Dr. Reddy's Q2 FY07 Revenue at Rs 20,039 Million.

Net Income at Rs 2,798 Million

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

Key Financial Highlights

-- Q2 FY07 revenue at Rs 20.0 billion as against Rs 5.8 billion in Q2
   FY06; Net income at Rs 2.8 billion as against Rs 0.9 billion in Q2
   FY06.

-- H1 FY07 revenue at Rs 34.1 billion as against Rs 11.4 billion in H1
   FY06.

-- H1 FY07 net income at Rs 4.2 billion as against Rs 1.2 billion in
   H1 FY06; Diluted EPS at Rs 27.23 as against Rs 8.07 for H1 FY06.

Q2 FY07 Key Revenue Highlights

-- Revenues at Rs 20.0 billion in Q2 FY07 as against Rs 5.8 billion in
   Q2 FY06, representing increase of 245%

    -- Revenues from international markets increased by 391% at Rs.
       17.6 billion

    -- Contributed 88% to total revenues as compared to 62% in Q2 FY06

-- Revenues from core businesses (excluding the contribution from
   authorized generics and acquisitions), increased by 42% to Rs 8.2
   billion from Rs 5.8 billion.

-- The acquisitions in Mexico and Germany contributed 20% to total
   revenues in Q2 FY07; combined revenues contributed 20% to total
   revenues in Q2 FY07.

    -- Revenues in Germany at Rs. 2,554 million in Q2 FY07 as compared
       to Rs. 1,998 million in Q1 FY07; Gross Profit margin for Q2
       FY07 was at 58% as against 53% in Q1 FY07

    -- Revenues from the acquisition in Mexico at Rs. 1,434 million in
       Q2 FY07 as compared to Rs. 1,241 million in Q1 FY07

-- Revenues in the API business increased by 36% to Rs 2.9 billion in
   Q2 FY07 from Rs. 2.1 billion in Q2 FY06 primarily driven by the
   significant contribution from sertraline.

-- Revenues in branded formulations business increased by 19% to Rs.
   3.1 billion in Q2 FY07 from Rs. 2.6 billion in Q2 FY06 driven by
   growth across key countries.

    -- Revenues from international markets increased by 23% to Rs. 1.3
       billion, driven by growth in Russia as well as the CIS region.

    -- Revenues from India increased by 16% to Rs. 1.7 billion, driven
       by growth in key brands. As per ORG IMS August MAT, our volume
       growth was 17% as compared to industry average volume growth of
       15% and value growth tracks industry growth.

-- Revenues in North America generics finished dosage business
   increased to Rs. 9,082 million in Q2 FY 07 as compared to Rs. 299
   million in Q2 FY 06. This growth was primarily driven by:

    -- Combined revenues of Rs. 7,808 million from simvastatin and
       finasteride. Both these products were launched as authorized
       generic versions of Merck's Zocor(R) and Proscar(R) in June
       2006; Contributed 39% to total revenues in Q2 FY 07.

    -- Excluding authorized generics, growth was primarily driven by
       fexofenadine, which contributed revenues of Rs. 807 million.
    INCOME STATEMENT FOR THE QUARTER ENDED SEPTEMBER 30, 2006

                                   All figures in millions, except EPS
                   All dollar figures based on convenience translation
                                               rate of 1USD = Rs 45.95

           EXTRACT FROM THE UNAUDITED INCOME STATEMENT
[TABLE OMITTED]

1. Income recognition under Generics R&D partnership with ICICI Venture amounting to Rs 218 million in Q2 FY 07 against Rs. 155 million in Q2 FY 06. Reimbursement of expenses from Perlecan Pharma Private Limited of Rs. 123 million Q2 FY 07

Segmental Analysis

Active Pharmaceutical Ingredients (APIs)

* Revenues at Rs 2.9 billion in Q2 FY 07 as against Rs 2.1 billion in Q2 FY 06, representing an increase of 36%.

* Revenues outside India at Rs 2.4 billion in Q2 FY 07 as against Rs 1.6 billion in Q2 FY 06, representing an increase of 55%. Contributed 83% of total segment revenues as compared to 73% in Q2 FY06.

* Revenues in Europe increased by 59% to Rs. 536 million in Q2 FY 07 from Rs. 338 million in Q2 FY 06 primarily led by growth in key products of ramipril & sertraline.

* Revenues in rest of the world markets increased by 98% to Rs. 1,431 million in Q2 FY 07 from Rs. 724 million in Q2 FY 06, primarily driven by growth in Israel, Turkey and South Korea.

* Revenues in North America decreased by 11% to Rs 437 million in Q2 FY 07 as against Rs 490 million in Q2 FY 06. This decline was primarily due to decrease in revenues from sertraline and ibuprofen partially offset by increase in sales of development products.

* Revenues in India at Rs 502 million in Q2 FY 07 as against Rs 578 million in Q2 FY 06, representing decrease of 13%, primarily on account of volume decline in key products.

* The Company filed 3 US DMFs during the quarter taking the total filings to 86. The company also filed 3 DMFs in Canada.

Generic Formulations

* Revenues in this segment were Rs 12,113 million in Q2 FY 07 as against Rs 773 million in Q2 FY 06.

* North America contributed 75% and Europe contributed 25% to the segment revenues.

* In North America, revenues increased to Rs. 9,082 million in Q2 FY 07 from Rs. 299 million in Q2 FY 06. Combined revenues of simvastatin and finastride were Rs. 7,808 million. Fexofenadine launched in April, contributed Rs. 807 million in revenues.

* In Europe, revenues increased to Rs. 3,026 million in Q2 FY07 from Rs. 473 million in Q2 FY 06.

        -- Revenues from acquisition in Germany increased to Rs. 2,554
           million in Q2 FY 07 as compared to Rs. 1,998 million in Q1
           FY 07.

        -- Revenues from UK declined to Rs. 455 million in Q2 FY 07
           from Rs 473 million in Q2 FY 06. This decline was primarily
           on account of decline of prices of key products of
           amlopidine and omeprazole in U.K. Revenues from Spain
           contributed Rs. 17 million.

* During the quarter, the Company filed 8 ANDAs, including 3 non Para IVs. This takes the total ANDAs pending at the USFDA to 56.

Branded Formulations - International

* Revenues were at Rs 1.3 billion in Q2 FY 07, an increase of 23% over Q2 FY 06. The growth was primarily driven by the performance of Russia, Uzbekistan, Romania & Venezuela.

* Revenues in Russia increased by 18% to Rs. 759 million in Q2 FY 07 as against Rs 644 million in Q2 FY 06. This growth was primarily driven by increase in sales from key brands of Nise, Cetrine and Ketorol. During the quarter, we launched 4 new products including 2 OTC products. The company improved its ranking to 8 in the retail prescription market. (April - June 2006 Pharmexpert)

* Revenues in CIS markets increased by 11% to Rs 225 million in Q2 FY 07 as against Rs 203 million in Q2 FY 06. This growth was primarily driven by increase in sales from Ukraine, Belarus and Uzbekistan.

* Revenues in rest of the world markets increased by 33% to Rs 228 million in Q2 FY 07 as against Rs 171 million in Q2 FY 06. The growth was primarily driven by increase in sales from Venezuela, South Africa, Myanmar and Vietnam.

* Revenues in Central and Eastern Europe grew by 96% to Rs 100 million in Q2 FY 07 as against Rs 51 million in Q2 FY 06. This growth was mainly on account of growth in Romania and Albania.

Branded Formulations - India

* Revenues were Rs 1.7 billion in Q2 FY 07, representing an increase of 16%, from 1.5 billion in Q2 FY 06.

* Growth was primarily driven by growth in key brands of Omez, Nise and Reclimet.

* Launched 12 new products during the year contributing Rs. 63 million in revenues.

* New launches of Omez-D and Razo-D rank among the 10 most successful launches of 2006.

* As per ORG IMS August MAT.

        -- Company recorded volume growth of 17% as against
           industry growth of 15%

        -- Company recorded value growth of 16% in line with
           industry growth.

Custom Pharmaceutical Services (CPS)

* Revenues from CPS increased to Rs 1,668 million in Q2 FY 07 from Rs 122 million in Q2 FY 06. Revenues from acquisition in Mexico were Rs. 1,434 million. Excluding the acquisition, revenues increased to Rs. 234 million from Rs. 122 million. This growth was driven by growth in customer base and product portfolio.

Emerging Business

* Revenues in the critical care & biotechnology segment at Rs. 227 million, an increase of 12%.

Income Statement Highlights

* Gross profits increased to Rs. 8.3 billion in Q2 FY 07 from Rs. 3.0 billion in Q2 FY 06. Gross profit margins on total revenues at 41 % as against 52 % in Q2 FY 06. Revenues from authorized generics contributed 39% to total revenues and earned gross margin which are significantly below company average gross margin.

* R&D investments (net) were 2% of total revenues as against 8% in Q2 FY 06. In absolute terms, gross R&D investments increased by 24% to Rs 743 million as against Rs 599 million in Q2 FY06. During the quarter, the Company recognized Rs 341 million under its R&D partnerships as a benefit to the R&D line item as against Rs 155 million in Q2 FY06.

* Selling, General & Administration (SG&A) expenses increased by 108% to Rs 3.7 billion. This increase is primarily on account of consolidation of the two acquisitions.

* Other expense (net) was Rs 321 million as against other income (net) of Rs 191 million in Q2 FY 06. This is primarily on account of net interest expense of Rs.370 million in Q2 FY 07 as against net interest income of Rs. 184 million in Q2 FY 06.

* Amortization was Rs. 402 million as compared to Rs. 76 million in Q2 FY 06. This includes amortization of Rs. 324 million relating to intangibles in betapharm and acquisition in Mexico.

* Net income was Rs 2,798 million (14 % of total revenues) as against Rs 890 million (15 % of total revenues) in Q2 FY 06. This translates to a diluted EPS of Rs 18.15 as against Rs 5.81 in Q2 FY 06.

* During Q2 FY 07, the Company incurred capital expenditure (net) of Rs 870 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.