Dr. Reddy's Reports Q2 FY06 Revenue of Rs. 5,803 million; YoY Growth of 7%; Net Income Increases by 72% to Rs. 890 Million.

HYDERABAD, India -- Dr. Reddy's Laboratories Ltd. (NYSE: RDY) today announced its unaudited financial results for the second quarter ended September 30, 2005.

Key highlights

--Revenues at Rs 5.8 billion, a growth of 7% over Q2 FY05. Highest revenue base in the previous sixteen quarters.

--Net profit increases by 72% to Rs 890 million. This translates to a diluted EPS of Rs 11.61 as against Rs 6.75 in Q2 FY05.

--Overall revenue growth driven by increase in revenues from all businesses excluding North America Generics

--Revenues from Active Pharmaceutical Ingredients (API) business increase by 17% to Rs 2,130 million. This increase was driven by the 22% growth in international segment led by higher sales from sertraline & terbinafine.

--Revenues from Branded Formulations business increase by 11% to Rs 2,576 million. Revenues in India increase by 12% to Rs 1,507 million. Revenues in International segment increase by 10% to Rs 1,069 million, driven by 39% growth in Other CIS markets.

--Revenues from Europe generics finished dosage segment increase by 46% to Rs 473 million led by higher price realizations for key products of omeprazole and amlodipine maleate as well as the launch of terbinafine.

--The pricing pressure in the U.S. Generics market continued in the second quarter. As a result of the intense competition, revenues from fluoxetine and tizanidine declined sharply leading to an overall decline in revenues from North America generics segment to Rs 299 million in Q2 FY06 from Rs 715 million in Q2 FY05.

--Revenues in the high margin Custom Pharmaceutical Services business increase by 24% to Rs 121 million in Q2 FY06.

INCOME STATEMENT FOR THE QUARTER ENDED SEPTEMBER 30, 2005

                  All figures in millions, except EPS

  All dollar figures based on convenience translation rate of 1USD =
                               Rs 43.94

              EXTRACT FROM THE UNAUDITED INCOME STATEMENT

                                   Q2 FY06        Q2 FY05
----------------------------------------------------------------------
                                                               Growth
Particulars                      ($)  (Rs.)  %  ($)  (Rs.)  %     %
----------------------------------------------------------------------
Product Revenues                 131  5,773 100 123  5,400 100      7
----------------------------------------------------------------------
License fees                       1     30   0   0      7   0      -
----------------------------------------------------------------------
Total Revenues                   132  5,803 100 124  5,407 100      7
----------------------------------------------------------------------
Cost of revenues                  64  2,807  48  56  2,440  45     15
----------------------------------------------------------------------
Gross profit                      68  2,996  52  68  2,967  55      1
----------------------------------------------------------------------
Selling, General & Administrative
 Expenses                         40  1,768  31  39  1,729  32      2
----------------------------------------------------------------------
R&D Expenses                      10  444(1)  8  14    627  12    (29)
----------------------------------------------------------------------
Amortization Expenses              2     76   1   2     87   2    (13)
----------------------------------------------------------------------
Operating income before forex
 loss/(gain)                      16    708  12  12    524  10     34
----------------------------------------------------------------------
Forex Loss/ (Gain)                 0     13   0   1     49   1    (73)
----------------------------------------------------------------------
Operating income/(loss)           16    695  12  11    475   9     45
----------------------------------------------------------------------
Equity in loss of affiliates       0    (16) (0)  0    (15) (0)     2
----------------------------------------------------------------------
Other (expenses)/income net        4    169   3   3    137   3     24
----------------------------------------------------------------------
Income before income taxes and
 minority interest                19    849  14  14    597  11     42
----------------------------------------------------------------------
Income tax benefit/(expense)       1     40   1  (2)   (85) (2)  (147)
----------------------------------------------------------------------
Minority interest                  0      1   0   0      5   0    (71)
----------------------------------------------------------------------
Net income                        20    890  15  12    517  10     72
----------------------------------------------------------------------
DEPS                                  11.61           6.75
----------------------------------------------------------------------
Exchange rate                         43.94          43.94
----------------------------------------------------------------------
Key Balance Sheet Items            Sep 05         Jun 05
----------------------------------------------------------------------
Cash and cash equivalents        240 10,562     236 10,364
----------------------------------------------------------------------
Borrowings from banks             94  4,109      89  3,918
----------------------------------------------------------------------
Investment securities             17    767      27  1,176
----------------------------------------------------------------------
Accounts receivable (net)         99  4,356      90  3,933
----------------------------------------------------------------------
Inventories                       92  4,038      84  3,670
----------------------------------------------------------------------
Property, plant and equipment
 (net)                           161  7,082     160  7,028
----------------------------------------------------------------------

(1) Reduction of Rs 155 million under the Generics R&D partnership deal with ICICI Venture

Active Pharmaceutical Ingredients (API)

--Revenues increase by 17% to Rs 2,130 million as against Rs 1,821 million in Q2 FY05.

--Revenues in India increase by 5% to Rs 578 million as against Rs 553 million in Q2 FY05.

--Revenues outside India increase by 22% to Rs 1.6 billion. Contributes 73% to overall segment revenues as against 70% in Q2 FY05.

--Sales from Europe increase by 55% to Rs 338 million. This growth was primarily driven by launch of terbinafine contributing to sales of Rs 65 million.

--Sales from North America decline by 6% to Rs 490 million from Rs 523 million in Q2 FY05. This decrease was on account of decline in sales of key products offset by higher sales of sertraline.

--Sales from other international markets (excluding North America and Europe) increase by 37% to Rs 724 million. This increase was driven by higher sales of sertraline and terbinafine partially offset by decrease in sales of amlodipine maleate.

--The Company filed 1 US DMF during the quarter taking the total filings to 78. In addition to this, the Company filed 2 Europe DMF's and 4 Canada PMF's

Generic Finished Dosages

--Revenues in this segment at Rs 773 million as against Rs 1,043 million in Q2 FY05.

--Europe contributed 61% to the total revenues and North America contributed the balance 39%.

--Revenues in Europe increase by 46% to Rs 473 million as against Rs 324 million in Q2 FY05. The growth was primarily driven by higher price realizations for omeprazole and amlodipine maleate as well as launch of terbinafine. Combined revenues from omeprazole and amlodipine maleate at Rs 295 million as against Rs 148 million in Q2 FY05. Launch sales of terbinafine at Rs 65 million.

--Revenues in North America at Rs 299 million as against Rs 715 million in Q2 FY05. On account of the intense competition, combined revenues from fluoxetine capsules and tizanidine tablets declined to Rs 93 million from Rs 436 million in Q2 FY05. Products launched after September 2004 contributed revenues of Rs 34 million.

--During the quarter, the Company filed 5 ANDAs. The Company also received approval for two ANDAs during the quarter. This takes the total ANDAs pending at the USFDA to 50.

Branded Finished Dosages - International

--Revenues at Rs 1.1 billion, an increase of 10% over Q2 FY05. This increase was primarily driven by growth in Russia & CIS markets.

--Revenues in other CIS markets increase by 39% to Rs 203 million as against Rs 146 million in Q2 FY05. This growth was primarily driven by Ukraine and Kazakhstan.

--Revenues in Russia increase by 10% to Rs 644 million as against Rs 587 million in Q2 FY05. This growth was driven by the performance of key brands of Nise, Ketorol and Omez.

--Revenues in Central Eastern Europe increase by 19% to Rs 51 million as against Rs 43 million in Q2 FY05. This increase was mainly on account of growth in Romania partially offset by decline in revenues from Albania.

--Revenues in other international markets decrease by 12% to Rs 171 million as against Rs 195 million in Q2 FY05. This was primarily on account of decrease in sales from Venezuela and United Arab Emirates.

Branded Finished Dosages- India

--Revenues at Rs 1.5 billion, an increase of 12% over Q2 FY05.

--This growth was led by the performance of key brands of Stamlo Beta, Atocor and Razo as well as revenues from new products launched during the quarter.

--During the quarter, the Company launched eight new products contributing revenues of Rs 12 million.

Other Businesses

--Revenues from Custom Pharmaceutical Services business increase by 24% to Rs 121 million from Rs 98 million in Q2 FY05.

--Revenues in the Oncology segment increase by 56% to Rs 203 million.

Income Statement Highlights

--Gross profit margins for Q2 FY06 at 52% are comparable with the gross profit margins in Q1 FY06. However, compared to Q2 FY05, gross profit margins on total revenues at 52% as against 55% in Q2 FY05. This decline in gross margins is on account of decrease in contribution of revenues from North America Generics to the total revenues.

--Investments in R&D at 8% of total revenues as against 12% in Q2 FY05. R&D investments for Q2 FY06 decrease by 29% to Rs 444 million from Rs 627 million in Q2 FY05. During the quarter, the Company recognized Rs 155 million as income under the R&D partnership deal with ICICI Venture. Excluding this benefit, R&D investments decreased by Rs 28 million. This decrease is on account of lower bio-study expenses in Generics.

--Selling, General & Administration (SG&A) expenses increased by 2% to Rs 1,768 million. As a % to revenues, SG&A expenses are at 30% of total revenues as against 32% in Q2 FY05.

--Other income (net) increased to Rs 169 million from Rs 137 million in Q2 FY05. This includes net interest income of Rs 140 million.

--Depreciation for the quarter was at Rs 279 million as against Rs 238 million for Q2 FY05.

--Net income at Rs 890 million (15% of total revenues) as against Rs 517 million (10% of total revenues) in Q2 FY05. This translates to a diluted EPS of Rs 11.61 as against Rs 6.75 in Q2 FY05.

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 Q2 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.