity Fund Limited

Umang Vohra Chief Financial Officer

B.E., PGDM

38

14

February 18, 2002

Manager, Pepsico India

Vilas Dholye Executive Vice President – Formulations Technical Operations

B.Tech (Chem)

60

35

December 18, 2000

Vice President, Pidilite Industries Limited