Dr. Reddy's Q1 FY07 Revenue at Rs 14,049 Million; Net Income at Rs 1,398 Million

Key highlights
-- Revenues at Rs 14.0 billion as against Rs 5.6 billion in Q1
FY06. YoY growth of 151% driven by combination of growth in
core businesses, contributions from acquisitions & authorized
generics opportunity.

-- Revenues from international markets at Rs 11.7 billion;
Contribute 83% to total revenues

-- Revenues from India increase by 15% to Rs 2.4 billion.

-- Revenues from authorized generics contribute 24% to revenues
and acquisitions contribute 23% to total revenues.

-- Revenues from core businesses (excluding the revenues from
authorized generics and acquisitions), increase by 34% to Rs
7,462 million from Rs 5,587 million

-- Gross profits increase to Rs 6.1 billion in Q1 FY 07 from Rs
2.9 billion in Q1 FY 06. Gross profit margins on total
revenues at 43% as against 52% in Q1 FY06. Revenues from
authorized generics contribute 24% to total revenues and earn
gross margins which are significantly below company average
gross margin.

-- R&D investments (net) at 4% of total revenues as against 9% in
Q1 FY06. In absolute terms, R&D investments increase by 3% to
Rs 533 million as against Rs 515 million in Q1FY06. During the
quarter, the Company recognized a total of Rs 244 million
under its R&D partnerships as a benefit to the R&D line item.

-- Net profit grows to Rs 1,398 million for Q1 FY07 from Rs 347
million in Q1 FY06. This translates to a diluted EPS of Rs
18.15 as against Rs 4.53 in Q1 FY06. This compares with
diluted EPS of Rs 21.24 for the full year 2005-06.

Key Revenue Highlights
-- Revenues in the API business increase by 20% to Rs 2.3 billion
in Q1 FY07 from Rs 1.9 billion in Q1 FY 06 led by growth in
key international markets.

-- Revenues in branded finished dosage business increase by 29%
to Rs 3.3 billion in Q1 FY07 from Rs 2.6 billion in Q1 FY06
driven by growth across key markets.

-- Revenues from international markets increase by 48% to Rs
1.7 billion, driven by growth in Russia as well as the CIS
region.

-- Revenues from India increase by 14% to Rs 1.6 billion,
driven by growth in key brands.

-- Revenues in North America generics finished dosage business
increase to Rs 4,304 million as compared to Rs 307 million in
Q1 FY06. This growth was primarily driven by launch of three
key products during the quarter. Simvastatin and finastride
launched as authorised generic versions of Merck's Zocor(R)
and Proscar(R) together contributed net revenues of Rs 3,346
million.

-- Revenues in Europe finished dosage business at Rs 2,433
million as against Rs 571 million in Q1 FY06. Revenues from
acquisition in Germany contribute Rs 1,997 million. Excluding
the benefit of these acquisitions, revenues decline to Rs 426
million in Q1 FY 07 from Rs 571 million in Q1 FY 06 primarily
on account of price decline of omeprazole and amlopidine
maleate in U.K.

-- Revenues from custom pharmaceuticals services business
increase to Rs 1,418 million from Rs 72 million in Q1 FY06.
Revenues from the acquisition in Mexico contributed Rs 1,241
million. Excluding contribution from the acquisition, revenues
increase from Rs 72 million to Rs 177 million, driven by
growth in customer base and product portfolio.
INCOME STATEMENT FOR THE QUARTER ENDED JUNE 30, 2006

All figures in millions, except EPS
All Dollar figures based on convenience translation rate of 1USD = Rs
45.87

EXTRACT FROM THE UNAUDITED INCOME STATEMENT

Q1 FY07 Q1 FY06
----------------------------------------------------------------------
Particulars ($) (Rs.) % ($) (Rs.) % Growth %
----------------------------------------------------------------------
Total Revenues 306 14,049 100 122 5,591 100 151%
----------------------------------------------------------------------
Cost of revenues 174 7,960 57 58 2,663 48 199%
----------------------------------------------------------------------
Gross profit 133 6,089 43 64 2,929 52 108%
----------------------------------------------------------------------
Selling, General &
Administrative
Expenses 73 3,346 24 43 1,954 35 71%
----------------------------------------------------------------------
R&D Expenses (1) 12 533 4 11 515 9 3%
----------------------------------------------------------------------
Amortization Expenses 8 388 3 2 96 2 304%
----------------------------------------------------------------------
Other operating
(income)/expense
net (2) (2) (70) 0 1 37 1 NC
----------------------------------------------------------------------
Operating income
before forex
loss/(gain) 41 1,892 13 7 328 6 477%
----------------------------------------------------------------------
Forex Loss/ (Gain) 2 74 1 1 66 1 12%
----------------------------------------------------------------------
Operating
income/(loss) 40 1,817 13 6 262 5 NC
----------------------------------------------------------------------
Equity in loss of
affiliates 0 - 0 0 15 0 -100%
----------------------------------------------------------------------
Other
expenses/(income)
net 5 212 2 -4 (173) -3 NC
----------------------------------------------------------------------
Income before income
taxes and minority
interest 35 1,605 11 9 420 8 282%
----------------------------------------------------------------------
Income tax
(benefit)/expense 5 208 1 2 73 1 185%
----------------------------------------------------------------------
Minority interest 0 0 0 0 0 0 NC
----------------------------------------------------------------------
Net income 30 1,398 10 8 347 6 303%
----------------------------------------------------------------------
DEPS 0.40 18.15 0.10 4.53
----------------------------------------------------------------------
Exchange rate 45.87 45.87
----------------------------------------------------------------------
Key Balance Sheet Items
----------------------------------------------------------------------
As on 30th As on 31st
June 06 March 06
----------------------------------------------------------------------
Cash and cash
equivalents 173 7,928 213 9,788
----------------------------------------------------------------------
Borrowings from banks
(Short + Long) 726 33,288 676 30,995
----------------------------------------------------------------------
Accounts receivable,
net of allowances 210 9,651 105 4,802
----------------------------------------------------------------------
Inventories 192 8,786 150 6,895
----------------------------------------------------------------------
Property, plant and
equipment, net 208 9,557 198 9,086
----------------------------------------------------------------------

(1) Income recognition under Generics R&D partnership with ICICI
venture amounting to Rs 158 million in Q1 FY 07 against Rs 78
million in Q1 FY 06. Reimbursement of expenses from Perlecan
Pharma Private Limited of Rs 86 million

(2) Includes the last trenche of consideration related to the Goa
amounting to Rs 63 million

Segmental Analysis

Active Pharmaceutical Ingredients (API)

-- Revenues at Rs 2.3 billion as against Rs 1.9 billion in Q1 FY06. YoY growth of 20%

-- Revenues outside India at Rs 1.7 billion as against Rs 1.3 billion in Q1 FY06. YoY growth of 25% driven by growth in key markets; Contribute 73% of total segment revenues

-- Revenues in Europe grew by 21% to Rs 439 million in Q1 FY 07 from Rs 362 million in Q1 FY 06 primarily led by growth in key products of sumatriptan, doxazosin and naproxen sodium.

-- Revenues in rest of the world markets increase by 27% to Rs 816 million from Rs 641 million primarily driven by growth in key markets.

-- Revenues in North America increase by 25% to Rs 420 million as against Rs 336 million in Q1 FY06. This growth was largely driven by increase in sales of development products.

-- Revenues in India at Rs 625 million as against Rs 571 million in Q1 FY06. YoY growth of 9% primarily on account of increase in sales of ciprofloxacin, ranitidine & terbinafine.

-- The Company filed 2 US DMF during the quarter taking the total filings to 83. The company also filed 1 DMF each in Canada and Europe.

Generic Finished Dosages

-- Revenues in this segment at Rs 6,737 million as against Rs 878 million in Q1 FY06.

-- North America contributed 64% and Europe contributed 36% to the segment revenues.

-- In North America, revenues increase to Rs 4,304 million in Q1 FY 07 from Rs 306 million in Q1 FY 06. Combined revenues of simvastatin and finastride at Rs 3,346 million. Fexofenadine, launched in April contributed Rs 503 million in revenues. Excluding revenues from authorized generics and fexofenadine, revenues increase by 46% to Rs 453 million.

-- In Europe revenues increase to Rs 2,433 million in Q1 FY 07 from Rs 571 million in Q1 FY 06. Revenues from acquisition in Germany contribute Rs 1,997 million. The prices of key products of amlopidine and omeprazole declined in U.K. resulting in 25% decline in revenues to Rs 426 million from Rs 571 million in Q1 FY06.

-- During the quarter, the Company filed 7 ANDAs, including 4 non Para IVs. This takes the total ANDAs pending at the USFDA to 55.

Branded Finished Dosages - International

-- Revenues at Rs 1.7 billion, an increase of 48% over Q1 FY06. This growth was primarily driven by the performance of Russia & CIS markets.

-- Revenues in Russia increase by 45% to Rs 1,094 million as against Rs 754 million in Q1 FY06. This growth was driven by increase in sales from key brands of Omez, Nise, Ciprolet and Keterol.

-- Revenues in CIS markets increase by 56% to Rs 320 million as against Rs 206 million in Q1 FY06. This growth was driven by increase in sales from Ukraine and Kazakhstan.

-- Revenues in RoW markets increase by 36% to Rs 201 million as against Rs 147 million in Q1 FY06. The growth was primarily driven by increase in sales from South Africa, Jamaica, and Vietnam.

-- Revenues in Central and Eastern Europe grew by 95% to Rs 106 million as against Rs 55 million in Q1 FY06. This growth was mainly on account of growth in Romania partially offset by decline in Albania.

Branded Finished Dosages - India

-- Revenues at Rs 1.6 billion, increase of 14%, from Rs 1.4 billion in Q1 FY06.

-- Growth was primarily driven by growth in key brands of Omez, Nise, Stamlo and Recliment.

-- New products launched during the quarter contributed Rs 35 million to revenues.

Custom Pharmaceutical Services (CPS)

-- Revenues from CPS increase to Rs 1,418 million from Rs 72 million in Q1 FY06. Revenues from acquisition in Mexico at Rs 1,241 million. Excluding this, revenues increase to Rs 177 million from Rs 77 million. This growth was driven by growth in customer base and product portfolio.

Emerging Business

-- Revenues in the critical care & biotechnology segment at Rs 198 million, an increase of 29%.

Income Statement Highlights

-- Gross profits increase to Rs 6.1 billion in Q1 FY 07 from Rs 2.9 billion in Q1 FY 06. Gross profit margins on total revenues at 43% as against 52% in Q1 FY06. Revenues from authorized generics contributed 24% to total revenues and earn gross margin which are significantly below company average gross margin.

-- R&D investments (net) at 4% of total revenues as against 9% in Q1 FY06. In absolute terms, R&D investments increase by 4% to Rs 533 million as against Rs 515 million in Q1FY06. During the quarter, the Company recognized a total of Rs 244 million under its R&D partnerships as a benefit to the R&D line item.

-- Selling, General & Administration (SG&A) expenses increase by 71% to Rs 3.3 billion. This increase is primarily due to first full quarter of consolidation of the two acquisitions.

-- Other expense (net) of Rs 212 million as against other income (net) of Rs 173 million in Q1 FY06. This is primarily on account of net interest expense of Rs 254 million in Q1 FY07 as against net interest income of Rs 153 million in Q1 FY06.

-- Amortization at Rs 388 million as compared to Rs 96 million in Q1 FY06. This includes amortization of Rs 311 million relating to intangibles in betapharm and acquisitions in Mexico.

-- Net income at Rs 1,398 million (10% of total revenues) as against Rs 347 million (6% of total revenues) in Q1 FY06. This translates to a diluted EPS of Rs 18.15 as against Rs 4.53 in Q1 FY06. This compares with diluted EPS of Rs 21.24 for the full year 2005-06.

-- During the quarter, the Company incurred capital expenditure (net) of Rs 781 million.

About Dr. Reddy's

Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is anemerging global pharmaceutical company with proven researchcapabilities. The Company is vertically integrated with a presenceacross the pharmaceutical value chain. It produces finished dosageforms, active pharmaceutical ingredients and biotechnology productsand markets them globally, with focus on India, US, Europe and Russia.The Company conducts research in the areas of cancer, diabetes,cardiovascular, inflammation and bacterial infection.

Disclaimer

This press release includes forward-looking statements, as definedin the U.S. Private Securities Litigation Reform Act of 1995. We havebased these forward-looking statements on our current expectations andprojections about future events. Such statements involve known andunknown risks, uncertainties and other factors that may cause actualresults to differ materially. Such factors include, but are notlimited to, changes in local and global economic conditions, ourability to successfully implement our strategy, the market acceptanceof and demand for our products, our growth and expansion,technological change and our exposure to market risks. By theirnature, these expectations and projections are only estimates andcould be materially different from actual results in the future.
Notes

1. In line with global disclosure standards, the company commenced
reporting its financials on a consolidated basis since Q1 FY03.

2. Current quarter financial discussions below are on a consolidated
basis as per the US GAAP.

3. Detailed analysis of the financials is available on the Company's
website at www.drreddys.com.