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

HYDERABAD, India -- Dr. Reddy's Laboratories Ltd. (NYSE: RDY) today announced its unaudited financial results for the quarter ended June 30, 2006.

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 an emerging global pharmaceutical company with proven research capabilities. The Company is vertically integrated with a presence across the pharmaceutical value chain. It produces finished dosage forms, active pharmaceutical ingredients and biotechnology products and 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 defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such factors include, but are not limited to, changes in local and global economic conditions, our ability to successfully implement our strategy, the market acceptance of and demand for our products, our growth and expansion, technological change and our exposure to market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future.

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.