(a) Terms/rights attached to equity shares
The company has only one class of equity shares having a par value of Rs
5/- per share. Each holder of equity shares is entitled to one vote per
share. The company declares and pays dividends in Indian rupees. The
dividend proposed by the Board of Directors is subject to the approval
of the shareholders in the ensuing Annual General Meeting. During the
year ended 31 March 2012, the amount of per share dividend recognized
as distributions to equity shareholders is Rs 13.75 (31 March 2011: Rs
(b) 654,156 (previous year : 718,161) stock options are outstanding to
be issued by the Company on exercise of the vested stock options in
accordance with the terms of exercise under the Dr. Reddy''s Employees
Stock Option Plan, 2002 and 117,899 (previous year : 124,559) stock
options are outstanding to be issued by the Company on exercise of the
vested stock options in accordance with the terms of exercise under the
Dr. Reddy''s Employees ADR Stock Option Plan 2007.
(c) Represents 200 (previous year: 200) equity shares of Rs 5/- each,
amount paid-up Rs 500/- (rounded off in millions in the note above)
forfeited due to non-payment of allotment money.
(d) The foreign currency translation reserve comprises exchange
difference on loans and advances that in substance form part of net
investment in Lacock Holdings Limited, Cyprus (Lacock) (till 23 August
2011) and Industrias Quimicas Falcon de Mexico, S.A.de.C.V (Mexico),
non-integral foreign operations as defined in Accounting Standard (AS)
- 11 (Revised 2003) on Accounting for the Effects of Changes in
foreign Exchange Rates. These exchange differences will be
recognised in the statement of profit and loss in the event of disposal
of such net investments.
(e) Finance lease obligations represent present value of minimum lease
rentals payable for the vehicles leased by the Company. Amount is
repayable in monthly instalment, with the last instalments due on 15
(f) Bonus debentures are redeemable at the end of 36 months from the
initial date of issuance (24 March 2011). The interest is payable at
the end of 12, 24 and 36 months from the initial date of issuance.
(refer note 2.40)
(g) Sales tax deferment loan is repayable in 10 instalments, with the
last instalment due on 31 March 2019.
(h) Packing Credit loans for the current year comprised of Foreign
Currency Packing Credit loans carrying interest rates of LIBOR plus 100
-150 bps or fixed rate of 2.21%-3.06% per annum and are repayable
within 1 to 6 months from the date of drawdown. Packing Credit loans
for the previous year comprised of Foreign Currency Packing Credit
loans carrying interest rates of LIBOR plus 52 - 80 bps or fixed rate
of interest of 1.120% - 2.085% per annum and are repayable within 1 to
6 months from the date of drawdown. Further, previous year loans
included a Rupee packing credit loan taken from State Bank of India
carrying interest rate of 8.75% per annum with a term of 6 months.
(i) Bank overdraft is Nil for current year. Bank overdraft in the
previous year was on current accounts with various banks carrying
interest rates of 10.50% to 12.00% per annum.
* Unclaimed amounts are transferred to Investor Protection and
Education Fund after seven years from the due date.
(j) Finance lease obligations represent present value of minimum lease
rentals payable before 31 March 2013 for the vehicles and other assets
leased by the Company.
(k) The figures reflected for Sales tax deferment loan are for
instalments payable before 31 March 2013.
(l) The principal amount paid and that remaining unpaid as at 31 March
2012 in respect of enterprises covered under the Micro, Small and
Medium Enterprises Development Act, 2006 (MSMDA) are Rs 3,405
(previous year: Rs 2,215) and Rs 1 (previous year: Rs 218) respectively.
The interest amount computed based on the provisions under Section 16
of the MSMDA Rs 0.03 (previous year: Rs 12) is remaining unpaid as of 31
March 2012. The interest that remained unpaid as at 31 March 2011 was
paid to the extent of Rs 12 during the current year.
(m) The amount of interest due and payable for the period of delay in
making payment (which have been paid but beyond the appointed day
during the year) but without adding the interest specified under this
Act is Rs Nil (previous year: Rs Nil).
(n) The list of undertakings covered under MSMDA was determined by the
Company on the basis of information available with the Company and has
been relied upon by the auditors.
(o) In respect of shares of State Bank of India, the share certificates
were misplaced during transfer/lost in transit. The Company has
initiated necessary legal action at the appropriate courts.
(p) Shares held in Kunshan Rotam Reddy Pharmaceutical Co. Limited,
China (Reddy Kunshan), OOO JV Reddy Biomed Limited, Russia, OOO Dr.
Reddy''s Laboratories Limited, Russia, Dr.Reddy''s Laboratories ILAC
TICARET Limited SIRKETI, Turkey and Biomed Russia Limited, Russia are
not denominated in number of shares as per the laws of the respective
(q) Represents equity shares of Dr.Reddy''s Laboratories ILAC TICARET
Limited SIRKETI, Turkey amounting to Rs 161 thousands (previous year: Rs
161 thousands) (rounded off in millions in the note above).
(r) Represents 20,250 (previous year: 20,000) equity shares of Rs 10/-
each of Shivalik Solid Waste Management Limited, India amounting to Rs
202 thousands (previous year: Rs 200 thousands) (rounded off in millions
in the note above).
(s) Represents Nil (previous year: 9,999) ordinary shares of Macred
India Private Limited, India amounting to Rs Nil (previous year: Rs 100
thousands) (rounded off in millions in the note above). During the
previous year ended 31 March 2011, the Company had sold 80% of its
stake in Macred India Private Limited and accordingly was classified as
an associate. Further, during the current year ended 31 March 2012, the
Company has sold the balance 20% stake in Macred India Private Limited.
(t) During the previous year ended 31 March 2011, the Company had
converted its advance to Dr. Reddy''s Farmaceutica Do Brasil Ltda,
Brazil to equity and a corresponding provision of Rs 499 for decline
other than temporary, in the value of long term investment. Further,
the Company had provided Rs 58 for decline other than temporary, in the
value of investment of Reddy Pharmaceuticals Hong Kong Limited, Hong
Kong and Rs 2 had been written off on dissolution of partnership in
Globe Enterprises, India.
(v) During the current year ended 31 March 2012, there have been
certain significant changes in the German generics market which are
likely to cause an adverse impact on the price realization of some of
the company''s products. Pursuant to such adverse market developments,
the Company has created a provision of Rs 2,100 for diminution, other
than temporary, in value of long term investments in Lacock Holdings
Limited, a wholly owned subsidiary of the company. Further, an amount
of Rs 175 representing a provision created in earlier years for decline
in the long-term investment in Kunshan Rotam Reddy Pharmaceutical Co.
Limited, a joint venture company, was reversed owing to its improved
1. : COMMITMENTS AND CONTINGENT LIABILITIES
AS AT AS AT
2012 31 MARCH
i) Commitments / contingent liabilities:
(a) Guarantees issued by banks 154 119
(b) Guarantees issued by the Company on
behalf of subsidiaries, associates and
joint venture 17,039 11,070
(c) Letters of credit outstanding 714 437
(d) Contingent consideration payable in
respect of subsidiaries acquired - 12
ii) Claims against the Company not
acknowledged as debts in respect of:
(a) Income tax matters, pending decisions
on various appeals made by the Company and
by the Department 432 431
(b) Excise matters (including service
tax), under dispute 250 127
(c) Custom matters, under dispute - 97
(d) Sales tax matters, under dispute 237 170
(e) The Company has received demand for payment to the credit of the
Drug Prices Equalisation Account under Drugs (Price Control) Order,
1995 for few of its products which are being contested. Based on its
best estimate, the Company has made a provision in its books of
accounts towards the potential liability related to the principal and
interest amount demanded under the aforesaid order and believes that
possibility of any liability that may arise on account of penalty on
this demand is remote.
2. : RELATED PARTY DISCLOSURES
a. Related parties where control exists or where significant influence
exists and with whom transactions have taken place during the current
and previous year:
Subsidiaries including step down subsidiaries
1. DRL Investments Limited, India;
2. Reddy Pharmaceuticals Hong Kong Limited, Hong Kong;
3. OOO Alfa, Russia (formerly OOO JV Reddy Biomed Limited);
4. Reddy Antilles N.V, Netherlands;
5. Reddy Netherlands BV, Netherlands;
6. Reddy US Therapeutics Inc., USA;
7. Dr. Reddy''s Laboratories Inc., USA;
8. Reddy Cheminor S.A., France;
9. Dr. Reddy''s Farmaceutica Do brasil Ltda., brazil;
10. Cheminor Investments Limited, India;
11. Aurigene Discovery Technologies Limited, India;
12. Aurigene Discovery Technologies Inc., USA;
13. Dr. Reddy''s Laboratories (EU) Limited, UK;
14. Dr. Reddy''s Laboratories (UK) Limited, UK;
15. Dr. Reddy''s Laboratories (Proprietary) Limited, South Africa;
16. OOO Dr. Reddy''s Laboratories Limited, Russia;
17. Promius Pharma LLC (formerly Reddy Pharmaceuticals LLC, USA);
18. Dr. Reddy''s bio-sciences Limited, India;
19. Globe Enterprises (a partnership firm in India) (dissolved on 1
20. Trigenesis Therapeutics Inc., USA;
21. Industrias Quimicas Falcon de Mexico, SA.de.C.V, Mexico;
22. betapharm Arzneimittel GmbH, Germany;
23. beta Healthcare Solutions GmbH, Germany;
24. beta institute fur sozialmedizinische Forschung und Entwicklung
25. Reddy Holding GmbH, Germany;
26. Lacock Holdings Limited, Cyprus;
27. Reddy Pharma Iberia SA, Spain;
28. Reddy Pharma Italia SPA, Italy;
29. Dr. Reddy''s Laboratories (Australia) Pty. Limited, Australia;
30. Dr. Reddy''s Laboratories SA, Switzerland;
31. Eurobridge Consulting B.V, Netherlands;
32. OOO DRS LLC, Russia;
33. Aurigene Discovery Technologies (Malaysia) Sdn Bhd;
34. Dr. Reddy''s New Zealand Limited, New Zealand (formerly Affordable
Health Care Limited);
35. Dr. Reddy''s Laboratories ILAC TICARET Limited SIRKETI, Turkey;
36. Dr. Reddy''s SRL, Italy (formerly Jet Generici SRL);
37. Dr. Reddy''s Laboratories Lousiana LLC, USA;
38. Chirotech Technology Limited, UK;
39. Dr. Reddy''s Pharma SEZ Limited, India;
40. Dr. Reddy''s Laboratories International SA, Switzerland;
41. Idea2Enterprises (India) Private Limited, India (from 30 June
42. Dr. Reddy''s Laboratories Romania SRL, Romania (from 7 June 2010);
43. I-Ven Pharma Capital Limited, India (from 6 October 2010);
44. Dr. Reddy''s Laboratories Tennessee, LLC, USA (from 7 October
45. Dr. Reddy''s Venezuela, C.A., Venezuela (from 20 October 2010);
46. Macred India Private Limited, India (till 18 July 2010);
47. Dr. Reddy''s Laboratories (Canada) Inc, Canada (from 11 June 2010)
48. Dr. Reddy''s Laboratories New York, Inc, USA (from 24 May 2011);
49. Dr. Reddy''s Laboratories, LLC Ukraine (from 11 May 2011)
3. EMPLOYEE STOCK OPTION SCHEME
Dr. Reddy''s Employees Stock Option Plan-2002 (the DRL 2002 Plan): The
Company instituted the DRL 2002 Plan for all eligible employees in
pursuance of the special resolution approved by the shareholders in the
Annual General Meeting held on 24 September 2001. The DRL 2002 Plan
covers all employees of DRL and its subsidiaries and directors
(excluding promoter directors) of DRL and its subsidiaries
(collectively, eligible employees). Under the Scheme, the
Compensation Committee of the Board (''the Committee'') shall administer
the Scheme and grant stock options to eligible directors and employees
of the Company and its subsidiaries. The Committee shall determine the
employees eligible for receiving the options, the number of options to
be granted, the exercise price, the vesting period and the exercise
period. The vesting period is determined for the options issued on the
date of the grant. The options issued under the DRL 2002 plan vests in
periods ranging between one and four years and generally have a maximum
contractual term of five years.
The DRL 2002 Plan was amended on 28 July 2004 at the Annual General
Meeting of shareholders to provide for stock options grants in two
Category A: 1,721,700 stock options out of the total of 2,295,478
reserved for grant of options having an exercise price equal to the
fair market value of the underlying equity shares on the date of grant;
category B: 573,778 stock options out of the total of 2,295,478
reserved for grant of options having an exercise price equal to the par
value of the underlying equity shares (i.e., Rs 5/- per option).
The DRL 2002 Plan was further amended on 27 July 2005 at the Annual
General Meeting of shareholders to provide for stock option grants in
category a: 300,000 stock options out of the total of 2,295,478
reserved for grant of options having an exercise price equal to the
fair market value of the underlying equity shares on the date of grant;
category B: 1,995,478 stock options out of the total of 2,295,478
reserved for grant of options having exercise price equal to the par
value of the underlying equity shares (i.e., Rs 5/- per option).
The fair market value of a share on each grant date falling under
Category A above is defined as the average closing price (after
adjustment of Bonus issue) for 30 days prior to the grant, in the stock
exchange where there is highest trading volume during that period.
Notwithstanding the foregoing, the Compensation Committee may, after
getting the approval of the shareholders in the Annual General Meeting,
grant options with a per share exercise price other than fair market
value and par value of the equity shares.
As the number of shares that an individual employee is entitled to
receive and the price of the option are known at the grant date, the
scheme is considered as a fixed grant.
In the case of termination of employment, all unvested options would
stand cancelled. Options that have vested but have not been exercised
can be exercised within the time prescribed under each option agreement
by the Committee or if no time limit is prescribed, within three months
of the date of employment termination, failing which they would stand
During the current year, the Company under the DRL 2002 Plan has issued
262,520 category B options to eligible employees. The vesting period
for the options granted varies from 12 to 48 months.
The Company instituted the DRL 2007 Plan for all eligible employees in
pursuance of the special resolution approved by the shareholders in the
Annual General Meeting held on 27 July 2005. The DRL 2007 Plan came
into effect on approval of the board of Directors on 22 January 2007.
The DRL 2007 Plan covers all employees of DRL and its subsidiaries and
directors (excluding promoter directors) of DRL and its subsidiaries
(collectively, eligible employees). Under the DRL 2007 Plan, the
Compensation Committee of the Board (the Compensation Committee)
shall administer the DRL 2007 Plan and grant stock options to eligible
employees of the Company and its subsidiaries. The Compensation
Committee shall determine the employees eligible for receiving the
options, the number of options to be granted, the exercise price, the
vesting period and the exercise period. The vesting period is
determined for all options issued on the date of the grant. The options
issued under the DRL 2007 plan vest in periods ranging between one and
four years and generally have a maximum contractual term of five years.
During the current year, the Company under the DRL 2007 Plan has issued
56,060 options to eligible employees. The vesting period for the
options granted varies from 12 to 48 months.
4. : hedges of foreign currency risks and derivative financial
The Company is exposed to exchange rate risk which arises from its
foreign exchange revenues and expenses, primarily in U.S. dollars,
british pound sterling, Russian roubles and Euros, and foreign currency
debt in U.S. dollars, Russian roubles and Euros.
The Company uses forward contracts and option contracts (derivatives)
to mitigate its risk of changes in foreign currency exchange rates.
Further, the Company uses non-derivative financial instruments as part
of its foreign currency exposure risk mitigation strategy.
During the previous year ended 31 March 2011, the Company adopted the
Accounting Standard (AS)-32 Financial Instruments: Disclosures as
issued by ICAI, to the extent that the adoption does not conflict with
existing mandatory accounting standards and other authoritative
pronouncements, Company law and other regulatory requirements. The
objective of this standard is to provide information relating to
various financial instruments that the Company holds along with the
nature and extent of risks arising from financial instruments to which
the Company is exposed to. Further, the standard requires disclosure
for the risk management strategies that management adopts to address
the specific risk factors to the extent they are considered to be
Hedges of highly probable forecasted transactions
The Company classifies its derivative contracts that hedge foreign
currency risk associated with highly probable forecasted transactions
as cash flow hedges and measures them at fair value. The effective
portion of such cash flow hedges is recorded as part of reserves and
surplus within the Company''s hedging reserve, and re-classified in
the statement of profit and loss as revenue in the period corresponding
to the occurrence of the forecasted transactions. The ineffective
portion is immediately recorded in the statement of profit and loss.
The Company also designates certain non-derivative financial
liabilities, such as foreign currency borrowings from banks, as hedging
instruments for the hedge of foreign currency risk associated with
highly probable forecasted transactions and, accordingly, applies cash
flow hedge accounting for such relationships. Re-measurement gain /
loss on such non-derivative financial liabilities is recorded as part
of reserves and surplus within the Company''s hedging reserve, and
re-classified in the statement of profit and loss as revenue in the
period corresponding to the occurrence of the forecasted transactions.
In respect of the aforesaid hedges of highly probable forecasted
transactions, the Company has recorded, in reserves and surplus, a net
loss of Rs 28 and a net loss of Rs 242 for the years ended 31 March 2012
and 2011, respectively. The Company also recorded, as part of revenue,
a net loss of Rs 344 and a net gain of Rs 263 during the years ended 31
March 2012 and 2011, respectively.
The net carrying amount of the Company''s hedging reserve was a loss
of Rs 3 as at 31 March 2012, as compared to a gain of Rs 25 as at 31
5. : HEDGES OF FOREIGN CURRENCY RiSKS AND DERIVATIVE FINANVIAL
Hedges of recognized assets and liabilities
Changes in the fair value of derivative contracts that economically
hedge monetary assets and liabilities in foreign currencies and for
which no hedge accounting is applied are recognized in the statement of
profit and loss. The changes in fair value of such derivative contracts
as well as the foreign exchange gains and losses relating to the
monetary items are recognized as part of foreign exchange gains and
Fair values of foreign exchange derivative contracts are determined
under the Black Scholes Merton technique by using inputs from market
observable data and other relevant terms of the contract with counter
parties which are banks or financial institutions.
In respect of the aforesaid foreign exchange derivative contracts and
the ineffective portion of the derivative contracts designated as cash
flow hedges, the Company has recorded, as part of foreign exchange
gains and losses, a net loss of Rs 1,582 and a net gain of Rs 858 for the
year ended 31 March 2012 and 2011, respectively.
6. : FINANCIAL RISK MANAGEMENT
The Company''s activities expose it to a variety of financial risks,
including market risk, credit risk and liquidity risk. The Company''s
primary risk management focus is to minimize potential adverse effects
of market risk on its financial performance. The Company''s risk
management assessment and policies and processes are established to
identify and analyze the risks faced by the Company, to set appropriate
risk limits and controls, and to monitor such risks and compliance with
the same. Risk assessment and management policies and processes are
reviewed regularly to reflect changes in market conditions and the
Company''s activities. The Board of Directors and the Audit Committee
are responsible for overseeing Company''s risk assessment and management
policies and processes.
a. Credit risk
Credit risk is the risk of financial loss to the Company if a customer
or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Company''s receivables from
customers. Credit risk is managed through credit approvals,
establishing credit limits and continuously monitoring the credit
worthiness of customers to which the Company grants credit terms in the
normal course of business. The Company establishes an allowance for
doubtful debts and impairment that represents its estimate of incurred
losses in respect of trade and other receivables and investments.
Trade and other receivables
The Company''s exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The demographics of the
customer, including the default risk of the industry and country, in
which the customer operates, also has an influence on credit risk
assessment. Credit risk is managed through credit approvals,
establishing credit limits and continuously monitoring the
creditworthiness of customers to which the Company grants credit terms
in the normal course of business. As at 31 March 2012 and 31 March 2011
the maximum exposure to credit risk in relation to trade and other
receivables is Rs 19,435 and Rs 17,705 respectively (net of allowances).
Financial assets that are neither past due nor impaired
None of the Company''s cash equivalents, including time deposits with
banks, are past due or impaired. Trade receivables amounting to Rs
16,684 and Rs 14,196 were neither past due nor impaired as at 31 March
2012 and 31 March 2011 respectively.
Loans and advances
Loans and advances are predominantly given to subsidiaries for the
purpose of working capital and capital expansions; and the Company does
not consider any significant exposure to credit risks associated with
such financial assets.
b. Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they become due. The Company manages its
liquidity risk by ensuring, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses
or risk to the Company''s reputation.
As at 31 March 2012 and 2011, the Company had unutilized credit limits
from banks of Rs 14,290 and Rs 13,089, respectively.
As at 31 March 2012, the Company had working capital of Rs 18,614
including cash and bank balances of Rs 8,490 and current investments of
Rs 2,070. As at 31 March 2011, the Company had working capital of Rs
10,490, including cash and bank balances of Rs 662.
Financial guarantees disclosed in Note 2.24 have been provided as
counter corporate guarantees to financial institutions and banks that
have extended credits and other financial assistance to the Company''s
subsidiaries. In this regard, the Company does not foresee any
significant credit risk exposure.
c. Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument may fluctuate because of change in market prices.
Market risk may arise as a result of changes in the interest rates,
foreign currency exchange rates and other market changes that affect
market risk-sensitive instruments. Market risk is attributable to all
market risk-sensitive financial instruments including foreign currency
receivables and payables and long-term debt. The Company is exposed to
market risk primarily related to foreign exchange rate risk, interest
rate risk and the market value of its investments. Thus, the Company''s
exposure to market risk is a function of investing and borrowing
activities and revenue generating and operating activities in foreign
Foreign exchange risk
The Company''s exchange risk arises from its foreign operations, foreign
currency revenues and expenses (primarily in U.S. dollars, british
pound sterling and Euros) and foreign currency borrowings (in U.S.
dollars, Euros and Roubles). A significant portion of the Company''s
revenues are in these foreign currencies, while a significant portion
of its costs are in Indian rupees. As a result, if the value of the
Indian rupee appreciates relative to these foreign currencies, the
Company''s financial performance gets adversely impacted. The exchange
rate between the Indian rupee and these foreign currencies has changed
substantially in recent periods and may continue to fluctuate
substantially in the future. Consequently, the Company uses derivative
financial instruments, such as foreign exchange forward and option
contracts, to mitigate the risk of changes in foreign currency exchange
rates in respect of its forecasted cash flows and trade receivables.
The details in respect of the outstanding foreign exchange forward and
option contracts are given in Note 2.35 above.
In respect of the Company''s derivative contracts a 10%
decrease/increase in the respective exchange rates of each of the
currencies underlying such contracts would have resulted in an
approximately Rs Nil increase/decrease in the Company''s hedging reserve
and an approximately Rs 3,870 increase/decrease in the Company''s net
profit as at 31 March 2012.
In respect of the Company''s derivative contracts and non-derivative
financial liabilities, a 10% decrease/increase in the respective
exchange rates of each of the currencies underlying such contracts
would have resulted in an approximately Rs 349 increase/decrease in the
Company''s hedging reserve and an approximately Rs 1,014
increase/decrease in the Company''s net profit as at 31 March 2011.
(1) Others includee currencies such as Russian roubles, British pound
sterlings, Australian dollars, Venezuela bolivars, etc.
For the years ended 31 March 2012 and 2011, every 10%
depreciation/appreciation in the exchange rate between the Indian rupee
and the respective currencies in the above mentioned financial
assets/liabilities would affect the Company''s net loss/profit by
approximately Rs 652 and Rs 839 respectively.
Interest rate risk
As at 31 March 2012 and 31 March 2011, the Company had foreign currency
loans of Rs 6,665 carrying a floating interest rate of LIBOR plus
100-150 bps and Rs 5,758 carrying a floating interest rate of LIBOR plus
52-80 bps respectively. Also as at 31 March 2011 the company had an INR
loan of Rs 950 carrying an interest rate of 8.75%. Since these are short
term loans, the Company does not consider any significant changes in
the interest rates and hence, has not entered into any interest rate
swaps to hedge its interest rate risk.
For the years ended 31 March 2012 and 2011, every 10% increase or
decrease in the floating interest rate component (i.e. LIBOR) of its
short-term loans from banks would affect the Company''s net loss/profit
by approximately Rs 5 and Rs 16, respectively.
The Company''s investments in time deposits with banks and short-term
liquid mutual funds are for short durations, and therefore do not
expose the Company to significant interest rates risk.
Commodity rate risk
Exposure to market risk with respect to commodity prices primarily
arises from the Company''s purchases and sales of active pharmaceutical
ingredients, including the raw material components for such active
pharmaceutical ingredients. These are commodity products, whose prices
may fluctuate significantly over short periods of time. The prices of
the Company''s raw materials generally fluctuate in line with commodity
cycles, although the prices of raw materials used in the Company''s
active pharmaceutical ingredients business are generally more volatile.
Cost of raw materials forms the largest portion of the Company''s
operating expenses. Commodity price risk exposure is evaluated and
managed through operating procedures and sourcing policies. The Company
has historically not entered into any derivative financial instruments
or futures contracts to hedge exposure to fluctuations in commodity
7. : EMPLOYEE BENEFIT PLANS
7.1 gratuity plan of dr. reddy''s laboratories limited
In accordance with applicable Indian laws, the Company provides for
gratuity, a defined benefit retirement plan (the Gratuity Plan)
covering certain categories of employees in India. The Gratuity Plan
provides a lump sum payment to vested employees at retirement or
termination of employment. The amount of payment is based on the
respective employee''s last drawn salary and the years of employment
with the Company. Effective September 1, 1999, the Company established
the Dr. Reddy''s Laboratories Gratuity Fund (the Gratuity Fund).
Liabilities in respect of the Gratuity Plan are determined by an
actuarial valuation, based upon which the Company makes contributions
to the Gratuity Fund. Trustees administer the contributions made to the
Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in
specific securities as mandated by law and generally consist of federal
and state government bonds and debt instruments of Indian
The following table sets out the status of the aforesaid funded
gratuity plan as required under AS-15 (Revised):
8. LONG SERVIVE AWARD BENEFIT PLAN of DR. REDDY''s LABORATORIES
During the year ended March 31, 2010, the Company introduced a new
post-employment unfunded defined benefit plan under which all eligible
employees of the Company who have completed the specified service
tenure with the Company would be eligible for a Long Service Cash
Award at the time of their employment separation. The amount of such
cash payment would be based on the respective employee''s last drawn
salary and the specified number of years of employment with the
Company. Accordingly the Company has valued the liability through an
discount rate: The discount rate is based on the prevailing market
yields of Indian government securities as at the balance sheet date for
the estimated term of the obligations.
Salary Escalation rate: The estimate of future salary increases
considered takes into account the inflation, seniority, promotion and
other relevant factors.
9. : DIVIDEND REMITTANCE IN FOREIGN CURRENCY
The Company does not make any direct remittances of dividends in
foreign currencies to American Depository Shares (ADS) holders. The
Company remits the equivalent of the dividends payable to the ADS
holders in Indian Rupees to the depositary bank, which is the
registered shareholder on record for all owners of the Company''s ADS.
The depositary bank purchases the foreign currencies and remits
dividends to the ADS holders.
10. : RESEARCH AND DEVELOPMENT ARRANGEMENTS
I-VEN Pharma arrangement
During the year ended 31 March 2005, the Company had entered into an
agreement with I-VEN Pharma Capital Limited (I-VEN) for the joint
development and commercialization of a portfolio of 36 generic drug
products. As per the terms of the agreement, I-VEN has a right to fund
up to 50% of the project costs (development, registration and legal
costs) related to these products and the related U.S. Abbreviated New
Drug Applications (ANDA) filed or to be filed, subject to a maximum
contribution of U.S.$ 56 millions. Upon successful commercialization of
these products, the Company is required to pay I-VEN a royalty on net
sales at agreed rates for a period of 5 years from the date of
commercialization of each product.
As per the agreement, in April 2010 and upon successful achievement of
certain performance milestones specified in the agreement (e.g.
successful commercialization of a specified number of products, and
achievement of specified sales milestones), I-VEN has a one-time right
to require the Company to pay I-VEN a portfolio termination value
amount for such portfolio of products. In the event I-VEN exercises
this portfolio termination value option, then it will not be entitled
to the sales-based royalty payment for the remaining contractual years.
The Company and I-VEN reached an agreement to settle the portfolio
termination value option available to I-VEN at a consideration of Rs
2,680 to be paid by the Company.
On 1 October 2010, the Company, DRL Investments Limited (a wholly owned
subsidiary of Dr. Reddy''s) and I-VEN entered into an agreement
regarding the medium of settlement for the portfolio termination value.
Pursuant to such an arrangement, controlling interest in I-VEN was
acquired by DRL Investments Limited; thereby making I-VEN a wholly
owned subsidiary of the Company as of 1 October 2010. In connection
with the transaction, the Company had advanced an amount of Rs 2,680 to
DRL Investments Limited out of which an amount of Rs 2,549 is
outstanding and disclosed as part of ''Long term loans and advances'' as
of 31 March 2012.
11. : ISSUANCE OF BONUS DEBENTURES
Pursuant to a scheme of arrangement sanctioned by the High Court of
Andhra Pradesh, Hyderabad, India on 19 July 2010 and subsequent
approval of the Reserve Bank of India (on 18 January 2011) and
no-objection from the Indian income-tax authorities (on 1 February
2011), the Company had, on 24 March 2011, allotted 1,015,516,392, 9.25%
Unsecured Redeemable Non-convertible Bonus Debentures (aggregating to Rs
5,078) in the ratio of 6 debentures of the face value of Rs 5 each fully
paid up for every equity share of Rs 5 each held as on the record date
i.e. 18 March 2011. The interest is payable at the end of 12, 24 and 36
months from the initial date of issuance. The bonus debentures are
redeemable at the end of 36 months from the initial date of issuance.
These debentures have been listed on the Bombay Stock Exchange Limited
and National Stock Exchange of India Limited.
In terms of the scheme, the Company delivered the aggregate value of
the debentures to an on-shore escrow account of a merchant banker
appointed by the Board of Directors. The merchant banker received the
aforesaid amount in the escrow account for and on behalf of and in
trust for the members entitled to receive the debentures as deemed
dividend within the meaning of Section 2 (22) of the Income-tax Act,
1961. The merchant banker had also immediately following the receipt of
funds in the escrow account, for and on behalf of the members, paid by
way of subscription for allotment of the requisite number of debentures
issued under the scheme.
During the previous year ended 31 March 2011, in terms of accounting
treatment set out in the scheme, the issuance of the aforesaid
debentures (with an aggregate face value of Rs 5,078) and the dividend
distribution tax paid thereon (aggregating to Rs 843) had been reflected
by transferring the corresponding amounts from the General Reserve of
the Company and the costs associated in relation to the aforesaid
scheme (primarily comprising directly attributable transaction costs
aggregating to Rs 51) had been expensed along with a corresponding
transfer from the General Reserve account.
Pursuant to the scheme and as per the requirements of the Companies
Act, 1956, the Company has also created a Debenture Redemption Reserve
aggregating to Rs 867 and Rs 19 as at 31 March 2012 and 31 March 2011
12. : PROVISION FOR OTHER THAN TEMPORARY DIMINUTION IN THE VALUE OF
LONG TERM INVESTMENTS
Investments include an investment of Rs 16,146 in Lacock Holdings
Limited, Cyprus (''Lacock''), a wholly-owned subsidiary of the Company.
The Company participates in the German generics business through
step-down subsidiaries of Lacock, i.e. Reddy Holdings GmbH and
betapharm Arzneimittel GmbH (''betapharm'').
There have been significant changes in the German generics market such
as decrease in the reference prices of products, increase in discounts
offered to State Healthcare Insurance (SHI) funds, and announcement
of a large competitive bidding sale process from several SHI funds in
Germany, and more recently in the current year with the reference price
cuts and announcement of large sales tender from other key SHI funds.
In view of the above, Management has reassessed the value attributable
to its investment in Lacock and based on future cash flows expected
from the business (in Lacock), believes that there is a decline, other
than temporary, in the value of investment. Accordingly, an amount of Rs
2,100 has been recorded as provision for diminution in the value of
investment during the year ended 31 March 2012.
In accordance with AS-17 Segment Reporting, segment information has
been given in the consolidated financial statements of Dr. Reddy''s
Laboratories Limited and therefore no separate disclosure on segment
information is given in these financial statements.
venezuela currency devaluation
The Company''s Venezuela operations are conducted as an extension of the
parent company. On 30 December 2010, the Foreign Exchange
Administration Commission of Venezuela (commonly referred to as the
CADIVI'') enacted a decree (exchange agreement No.14) to unify the
official exchange rates at a single rate of 4.3 Venezuela Bolivars
(VEB) per U.S.$ by abolishing the preferential rate of 2.6 VEB per
U.S.$ effective from 1 January 2011.
Further, on 13 January 2011, the CADIVI issued another decree to
interpret the transitional requirements for the use of the new official
exchange rate and described that if the following conditions were to be
satisfied, the use of the pre-devaluation rate of 2.6 VEB per U.S.$
would be permissible:
- For fund repatriation - to the extent the CADIVI has issued
approvals in the form of approvals of Autorizacion de Liquidacion de
Divisas (''ALD'') and which have been sent to and received by the Banco
Central de Venezuela by 31 December 2010;
- For foreign currency acquisition - to the extent the CADIVI had
issued an Authorization of Foreign Currency Acquisition (''AAD'') by 31
December 2010 and the approval relates to imports for the health and
food sectors or certain other specified purposes.
Based on the authorizations received by the Company, and in light of
the above announcements, the Company believes that it is eligible for
the usage of the preferential rate of 2.6 VEB per U.S.$ in relation to
some of its monetary items denominated in VEB as on 31 March 2011.
Accordingly, those monetary items in the Company''s Venezuelan
operations are translated into the reporting currency at the
preferential rate of 2.6 VEB per U.S.$. as at 31 March 2011.
13. : COMPARATIVE FIGURES
On applicability of revised Schedule VI from current year, the Company
has reclassified previous year figures to conform to this year''s
classification. The adoption of revised Schedule VI does not impact
recognition and measurement principles followed for preparation of the
financial statements. However, it significantly impacts presentation
and disclosures made in the financial statements, particularly
presentation of Balance Sheet.