Dr. Reddy's Reports Q3 FY06 Revenue of Rs. 5,902 Million; YoY Growth of 25%; Net Income at Rs. 628 Million.

HYDERABAD, India -- Dr. Reddy's Laboratories Ltd. (NYSE: RDY) today announced its unaudited financial results for the third quarter ended December 31, 2005.

Key highlights

--Revenues at Rs 5.9 billion, growth of 25% compared to Q3 FY05. Revenues for the first nine months of FY 06 increase by 14% to Rs 17.3 billion.

--Net profit increases to Rs 628 million from Rs 40 million in Q3 FY05. This translates to a diluted EPS of Rs 8.2 as against Rs 0.5 in Q3 FY05.

--Overall revenue growth driven by increase in revenues from Active Pharmaceutical Ingredients and Branded finished dosage businesses.

--Revenues from Active Pharmaceutical Ingredients (APIs) business increase by 48% to Rs 2.1 billion led by growth in key markets. Revenues for the first nine months of FY06 increase by 19% to Rs 6.1 billion.

--Revenues from Branded Formulations business increase by 34% to Rs 2.7 billion. This increase was led by performance of key markets of India (growth of 34%) and Russia (growth of 35%).

--Excluding one-time profit from the sale of Company's formulations plant at Goa, profit before tax and minority interest for Q3 FY06 is at Rs. 528 million compared to Rs. 11 million in Q3 FY05. The profit from the sale of Company's formulations plant in Goa, India is at Rs. 388 million.

INCOME STATEMENT FOR THE QUARTER ENDED DECEMBER 31, 2005

                  All figures in millions, except EPS
      All dollar figures based on convenience translation rate of
                            1USD = Rs 44.95

              EXTRACT FROM THE UNAUDITED INCOME STATEMENT

                        Q3 FY06            Q3 FY05
----------------------------------------------------------------------
Particulars           ($)   (Rs.)   %    ($)   (Rs.)    %    Growth %
----------------------------------------------------------------------
Product Revenues      131   5,898  100   104   4,644    99         27
----------------------------------------------------------------------
License fees            0       4    0     1      61     1        (93)
----------------------------------------------------------------------
Total Revenues        131   5,902  100   105   4,705   100         25
----------------------------------------------------------------------
Cost of revenues       65   2,911   49    50   2,246    48         30
----------------------------------------------------------------------
Gross profit           67   2,991   51    55   2,459    52         22
----------------------------------------------------------------------
Selling, General &
 Administrative
 Expenses              45   2,026   34    38   1,715    36         18
----------------------------------------------------------------------
R&D Expenses           12   516(1)   9    16     705    15        (27)
----------------------------------------------------------------------
Amortization Expenses   2      86    1     2      88     2         (2)
----------------------------------------------------------------------
Operating income
 before forex
 loss/(gain)            8     363    6    (1)    (49)   (1)         -
----------------------------------------------------------------------
Forex Loss/ (Gain)      1      29    0     1      48     1        (40)
----------------------------------------------------------------------
Operating
 income/(loss)          7     334    6    (2)    (97)   (2)         -
----------------------------------------------------------------------
Equity in loss of
 affiliates             0      (9)  (0)    0     (15)   (0)       (39)
----------------------------------------------------------------------
Other
 (expenses)/income
 net                   13     591   10     3     123     3          -
----------------------------------------------------------------------
Income before income
 taxes and minority
 interest              20     916   16   0.3      11     0          -
----------------------------------------------------------------------
Income tax
 benefit/(expense)     (6)   (287)  (5)    1      27     1          -
----------------------------------------------------------------------
Minority interest       0      (1)   0     0       2     0          -
----------------------------------------------------------------------
Net income             14     628   11     1      40     1          -
----------------------------------------------------------------------
DEPS                          8.2                0.5
----------------------------------------------------------------------
Exchange rate               44.95              44.95
----------------------------------------------------------------------
Key Balance Sheet
 Items                  Dec 05             Sep 05
----------------------------------------------------------------------
Cash and cash
 equivalents (2)      181   8,142        235  10,562
----------------------------------------------------------------------
Borrowings from banks  85   3,833         91   4,109
----------------------------------------------------------------------
Investment securities  28   1,267         17     767
----------------------------------------------------------------------
Accounts receivable
 (net)                100   4,512         97   4,356
----------------------------------------------------------------------
Inventories            98   4,383         90   4,038
----------------------------------------------------------------------
Property, plant and
 equipment (net)      156   7,021        158   7,082
----------------------------------------------------------------------

(1) Reduction of Rs 112 million under the Generics R&D partnership
    deal with ICICI Venture

(2) During the quarter, the Company paid out of its cash reserves, Rs.
    2,564 million ($ 57 million) for the acquisition of Roche's API
    business at its Mexico facility.

Active Pharmaceutical Ingredients (APIs)

--Revenues increase by 48% to Rs 2.1 billion compared to Rs 1.4 billion in Q3 FY05. Revenues for first nine months of FY06 increase by 19% to Rs 6.1 billion

--Revenues in India increase by 50% to Rs 601 million as against Rs 401 million in Q3 FY05. This growth was primarily driven by increase in sales of key products

--Revenues outside India increase by 47% to Rs 1.5 billion.

--Sales from other international markets (excluding North America and Europe) increase by 85% to Rs 745 million. This increase was driven by higher sales in key markets of Turkey, Mexico, Bangladesh and China.

--Sales from Europe increase by 78% to Rs 384 million. This growth was primarily driven by sales of montelukast, terbinafine and omeprazole pellets.

--Sales from North America decline by 6% to Rs 379 million from Rs 405 million in Q3 FY05. This decrease was primarily on account of decline in sales of ranitidine hydrochloride partially offset by higher sales of naproxen and sertraline.

--The Company filed 1 US DMF during the quarter taking the total filings to 79. In addition to this, the Company filed 2 Europe DMF's and 3 Canada PMF's

Generic Finished Dosages

--Revenues in this segment at Rs 831 million as against Rs 966 million in Q3 FY05.

--Europe contributed 42% to the total revenues and North America contributed the balance 58%.

--Revenues in Europe increase by 10% to Rs 347 million as against Rs 316 million in Q3 FY05. This growth was primarily driven by volume growth of omeprazole and amlodipine maleate. Combined revenues from omeprazole and amlodipine maleate at Rs 229 million as against Rs 138 million in Q3 FY05.

--Revenues in North America at Rs 480 million as against Rs 648 million in Q3 FY05. The pricing pressure in the U.S. Generics market continued in the third quarter for fluoxetine. During the quarter, the company launched Glimepiride, which contributed revenues of Rs 66 million.

--During the quarter, the Company filed 3 ANDAs. The Company also received approval for two ANDAs during the quarter. This takes the total ANDAs pending at the USFDA to 51.

Branded Finished Dosages - International

--Revenues at Rs 1.4 billion, an increase of 33% over Q3 FY05. This increase was primarily driven by growth in all key markets.

--Revenues in Russia increase by 35% to Rs 803 million as against Rs 595 million in Q3 FY05. This growth was driven by higher seasonal demand of Nise, Omez & Keterol during the quarter.

--Revenues in other CIS markets increase by 23% to Rs 271 million as against Rs 220 million in Q3 FY05. This increase was primarily driven by growth in markets of Ukraine and Kazakhstan.

--Revenues in Central Eastern Europe increase by 100% to Rs 74 million as against Rs 37 million in Q3 FY05. This increase was mainly on account of growth in Romania supported by special marketing campaigns.

--Revenues in other international markets increase by 26% to Rs 212 million as against Rs 169 million in Q3 FY05. This increase was primarily on account of growth in South Africa and United Arab Emirates.

Branded Finished Dosages- India

--Revenues at Rs 1.3 billion, an increase of 34% over Q3 FY05.

--This increase was led by overall growth of top 10 brands. Nise and Omez performed exceptionally well with combined revenues of Rs 344 million during the quarter compared to Rs 163 million in Q3 FY05.

Other Businesses

--Revenues in the Oncology segment increase by 25% to Rs 171 million.

--Revenues from Custom Pharmaceutical Services business decrease by 10% to Rs 101 million from Rs 113 million in Q3 FY05.

Income Statement Highlights

--Gross profit margins for Q3 FY06 at 51% compared to 52% in Q3 FY05. This decline in gross margins is primarily on account of two factors. One, is the decline in margins from North America Generics and the other is a one-time exceptional income of Rs 53 million related to DRF 2593 recorded during Q3 FY05.

--Investments in R&D at 9% of total revenues as against 15% in Q3 FY05. R&D investments for Q3 FY06 decrease by 27% to Rs 516 million from Rs 705 million in Q3 FY05. During the quarter, the Company recognized Rs 112 million as income under the R&D partnership deal with ICICI Venture. Excluding this benefit, R&D investments decrease by Rs 77 million compared to Q3 FY05. This decrease is on account of lower R&D expenses in Generics.

--Selling, General & Administration (SG&A) expenses increase by 18% to Rs 2,026 million. As a % to revenues, SG&A expenses are at 34% of total revenues as against 36% in Q3 FY05. This increase in on account of higher marketing and legal & consultancy expenses during the quarter.

--Other income (net) increase to Rs 591 million from Rs 123 million in Q3 FY05. This includes profit on sale of formulations plant located in Goa, amounting to Rs 388 million. Net interest income increase by Rs 79 million to Rs 146 million compared to Rs 67 million during Q3 FY05. This increase is on account of higher deposit base and higher average interest yields.

--Depreciation for the quarter was at Rs 286 million as against Rs 253 million for Q3 FY05.

--Net income at Rs 628 million (11% of total revenues) as against Rs 40 million (1% of total revenues) in Q3 FY05. This translates to a diluted EPS of Rs 8.19 as against Rs 0.52 in Q3 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.