We have audited the attached Balance Sheet of Dr. Reddy''s Laboratories
 Limited (the Company) as at 31 March 2012, the Statement of Profit
 and Loss and the Cash Flow Statement of the Company for the year ended
 on that date, annexed thereto. These financial statements are the
 responsibility of the Company''s management. Our responsibility is to
 express an opinion on these financial statements based on our audit.
 
 We conducted our audit in accordance with auditing standards generally
 accepted in India. Those Standards require that we plan and perform the
 audit to obtain reasonable assurance about whether the financial
 statements are free of material misstatement. An audit includes
 examining, on a test basis, evidence supporting the amounts and
 disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 As required by the Companies (Auditor''s Report) Order, 2003 (''the
 Order''), as amended, issued by the Central Government of India in terms
 of sub-section (4A) of Section 227 of the Companies Act, 1956, we
 enclose in the Annexure a statement on the matters specified in
 paragraphs 4 and 5 of the said Order.
 
 Further to our comments in the Annexure referred to above, we report
 that:
 
 (a) we have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purpose of our
 audit;
 
 (b) in our opinion, proper books of account as required by law have
 been kept by the Company so far as appears from our examination of
 those books;
 
 (c) the Balance Sheet, the Statement of Profit and Loss and the Cash
 Flow Statement dealt with by this report are in agreement with the
 books of account;
 
 (d) in our opinion, the Balance Sheet, the Statement of Profit and Loss
 and the Cash Flow Statement dealt with by this report comply with the
 accounting standards referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956, to the extent applicable;
 
 (e) on the basis of written representations received from the
 directors, and taken on record by the Board of Directors, we report
 that none of the directors are disqualified as at 31 March 2012 from
 being appointed as a director in terms of clause (g) of sub-section (1)
 of Section 274 of the Companies Act, 1956; and
 
 (f) in our opinion and to the best of our information and according to
 the explanations given to us, the said accounts give the information
 required by the Companies Act, 1956, in the manner so required and give
 a true and fair view in conformity with the accounting principles
 generally accepted in India:
 
 (i) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31 March 2012;
 
 (ii) in the case of the Statement of Profit and Loss, of the profit of
 the Company for the year ended on that date; and
 
 (iii) in the case of Cash Flow Statement, of the cash flows of the
 Company for the year ended on that date.
 
 The Annexure referred to in the auditors'' report to the members of Dr.
 Reddy''s Laboratories Limited (the Company) for the year ended 31
 March 2012.  We report that:
 
 i.  (a) The Company has maintained proper records showing full
 particulars, including quantitative details and situation of fixed
 assets. The Company has a regular Programme of physical verification of
 its fixed assets by which all fixed assets are verified in a phased
 manner over a period of 3 years.  In our opinion, this periodicity of
 physical verification is reasonable having regard to the size of the
 Company and the nature of its assets.  No material discrepancies were
 noticed on such verification.
 
 (b) Fixed assets disposed off during the year were not substantial and
 therefore do not affect the going concern assumption.
 
 ii.  (a) Inventories, except goods-in-transit and stocks lying with
 third parties, has been physically verified by the management during
 the year. In our opinion, the frequency of such verification is
 reasonable. For stocks lying with third parties at the year-end,
 written confirmations have been obtained.
 
 (b) In our opinion, the procedures of physical verification of
 inventories followed by the management are reasonable and adequate in
 relation to the size of the Company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory. The
 discrepancies noticed on verification between the physical stocks and
 the book records were not material.
 
 iii. (a) The Company has granted loans to eleven companies (of which
 five loans are interest free) covered in the register maintained under
 Section 301 of the Companies Act, 1956. The maximum amount outstanding
 during the year was '' 9,328 millions and the year-end balance of such
 loans was '' 5,851 millions.
 
 (b) In our opinion, the rate of interest and other terms and conditions
 on which loans have been granted to companies, firms or other parties
 listed in the register maintained under Section 301 of the Companies
 Act, 1956 are not, prima facie, prejudicial to the interest of the
 Company.
 
 (c) In the case of loans granted to companies, firms or other parties
 listed in the register maintained under Section 301, where stipulations
 have been made, the borrowers have been regular in repaying the
 principal amounts as stipulated and in the payment of interest.
 
 (d) There is no overdue amount of more than '' one lakh in respect of
 loans granted to any of the companies, firms or other parties listed in
 the register maintained under Section 301 of the Companies Act, 1956.
 
 (e) The Company has not taken loans secured or unsecured from any
 companies, firms and other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956.
 
 iv.  In our opinion and according to the information and explanations
 given to us, and having regard to the explanation that purchases of
 certain items of inventories are for the Company''s specialized
 requirements and similarly certain goods sold are for the specialized
 requirements of the buyers and suitable alternative sources are not
 available to obtain comparable quotations, there is an adequate
 internal control system commensurate with the size of the Company and
 the nature of its business with regard to purchase of inventories and
 fixed assets and with regard to the sale of goods and services. We have
 not observed any major weakness in the internal control system during
 the course of the audit.
 
 v.  (a) In our opinion and according to the information and
 explanations given to us, the particulars of contracts or arrangements
 referred to in Section 301 of the Companies Act, 1956 have been entered
 in the register required to be maintained under that section.
 
 (b) In our opinion, and according to the information and explanations
 given to us, the transactions made in pursuance of contracts and
 arrangements referred to in point (a) above and exceeding the value of
 '' 5 lakh with any party during the year, have been made at prices which
 are reasonable having regard to the prevailing market prices at the
 relevant time except for the purchases of certain items of inventories
 which are for Company''s specialized requirements and similarly for sale
 of certain goods for the specialized requirements of the buyers and for
 which suitable alternative sources are not available to obtain
 comparable quotations. However, on the basis of information and
 explanations provided, the same appear reasonable.
 
 vi.  In our opinion, and according to the information and explanations
 given to us, the Company has complied with the provisions of Section
 58A, Section 58AA or other relevant provisions of the Companies Act,
 1956 and the rules framed thereunder/the directives issued by the
 Reserve Bank of India (as applicable) with regard to deposits accepted
 from the public. Accordingly, there have been no proceedings before the
 Company Law Board or National Company Law Tribunal (as applicable) or
 Reserve Bank of India or any Court or any other Tribunal in this matter
 and no order has been passed by any of the aforesaid authorities.
 
 vii. In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 viii.  We have broadly reviewed the books of account maintained by the
 Company pursuant to the rules prescribed by the Central Government for
 maintenance of cost records under Section 209(1) (d) of the Companies
 Act, 1956, and are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained. However, we have
 not made a detailed examination of the records.
 
 ix.  (a) According to the information and explanations given to us and
 on the basis of our examination of the records of the Company, amounts
 deducted/accrued in the books of account in respect of undisputed
 statutory dues including Provident Fund, Investor Education and
 Protection Fund, Employees'' State Insurance, Income tax, Sales tax,
 Wealth tax, Service tax, Customs duty, Excise duty and other material
 statutory dues have been generally regularly deposited during the year
 by the Company with the appropriate authorities.
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of Provident Fund, Investor
 Education and Protection Fund, Employees'' State Insurance, Income tax,
 Sales tax, Wealth tax, Service tax, Customs duty, Excise duty and other
 material statutory dues were in arrears as at 31 March 2012 for a
 period of more than six months from the date they became payable.
 
 (c) According to the information and explanations given to us, the dues
 set out in Appendix 1 in respect of Income tax, Sales tax, Service tax,
 Customs duty and Excise duty have not been deposited with the
 appropriate authorities on account of disputes.
 
 x.  The Company does not have any accumulated losses at the end of the
 financial year and has not incurred cash losses during the financial
 year and in the immediately preceding financial year.
 
 xi.  In our opinion and according to the information and explanations
 given to us, the Company has not defaulted in repayment of dues to its
 bankers or to any financial institutions or to debenture holders.
 
 xii. The Company has not granted loans and advances on the basis of
 security by way of pledge of shares, debentures and other securities.
 
 xiii.  In our opinion and according to the information and explanations
 given to us, the Company is not a chit fund/nidhi/mutual fund/society.
 
 xiv According to the information and explanations given to us, the
 Company is not dealing or trading in shares, securities, debentures and
 other investments. Accordingly, clause 4(xiv) of the Order is not
 applicable.
 
 xv In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the Company has given
 guarantees for loans taken by others from banks or financial
 institutions are not prejudicial to the interests of the Company.
 
 xvi. In our opinion and according to the information and explanations
 given to us, the term loans taken by the company have been applied for
 the purpose for which they were raised.
 
 xvii.  According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we are of
 the opinion that no funds raised on short-term basis have been used for
 long term investment.
 
 xviii.  The Company has not made any preferential allotment of shares
 to companies, firms or parties covered in the register maintained under
 Section 301 of the Companies Act, 1956.
 
 xix. During the previous year ended 31 March 2011, the Company had
 issued unsecured debentures in accordance with the scheme of
 arrangement approved by the High Court of Andhra Pradesh, India.
 Accordingly, no security or charge in respect of such debentures has
 been created.
 
 xx.  During the year, the Company has not raised any money through
 public issue.
 
 xxi. According to the information and explanations given to us, no
 material fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
    
                                                         PERIOD TO 
                                                         WHICH THE
 NAME OF THE 
 STATUTE        NATURE OF 
                THE DUES     AMOUNT IN    FORUM WHERE 
                                          PENDING        AMOUNT RELATES
                             RS MILLIONS                 VARIOUS YEARS
                                                         COVERING THE 
                                                         PERIOD
 
 Income Tax 
 Act, 1961      Income tax        38.6    High Court, 
                                          Andhra Pradesh    1991-1995
 
                                 179.4    Commissioner 
                                          Appeals           1999-2007
 
                                 505.2    Income Tax
                                          Appellate
                                          Tribunal          1993-2008
 
 Customs 
 Act, 1962      Duty               8.9    Additional 
                                          Commissioner 
                                          of Central 
                                          Excise            2007-2008
 
                Duty              22.5    Assistant
                                          Commissioner 
                                          of Central 
                                          Excise            2006-2010
 
                Duty and 
                excess DEPB       11.2    CESTAT, 
                                          Bangalore         2003-2007
 
                Duty               0.3    Commissioner 
                                          of Central 
                                          Excise            2003-2004
 
                Duty               0.2    Deputy 
                                          Commissioner 
                                          of Central 
                                          Excise            2008-2009
 
                Duty and penalty  34.0    Supreme Court
                                          of India          1992-2011
 
 Central 
 Excise 
 Act, 1944      Duty              46.0    Additional
                                          Commissioner      2004-2012
 
                Duty               5.5    Assistant 
                                          Commissioner
                                          of Central 
                                          Excise            1999-2012
 
                Duty and 
                interest          38.7    CESTAT            1998-2008
 
                Duty             725.2    Commissioner of 
                                          Central Excise    1999-2012
 
                Duty               0.0    Deputy 
                                          Commissioner of
                                          Central Excise    2009-2010
 
                Duty              35.3    High Court of 
                                          A.P.              2003-2008
 
 Finance 
 Act, 1994      CENVAT Credit 
                of Service 
                Tax & Service
                Tax               36.8    Additional
                                          Commissioner      2006-11
 
                CENVAT Credit 
                of Service Tax     8.3    Assistant
                                          Commissioner      2006-11
 
                CENVAT Credit 
                of Service Tax   115.7    CESTAT            2006-09
 
                CENVAT Credit 
                of Service Tax 
                & Service Tax    182.6    Commissioner      2006-12
 
                                          Commissioner of
                                          Central Excise,
                                          Customs &
                CENVAT Credit 
                of Service Tax     0.2                      2008-09
                                          Service Tax 
                                         (Appeals)
 
                CENVAT Credit 
                of Service Tax 
                & Service tax      1.5    Deputy 
                                          Commissioner      2009-11
 
                CENVAT Credit 
                of Service Tax    13.3    High Court of 
                                          Andhra Pradesh    2004-08
 
 Andhra Pradesh 
 Value Added 
 Tax Act, 2005  Tax               65.9    Appellate 
                                          Tribunal          2006-07 to 
                                                            2008-09
 
 Andhra Pradesh 
 Value Added 
 Tax Act, 2005  Tax & Penalty      1.5    Appellate
                                          Deputy 
                                          Commissioner      2010-11
 
 Andhra Pradesh
 Value Added 
 Tax Act, 2006  Tax               31.4    Appellate 
                                          Deputy
                                          Commissioner      2010-11
 
 Andhra Pradesh 
 Central Sales
 Tax Act, 1956  Tax                9.8    Sales Tax 
                                          Tribunal          2003-08
 
 Andhra Pradesh 
 General Sales 
 Tax Act, 1957  Penalty            0.3    Sales Tax
                                          Tribunal          2002-03
 
 Andhra Pradesh 
 Value Added 
 Tax Act, 2005  Tax                0.4    Sales Tax 
                                          Tribunal          2005-09
 
 Gujarat 
 Central Sales 
 Tax Act, 1969 
 (API)          Tax & Penalty       7.6   Sales Tax
                                          Tribunal          2002-06
 
 Andhra Pradesh 
 Value Added 
 Tax Act, 2005  Tax & Penalty      40.6   Appellate
                                          Tribunal          2005-11
 
 Himachal 
 Pradesh 
 Central Sales 
 Tax Act        Tax                 2.0   High Court        2006-07 &
                                                            2007-08
 
 Gujarat 
 Central 
 Sales Tax 
 Act, 1969 
 (API)          Penalty             0.4   Appellate 
                                          Deputy
                                          commissioner      2006-07
 
 Andhra 
 Pradesh 
 Value Added 
 Tax Act, 2007  Penalty             3.1   Appellate
                                          Deputy
                                          Commissioner      2010-11
 
 West Bengal
 Sales Tax 
 Act, 1994 
 GST            Tax                 0.2   Appellate 
                                          Deputy
                                          Commissioner      2006-07
 
 Bihar (PATNA) 
 Commercial 
 Taxes (Spl., 
 Circle)        Tax                 1.2   Appellate Deputy
                                          Commissioner      2010-11
 
 Out of the total disputed dues, an amount of Rs 160 million has been
 paid under protest for sales tax related matters, Rs 7.5 million has
 been paid under protest for service tax related matters, Rs 18 million
 has been paid for customs related matters, Rs 11 million has been paid
 for excise related matters.
 
 
 for B S R & Co.
 
 Chartered Accountants
 
 Firm Registration No.: 101248W
 
 Natrajh Ramakrishna
 
 Partner
 
 Membership No.: 032815
 
 Place : Hyderabad
 
 Date : 11 May 2012