UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-15182

(Exact name of Registrant as specified in its charter)

Not Applicable (Translation of Registrant’s name into English)		ANDHRA PRADESH, INDIA (Jurisdiction of incorporation or organization)

7-1-27, Ameerpet
Hyderabad, Andhra Pradesh 500 016, India
+91-40-23731946
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on which Registered
American depositary shares, each representing one equity share		New York Stock Exchange
Equity Shares*		New York Stock Exchange

* Not for trading, but only in connection with the registration of American depositary shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

76,518,949 Equity Shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 þ

 

 

Currency of Presentation and Certain Defined Terms

     In this annual report on Form 20-F, references to “$” or “U.S.$” or “dollars” or “U.S. dollars” are to the legal currency of the United States and references to “Rs.” or “rupees” or “Indian rupees” are to the legal currency of India. Our financial statements are presented in Indian rupees and translated into U.S. dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). References to “Indian GAAP” are to Indian Generally Accepted Accounting Principles. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year. References to our “ADSs” are to our American Depositary Shares.

     References to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. All references to “we,” us,” “our,” “DRL,” “Dr. Reddy’s” or the “Company” shall mean Dr. Reddy’s Laboratories Limited. “Dr. Reddy’s” is a registered trademark of Dr. Reddy’s Laboratories Limited in India. Other trademarks or trade names used in this annual report on Form 20-F are trademarks registered in the name of Dr. Reddy’s Laboratories Limited or are pending before the respective trademark registries.

     Except as otherwise stated in this report, all translations from Indian rupees to U.S. dollars are based on the noon buying rate in the City of New York on March 31, 2005, for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York, which was Rs.43.62 per $1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate.

     Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

     Information contained in our website, www.drreddys.com, is not part of this Annual Report and no portion of such information is incorporated herein.

Forward-looking and Cautionary Statement

     IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED “RISK FACTORS” AND “OPERATING AND FINANCIAL REVIEW AND PROSPECTS” AND ELSEWHERE IN THIS REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S ANALYSIS ONLY AS OF THE DATE HEREOF. IN ADDITION, READERS SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL REPORT AND IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) FROM TIME TO TIME.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

3.A. Selected financial data — summary of selected consolidated financial data

     The selected consolidated financial data should be read in conjunction with the consolidated financial statements, the related notes and operating and financial review and prospects, which are included elsewhere in this annual report. The selected consolidated statements of income data for the five years ended March 31, 2005 and selected consolidated balance sheet data as of March 31, 2001, 2002, 2003, 2004 and 2005 have been derived from our audited consolidated financial statements and related notes, which have been prepared and presented in accordance with U.S. GAAP.

		Fiscal Year Ended March 31,
		2001				2002**				2003**				2004				2005
		(Rs. in millions, U.S.$ in thousands, except share data)
																						Convenience
																						translation into
																						U.S.$
																						(unaudited)
Income Statement Data:
Product sales			Rs.10,974.8				Rs.16,408.8				Rs.18,069.8				Rs.20,081.2				Rs.19,126.2				U.S.$438,473
License fees			—				124.8				—				—				345.7				7,926
Services			—				89.1				—				—				—				—
Total revenues			10,974.8				16,622.7				18,069.8				20,081.2				19,471.9				446,399
Cost of revenues			5,735.8				6,869.0				7,847.6				9,346.1				9,385.8				215,172
Gross profit			5,239.0				9,753.7				10,222.2				10,735.1				10,086.1				231,227
Operating expenses, net:
Selling, general and administrative expenses			2,818.9				3,674.1				5,103.2				6,562.9				6,810.5				156,131
Research and development expenses, net			508.8				742.4				1,411.8				1,991.6				2,803.3				64,267
Amortization expenses			482.3				487.7				419.5				382.9				350.0				8,024
Foreign exchange (gain)/loss			(62.1	)			(209.0	)			70.1				(282.4	)			488.8				11,206
Total operating expenses			3,747.9				4,695.2				7,004.6				8,655.0				10,452.6				239,627
Operating income/(loss)			1,491.1				5,058.5				3,217.6				2,080.1				(366.5	)			(8,400	)
Equity in loss of affiliates			(31.5	)			(130.5	)			(92.1	)			(44.4	)			(58.1	)			(1,332	)
Other (expense) / income, net			(387.0	)			154.5				683.2				504.2				531.6				12,186
Income before income taxes and minority interest			1,072.6				5,082.5				3,808.7				2,540.0				107.0				2,454
Income taxes (expense)/benefit			(321.4	)			(153.8	)			(398.1	)			(69.2	)			94.3				2,161
Minority interest			(9.3	)			(14.9	)			(6.7	)			3.4				9.9				228
Net income			Rs.741.9				Rs.4,913.8				Rs.3,403.9				Rs.2,474.2				Rs.211.2				U.S.$4,843
Earnings per equity share:
Basic			Rs.11.74				Rs.64.63				Rs.44.49				Rs.32.34				Rs.2.76				U.S.$0.06
Diluted			Rs.11.74				Rs.64.53				Rs.44.49				Rs.32.32				Rs.2.76				U.S.$0.06
Weighted average number of equity shares used in computing earnings per equity share:*
Basic			63,177,560				76,027,565				76,515,948				76,513,764				76,518,949				76,518,949
Diluted			63,177,560				76,149,568				76,515,948				76,549,598				76,559,801				76,559,801
Cash dividend per share (excluding dividend tax)			Rs.1.75				Rs.7.00				Rs.2.50				Rs.5.00				Rs.5.00				U.S.$0.11

		Fiscal Year Ended March 31,
		2001				2002				2003				2004				2005
		(Rs. in millions, U.S.$ in thousands, except share data)
																						Convenience
																						translation into
																						U.S.$
																						(unaudited)
Other Data:
Net cash provided by / (used in):
Operating activities			Rs.617.1				Rs.4,652.8				Rs.4,366.7				Rs.3,999.2				Rs.2,291.6				U.S.$52,536
Investing activities			(689.4	)			(1,532.9	)			(1,954.7	)			(6,506.1	)			632.9				14,509
Financing activities			(87.7	)			1,421.8				(153	)			(376.1	)			1,931.3				44,276
Effect of exchange rate changes on cash			81.5				88.8				(95	)			(14.2	)			55.8				1,279
Expenditures on property, plant and equipment			(489.0	)			(1,090.3	)			(1,515.7	)			(2,415.6	)			(1,749.2	)			(40,100	)
Balance Sheet Data:
Cash and cash equivalents			Rs.478.9				Rs.5,109.4				Rs.7,273.4				Rs.4,376.2				Rs.9,287.9				U.S.$212,927
Working capital			795.4				9,518.6				12,023.5				11,103.3				10,770.9				246,926
Total assets			11,882.9				18,967.0				23,091.7				26,619.3				29,288.4				671,443
Total long-term debt, excluding current portion			1,003.4				47.0				40.91				31.0				25.1				576
Net Assets			5,240.5				15,457.4				18,831.8				21,039.4				20,953.2				480,357
Total stockholders’ equity			5,240.5				15,457.4				18,831.8				21,039.4				20,953.2				480,357

Exchange Rates

     The following table sets forth, for the fiscal years indicated, information concerning the number of Indian rupees for which one U.S. dollar could be exchanged based on the average of the noon buying rate in the City of New York on the last business day of each month during the period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The column titled “Average” in the table below is the average of the daily noon buying rate on the last business day of each month during the year.

Fiscal Year Ended
March 31		Period End				Average				High				Low
2001			46.85				45.88				46.90				43.70
2002			48.83				47.80				48.83				46.88
2003			47.53				48.43				49.07				47.53
2004			43.40				45.96				47.46				43.40
2005			43.62				44.86				46.45				43.27

     The following table sets forth the high and low exchange rates for the previous six months and are based on the average of the noon buying rate in the City of New York on the last business day of each month during the period for cable transfers in Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York:

Month		High				Low
February 2005			43.73				43.28
March 2005			43.70				43.44
April 2005			43.72				43.48
May 2005			43.62				43.21
June 2005			43.71				43.44
July 2005			43.59				43.05

     On August 8, 2005, the noon buying rate in the city of New York was Rs.43.44 per U.S. dollar.

3.B. Capitalization and indebtedness

     Not applicable.

3.C. Reasons for the offer and use of proceeds

     Not applicable.

3.D. Risk factors

     You should carefully consider all of the information set forth in this Form 20-F and the following risk factors that we face and that are faced by our industry. The risks below are not the only ones we face. Additional risks not currently known to us or that we presently deem immaterial may also affect our business operations. Our business, financial condition or results of operations could be materially or adversely affected by any of these risks. This Form 20-F also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere. See “Forward-Looking Statements.”

RISKS RELATING TO OUR COMPANY AND OUR BUSINESS

If our research and development efforts do not succeed, this may restrict our introduction of new products, which is critical to our business.

     Our future results of operations depend, to a significant degree, upon our ability to successfully commercialize additional products in Active Pharmaceutical Ingredients and Intermediates, Generics and Formulations, Specialty and Drug Discovery businesses. We must develop, test and manufacture generic products as well as prove that our generic products are the bio-equivalent of their branded counterparts. All of our products must meet and continue to comply with regulatory and safety standards and receive regulatory approvals; we may be forced to withdraw a product from the market if health or safety concerns arise with respect to such product. The development and commercialization process, particularly with respect to innovative products, is both time consuming and costly and involves a high degree of business risk. Our products currently under development, if and when fully developed and tested, may not perform as we expect, necessary regulatory approvals may not be obtained in a timely manner, if at all, and we may not be able to successfully and profitably produce and market such products.

     To develop our products pipeline, we commit substantial efforts, funds and other resources to research and development, both through our own dedicated resources and our collaborations with third parties. Our ongoing investments in new product launches and research and development for future products could result in higher costs without a proportionate increase in revenues. Our overall profitability depends on our ability to continue developing commercially successful products.

     Our dependence on research and development makes it highly important that we recruit and retain high quality researchers and development specialists. We commit substantial efforts and funds to this effort. Should we fail in our efforts, this could adversely affect our ability to continue developing commercially successful products and, thus, our overall profitability.

If we cannot respond adequately to the increased competition we expect to face in the future, we will lose market share and our profits will go down.

     Our products face intense competition from products commercialized or under development, by competitors in all our business segments based in India and overseas. Many of our competitors have greater financial resources and marketing capabilities than we do. Some of our competitors, especially multinational pharmaceutical companies, have greater experience than we do in clinical testing and human clinical trials of pharmaceutical products and in obtaining regulatory approvals. Our competitors may succeed in developing technologies and products that are more effective, more popular or cheaper than any we may develop or license. These developments could render our technologies and products obsolete or uncompetitive, which would harm our business and financial results. We believe some of our competitors have broader product ranges, stronger sales forces and better segment positioning than us, which enables them to compete effectively.

     Selling prices of active pharmaceutical ingredients and generic drugs typically decline, sometimes dramatically, as additional companies receive approvals for a given product and competition intensifies. To the extent that we succeed in being the first to market a generic version of a significant product, and particularly if we obtain the 180-day period of market exclusivity provided under the Hatch-Waxman Act of 1984, as amended, our sales and profit can be substantially increased in the period following the introduction of such product and prior to a competitor’s introduction of the equivalent product or the launch of an authorized generic. Our ability to sustain our sales and profitability on any product over time is dependent on both the number of new competitors for such product and the timing of their approvals.

     Our generics business is also facing increasing competition from brand-name manufacturers, who do not face any significant regulatory approvals or barriers to entry into the generics market. These brand-name companies sell generic versions of their products to the market directly or by acquiring or forming strategic alliances with our competitor generic pharmaceutical companies or by granting them rights to sell “authorized generics”. Moreover, brand-name companies continually seek new ways to delay generic introduction and decrease the impact of generic competition, such as filing new patents on drugs whose original patent protection is about to expire, developing patented controlled-release products, changing product claims and product labeling, or developing and marketing as over-the-counter products those branded products which are about to face generic competition.

If we cannot maintain our position in the Indian pharmaceutical industry in the future, we may not be able to attract co-development, outsourcing or licensing partners and may lose market share.

     In order to attract multinational corporations into co-development and licensing arrangements, it is necessary for us to maintain the position of a leading pharmaceutical company in India. Multinational corporations have been increasing their outsourcing of both active pharmaceutical ingredients and generic formulations to highly regarded companies that can produce high quality products at low cost that conform to standards set in developed markets. If we cannot maintain our current position in the market, we may not be able to attract outsourcing or licensing partners and may lose market share.

If we fail to comply fully with government regulations applicable to our research and development activities or regarding the manufacture of our products, it may delay or prevent us from developing or manufacturing our products.

     Our research and development activities are heavily regulated. If we fail to comply fully with applicable regulations, then there could be a delay in the submission or approval of potential new products for marketing approval. In addition, the submission of an application to a regulatory authority does not guarantee that a license to market the product will be granted. Each authority may impose its own requirements and/or delay or refuse to grant approval, even when a product has already been approved in another country. In the U.S., as well as many of our international markets, the approval process for a new product is complex, lengthy and expensive. The time taken to obtain approval varies by country but generally takes from six months to several years from the date of application. This registration process increases the cost to us of developing new products and increases the risk that we will not succeed in selling them successfully.

     Also, governmental authorities, including the U.S. Food and Drug Administration (“U.S. FDA”), heavily regulate the manufacture of our products. If we or our third party suppliers fail to comply fully with such regulations, then there could be a government-enforced shutdown of production facilities, which in turn could lead to product shortages. A failure to comply fully with such regulations could also lead to a delay in the approval of new products.

If there is a change in government regulations regarding the amount of revenue that we may be able to derive from a particular product, our revenues may decrease.

     Governments throughout the world heavily regulate the marketing of our products. Most countries also place restrictions on the manner and scope of permissible marketing to physicians and to other health care professionals. The effect of such regulations may be to limit the amount of revenue that we may be able to derive from a particular product. In addition, if we fail to comply fully with such regulations, then civil or criminal actions could be brought against us. In addition to normal price competition in the market place, the prices of our pharmaceutical products are restricted by price controls imposed by governments and health care providers in several countries. Price controls operate differently in different countries and can cause wide variations in prices between markets. Currency fluctuations can aggravate these differences. The existence of price controls can limit the revenues we earn from our products.

If a regulatory agency amends or withdraws existing approvals to market our products, this may cause our revenues to decline.

     Regulatory agencies may at any time reassess the safety and efficacy of our products based on new scientific knowledge or other factors. Such reassessments could result in the amendment or withdrawal of existing approvals to market our products, which in turn could result in a loss of revenue, and could serve as an inducement to bring lawsuits against us.

If we are sued by consumers for defects in our products, it could harm our reputation and thus our profits.

     Our business inherently exposes us to potential product liability. From time to time, the pharmaceutical industry has experienced difficulty in obtaining desired amounts of product liability insurance coverage. Although we have obtained product liability coverage with respect to products that we manufacture, if any product liability claim not covered by insurance or exceeding the policy limits were sustained against us, it could harm our business and financial condition. This risk is likely to increase as we develop our own new-patented products in addition to making generic versions of drugs that have been in the market for some time.

If we are unable to patent new products and processes, unable to protect our intellectual property rights or proprietary information, or if we infringe on the patents of others, our business may be adversely impacted.

     Our overall profitability depends, among other things, on our ability to continuously and timely introduce new generic as well as innovative products. Our success will depend, in part, on our ability in the future to obtain patents, protect trade secrets, intellectual property rights and other proprietary information and operate without infringing on the proprietary rights of others. Our competitors may have filed patent applications, or hold issued patents, relating to products or processes that compete with those we are developing, or their patents may impair our ability to successfully develop and commercialize new products.

     Our success with our innovative products depends, in part, on our ability to protect our current and future innovative products and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have been issued patents covering our innovative products and processes and have filed, and expect to continue to file, patent applications seeking to protect our newly developed technologies and products in various countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may even be challenged, invalidated or circumvented by competitors. In addition, such patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products.

     We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached and we will not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors or we may not be able to maintain the confidentiality of information relating to such products.

Changes in the regulatory environment may prevent us from utilizing the exclusivity periods that are important to the success of our generic products.

     The policy of the U.S. FDA regarding the award of 180 days of market exclusivity to generic manufacturers who challenge patents relating to specific products continues to be the subject of extensive litigation in the United States. The U.S. FDA’s current interpretation of the Hatch-Waxman Act of 1984 is to award 180 days of exclusivity to the first generic manufacturer who files a Paragraph IV certification under the Hatch-Waxman Act challenging the patent of the branded product, regardless of whether that generic manufacturer was sued for patent infringement.

     The Medicare Prescription Drug, Improvement and Modernization Act of 2003 amended the Hatch-Waxman Act and provides that the 180-day market exclusivity period provided under the Hatch-Waxman Act is triggered by the commercial marketing of the product. However, the Medicare Prescription Drug Act also contains forfeiture provisions, which, if met, will deprive the first Paragraph IV filer under section 505(j) of the Hatch-Waxman Act of exclusivity. As a result, under certain circumstances, we may not be able to exploit our 180-day exclusivity period since it may be forfeited prior to our being able to market the product.

     In addition, legal and administrative battles over triggering dates and shared exclusivities may also prevent us from fully utilizing the exclusivity periods.

If we are unable to defend ourselves in patent challenges, we could be subject to injunctions preventing us from selling our products, resulting in a decrease in revenues, or we could be subject to substantial liabilities that would lower our profits.

     There has been substantial patent related litigation in the pharmaceutical industry concerning the manufacture, use and sale of various products. In the normal course of business, we are regularly subject to lawsuits and the ultimate outcome of litigation could adversely affect our results of operations, financial condition and cash flow. Regardless of regulatory approval, lawsuits are periodically commenced against us with respect to alleged patent infringements by us, such suits often being triggered by our filing of an application for governmental approval, such as a new drug application. The expense of any such litigation and the resulting disruption to our business, whether or not we are successful, could harm our business. The uncertainties inherent in patent litigation make it difficult for us to predict the outcome of any such litigation.

     If we are unsuccessful in defending ourselves against these suits, we could be subject to injunctions preventing us from selling our products, resulting in a decrease in revenues, or to damages, which may be substantial. An injunction or substantial damages resulting from these suits could adversely effect our consolidated financial position, results of operations or liquidity.

If we elect to sell a generic product prior to the completion of all appellate level patent litigation, we could be subject to liabilities for damages if a lower court judgment upon which we are relying is reversed.

     At times we seek approval to market generic products before the expiration of patents for those products, based upon our belief that such patents are invalid, unenforceable, or would not be infringed by our products. As a result, we often face significant patent litigation. Depending upon a complex analysis of a variety of legal and commercial factors, if we win a lower court decision in such patent litigation, we may, in certain circumstances, elect to market a generic product even though an appeal of the lower court decision is pending. Should we elect to proceed in this manner, we could face substantial patent liability damages were a higher court to overturn the trial court’s decision.

If we do not maintain and increase our arrangements for overseas distribution of our products, our revenues and net income could decrease.

     We market our products in 86 countries. Our products are marketed in most of these countries through our subsidiaries as well as joint ventures. As we do not have the resources to market and distribute our products ourselves in all our export markets, we also market and distribute our products through third parties by way of marketing and agency arrangements. These arrangements may be terminated by either party providing the other with notice of termination or when the contract regarding the arrangement expires. We may not be able to successfully negotiate these third party arrangements or find suitable joint venture partners in the future. Any of these arrangements may not be available on commercially reasonable terms. Additionally, our marketing partners may make important marketing and other commercialization decisions with respect to products we develop without our input. As a result, many of the variables that may affect our revenues and net income are not exclusively within our control when we enter into arrangements like these.

If we fail to comply with environmental laws and regulations or face environmental litigation, our costs may increase or our revenues may decrease.

     We may incur substantial costs in compliance with requirements of environmental laws and regulations. In addition, we may discover currently unknown environmental problems or conditions. We are subject to significant Indian national and state environmental laws and regulations, which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations. If any of our plants or the operations of such plants are shut down, we may continue to incur costs in complying with regulations, appealing any decision to close our facilities, maintaining production at our existing facilities and continuing to pay labor and other costs which may continue even if the facility is closed. As a result, our overall operating expenses may increase and our profits may decrease.

Our equity shares and our ADSs may be subject to market price volatility, and the market price of our ADSs may decline disproportionately in response to adverse developments that are unrelated to our operating performance.

     Market prices for the securities of Indian pharmaceutical companies, including our own, have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as the following can have an adverse effect on the market price of our ADSs and equity shares:

°

general market conditions,

	°		speculative trading in our shares and ADSs,
	°		changes in the weight given to our shares in Stock Exchange, Mumbai (BSE) and National Stock Exchange (NSE) indices, and
	°		developments relating to our peer companies in the pharmaceutical industry.

If the world economy is affected due to terrorism or wars, it may adversely affect our business and results of operations.

     Several areas of the world have experienced terrorist acts and retaliatory operations recently. If the overall economy of the world is affected by such acts, our business and results of operations may be adversely affected as a consequence.

If we have difficulty in identifying acquisition candidates, obtaining satisfactory acquisition financing or integrating companies that we merge with or acquire, our business may be harmed.

     We may acquire or make strategic investments in complementary businesses or products, or enter into strategic partnerships or alliances with third parties in order to enhance our business. It is possible that we may not identify suitable acquisition, strategic investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us or at all. Our acquisition strategy may require us to obtain additional debt or equity financing, resulting in additional leverage, or increased debt obligations as compared to equity, and dilution of ownership. We may not be able to finance acquisitions on terms satisfactory to us. The inability to identify suitable acquisition targets or investments or the inability to complete such transactions may affect our competitiveness and our growth prospects.

     Acquisitions may involve a number of risks, including diversion of management’s attention, failure to retain key acquired personnel and clients, unanticipated events or circumstances, legal liabilities and amortization of acquired intangible assets, some or all of which could harm our results of operations and financial condition. Our inability to successfully integrate companies that we have acquired or merged with, or companies that we acquire or merge with in the future, could harm our business.

Our principal shareholders control us and, if they take actions that are not in your best interests, the value of your investment in our ADSs may be harmed.

     Our full time directors together with members of their immediate families, in the aggregate, beneficially own 26.3% of our issued shares. As a result, these people, acting in concert, are likely to have the ability to exercise significant control over most matters requiring approval by our shareholders, including the election and removal of directors and significant corporate transactions. This control by these directors and their family members could delay, defer or prevent a change in control of us, impede a merger, consolidation, takeover or other business combination involving us, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even if that was in our best interest. As a result, the value of your ADSs may be adversely affected or you might be deprived of a potential opportunity to sell your ADSs at a premium.

If we improperly handle any of the dangerous materials used in our business and accidents result, we could face significant liabilities that would lower our profits.

     We handle dangerous materials including explosive, toxic and combustible materials like sodium azide, acrolein and acetyl chloride. If improperly handled or subjected to the wrong conditions, these materials could hurt our employees and other persons, cause damage to our properties and harm the environment. This, in turn, could subject us to significant litigation, which could lower our profits in the event we were found liable.

If there is delay and/or failure in supplies of materials, services and finished goods from third parties, it may adversely affect our business and results of operations.

     In some of our key business operations, such as the manufacture, formulation and packaging of products, we rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services and maintenance services. Although we actively manage these third party relationships to ensure continuity of supplies on time and to our required specifications, some events beyond our control could result in the complete or partial

failure of supplies or in supplies not being delivered on time. Any such failure could adversely affect our results of business and results of operations.

If we do not effectively manage our operations in our foreign subsidiaries and review equity investees, these operations may incur losses or otherwise adversely affect our business and results of operations.

     Currently, we operate our business through subsidiaries and equity investees in other countries. Because of our limited experience in operating subsidiaries and reviewing equity investees outside of India, we are subject to additional risks related to our international expansion strategy, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain intermediates, drugs, technologies and multiple and possibly overlapping tax structures. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. If we do not effectively manage our operations in these subsidiaries and review equity investees effectively we may lose money in these countries and it may adversely affect our business and results of operations.

Fluctuations in exchange rates may adversely affect our business and results of operations.

     Our principal subsidiaries are located in the United States, United Kingdom and Russia and each has significant local operations. A significant portion of our revenues are in other currencies, especially the U.S. dollar, Euro and Pound sterling, while a significant portion of our costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these other currencies, our revenues will decrease.

If there is a change in tax regulations, it may increase our tax liabilities and thus adversely affect our financial results.

     Currently, we enjoy various tax benefits and exemptions under Indian tax laws. Any changes in these laws, or their application in matters such as tax exemption on export income and transfer pricing, may increase our tax liabilities and thus adversely affect our financial results.

If there is a change in accounting standards, it may affect our reported results of operations.

     New or revised accounting standards and rules promulgated from time to time by United States or Indian accounting standard boards may significantly affect our reported results of operations. Any change in accounting standards may affect our reported results of operation. The preparation of financial statements in accordance with U.S.GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.

If we were to experience a supply interruption, we might be unable to meet the active pharmaceutical ingredients needs of our generics and formulations segments, and our needs might conflict with those of our active pharmaceutical ingredients customers.

     Many of the active pharmaceutical ingredients and formulations that we manufacture, distribute and sell are dependent on highly specialized raw materials. In the event that we experience a shortage in our supply of raw materials, we might be unable to fulfill all of the active pharmaceutical ingredients needs of our generics and formulations segments, which could result in a loss of production capacity for these segments. In addition, this could result in a conflict between the active pharmaceutical ingredients needs of our generics and formulations segments and the needs of customers of our active pharmaceutical ingredients segment, some of whom are also our competitors in the formulations segment. In either case, we could potentially lose business from adversely affected customers and, we could be subjected to lawsuits.

Compliance with new and changing corporate governance and public disclosure requirements diverts management time and attention from revenue-generating activities to compliance activities, which may adversely affect our business.

     Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations, NYSE rules, Securities and Exchange Board of India rules and Indian stock market listing regulations, are creating uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. The new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business.

Employees are vital for the continuous growth of our business

     The single greatest advantage of any company is its people. Their skills and intellect are critical to the successful achievement of our business goals and objectives. If we are unable to retain our key personnel, it may adversely affect our business operations.

RISKS RELATING TO INVESTMENTS IN INDIAN COMPANIES

          We are an Indian company and a substantial part of our operations are conducted, and most of our assets are located, in India. In addition, approximately 34.4% of our total revenues for fiscal 2005 were derived from sales in India. As a result, the following additional risk factors apply.

A slowdown in economic growth in India may adversely affect our business and results of operations.

     Our performance and the quality and growth of our business are necessarily dependent on the health of the overall Indian economy. The Indian economy has grown significantly over the past few years. Any future slowdown in the Indian economy could harm us, our customers and other contractual counterparties. In addition, the Indian economy is in a state of transition. The share of the services sector of the economy is rising while that of the industrial, manufacturing and agricultural sector is declining. It is difficult to gauge the impact of these fundamental economic changes on our business.

A significant change in the Indian government or in its economic liberalization and deregulation policies may adversely affect the Indian economy, the health of which our business depends upon.

     The Indian government has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. Any significant change in its economic policies could have a significant effect on private-sector entities, including us, and on market conditions and prices of Indian securities, including our shares and our ADSs. India’s trade relationships with other countries can also influence Indian economic conditions, which in turn can affect our business.

If communal disturbances or riots erupt in India, or if regional hostilities increase, this would adversely affect the Indian economy, the health of which our business depends upon.

     India has experienced communal disturbances, terrorist attacks and riots during recent years. If such disturbances continue or are exacerbated, our operational, sales and marketing activities may be adversely affected. Additionally, India has from time to time experienced hostilities with neighboring countries. The hostilities have continued sporadically. The hostilities between India and Pakistan are particularly threatening, because both India and Pakistan are nuclear powers. Hostilities and tensions may occur in the future and on a wider scale. These hostilities and tensions could lead to political or economic instability in India and harm our business operations, our future financial performance and the price of our shares and our ADSs.

If inflation continues to rise in India, we may not be able to increase the prices of our products in order to pass the costs along to our customers and our profits may decline.

     According to the monthly report for April 2005 released by the Indian Ministry of Finance, the annual inflation rate in India, as measured by the benchmark wholesale price index (Base 1993-94=100), was6.7% in fiscal 2005 as compared with 5.5% in fiscal 2004 The rate of inflation may continue to rise. We may not be able to pass these costs on to our customers by increasing the price we charge for our products. If this occurs, our profits may decline.

If environmental conditions in India including drought, floods and earthquakes, affect our main facilities, our revenues could decline.

     Our main facilities are situated around Hyderabad, in India. This region has experienced earthquakes, floods and droughts in the past and has experienced droughts in recent years In the event of a drought so serious that the drinking water in the region is limited, the government could cut the supply of water to all industries including our facilities and this would adversely affect our production operations and reduce our revenues. Even if we take precautions to provide back-up support in the event that a natural disaster occurs in parts of India affecting our main facilities, environmental conditions may affect our facilities, harming production and ultimately our business.

Wage pressures in India may increase our costs and reduce our profit margins.

     Wage costs in India have historically been significantly lower than wage costs in developed countries and have been one of our competitive strengths. However, wage increases in India may increase our costs, reduce our profit margins and adversely affect our business and results of operations.

Indian law imposes certain restrictions that limit a holder’s ability to transfer the equity shares obtained upon conversion of ADSs and repatriate the proceeds of such transfer, which may cause our ADSs to trade at a premium or discount to the market price of our equity shares.

     Under certain circumstances, the Reserve Bank of India must approve the sale of equity shares underlying ADSs by a non-resident of India to a resident of India. The Reserve Bank of India has given general permission to effect sales of existing shares or convertible debentures of an Indian company by a resident to a non-resident, subject to certain conditions, including the price at which the shares may be sold. Additionally, except under certain limited circumstances, if an investor seeks to convert the rupee proceeds from a sale of equity shares in India into foreign currency and then repatriate that foreign currency from India, he or she will have to obtain an additional approval from the Reserve Bank of India for each such transaction. Required approval from the Reserve Bank of India or any other government agency may not be obtained on terms favorable to a non-resident investor or at all.

There are limits and conditions to the deposit of shares into the ADS facility.

     Indian legal restrictions may limit the supply of ADSs. The only way to add to the supply of ADSs will be through a primary issuance because the depositary will not be permitted to accept deposits of outstanding shares and issue ADSs representing those shares. However, an investor in ADSs who surrenders an ADS and withdraws shares will be permitted to redeposit those shares in the depositary facility in exchange for ADSs. In addition, an investor who has purchased shares in the Indian market will be able to deposit them in the ADS program, but only in a number that does not exceed the number of underlying shares that have been withdrawn from and not re-deposited into the depositary facility. Moreover, there are restrictions on foreign institutional ownership of shares as opposed to ADSs.

There may be less company information available in Indian securities markets than securities markets in developed countries.

     There is a difference between the level of regulation and monitoring of the Indian securities markets over the activities of investors, brokers and other participants, as compared to the level of regulation and monitoring of markets in the United States and other developed economies. The Securities and Exchange Board of India is responsible for improving disclosure and other regulatory standards for the Indian securities markets. The Securities and Exchange Board of India has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed countries, which could affect the market for our equity shares.

Indian stock exchange closures, broker defaults, settlement delays, and Indian government regulations on stock market operations could affect the market price and liquidity of our equity shares.

     The Indian securities markets are smaller than the securities markets in the United States and Europe and have experienced volatility from time to time. The regulation and monitoring of the Indian securities market and the activities of investors, brokers and other participants differ, in some cases significantly, from those in the United States and some European countries. Indian stock exchanges have at times experienced problems, including temporary exchanges closures, broker defaults and settlement delays and if similar problems were to recur, they could affect the market price and liquidity of the securities of Indian companies, including our shares. Furthermore, any change in Indian government regulations on stock markets could affect the market price and liquidity of our shares

Financial instability in other countries, particularly emerging market countries in Asia, could affect our business and the price and liquidity of our shares and our ADSs.

     The Indian markets and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. Any worldwide financial instability or any loss of investor confidence in the financial systems of Asian or other emerging markets could increase volatility in Indian financial markets or adversely affect the Indian economy in general. Either of these results could harm our business, our future financial performance and the price of our shares and ADSs.

If you are not able to exercise preemptive rights available to other shareholders, your investment in our securities may be diluted.

     A company incorporated in India must offer its holders of shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any shares, unless these rights have been waived by at least 75.0% of the company’s shareholders present and voting at a shareholders’ general meeting. U.S. investors in our ADSs may be unable to exercise preemptive rights for the shares underlying our ADSs unless a registration statement under the Securities Act of 1933 is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with a registration statement as well as the perceived benefits of enabling U.S. investors in our ADSs to exercise their preemptive rights and any other factors we consider appropriate at the time. We might choose not to file a registration statement under these circumstances. If we issue any of these securities in the future, such securities may be issued to the depositary, which may sell them in the securities markets in India for the benefit of the investors in our ADSs. We cannot assure you as to the value, if any, the depositary would receive upon the sale of these securities. To the extent that you are unable to exercise preemptive rights, your proportional interests in us would be reduced.

ITEM 4. INFORMATION ON OUR COMPANY

4.A. History and development of our company

     Dr. Reddy’s Laboratories Limited was incorporated in India under the Companies Act, 1956, by its promoter, Dr. K. Anji Reddy as a Private Limited Company on February 24, 1984. We were converted to a Public Limited Company on December 6, 1985 and listed on the Indian Stock Exchanges in August 1986 and on the New York Stock Exchange on April 11, 2001. We are registered with the Registrar of Companies, Andhra Pradesh, Hyderabad, India as Company No. 01-4507. Our registered office is situated at 7-1-27, Ameerpet, Hyderabad – 500 016, Andhra Pradesh, India and the telephone number of our registered office is +91-40-23731946. The name and address of our registered agent in the United States is Dr. Reddy’s Laboratories, Inc., 200 Somerset Corporate Boulevard (Bldg II), Bridgewater, New Jersey 08807.

     Key business developments:

     In April 2004, we acquired Trigenesis Therapeutics, Inc., a U.S. based privately owned dermatology company. This acquisition provided us with access to certain products and proprietary drug delivery technology platforms for developing a pipeline of differentiated specialty products in the dermatology prescription segment. The total consideration for this

transaction was U.S.$11.0 million. In connection with this transaction, we assumed certain future milestone and royalty payment obligations of Trigenesis Therapeutics, Inc.

     In November 2004, Novo Nordisk decided to terminate further clinical development of balaglitazone (DRF 2593), which is an insulin sensitizer that acts as a partial Peroxisome Proliferator Activated Receptor (“PPAR”) gamma agonist and is an oral treatment for patients with type 2 diabetes. Novo Nordisk decided to terminate further clinical development of balaglitazone, as the preclinical results did not suggest a sufficient competitive advantage for balaglitazone compared to similar marketed products within this therapeutic category. We licensed this molecule to Novo Nordisk in 1997.

     Pursuant to an agreement entered into with Novartis Pharma AG (“Novartis”), we agreed to provide Novartis with an exclusive license to develop, promote, distribute, market and sell certain products to be further developed into drugs for the treatment of specified diseases. Pursuant to the terms of this agreement, during fiscal 2002, we received Rs.235,550 (U.S.$5 million) as an up-front license fee. As the up-front license fee did not represent the culmination of a separate earning process, the up-front license fee had been deferred to be recognized in accordance with our accounting policy proportionately upon the receipt of stated milestones. Under the terms of the agreement, Novartis had the rights for an additional dual acting insulin sensitiser compound (the “backup compound”). In June 2003, Novartis decided to discontinue further development of the primary compound licensed from us but continued its collaboration with us for the backup compound. The agreement with Novartis for the further development of the backup compound expired on May 30, 2004 and, accordingly, we recognized the amount of Rs.235.6 million as revenue during the three months ended June 30, 2004.

     In February 2005, we initiated Phase I clinical trials for our cardiovascular drug candidate RUS 3108. The clinical trials are being conducted in Belfast, Ireland and will explore the safety and pharmacokinetic profiles of this drug candidate in humans. This is the first time we are testing a drug in Europe. RUS 3108 is being developed for the treatment of atherosclerosis, the major cause of cardiovascular disorders such as heart attacks and stroke. Cardiovascular disease is a leading cause of death worldwide. To our knowledge, there are currently no drugs on the market that directly treat atherosclerosis.

     During fiscal 2005, we entered into an agreement with I-VEN Pharma Capital Limited (“I-VEN”) for the joint development and commercialization of generic drug products. The agreement gives I-VEN the right to fund up to fifty percent 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 in 2004-05 and 2005-06, subject to a maximum funding right of U.S.$56.0 million. The terms of the arrangement do not require us to repay the funds or purchase I-VEN’s interest in the event that we are not able to develop or commercialize one or more of the products subject to this agreement. However, upon successful commercialization of these products, we will be required to pay I-VEN a royalty on net sales for a period of 5 years from the date of commercialization of each product, which royalty rate is determined by the development, registration and legal costs that we actually incur to commercialize such product. The first tranche advanced by I-VEN of U.S.$22.5 million (Rs.985.4 million) was received on March 28, 2005. I-VEN has an option to further invest U.S.$33.5 million (Rs.1,465.5 million) by March 31, 2006. The amounts received from I-VEN will be recognized in the income statement as a credit to research and development expenses upon completion of specific milestones as detailed in the agreement. Accordingly, an amount of U.S.$2.2 million (Rs.96.2 million) has been recognized in the current year representing the proportionate costs relating to the completion of specified ANDA filings.

     During fiscal 2005, we filed 13 ANDAs, including 6 Paragraph IVs. As of March 31, 2005, we had 45 ANDAs pending at the U.S. FDA. During fiscal 2005, we filed 9 Drug Master Files (“DMFs”) with the U.S. FDA. We also filed 306 dossiers in various international markets.

     On March 24, 2005, we completed the sale of our remaining 49% equity stake in Compact Electric Limited for Rs.82,000. We had previously sold 51% of our equity stake in this company in fiscal 2004.

     As of March 31, 2005, the capital work-in-progress was Rs.568.0 million, primarily in India. Our capital work-in-progress is financed entirely through internally generated funds. We are in the process of expanding our existing formulations and active pharmaceutical ingredients and intermediates (“API”) facilities. We are in the process of establishing new facilities in our formulations and critical care businesses. Expenditures related to specific assets incurred during the project implementation period are carried as “capital work-in-progress”. These will be transferred to specific assets as and when these assets are available for use.

     During fiscal 2004 and fiscal 2005, no third party made any public takeover offers in respect of our shares and we did not make any public offers to takeover any other company.

4.B. Business overview

     We are an emerging global pharmaceutical company with proven research capabilities. We produce active pharmaceutical ingredients and finished dosage forms and biotechnology products and market them globally, with a focus on India, the United States, Europe and Russia. We conduct basic research in the areas of cancer, diabetes, cardiovascular disease, inflammation and bacterial infection.

     Our revenues for fiscal 2005 were Rs.19,471.9 million (U.S.$446.4 million). We derived 34.4% of these revenues from sales in India, 22.3% from the United States and Canada (“North America”), 14.3% from Russia and other countries of the former Soviet Union, 14.7% from Europe and 14.3% from other countries. Our net income for fiscal 2005 was Rs.211.2 million (U.S.$4.8 million).

OUR STRATEGY

     Our vision is to build a discovery-led global pharmaceutical company, with a strong pipeline of generics as well as innovative products. Our core businesses of active pharmaceutical ingredients and intermediates and formulations are well established with a track record of growth and profitability. In our generics business, we are building a pipeline of products that will help us drive growth in the medium-term. In addition, we are focusing our investments on innovation led businesses, including specialty pharmaceuticals and drug discovery. These businesses, while being investment intensive and with long lead times, have the potential to provide significant growth as well as sustained revenues and profitability for much longer periods due to patent protected franchises. As a result, we believe that over the next few years, our fully established core businesses will fund the growth of our generics business and the establishment of our innovation businesses.

OUR PRINCIPAL AREAS OF OPERATIONS

     The following table shows our revenues and percentage of total revenues of our formulations, active pharmaceutical ingredients and intermediates, generics, critical care and biotechnology and drug discovery segments for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
Segment		2003								2004								2005
		(Rs. in millions, U.S.$ in thousands)
Formulations			Rs.6,860.4				38.0	%			Rs.7,507.5				37.4	%			Rs.7,822.9				40.2	%			U.S.$179,342.3
Active pharmaceutical
ingredients and intermediates			6,340.7				35.1				7,628.5				38.0				6,944.5				35.7				159,205.1
Generics			4,284.2				23.7				4,337.5				21.6				3,577.4				18.4				82,013.3
Critical care and biotechnology			428.2				2.4				411.0				2.0				527.1				2.7				12,084.1
Drug discovery			—				—				—				—				288.4				1.4				6,611.2
Other			156.3				0.8				196.7				1.0				311.6				1.6				7,143.0
Total revenues			Rs.18,069.8				100.0	%			Rs.20,081.2				100.0	%			Rs.19,471.9				100.0	%			U.S.$446,399.0

Formulations Segment

     Formulations, also referred to as branded finished dosages, are finished pharmaceutical products ready for consumption by the patient. Branded means we package the formulations for sale under our brand name. We sell branded formulations in India and other emerging markets. Formulations accounted for 40.2% of our revenues in fiscal 2005.

     We export our branded formulations to over 36 countries worldwide. Our major markets in this segment are India, Russia and other countries of the former Soviet Union, Central Eastern Europe, Southeast Asian countries and Latin America. We have also expanded our presence in emerging markets, such as Romania, Albania, South Africa, Peru and in the Middle East region. We have progressively increased the number of countries in which we market our formulations by registering our products in various markets around the world. During fiscal 2005, we filed 306 new product dossiers in various countries around the world. Between March 31, 2005 and June 30, 2005, we filed an additional 159 new product

dossiers in various countries around the world.

     The following table sets forth formulations revenues by geographic area for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
		2003								2004								2005
Country		Revenues				% Total(1)				Revenues				% Total(1)				Revenues								% Total(1)
		(in millions)								(in millions)								(in millions)
India		Rs.	4,303.2				62.7	%		Rs.	4,729.3				63.0	%		Rs.	4,360.2			U.S.$	100.0				55.7	%
Russia			1,660.8				24.2				1,781.8				23.7				2,107.2				48.3				26.9
Ukraine			157.1				2.3				184.2				2.5				257.8				5.9				3.3
Kazakhstan			145.5				2.1				154.5				2.1				183.7				4.2				2.3
Belarus			106.8				1.6				100.2				1.3				140.1				3.2				1.8
Romania			55.8				0.8				82.0				1.1				102.6				2.4				1.3
Venezuela			63.0				0.9				70.4				0.9				96.0				2.2				1.2
Vietnam			62.4				0.9				56.7				0.8				73.5				1.7				0.9
Myanmar			45.6				0.7				47.6				0.6				68.1				1.6				0.9
Sri Lanka			49.7				0.7				62.3				0.8				67.0				1.5				0.9
Others			210.5				3.1				238.5				3.2				366.6				8.4				4.7
Total		Rs.	6,860.4				100.0	%		Rs.	7,507.5				100.0	%		Rs.	7,822.9			U.S.$	179.3				100.0	%

Emerging markets — India and Russia

     India. Our revenues from sales of formulations in India were 55.7% of our total formulations sales in fiscal 2005. In India, our formulations business focuses mainly on the therapeutic categories of cardiovascular, diabetes management, gastro-intestinal and pain management. As of March 31, 2005, we had a total of 117 brands. Our top ten brands together accounted for 50.7% of our formulations revenues in India in fiscal 2005. Our sales of formulations in India declined 7.8% in fiscal 2005 as compared to the industry average growth of 4.2% according to Operations Research Group International Medical Statistics (“ORG IMS”), a market research firm, in its March Moving Annual Total report for the 12-month period ending March 2005. This decline was primarily due to the slowdown in the growth of our key brands as well as inventory reduction by stockists, retailers and other trade channels due to uncertainty relating to the implementation of the new value added tax system in India. According to ORG IMS, as of March 2005, we had 32 brands that were ranked either first or second in terms of sales in India in their respective product categories. According to the Center for Marketing and Advertising Research Consultancy (“CMARC”) report for the period November 2004 to February 2005, which measures doctors’ prescriptions, we were the seventh most prescribed company in India.

     New product launches during fiscal 2005 accounted for 5.8% of our revenues from sales of formulations in India. Key product launches included Retoz, our brand of etoricoxib, and Dutas, our brand of dutasteride. According to the ORG IMS March Moving Annual Total report for the 12 month period ended March 2005, we are ranked fourth among Indian pharmaceutical companies in terms of the revenues derived from new product sales launched in the previous 24 months.

     The following table provides a summary of our sales in India in our therapeutic categories for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
		2003												2004												2005
		Number												Number												Number
Therapeutic		of our												of our												of our
Category (1)		Products				Revenues				% (2)				Products				Revenues				% (2)				Products(3)				Revenues								% (2)
						(in millions)												(in millions)												(in millions)
Cardiovascular			33				Rs.768.8				17.9	%			35				Rs.928.3				19.6	%			35				Rs.937.6				U.S.$21.5				21.5	%
Gastro-intestinal			43				846.2				19.7				36				1,015.0				21.5				38				902.0				20.7				20.7
Pain management			32				823.3				19.1				36				783.6				16.6				19				713.7				16.4				16.4
Anti-infectives			39				433.5				10.1				30				439.1				9.3				19				324.1				7.4				7.4
Diabetes Management			17				274.8				6.4				23				301.1				6.4				21				297.9				6.8				6.8
Neutraceuticals			21				371.7				8.6				20				301.3				6.4				16				243.9				5.6				5.6
Dermatology			19				156.9				3.6				19				206.1				4.4				16				206.5				4.7				4.7
Respiratory			23				207.9				4.8				19				206.6				4.4				14				177.5				4.1				4.1
Dental			20				131.4				3.1				23				173.2				3.7				22				177.3				4.1				4.1
Urology			9				83.5				1.9				10				96.6				2.0				17				131.5				3.0				3.0
Gynecology			8				55.6				1.3				10				116.0				2.5				7				110.9				2.5				2.5
Others			21				149.7				3.5				14				162.4				3.4				10				137.3				3.1				3.1
Total			285				Rs.4303.2				100.0	%			275				Rs.4,729.3				100.0	%			234				Rs.4,360.2				U.S.$100.0				100.0	%

     The following tables summarize the position of our top 10 brands in the Indian market for fiscal 2003, 2004 and 2005 respectively:

		Therapeutic		Therapeutic Sub-		Fiscal Year Ended								%
Brand		Category		category		March 31, 2005								Total(1)(3)
						(in millions)
Nise		Pain management		Non-steroidal anti-inflammatory		Rs.	537.9			U.S.$	12.3				12.3	%
Omez		Gastro-intestinal		Anti-ulcerant			528.1				12.1				12.1
Stamlo		Cardiovascular		Anti-hypertensive			298.2				6.8				6.8
Stamlo Beta		Cardiovascular		Anti-hypertensive			186.7				4.3				4.3
Enam		Cardiovascular		Anti-hypertensive			162.1				3.7				3.7
Atocor		Cardiovascular		Lipid lowering agent			115.8				2.7				2.7
Clamp		Anti-infectives		Anti-infectives			100.6				2.3				2.3
Mintop		Dermatology		Alopecia			98.4				2.3				2.3
Ciprolet		Anti-infectives		Anti-bacterial			96.3				2.2				2.2
Reclide		Diabetes Management		Sulphonylurea			85.5				2.0				2.0
Total						Rs.	2,209.5			U.S.$	50.7				50.7	%

		Rank of our Brand				Market Share of								Fiscal Year Ended March 31,
		Within Product				Our Brand Within				Brand
Brand		Category (1)				Product Category (1)				Growth %(2)				2004				2003
														(in millions)
Nise			1				23.2	%			(4.3	%)			Rs.655.6				Rs.654.5
Omez			1				42.5				2.2				622.6				467.4
Stamlo			1				24.0				6.5				293.2				253.8
Stamlo Beta			2				15.2				3.1				187.7				154.2
Enam			2				25.8				0.7				163.9				144.5
Atocor			3				8.7				19.7				100.6				56.2
Clamp			4				11.7				13.5				106.5				83.5
Mintop			1				91.0				4.6				99.1				76.8
Ciprolet			7				3.6				30.6				134.9				169.2
Reclide			3				17.4				(5.5	)			90.1				85.1
Total															Rs.2,454.2				Rs.2,145.2

     Russia. Russia is our largest export market in this segment and our sales of formulations in this market accounted for 26.9% of our revenues in the formulations segment in fiscal 2005. Pharmexpert, a market research firm, ranked us number 16 in sales in Russia in fiscal 2005 in its December 2004 report. Pharmexpert also reported that our market share of sales in Russia has increased from 1.26% in calendar 2003 to 1.31% in calendar 2004.

     The following table provides a summary of our revenues in Russia by therapeutic category for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
		2003												2004
Therapeutic		Number of								%				Number of								%
Category		Products				Revenues				Total(1)				Products				Revenues				Total(1)
						(in millions)
Pain Management			9				Rs.268.9				16.2	%			9				Rs.477.4				26.8	%
Anti-Infectives			7				398.6				24.0				7				435.4				24.4
Gastro-Intestinal			2				355.0				21.3				2				400.2				22.5
Cardiovascular			4				331.7				20.0				4				338.2				19.0
Dermatology			2				101.4				6.1				2				92.7				5.2
Others			10				205.2				12.4				8				38.0				2.1
Total			34				Rs.1,660.8				100.0	%			32				Rs.1,781.8				100.0	%

		Fiscal Year Ended March 31, 2005
Therapeutic		Number of												%
Category		Products				Revenues								Total(1)
						(in millions)
Pain Management			9				Rs.660.3			U.S.$	15.1				31.3	%
Anti-Infectives			7				505.1				11.6				24.0
Gastro-Intestinal			2				493.0				11.3				23.4
Cardiovascular			4				306.2				7.0				14.5
Dermatology			2				96.4				2.2				4.6
Others			9				46.2				1.1				2.2
Total			33				Rs.2,107.2			U.S.$	48.3				100.0	%

     The following table provides a summary of our principal products in the Russian market for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
						2003								2004								2005
Brand		Therapeutic Category				Revenues				%Total(1)				Revenues				%Total(1)				Revenues								%Total(1)
						(in millions)								(in millions)								(in millions)
Omez		Gastro-intestinal					Rs.352.2				21.2	%			Rs.394.6				22.1	%			Rs.488.7			U.S.$	11.2				24.0	%
Ciprolet		Anti-infectives					336.4				20.2				385.0				21.6				450.2				10.3				22.1
Ketorol		Pain management					166.4				10.0				263.1				14.8				339.3				7.8				16.7
Enam		Cardiovascular					354.2				21.3				338.2				19.0				306.2				7.0				15.1
Total							Rs.1,209.2				72.7	%			Rs.1,380.9				77.5	%			Rs.1,584.5			U.S.$	36.3				75.2	%

     Our top four brands, Omez, Ciprolet, Ketorol and Enam, accounted for 75.2% of our formulation revenues in Russia in fiscal 2005. Omez, our anti-ulcerant product and Ciprolet, our product in the anti-infective segment, are ranked as the 26th and 42nd best selling formulation brands, respectively, in the Russian market according to the Pharmexpert December 2004 report. Nise has entered Pharmexpert’s top 100 rankings ranked at number 98 and has become the top selling non steroidal anti-inflammatory drug on the Russian pharmaceutical market for the year ended December 2004, according to the Pharmexpert December 2004 report.

     Growth during the year was driven by marketing initiatives such as targeting the hospital segment, greater penetration in the key cities of Moscow and St. Petersburg and marketing campaigns for key products

     Our strategy in Russia is to focus on the therapeutic areas of gastro-intestinal, pain management, anti-infectives and cardiovascular. Our focus is on building brand leaders in these therapeutic segments. Omez, Ciprolet, Enam and Nise continued to be brand leaders in their respective categories, as reported by the Pharmexpert December 2004 report.

     Other Emerging Markets. We have operations in former Soviet Union countries other than Russia, including Ukraine, Kazakhstan and Belarus. We also have operations in other emerging markets, such as Venezuela, Vietnam, Sri Lanka, Romania and Myanmar. Our export of formulations to these countries accounted for 12.6% of the revenues in our formulations segment in fiscal 2005.

     We are also focusing on expanding our presence in China. In China, we market through our equity investee, Kunshan Rotam Reddy Pharmaceuticals Co. Limited (“KRRP”). As of March 31, 2005, we held a 51.2% equity interest in KRRP. We currently market eight products through KRRP in China and have six products pending registration. During fiscal 2005, KRRP sold one product license and also obtained approval for three new product licenses. The products made through these new product licenses had not yet launched as of March 31, 2005.

Sales, marketing and distribution network

     India. We generate demand for our products by promoting them to doctors who prescribe them, and meeting with pharmacists to see that the pharmacists stock our brands. Our focus on brand building is, therefore, primarily driven through efforts to build relationships with the medical community. While we do not sell directly to doctors or pharmacists, our approximately 1,360 field personnel frequently visit doctors and pharmacists throughout the country to promote our products. In addition, we sponsor medical conferences in different parts of the country and conduct seminars for doctors.

     We sell our formulations primarily through clearing and forwarding agents to approximately 2,000 stockists who decide which brands to buy based on demand. The stockists pay for our products pursuant to an agreed credit period and in turn sell these products to retailers. Our clearing and forwarding agents are responsible for transporting our products to the stockists and ensuring that the stockists maintain adequate supplies of our products. We pay our clearing and forwarding agents on a commission basis. We have insurance policies that cover our products during shipment and storage at clearing and forwarding locations.

     Russia. In Russia, we sell directly to some of the principal national distributors. We also distribute our products through our wholly owned subsidiary located in Russia, OOO Dr. Reddy’s Laboratories Limited, Russia. Our sales and marketing efforts are driven by a team of 100 marketing representatives, 11 regional managers, 4 zone managers and 8 key account managers to promote our products to doctors in 48 cities in Russia.

     In the Russian market, credit is generally extended only to customers after they have established a satisfactory history of payment with us. The credit ratings of these customers are based on turnover, payment record and the number of the customers’ branches or pharmacies and are reviewed on a periodic basis.

     Other Emerging Markets. In other emerging markets, our key focus markets are China, Kazakhstan, Uzbekistan, Ukraine Belarus, Vietnam, Romania and Sri Lanka where we have our own sales personnel to promote our products. In China, where we market through KRRP, we have 94 marketing representatives covering hospitals. In several of these emerging markets, we market and distribute through local agents. We also have representative offices in several of these countries.

Manufacturing

     We have four facilities for the manufacture of formulation products, all of which are situated in India. We also use third-party manufacturing facilities. The main difference between active pharmaceutical ingredients as compared to formulations and generics is the form in which they are produced and the way they are packaged. Active pharmaceutical ingredients are manufactured and distributed in bulk. In formulations and generics, these bulk ingredients are converted into finished dosages by adding other ingredients, called excipients, and packaged into individual doses that are ready for consumption by the patient. In fiscal 2005, our active pharmaceutical ingredients operations provided 48.0% of the active pharmaceutical ingredients and intermediates requirements of our formulations business, with the balance coming from various other suppliers.

     Our manufacture of formulations is subject to strict quality and contamination controls throughout the manufacturing process. Each production line consists of a series of rooms through which the product passes at different stages of its conversion to a finished dosage. In our facilities, we manufacture formulations in various dosage forms including tablets, capsules, injections and liquids. These dosage forms are then packaged and quarantined to be tested for quality and contamination. The Ministries of Health of Sudan, Brazil, Latvia and Romania have inspected some of our manufacturing plants. One of our facilities also has the approval of the U.K. Medicines and Health Care Products Regulatory Agency (“MHRA”). During fiscal 2005, we initiated the construction of a new facility at Baddi in the state of Himachal Pradesh, India to take advantage of certain financial benefits, which include exemption from income tax and excise duty for a specified period, offered by the government of India to encourage industrial growth in the state of Himachal Pradesh.

Competition

     We compete with different companies in different countries, depending upon therapeutic and product categories, and within each category upon dosage strengths and drug delivery. On the basis of sales, we are the seventh largest pharmaceutical seller in India, with a market share of 2.4% according to the ORG IMS March Moving Annual Total report for the 12 month period ending March 2005. Of the top ten participants in the Indian formulations market, three are multinational corporations and the rest are Indian corporations.

     The business opportunities in India are on the rise and the Indian pharmaceutical business environment underwent considerable changes in fiscal 2005. Some of the most significant changes in the industry are as follows:

	§		Introduction of the product patent regime, effective as of January 1, 2005;
	§		Implementation of the Value Added Tax (“VAT”) system, effective as of April 1, 2005;
	§		Introduction of the Maximum Retail Price (“MRP”)-based excise duty structure for the pharmaceutical industry;
	§		Higher investments by Indian companies in research and development, as well as an increase in the number of new product launches by Indian companies; and
	§		Improvement in sales of multinational corporations and increasing interest of global multinationals in India.

     Our formulation segment’s principal competitors in the Indian market are Cipla Limited, Glaxo SmithKline Pharmaceuticals Limited, Ranbaxy Laboratories Limited, Nicholas Piramal India Limited, Sun Pharmaceuticals Industries Limited and Zydus-Cadila.

     In our export markets, we compete with local companies, multinational corporations and players from other emerging markets. In Russia and in most of our export markets, we believe our products occupy a niche position between the less expensive local products and the more expensive products of the multinational corporations.

Government regulations

     All pharmaceutical companies that manufacture and market products in India are subject to various national and state laws and regulations, which principally include the Drugs and Cosmetics Act, 1940, the Drugs (Prices Control) Order, 1995 (DPCO), various environmental laws, labor laws and other government statutes and regulations. These regulations govern the testing, manufacturing, packaging, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of pharmaceutical products.

     In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administrations are empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by the Drug Controller General of India (“DCGI”). Prior to granting licenses for any new drugs or combinations of new drugs, DCGI clearance has to be obtained in accordance with the Drugs and Cosmetics Act, 1940.

     Pursuant to the amendments in May 2005 to the Schedule Y of the Drugs and Cosmetics Act, 1940, manufacturers of finished dosages are required to submit additional technical data to the DCGI in order to obtain a no-objection certificate for conducting clinical trials as well as to manufacture new drugs for marketing.

     All pharmaceutical manufacturers that sell products in any country are subject to regulations issued by the ministry of health (“MoH”) of the respective country. These regulations govern or influence the testing, manufacturing, packaging, labeling, storing, record-keeping, safety, approval, advertising, promotion, sale and distribution of products.

     Our facilities and products are periodically inspected by various regulatory authorities such as the U.K. MHRA, the South African Medicines Control Council, the Brazilian National Agency of Sanitary Surveillance (also known as “ANVISA”), the Romanian National Medicines Agency, and the World Health Organization, all of which have extensive enforcement powers over the activities of pharmaceutical manufacturers operating within their jurisdiction.

     MoH approval of an application is required before a generic equivalent of an existing or referenced brand drug can be marketed. When processing a generics application, the MoH waives the requirement of conducting complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. “Bioequivalence” compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and levels of concentration of the active drug substance in the body are the equivalent for the generic drug and the previously approved drug. A generic application may be submitted for a drug on the basis that it is the equivalent of a previously approved drug. Before approving a generic product, the MoH also requires that our procedures and operations conform to Current Good Manufacturing Practice (“cGMP”) regulations, relating to good manufacturing practices as defined by various countries. We must follow the cGMP regulations at all times during the manufacture of our products. We continue to spend significant time, money and effort in the areas of production and quality testing to help ensure full compliance with cGMP regulations.

     The timing of final MoH approval of a generic application depends on various factors, including patent expiration dates, sufficiency of data and regulatory approvals.

     The government of India established the National Pharmaceutical Pricing Authority (“NPPA”) to control pharmaceutical prices. Under the DPCO, the NPPA has the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. At present, 74 drugs and their formulations are categorized as specified products by NPPA. A limited number of our formulation products fall in this category.

     On March 22, 2005, the government of India passed the Patents (Amendment) Bill 2005 (the “Amendment”), introducing a product patent regime for food, chemicals and pharmaceuticals in India. The Amendment specifically provides that new medicines (patentability of which is not specifically excluded) for which a patent has been applied for in India on or after January 1, 1995 and for which a patent is granted cannot be manufactured or sold in India by other than the patent holder and its assignees and licensees. This will result in a reduction of the new product introductions in India, as well as other countries where a similar legislation has been introduced, for all Indian pharmaceutical companies engaged in the development and marketing of generic finished dosages and APIs. Processes for the manufacture of APIs and formulations were patentable in India even prior to the Amendment, so no additional impact is anticipated from patenting of such processes.

Active Pharmaceutical Ingredients and Intermediates (“API”) Segment

     Our active pharmaceutical ingredients and intermediates business contributed 35.7% of our total revenues for fiscal 2005. Active pharmaceutical ingredients are the principal ingredients for finished dosages and are also known as bulk actives or bulk drugs. Active pharmaceutical ingredients become formulations when the dosage is prepared for human consumption in the form of a tablet, capsule or liquid using additional inactive ingredients. Intermediates are the compounds from which active pharmaceutical ingredients are prepared. We produce and market more than 100 different active pharmaceutical ingredients and intermediates in several markets. We export active pharmaceutical ingredients to emerging as well as developed markets covering over 70 countries. Our principal markets in this business segment include North America and Europe, which together contributed 42.3% of the segment’s revenues. Our active pharmaceutical ingredients business is run independently from our formulations and generics businesses and, in addition to supplying API to the formulations and generics businesses, we sell products to third parties for use in creating generic products. Our active pharmaceutical ingredients business also supports our custom pharmaceutical services business by way of manufacture of required API. The research and development group within the active pharmaceutical ingredients and intermediates division contributes to our business by creating intellectual property (principally with respect to novel and non-infringing manufacturing processes and intermediates), providing research intended to reduce the cost of production of our products and developing approximately 15-20 new products every year.

     The following table sets forth active pharmaceutical ingredients and intermediates revenues by geographic area for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
		2003								2004								2005
		Revenues				% Total (1)				Revenues				% Total(1)				Revenues								% Total(1)
		(in millions)								(in millions)								(in millions)
Emerging markets
India		Rs.	1,749.1				27.6	%		Rs.	2,115.1				27.7	%		Rs.	1,972.1				U.S.$45.2				28.4	%
Bangladesh			88.6				1.4				94.1				1.2				127.4				2.9				1.8
Other countries			1,582.6				24.9				1,847.5				24.3				1,841.8				42.2				26.5
Total emerging markets			3,420.3				53.9				4,056.7				53.2				3,941.3				90.4				56.8
Developed markets
North America			2,397.7				37.8				1,902.9				24.9	%			1,849.0				42.4				26.6
Europe			465.9				7.4				1,626.9				21.3				1,091.1				25.0				15.7
Japan			56.8				0.9				42.0				0.6				63.1				1.4				0.9
Total developed markets			2,920.4				46.1				3,571.8				46.8				3,003.2				68.8				43.2	%
Total		Rs.	6,340.7				100.0	%		Rs.	7,628.5				100.0	%		Rs.	6,944.5				U.S.$159.2				100.0	%

     The following table sets forth the sales of our key active pharmaceutical ingredients and intermediates for fiscal 2003, 2004 and 2005 respectively:

		Fiscal Year Ended March 31,
						2003								2004								2005
		Therapeutic		Therapeutic
Product		Category		Sub-category		Revenues				%Total (1)				Revenues				%Total(1)				Revenues								%Total(1)
						(in millions)								(in millions)								(in millions)
Ramipril		Cardiovascular		Anti-hypertensive			Rs.53.1				0.80	%		Rs.	1,314.2				17.20	%		Rs.	783.4			U.S.$	18.0				11.3	%
Ranitidine HCL		Gastro-intestinal		Anti-ulcerant			697.3				11.0				711.4				9.3				734.3				16.8				10.6
Ciprofloxacin HCL		Anti-infective		Anti-bacterial			773.2				12.2				959.8				12.6				619.1				14.2				8.9
Naproxen sodium		Pain management		Anti-inflammatory			400.8				6.3				437.3				5.7				470.0				10.8				6.8
Ibuprofen		Pain management		Analgesic			455.8				7.2				394.6				5.2				460.5				10.6				6.6
Atorvastatin		Cardiovascular		Lipid-lowering agent			88.3				1.4				211.2				2.8				252.5				5.8				3.6
Naproxen		Pain management		Anti-inflammatory			160.1				2.5				233.8				3.1				229.6				5.3				3.3
Nizatidine		Gastro-intestinal		Anti-ulcerant			658.7				10.4				159.6				2.1				216.8				5.0				3.1
Terbinafine HCL		Anti-infective		Anti-fungal			94.0				1.5				124.9				1.6				194.5				4.5				2.8
Losartan potassium		Cardiovascular		Anti-hypertensive			125.5				2.0				214.2				2.8				180.5				4.1				2.6
Dextromethorphan		Respiratory		Anti-allergic			190.4				3.0				182.8				2.4				165.8				3.8				2.4
Sertraline HCL		Cardiovascular		Anti-hypertensive			143.1				2.3				178.4				2.3				138.2				3.2				2.0
Sparfloxacin		Anti-infective		Anti-bacterial			175.8				2.8				197.1				2.6				117.5				2.7				1.7
Doxazosin mesylate		Cardiovascular		Anti-hypertensive			181.4				2.9				117.9				1.5				111.6				2.6				1.6
Amlodipine maleate		Cardiovascular		Calcium channel blockers			12.4				0.2				13.4				0.2				105.4				2.4				1.5

Sales, Marketing and Distribution

     Emerging Markets. India is the single largest market in this region, contributing 28.4% to the segment’s revenues in fiscal 2005. In India, we market our active pharmaceutical ingredients to Indian and multinational companies who are also our competitors in the formulations segment.

     In India, our top six products are ciprofloxacin, ranitidine, losartan potassium, ibuprofen, atorvastatin and sparfloxacin. The market in India is highly competitive with severe pricing pressure and competition from cheaper Chinese imports in several products.

     In India, our sales team works closely with our sales agents to market our products. We market our products through these sales agents, commonly referred to as “indenting agents,” with a focus on regional sales and marketing. The sales are made directly from the factory and to a limited extent through clearing and forwarding agents. Distribution through clearing and forwarding agents is done to give better service to the customer.

     Our sales to other emerging markets were at Rs.1,941.6 million for fiscal 2005. Our key emerging markets include South Korea, China, Taiwan, Argentina, Brazil, Mexico, Turkey, Egypt, Saudi Arabia, South Africa and Kenya. While we work through our agents in these markets, our zonal marketing managers also interact directly with our key customers in order to service their requirements. Our strategy is to build relationships with top customers in each of these markets and partner with them in product launches by providing timely technical and analytical support.

     Developed Markets. Our principal markets are North America and Europe. In the United States and Europe, over the next five years, a large number of products are expected to lose patent protection, providing growth opportunities for our active pharmaceutical ingredients business. We have been marketing APIs in the United States for over a decade. We market through our subsidiaries in the United States and Europe. These subsidiaries are engaged in all aspects of marketing activity and support our customers’ pursuit of regulatory approval for their products.

     As of June 30, 2005, we had 77 DMFs on file in the United States. As of June 30, 2005, we had filed 39 DMFs in Europe and had 14 certificates of suitability granted by European authorities. For most of these, we are either already supplying commercial quantities or development quantities to various generic formulators.

Manufacturing and Raw Materials

     We have seven facilities for the manufacture of our APIs. These facilities have been inspected by the U.S. FDA and follow cGMP. All of these facilities are situated in the state of Andhra Pradesh, India. Each of these facilities has ISO 9000 certification. With over 500 reactors of different sizes offering 1.8 million litres of reaction volume annually, we have the flexibility to produce quantities that range from a few kilograms to several metric tons. The manufacturing process consumes a wide variety of raw materials that we obtain from sources that comply with the requirements of regulatory authorities in the markets to which we supply our products. We procure raw materials on the basis of our requirement planning cycles. We utilize a broad base of suppliers in order to minimize risk arising from dependence on a single supplier. Where possible, we have also entered into annual quantity and price contracts to reduce possible supply risks and minimize costs. Our formulations and generics businesses source approximately 48.0% and 69.6% respectively, of their API purchases from our API segment. We also outsource the manufacturing of some of our APIs to third-party manufacturers. The API segment also sources several APIs from third party suppliers for the emerging markets to optimally utilize the in-house manufacturing capacities for the developed markets, which are more profitable relative to the emerging markets. During fiscal 2005, 11.3% of our total revenues resulted from sale of APIs procured from third-party suppliers. We maintain stringent quality controls when procuring materials from third-party suppliers.

Competition

     The global API market can broadly be divided into regulated and less regulated markets. The less regulated markets offer low entry barriers in terms of regulatory requirements with respect to the qualification process and intellectual property rights. The regulated markets, like the United States and Europe, have high regulatory entry barriers in terms of cGMP and approved facilities. As a result, there is a premium for quality and regulatory compliance along with relatively greater stability for both volumes and prices.

     During fiscal 2005, the competitive environment for the API industry underwent significant changes. These changes included increased competition from companies based in India and China and increasing trends of consolidation in the global generic industry, with some of the key generics companies beginning to strengthen their in-house API development capabilities.

     We compete with a number of manufacturers within and outside India, which vary in size. Our main competitors in this segment are Hetero Drugs Limited, Divi’s Laboratories Limited, Shasun Chemicals and Drugs Limited, Aurobindo Pharma Limited, Ranbaxy Laboratories Limited, Cipla Limited, Matrix Laboratories Limited and Biocon India Limited, all based in India. In addition, we experience competition from European and Chinese manufacturers, as well as from Teva Pharmaceuticals Industries Limited, based in Israel.

Government regulations

     All pharmaceutical companies that manufacture and market products in India are subject to various national and state laws and regulations, which principally include the Drugs and Cosmetics Act, 1940, the Drugs (Prices Control) Order, 1995, various environmental laws, labor laws and other government statutes and regulations. These regulations govern the testing, manufacturing, packaging, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of pharmaceutical products.

     In India, manufacturing licenses for drugs and pharmaceuticals are generally issued by state drug authorities. Under the Drugs and Cosmetics Act, 1940, the state drug administrations are empowered to issue manufacturing licenses for drugs if they are approved for marketing in India by the DCGI. Prior to granting licenses for any new drugs or combinations of new drugs, the DCGI clearance has to be obtained in accordance with the Drugs and Cosmetics Act, 1940.

     The government of India established the National Pharmaceutical Pricing Authority (“NPPA”) to control pharmaceutical prices. Under the DPCO, the NPPA has the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. At present, 74 drugs and their formulations are categorized as specified products by NPPA. A limited number of our API products fall in this category.

     On March 22, 2005, the government of India passed the Patents (Amendment) Bill 2005 (the “Amendment”), introducing a product patent regime for food, chemicals and pharmaceuticals in India. The Amendment specifically provides that new medicines (patentability of which is not specifically excluded) for which a patent has been applied for in India on or after January 1, 1995 and for which a patent is granted cannot be manufactured or sold in India by other than the patent holder and its assignees and licensees. This will result in a reduction of the new product introductions in India, as well as other countries where a similar legislation has been introduced, for all Indian pharmaceutical companies engaged in the development and marketing of generic finished dosages and APIs. Processes for the manufacture of APIs and formulations were patentable in India even prior to the Amendment, so no additional impact is anticipated from patenting of such processes.

     We submit a DMF for active pharmaceutical ingredients to be commercialized in the United States. Any drug product for which an Abbreviated New Drug Application (“ANDA”) is being filed must have a DMF in place with respect to a particular supplier supplying the underlying active pharmaceutical ingredient. The manufacturing facilities are inspected by the U.S. FDA to assess cGMP compliance. The manufacturing facilities and production procedures utilized at the manufacturing facilities must meet U.S. FDA standards before products may be exported to the United States. Six of our manufacturing facilities have been inspected by the U.S. FDA and found “Acceptable”. For European markets, we submit a European DMF and, where applicable, obtain a certificate of suitability from the European Directorate for the Quality of Medicines.

Generics Segment

     Generic drugs are the chemical and therapeutic equivalents of reference brand drugs, typically sold under their generic chemical names at prices below those of their brand drug equivalents. These drugs are required to meet governmental standards that are similar to those applicable to their brand-name equivalents and must receive regulatory approval prior to their sale in any given country.

     Our generics operations started in the second half of fiscal 2001. Our generic products are marketed principally in North America and Europe.

     This segment accounted for 18.4% of our total revenues for fiscal 2005, contributing Rs.3,577.4 million. Revenues from sales of fluoxetine capsules in North America accounted for 26.0% of our total revenues in this segment in fiscal 2005. Significant product launches in fiscal 2005 included citalopram HBr tablets and ciprofloxacin tablets in the U.S. and pravastatin tablets in the U.K.

     In fiscal 2005, revenues from this segment from sales in Europe were Rs.1,339.6 million, Rs.2,230.1 million from sales in North America and Rs.7.7 million from sales in the rest of the world.

     The following table sets forth the sales of our principal generics finished dosages for fiscal 2003, 2004 and 2005 respectively:

						Fiscal Year Ended March 31,
						2003								2004								2005
						Revenues								Revenues								Revenues				Revenues
				Therapeutic		(in				%				(in				%				(in				(in				%
Region / Product		Therapeutic Category		Sub-Category		millions)				Total(1)				millions)				Total(1)				millions)				million)				Total(1)
North America
Fluoxetine capsules		Central nervous system		Anti-psychotic		Rs.	2,007.4				46.9	%		Rs.	1,898.4				43.8	%		Rs.	928.5			U.S.$	21.3				26.0	%
Tizanidine tablets		Spasticity		Muscle relaxant			777.8				18.2	%			591.1				13.6	%			206.2				4.7				5.8	%
Citalopram tablets		Central nervous system		Anti-psychotic			—				0.0	%			—				0.0	%			201.6				4.6				5.6	%
Ibuprofen tablets		Pain management		Analgesic			31.6				0.7	%			184.0				4.2	%			198.7				4.6				5.6	%
Ranitidine tablets		Gastro-intestinal		Anti-ulcerant			225.1				5.3	%			205.8				4.7	%			194.0				4.4				5.4	%
Ciproflaxacin tablets		Anti-infective		Anti-bacterial			—				0.0	%			1.6				0.0	%			166.1				3.8				4.6	%
Famotidine tablets		Gastro-intestinal		Anti-ulcerant			170.4				4.0	%			143.4				3.3	%			141.1				3.2				3.9	%
Ranitidine capsules		Gastro-intestinal		Anti-ulcerant			196.5				4.6	%			167.3				3.9	%			84.9				1.9				2.4	%
Europe
Omeprazole capsules		Gastro-intestinal		Anti-ulcerant			283.0				6.6	%			325.3				7.5	%			434.1				10.0				12.1	%
Amlodipine maleate tablets		Cardiovascular		Anti-hypertensive			—				0.0	%			17.7				0.4	%			219.9				5.0				6.1	%

     Generic drugs may be manufactured and marketed only if relevant patents on their brand name equivalents and any additional government-mandated market exclusivity periods have expired, been challenged and invalidated, or otherwise validly circumvented.

     Generic pharmaceutical sales have increased significantly in recent years, due in part to an increased awareness and acceptance among consumers, physicians and pharmacists that generic drugs are the equivalent of brand-name drugs. Among the factors contributing to this increased awareness are the passage of legislation permitting or encouraging substitution and the publication by regulatory authorities of lists of equivalent drugs, which provide physicians and pharmacists with generic drug alternatives. In addition, various government agencies and many private managed care or insurance programs encourage the substitution of generic drugs for brand-name pharmaceuticals as a cost-savings measure in the purchase of, or reimbursement for, prescription drugs. We believe that these factors, together with the large volume of branded products losing patent protection over the coming years, should lead to continued expansion of the generic pharmaceuticals market as a whole. We intend to capitalize on the opportunities resulting from this expansion of the market by leveraging our product development capabilities, manufacturing capacities inspected by various international regulatory agencies and access to our own APIs, which offer significant supply chain efficiencies.

     Through the coordinated efforts of our teams in the U.S., Europe and India, we constantly seek to expand our pipeline of generic products. As of March 31, 2005, our U.S. generic pipeline comprised 45 ANDAs pending approval. Of these ANDAs, 29 were submitted as Paragraph IV filings under the Hatch-Waxman Act. As of March 31, 2005, we had received final approval for 15 ANDAs. Between March 31, 2005 and June 30, 2005, we filed 2 additional ANDAs with the U.S.FDA.

     In the European Union, during fiscal 2005 we submitted product license applications for 6 generic drugs to the U.K. Medicines and Healthcare products Regulatory Agency (“MHRA”). In addition, we have also completed Mutual Recognition Procedures for one generic drug in several countries in Europe. Between March 31, 2005 and June 30, 2005, we submitted additional product license applications for 2 products to the MHRA.

     In South Africa, we have filed five product dossiers with the Medicine Control Council (“MCC”), of which four have been approved and one is under review.

     In Canada, we have filed three product dossiers with the Therapeutic Product Programme (“TPP”), of which two have been approved and the remaining one is under review.