Financial Analysis of Dr Reddy’s

Laboratories Ltd

Course Instructor

Prof. Manju Jaiswal

Team Members

Jaideep Singh (272/47)

Pankaj Gangwani (209/47)

Kanupriya Sharda (260/47)

Sanjay Kumar Sah (245/47)

CHIEF EXECUTIVE NAME : Mr G V Prasad

SECRETARY NAME : Mr Sandeep Poddar

BOARD OF DIRECTORS Mr. G V Prasad

Mr. Ravi Bhoothalingam

Dr. K Anji Reddy

Ms. Kalpana Morparia

Dr. Omkar Goswami

Mr. Anupam Puri

Dr. Ashok S Ganguly

Mr. Satish Reddy

Dr. Bruce L A Carter

Dr. J P Moreau

LISTED IN : NATIONAL STOCK EXCHANGE OF INDIA LTD

NEW YORK STOCK EXCHANGE

THE STOCK EXCHANGE, MUMBAI

Corporate Financial Reporting and Analysis, 2010 Page 2

 1. BRIEF COMPANY BACKGROUND

Dr. Reddy's Laboratories is India's leading pharmaceutical company with presence in over 100
countries. Dr Reddy's manufactures a range of products such as Active Pharmaceutical Ingredients,
Generic & Branded Finished Dosages, Specialty Pharmaceuticals, and Biopharmaceuticals. Dr. Reddy's
Laboratories was founded in 1984 by Dr Anji Reddy. In 1986, Dr. Reddy's went public and entered
international markets with exports of Methyldopa. In 1987, Dr. Reddy's obtained its first USFDA
approval for Ibuprofen API and started its formulations operations. In 1988, Dr. Reddy's acquired
Benzex Laboratories Pvt. Limited to expand its Bulk Actives business. In 1990, Dr. Reddy's, entered a
new territory when it, for the first time in India, exported Norfloxacin and Ciprofloxacin to Europe and
Far East. In 1993, Dr. Reddy's Research Foundation was established and the company started its drug
discovery programme. In 1994, Dr. Reddy launched a GDR issue of US$ 48 million. In 1995, the
company set up a joint venture in Russia. In 1997, Dr. Reddy's became the first Indian pharmaceutical
company to out-license an original molecule when it licensed anti-diabetic molecule, DRF 2593
(Balaglitazone), to Novo Nordisk. In 1998, Dr. Reddy's licensed anti-diabetic molecule, DRF 2725
(Ragaglitazar), to Novo Nordisk. In 1999, the company acquired American Remedies Limited, a
pharmaceutical company based in India. In the year 2000, became the first Asia Pacific pharmaceutical
company, outside Japan, to be listed on the New York Stock Exchange. In 2001, Dr. Reddy's
Laboratories became India's third largest pharmaceutical company with the merger of Cheminor Drugs
Limited, a group company. In 2002, Dr. Reddy's made its first overseas acquisition - BMS Laboratories
Limited and Meridian Healthcare in UK. In 2003, Dr. Reddy's launched Ibuprofen, first generic product
to be marketed under the "Dr. Reddy's" label in the US. In 2006, Dr. Reddy's achieved a revenue of US$
1 Billion. In the same year, Dr. Reddy's acquired Betapharm- the fourth-largest generics company in
Germany. In 2008, the company has acquired Jet Generici Srl, a company engaged in the sale of generic
finished dosages in Italy. The deal has been completed via Dr Reddy's Italian subsidiary. The company
proven research capabilities and vertically integrated with a presence across the pharmaceutical value
chain and it conducts research in the areas of diabetes, obesity, cardiovascular diseases, anti-infectives
and inflammation. To help people lead healthier lives by delivering affordable and accessible
medication to all parts of the world and discovering, developing and commercializing innovative
medicines that satisfy unmet medical needs are the two parallel objectives of Dr. Reddy's Laboratories
Limited, and it is sustain path of the company to survive. The appreciation and recognition is a role to
boost, as part the company has received plenty of awards and applications already, continued that, the
company got Pharma Excellence Awards 2006-07 under the category of Sustained Growth by The
Indian Express, Dun & Bradstreet American Express in Corporate Awards 2007, Best Corporate Social
Responsibility Initiative 2007 by BSE - India and Amity Leadership Award for Best Practices in HR in
Pharmaceutical Sector. Today, Dr. Reddy's Laboratories is leading pharmaceutical company in India in
terms of turnover and profitability.

Corporate Financial Reporting and Analysis, 2010 Page 3

 2. BRIEF INDUSTRY OUTLOOK

“The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at
affordable prices are available to the vast population of this sub-continent.”
Richard Gerster

The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with
wide ranging capabilities in the complex field of drug manufacture and technology. A highly
organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about
8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and
range of medicines manufactured. From simple headache pills to sophisticated antibiotics and
complex cardiac compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian
Pharma Industry boasts of quality producers and many units approved by regulatory authorities in
USA and UK. International companies associated with this sector have stimulated, assisted and
spearheaded this dynamic development in the past 53 years and helped to put India on the
pharmaceutical map of the world.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has
expanded drastically in the last two decades. The leading 250 pharmaceutical companies control
70% of the market with market leader holding nearly 7% of the market share. It is an extremely
fragmented market with severe price competition and government price control.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs,
drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles.
There are about 250 large units and about 8000 Small Scale Units, which form the core of the
pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the
complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients
and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of
pharmaceutical formulations.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs
and pharmaceutical products has been done away with. Manufacturers are free to produce any drug
duly approved by the Drug Control Authority. Technologically strong and totally self-reliant, the
pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific
manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical
Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property
Protection regime is well set to take on the international market.

Corporate Financial Reporting and Analysis, 2010 Page 4

 3. BROAD ANALYSIS OF FINANCIAL STATEMENTS

A. Balance Sheet and Profit & Loss Analysis

Sales
Gross sales increased by 37% to Rs. 68,428 million in 2008-09 and to Rs.70,626 million in 2009-10 .
One of the reasons was an increase in Gross sales of Global Generics which grew by 50% to Rs.
49,802 million. Gross sales decreased by 24 percent to Rs. 50,476 million in 2007–08. This was
because previous year sales included revenues from sales of Authorized Generics products, which
did not materialize in 2007–08. Revenues from Betapharm have suffered due to pricing pressures in
the German generics market as well as supply chain problems. No launches during FY08 and end of
exclusivity period for simvastatin and finasteride led to drop in prices. Gross sales increased by 165
per cent to Rs. 66,035 million in 2006–07. Exceptional performance in FY07 was on account of four
generic launches in the US. During FY07, simvastatin and finasteride contributed INR 15.8 billion or
24% of DRL’s total revenues.

Profit/ (loss) after Tax

PAT decreased from Rs. 4,373 million in 2007-08 to Rs. (9,172) million in 2008-09 primarily due to
Betapharm impairment of intangibles of Rs 3,167 million and goodwill of Rs. 10,856 million. During
the year 2009-10, the comparable numbers were Rs. 3,456 million and Rs. 5,147 million leading to
PAT of Rs. 3515 million which is relatively low compared to 2007-08 and 2006-07. This was caused
by the German generics market is transiting to a lowest-price tender model. State Healthcare
Insurance Fund companies issued tenders for generics supply where the lowest bidder for each in a
local geography wins. The lower PAT in 2008-09 as compared to 2009-10 can also be attributed to an
expense of Rs. 916 million in 2008-09 on account of liquidated damages paid to Eli Lilly arising out of
an unfavourable court decision relating to patent of olanzapine in Germany.

PAT decreased by 55% from Rs. 9,655 million in 2006–07 to Rs. 4,373 million in 2007–08. As outlined
above, this was because previous year sales included revenues from sales of Authorized Generics
products, which did not materialize in 2007–08.

Operating and Other Expenses

The increase in operating expenses year on year has some common causes - higher advertisement
costs, rise in power and fuel consumption and costs, and repairs and maintenance expenses due to
increase in production and commissioning of two new manufacturing plants; increase in number of
employees and increase in carriage outwards because of higher sales volumes.

Personnel costs rose by 19% to Rs. 11,634 million in 2009-10. This was on account of annual
increments and increase in number of employees. As a share of total income, personnel costs
increased to 17% in 2009-10, from 15% in 2008-09.

Selling expenses have grown over the years on account of symposiums, media expenses, sales
development costs and higher field expenses.

Depreciation and Amortization

Depreciation and amortization decreased by 17% to Rs. 4,131 million in 2009-10 due to lower
amortization charge on betapharm intangibles, resulting from impairment charge recorded in 2008-
09.

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Depreciation and amortization increased by 24% to Rs. 4,977 million in 2008-09 and by 6 percent to
Rs. 4,018 million in 2007–08 because of increase in gross block and intangibles. Additional
investments were incurred towards normal capital expenditure as well as new projects in PSAI and
Global Generics. Amortization grew from Rs. 436 million in 2005–06 to Rs. 2,369 million in 2006–07
due to write down of intangible assets in Trigenesis.

Cash and Bank Balances

We see a decrease in cash and bank balances over the five years which is a positive sign as more
investments are being made to grab business opportunities. However, this decrease can also be
attributed to increased operational expenses over the years.

Income Tax
We see an increasing trend in income tax over the years owing to increasing sales and income of the
company. Even though DLR has recorded aggregate non-cash impairment charge amounts to Rs.
14,023 million in 2008-09 and Rs 8693 million in 2009-10, there was an increase in Income Tax
Impairment does not figure in the calculation of Taxable Income. FY 2007 saw much higher tax, due
to extraordinarily high sales ad discussed before.

B. Cash Flow Statement Analysis

Overall
An over study of the cash flow statement shows the company is doing well. Positive cash flow from
operating activities over the years, despite unforeseen expenditures, shows that the company’s
operations are profitable. Negative cash flow from investing and financing activities is a good sign of
growth and expansion and a measure of its credibility in the market. It is favourable for potential
investors.

Inorganic Growth
DRL since the past few years has been vying for high growth through inorganic route through
acquisitions in the international arena. The same can be inferred from the cash flow statement.
company has been on a spree of acquisitions and has recorded huge inorganic growth in recent
years. During the year 2005-2006 they raised huge amounts of debt to fund their acquisition of
Roche’s API business, its order books and plant in Mexico for US $61 million and of Betapharm,
Germany’s 4th largest pharma company for EUR 483 million.

In 2008-09, the company continued its inorganic Growth by acquiring a portion of Dowpharma Small
Molecules business associated with its United Kingdom sites in Mirfield and Cambridge, BASF
Corporation’s manufacturing facility at Shreveport in Louisiana, USA and Jet Generici SRL, a company
engaged in the sale of generic finished dosages in Italy.

Cash Flow from Operating Activities

Net Profit before Taxation:

This displays a steady increase over the years due to the accompanying steady increase in revenue
which can be accounted to increased business with owing to high organic growth and thus increased

Corporate Financial Reporting and Analysis, 2010 Page 6

sales. However, we see a net loss Rs 6563 million for the year 2008-09 which was due to Betapharm
impairment. The surge in PBT in 2006-07 is due to exceptionally high sales on the account of 4
generic launches in the US each enjoying an exclusivity period. During 200607, simvastatin and
finasteride contributed INR 15.8 bn or 24% of DRL’s total revenues. This increased sales 176% and
PAT was up by 558%. The increased sales resulted in increased net operating cash flow by 10.5%.

The Betapharm impairment was triggered by adverse market conditions such as decrease in market
prices and an increasing trend of State Healthcare Insurance Fund companies in Germany to adopt a
lowest price tender supply model. Products awarded to the Company under a big tender from the
German State Health Fund ―SHIǁ, did not include many of the key products. As a result the
Company tested carrying value of betapharm intangibles for impairment. With the market having
moved to tender-based supplies, the goodwill also had to be evaluated for impairment.

Profit/Loss due to Foreign Exchange Rate:

The year 2007–08 saw exceptional fluctuations in the Indian rupee-US dollar exchange rate. The
average daily US dollar value for 2007–08 was Rs. 40.28 compared to Rs. 45.24 during the previous
year. While the Company took adequate foreign exchange cover against its exports, depreciation of
the US dollar adversely affected realizations. This resulted in huge unrealized losses to the tune of
Rs. 224 million. The dollar strengthened in the following year leading to a reversal of the previous
effect and resulted in huge unrealized foreign exchange gains to the tune of Rs. 485 million.
However, USD deteriorated once again in 2009-10 leading to a forex loss of Rs. 807 million.

Cash Flow from Investing Activities

Purchase/Sale of fixed assets:

We observe a steady trend of increasing outflow of cash over the years, indicating some amount of
organic growth of the company. Investing activities includes investment in property, plant and
equipment of Rs. 9,665 million to meet the business growth, compared to Rs. 6,419 million in 2008-
09. Compared to purchases, sale of fixed assets is small indicating utilisation of assets for operations.

Purchase/Sale of Current Investments:

Investment in mutual funds net of proceeds from sale amounted to Rs. 3,009 million in 2009-10
compared to Rs. (4379) in 2008-09 and Rs. 3,382 million in 2007-08. Details of investment make it
clear that most of the sales are the sale of the company’s investment in different mutual funds and
equity of other companies. Greater sale than purchase of current assets in 2008-09 led to a decrease
in interest income by 37% in 2009-10

Acquisition of Companies:

There has been outflow of cash over the years to acquire new companies, leading to high inorganic
growth as discussed before. During the year 2005-06 they raised huge amounts of debt to fund their
acquisition. An outflow of Rs 27026 million in 1005-06 shows they used their entire cash flow from
operating activities and financing activities to fund these acquisitions leaving the company with net
cash of Rs.9796 million of previous year. The cash position at the end of year 2006-2007 increased
by 90% to Rs. 18,000 million. These huge cash reserves have been useful in allowing the company to
make investments in inorganic growth over 2007-08 and 2008-09, even in the face of slowing sales
and profit growth.
Corporate Financial Reporting and Analysis, 2010 Page 7
2009-10 did not see any acquisitions owing to huge losses due to impairment charges at German
subsidiary Betapharm and withdrawal of one lot each of its four generic drugs — citalopram,
fexofenadine, risperidone and pravastatin which led to a 55% drop of its sales in the US.

Cash Flow from Financing Activities

Issue of Shares:

With its exceptional sales in 2006-07, the company was able to cover all of its financing activities
through cash generated by operating activities. It still went ahead with issuing Rs. 10,000 million
worth of equity shares. This could be due to forecasts of turbid market conditions in US and
emerging signs of global recession.

Long-term/Short-term Borrowings:

During the year 2005-2006 they raised huge amounts of long-term debt to fund their acquisition of
Roche’s API business, its order books and plant in Mexico for US $61 million and of Betapharm,
Germany’s 4th largest pharma company for EUR 483 million. In 2007-08, the company also paid back
a large amount of unsecured loan. This has to be compared with the fact that the previous year, the
company borrowed money through commercial papers to meet its short-term requirements.

Dividends:
We see an increase in the amount of dividend paid over the years with the payment being Rs 1232
million in 2009-10. This is a sign of growth and profitability and is justified considering the excess
cash with the company despite having exploited investment opportunities.

4. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation
The financial statements of Dr. Reddy’s Laboratories Limited (DRL) are presented in accordance with
Indian Generally Accepted Accounting Principles (GAAP). The financial statements are rounded off to
the nearest million.

Fixed assets and depreciation

• Fixed assets are carried at the cost of acquisition or construction less accumulated depreciation.
• Depreciation on fixed assets is done using the straight-line method at the rates specified in
Schedule XIV to the Companies Act, 1956 or based on the useful life of the assets as estimated
by Management, whichever is higher.
• Individual assets costing less than Rs. 5,000/- are depreciated fully in the year of acquisition.

Intangible assets and amortisation

• Intangible assets are amortised over their estimated useful lives on a straight-line basis, starting
from the date the asset is available to the Company for use.

Corporate Financial Reporting and Analysis, 2010 Page 8

Inventories
• Inventories are valued at the lower of cost and net realisable value. Cost of inventories
comprises all cost of purchase, cost of conversion and other costs incurred in bringing the
inventories to their present location and condition.
• The methods of determining cost of various categories of inventories are as follows:
• Raw materials First-in-first-out (FIFO); stores and spares and packing materials Weighted
average method; work-in-process and finished goods (manufactured) FIFO and including an
appropriate share of production overheads; Finished goods (traded) Specific identification
method

Investments
• Long-term investments are carried at cost less any other-than-temporary diminution in value,
determined separately for each individual investment. The reduction in the carrying amount is
reversed when there is a rise in the value of the investment or if the reasons for the reduction
no longer exist.
• Current investments are carried at the lower of cost and fair value. The comparison of cost and
fair value is done separately in respect of each category of investment.

Foreign currency transactions and balances

• Foreign currency transactions are recorded using the exchange rates prevailing on the dates of
the respective transactions. The resultant exchange differences are recognised in the Profit and
Loss Account.
• Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date,
are translated at year end rates. Non-monetary assets are recorded at the rates prevailing on
the date of the transaction.
• Income and expenditure items at representative offices are translated at the respective monthly
average rates.

Derivative instruments and hedge accounting

• DRL uses foreign exchange forward contracts and options to hedge its movements in foreign
exchange rates and does not use the foreign exchange forward contracts and options for trading
or speculative purposes.
• The exchange differences relating to options not designated as cash flow hedges are recognised
in the Profit and Loss Account as they arise.

Revenue Recognition
• Revenue from sale of goods is recognised when significant risks and rewards in respect of
ownership of products are transferred to customers. Revenue from domestic sales of generic
products is recognized upon delivery of products to stockists by clearing and forwarding agents
of the Company. Revenue from domestic sales of active pharmaceutical ingredients and
intermediates is recognized on delivery of products to customers, from the factories of the
Company.

Corporate Financial Reporting and Analysis, 2010 Page 9

• Revenue from export sales is recognized when the significant risks and rewards of ownership of
products are transferred to the customers, which is based upon the terms of the applicable
contract.
• Dividend income is recognised when the unconditional right to receive the income is
established.

Income-tax expense
• The current charge for income taxes is calculated in accordance with the relevant tax regulations
applicable to the Company.
• Deferred tax assets are recognised only to the extent there is reasonable certainty that the
assets can be realised in future; however, where there is unabsorbed depreciation or carry
forward of losses, deferred tax assets are recognised only if there is a virtual certainty of
realisation of such assets

Earnings per share

• The basic earnings per share (“EPS”) is computed by dividing the net profit after tax for the year
by the weighted average number of equity shares outstanding during the year.
• For diluted earnings per share, net profit after tax for the year and the weighted average
number of shares outstanding during the year are adjusted for the effects of all dilutive potential
equity shares.

Impairment of Assets
The Company assesses at each balance sheet date whether there is any indication that an asset may
be impaired.
• If any such indication exists, the Company estimates the recoverable amount of the asset. If such
recoverable amount of the asset or the recoverable amount of the cash generating unit to which
the asset belongs is less than its carrying amount, the carrying amount is reduced to its
recoverable amount. The reduction is treated as an impairment loss and is recognised in the
Profit and Loss Account.
• If at the balance sheet date there is an indication that if a previously assessed impairment loss
no longer exists, the recoverable amount is reassessed and the asset is reflected at the
recoverable amount subject to a maximum of depreciated historical cost.

Leases
• Assets taken on lease where the company acquires substantially the entire risks and rewards
incidental to ownership are classified as finance leases. The rental obligations, net of interest
charges, are reflected as secured loans.
• Leases that do not transfer substantially all the risks and rewards of ownership are classified as
operating leases and recorded as expense as and when the payments are made over the lease
term.

Corporate Financial Reporting and Analysis, 2010 Page 10

 5. GENERIC RATIO ANALYSIS

Liquidity ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Current Ratio 1.89 2.27 2.64 3.34 2.50

Quick Ratio 1.48 1.69 1.87 3.05 2.34

Financial Slack 12.55 10.18 11.52 28.68 18.89

Efficiency Ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Overall Efficiency 1.34 1.18 0.79 1.13 0.65

Fixed Assets Turnover 2.16 1.82 1.24 1.77 1.08

Working Capital Turnover 3.53 3.39 2.20 3.09 1.64

Inventory (FG & WIP) Turnover 4.08 4.50 4.63 6.95 3.46

Average Inventory Holding Period 88 80 78 52 104

Debtors Collection Period 68 56 53 36 69

Creditors Payment Period 8 7 7 5 13

Profitability Ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Operating Profit Margin 16.92% 16.72% 11.76% 21.79% 10.18%

Net Profit Margin 5.03% -13.37% 8.81% 14.82% 6.23%

Return on Total Assets (ROTA) 12.47% 26.74% 7.23% 18.94% 4.72%

Return on Capital Employed (ROCE) or ROI 12.89% 27.66% 7.49% 19.10% 4.83%

Return on Net Worth (RONW) 9.31% -26.01% 9.72% 24.15% 7.09%

Dividend Per Share (DPS) 11.27 6.26 3.76 5.15 5.01

Pay-out Ratio 0.54 -0.11 0.14 0.07 0.26

Basic Earning Per Share (EPS) 20.84 N/A 26.02 78.95 19.15

Long-term Solvency ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Debt-Equity Ratio (D/E) 0.39 0.57 0.44 0.62 1.51

Debt Ratio 0.28 0.36 0.30 0.38 0.60

Interest Coverage Ratio 10.13 -7.48 5.28 7.08 3.15

Corporate Financial Reporting and Analysis, 2010 Page 11

 Market based ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
Price Earning (P/E) 61.62 -8.70 22.70 9.22 37.07

Price to Book Value ( P/B) 3.67 1.52 2.06 2.79 2.41

Market Cap/Sales 3.10 1.16 2.00 1.88 2.31

6. TREND ANALYSIS
i. Liquidity ratios
Current Ratio & Quick Ratio:

Liquidity ratios indicate how well a company manages its short-term obligations. Here both current
and quick ratios are greater than 1 over the 5 years, indicating that the firm leads in cash. A relative
decrease in current ratio over the years shows that the firm is putting extra cash into investments
indicating good liquidity management. The increase in the difference between quick and current
ratios over time shows that the firm has increased its inventory over the years.

Corporate Financial Reporting and Analysis, 2010 Page 12

ii. Efficiency Ratios
Fixed Assets Turnover & Working Capital Turnover:

Overall efficiency of the firm has increased over the five year period from 0.65 to 1.34. Fixed Asset
Turnover sales revenue per rupee of fixed assets, therefore an increase in the ratio over the years as
seen above indicates more efficient use of assets. Working Capital Turnover shows how many times
the working capital is revolved to generate sales – an increase from 1.64 in FY 06 to 3.53 in FY 10
shows better utilization of working capital over time.

Inventory Holding Period, Debtors Collection Period & Creditors Payment Period:

Inventory Holding Period for the firm shows slight increase over the years except in FY 07 which
shows a great dip which is because of increased sales in that year with the launch of the 4 Generics
in the US as discussed before. The firm has relatively high Debtors Collection Period compared to
Creditors Payment period indicating a liberal credit policy of the firm for its buyers but a relatively
stringent payment policy with its suppliers. This greatly increases the requirement of working capital

Corporate Financial Reporting and Analysis, 2010 Page 13

which explains high inventory holding period. However, the firm should try to maximize its payment
period to enjoy better bargaining power in the market.

iii. Profitability Ratios

Operating Margin & Net Profit Margin:

Operating Margin indicates profitability from a firm’s main operating activities. Operating profits and
sales are relatively similar in FY 10 and FY 09 which is evident from relatively similar Operating
Margins. However, we can see a significant fall in Operating Margin by 37% in 2008 as compared to
the previous year which is due to a fall in revenues by 23%, which in turn was caused by a fall in the
sales of authorized generics (AG) in FY 08 — which had contributed 48 percent of this segment’s
revenues in FY 07. Also, revenues from Betapharm suffered due to pricing pressures in the German
generics market.

Net Profit Margin denotes overall profitability – from both operations as well as from non-operating
activities. The increase in Net Profit Margin in FY 07 is due to increased sales in 2007 on account of
four generic launches in the US as outlined under Sales. Net Profit Margin fell in FY 09 by 250% from
FY 08 even though Net Sales increased, because of a 310% fall in PAT caused by Betapharm
Impairment which has been discussed above in the Cash Flow Analysis. As PAT became positive
again in FY 10, Net Profit Margin increased but is still low compared to previous years.

Corporate Financial Reporting and Analysis, 2010 Page 14

Return on Total Assets, Return on Capital Employed & Return on Net Worth

ROTA shows the profitability on total assets of the firm. We see a rise in ROTA from FY 06 to FY 07 by
300% and then a fall in FY 08 by 61% which is both due to high operating profits in FY 07 owing to
increased sales with the launch of the four Generics in the US which could not be sustained in FY 08
after the exclusivity period ended. As sales rose again in FY 09 and 10, DLR saw an increase in ROTA.
ROCE follows a similar trend but is slightly higher than ROTA which indicates better profitability of
assets engaged within the business.

RONW shows residual return to shareholders. The difference between ROCE and RONW shows the
impact of financing charges and other income. In the first 3 years higher RONW compared to ROCE
indicates low borrowing costs but in FY 09, we see a large negative RONW which was due to a net
loss owing to Betapharm impairment.

iv. Long-term Solvency Ratios

This explains the long-term financing plans of the company. Too much dependency on loans may
severely impact profitability and liquidity whereas presence of debt provides incentive for better
performance.
Long-term Solvency ratios Mar-10 Mar-09 Mar-08 Mar-07 Mar-06
0.39 0.57 0.44 0.62 1.51
Debt-Equity Ratio (D/E)
0.28 0.36 0.30 0.38 0.60
Debt Ratio
10.13 -7.48 5.28 7.08 3.15
Interest Coverage Ratio

In FY 06 the firm had greater debt than shareholder funding. However over the years, it has achieved
a good mix of debt and equity as reflected by the Debt-Equity Ratio. A high Interest Coverage Ratio
over the years shows the firm’s ability to meet its interest requirements except in FY 09 when ICR is
negative implying a net loss or negative PAT.

Corporate Financial Reporting and Analysis, 2010 Page 15

v. Market-based Ratios
Price Earning & Price to Book Value:

High P/E over the years indicates good future earnings for the firm and that the market is willing to
put a high premium on the firm’s earnings which is true for DRL except in 2009 where P/E multiple
goes negative which is again due to huge Betapharm impairments that year. However, as FY 10 goes
back to being profitable, we see a steep rise in P/E.

P/B denotes the price market is willing to put on its assets. Even though there is a dip in the P/B
multiple in 2009, overall its greater than 1 over the years implying market confidence in the firm and
high goodwill.

vi. Du-pont Analysis

Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Operating Margin (1) 16.921844 16.71549 11.76281 21.79454 10.18463
Asset Turnover (2) 1.3394538 1.184209 0.793122 1.125109 0.650679
Leverage Impact (3) 3.3644381 -1.25055 1.33501 1.470353 1.634524
Equity Ratio (4) 0.6998467 0.692294 0.678699 0.523887 0.554062

ROE = 1*2/(3*4) 9.626313 -22.8642 10.29649 31.8334 7.317494

The Du- point analysis tries to show the breakup of the ROE in terms of the four factors mentioned
above. We see that the Profitability Ratio of the firm has increased over the past 3 years and shows
that the company is able to pay for its fixed costs, such as interest on debt. The efficiency Ratio –
Asset Turnover is also increasing over the last 3 years showing that the firm is operating efficiently
and is effectively utilizing its fixed assets to generate Sales (Note:- There were exceptionally high
sales in FY 2007 due to high sales because of the launch of 4 generic drugs in the US).The leverage.
Lastly the Leverage impact is negative in FY 2009 because of impairment losses due to beta-pharm
as discussed earlier.

Corporate Financial Reporting and Analysis, 2010 Page 16

 7. QUARTERLY PERFORMANCE ANALYSIS
Q on Q Variation:

Quarter Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08

Gross Sales 3.20 -6.85 -5.48 1.84 -7.61 6.85 13.70
Excise Duty -100.00 7.92 1.29 0 -100.00 -9.93 -42.96
Net Sales 3.73 -6.92 -5.51 1.42 -7.26 6.92 14.21
Other Operating Income -100.00 57.60 10.41 0 -100.00 -4.11 -16.01
Other Income -385.22 -173.38 -68.74 537.77 -73.23 90.96 -3.24
Total Income 3.85 -7.24 -6.37 3.49 -8.36 7.26 13.85
Total Expenditure -0.75 -26.26 22.35 8.62 -52.83 95.00 8.95
PBIDT 25.49 -534.03 -117.03 -12.42 -147.50 -363.01 40.56
Interest 354.87 -52.61 19.97 -49.30 -34.45 -25.30 4.98
PBDT 20.96 -480.80 -119.49 -11.26 -145.06 -391.48 44.69
Depreciation -1.24 -11.59 12.47 -12.33 -15.12 8.20 0.55
Tax -54.68 68.28 9.51 -41.11 -56.23 267.21 163.56
Reported Profit After Tax 98.06 -145.39 -197.17 -1.89 -119.48 -888.51 83.70
Extra-ordinary Items 0 -100.00 0 0 -100.00 0 0
Adj. Profit 98.06 -40.68 -25.64 -1.89 17.62 30.59 83.70
EPS (Unit Curr.) 0 0 -100.00 -2.00 0 -100.00 83.50
Equity 0.18 0.01 0.05 0.05 0.12 0.02 0.01

Variation Of Quarterly Net Sales and PAT:

Corporate Financial Reporting and Analysis, 2010 Page 17

 Y on Y Variation:

Quarter Q1 Q4 Q3 Q2
Gross Sales -7.47 -17.16 -4.98 14.30
Excise Duty 13.58 -5.21 -46.62
Net Sales -7.47 -17.28 -4.98 14.85
Other Operating Income 0 103.42 23.76 -5.85
Other Income 317.25 -139.16 1.90 215.44
Total Income -6.65 -17.63 -4.76 15.81
Total Expenditure -2.75 -53.78 22.23 8.84
PBIDT -18.78 -130.74 -118.63 53.79
Interest 31.12 -81.10 -70.21 -73.94
PBDT -20.35 -129.67 -122.71 68.63
Depreciation -13.91 -26.00 -9.45 -19.04
Tax -50.82 -52.50 3.65 149.45
Reported Profit After Tax -14.28 -108.43 -246.44 176.84

Dr Reddy's Laboratories net profit on consolidated basis for the quarter ended June 2010 declined
by 14% to Rs 209.55 crore on 7% fall in the income from operations to Rs 1683.13 crore. The fall in
revenues and profits was on a higher base as it marketed authorized generic Sumatriptan in US
market in Q1 FY'09. Excluding the revenues from Sumatriptan in the Q1 FY'09, the base business
rose by 4%. Despite launching two OTC products in US market, the sales from US market plunged by
35% due to lower penetration of these drugs.

Dr Reddy's Laboratories came out with pale performance for the quarter ended March 2010. Net
sales plummeted by 17.28% to Rs 1622.56 crore on a higher base as it supplied authorized generic
version of Sumatriptan before patent expiration in US market in Q4 FY'09. The price of drug was
eroded as patent expired in the mid of August 2009 and more players started supplying the drug in
US market. Net profits rose to Rs 105.80 crore as compared to a huge net loss of Rs 1255.00 crore in
Q4 FY'09 due to expenses of Rs 1462.84 crore in the corresponding previous period on the account
of writeoff of goodwill (Rs 1376.60 crore) and impairment on some of the product related
intangibles (Rs 85.24 crore)..

Dr Reddy's Laboratories reported net loss of Rs 233.07 crore for the quarter ended December 2009
as compared to net profit of Rs 159.16 crore in the corresponding previous period. Net loss during
the quarter under review was on the back of expenses booked amounting to Rs 458.28 crore on the
account of impairment goodwill and intangibles for its German subsidiary. Net sales declined by 6%
to Rs 1703.55 crore due to price erosion in authorized generic Sumatriptan.

Dr Reddy's Laboratories came out with robust results and above the expectation of market for the
quarter ended September 2009. Net profit spurted by 177% to Rs 239.85 crore on the back of
moderate growth of 15% in income from operation to Rs 1858.04 crore. The growth in revenues for
the quarter is mainly driven by good growth in North America, Russia and Indian markets. The prices
of Sumatriptan have been corrected as generic versions were launched by the generic players after
expiring the patent in the mid of August 2009

Corporate Financial Reporting and Analysis, 2010 Page 18

 8. COMPARATIVE ANALYSIS

Company Dr Reddy's Cipla Ranbaxy

Year 2010 2009 2010 2009 2010 2009
Net Sales 69886 68619 53595.2 49606 75412.01 73337.4
Net Sales Increase (%) 1.85 - 8.04 - 2.83 -
Market Capitalization 21,684.8 - 24,424.8 - 21,199.7 -
Equity Dividend 1901.1 1054.0 1605.8 1554.6 0 0
Cap-ex 250.7 - 1,562.7 - 47.15 -

Debt-Equity Ratio (x) 0.39 0.57 0.09 0.18 0.91 1.17

Current Ratio (x) 1.89 2.27 2.36 1.89 1.38 1.37
Fixed Assets (x) 2.16 1.82 1.94 2.06 1.21 1.25
Inventory (x) 4.08 4.50 3.72 3.99 3.97 4.08
Interest Cover Ratio (x) 10.13 -7.48 47.86 18.15 15.21 -6.3
Operating Profit Margin (%) 16.92 16.72 28.11 21.9 17.84 -13.75
Return On Capital Employed (%) 12.89 27.66 24.22 19.82 12.9 0
Return On Net Worth (%) 9.31 -26.01 21.14 19.07 7.03 0

Profitability vs Sales Growth

For DRL, net sales grew by 1.8% in FY 10 over FY 09 and 38% in FY 09 compared to the previous year,
while the operating profit margin increased from 16.72% to 16.92%. In comparison, Ranbaxy
witnessed a topline growth of 2.83% in FY 10, while its operating profit margin declined from -
13.75% in FY 09 to 17.84% in FY 10. Meanwhile, for Cipla, net sales increased by 8.04% in 2009-10,
while the operating profit margin increased from 21.9% to 28.11%. Thus industry wide, though there
was a growth in both sales and profits in the last financial year, Cipla achieved a much higher topline
growth. The relatively smaller increase in sales of DRL can be attributed to a higher base in FY 09 due
to high sales of sumatriptan.

Efficiency vs Profitability
Ranbaxy had a fixed asset efficiency ratio of around 2.16 in FY 10, while the fixed asset efficiency
ratio for Cipla stood at 1.94 and for Ranbaxy at 1.21. DRL saw an increase in asset efficiency while
Cipla and Ranbaxy saw a decrease indicating better utilisation of assets byDRL. However, the
operating profit margin was highest for Cipla at 28.11%, followed by Ranbaxy at 17.84% and DRL at
16.92%. Even though DRL was able to achieve a higher sale as a multiple of its fixed assets compared
to Cipla and Ranbaxy, its profitability was the lowest.

Liquidity vs Profitability
DRL had a current ratio of 1.89 in FY 10 decreased from 2.27 in FY 09, which indicates investment of
lead cash, thus better liquidity management. Ranbaxy’s current ratio was 1.38 and 1.37 in the
financial years which is a good level of liquidity. In contrast, Cipla saw an increase in its current ratio
from 1.89 in FY 09 to 2.36 in FY 10 which shows an excess of current assets. We see that Ranbaxy has

Corporate Financial Reporting and Analysis, 2010 Page 19

the best liquidity management, DRL has improved in the last year but Cipla must invest its excess
current assets for further growth.

Sales Growth vs Market Valuation

Cipla’s market capitalization stands at Rs. 24,424.8 crore, compared to Rs. 21,199 crore of Ranbaxy
and Rs. 21,683 crore of DRL. Cipla also saw the highest sales growth of 8.04% compared to Ranbaxy’s
sales growth of 2.83% and DRL’s 1.85%. Overall Cipla has a higher market value compared to DRL
and Ranbaxy due to consistently better performance in departments of profitability and liquidity as
well a better future earning potential.

Dividend Payout vs Capital Expenditure

DRL has a proposed dividend payout of Rs 190 crore for 2009-10, while that for Cipla is Rs. 160.5
crore. Ranbaxy, on the other hand, has not proposed any dividends in FY 10 and FY 09 owing to its
net loss in FY 09. Cipla’s capital expenditure stood at 1,562.7 crore in FY 10, compared to 250.7 crore
for DRL and only 47.15 crore increase for Ranbaxy. Even though Cipla has a much higher Capital
Expenditure, DRL has proposed higher dividends to its shareholders.

All the above comparisons show that Cipla has had the best financial growth over the last financial
year, compared to the other major competitors in the industry.

9. KEY INDICATOR FOR INDUSTRY

The pharmaceutical industry has two distinct functions: research and development (R&D), and
manufacturing. Some firms are primarily engaged in R&D, while others concentrate on
manufacturing. The largest and best-known pharmaceutical firms, like DLR and its rivals Cipla and
Ranbaxy, do both.
DLR invests heavily into R&D every year. Two main areas of focus are i) Global Generics and ii)
Pharmaceutical Services and Active Ingredients. As a share of the total revenue, the R&D
expenditure of the company was 5% in FY 10 and 6% in FY 09. The other competitors in the industry
are also spending 5% or more on R&D. This is essential to support the new product pipe-line of these
companies and is responsible for driving future revenue growth.
Benefits of R&D expenditure include: commercial production of the new products; modification of
existing manufacturing processes for some of the products and
significant savings in cost of production; modification of existing manufacturing processes to reduce
the time cycle; Indian patents and US patents filings for protection of Intellectual Property generated
during R&D.
Traditionally, DRL has had a higher R&D expenditure as compared to Ranbaxy as the former is largely
involved in developing new drugs, while the later specialized in Novel Drug Delivery System (NDDS).
NDDS leads to lower risk and R&D expenditure as well as faster turn-out times, but the product life
cycle and pay-offs are much smaller as compared to the development of new drugs.
Thus, a high expenditure on Research and Development is a good indicator that captures the
pharmaceutical industry.

Corporate Financial Reporting and Analysis, 2010 Page 20

 10. OVERALL FINANCIAL HEALTH
2009-10 has been a financially satisfactory year for Dr Reddy’s Laboratories. Consolidated revenues
for 2009-10 were Rs. 70,277million. Excluding revenues from sumatriptan — DRL’s Authorized
Generic version of Imitrex which was launched in 2008-09 — revenue grew by 9%. The Company’s
revenue has been rising at a CAGR of 23% over the last decade. That is a creditable performance by
any standard.
DRL’s EBITDA of Rs. 15,828 million in 2009-10 was the highest among pharmaceutical companies in
India. Return on Capital Employed (RoCE) in 2009-10 was 17%, as against 14% in 2008-09.
DRL made some noticeable achievements in 2009-10. It entered the list of top 10 generic companies
in the US. In Russia, the company’s revenues grew by 25% in 2009-10 — versus an overall market
growth of 8%. In the Indian market, DRL’s revenues increase by 20% in 2009-10 to Rs. 10,158 million
— thus crossing the Rs. 1,000 crore landmark.
The company aims to earn a return on capital employed between 18% to 22%, in line with the goal
of reaching 25% by 2012-13.

References

1) www.capitaline.com

2) Dr Reddy’s Laboratories Annual Report 2010, 2009, 2008, 2007, 2006

Corporate Financial Reporting and Analysis, 2010 Page 21

Appendix

1. BRIDGED BALANCE SHEET, P&L AND CASH FLOW FOR LAST FIVE
YEARS

A. Balance Sheet

(Rs Million)
Year Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

SOURCES OF FUNDS :
Share Capital 844.0 842.0 841.0 839.6 383.5
Reserves Total 36924.0 34419.0 44128.0 39133.0 20305.3
Total Shareholders Funds 37768.0 35261.0 44969.0 39972.6 20688.8
Minority Interest 0.0 0.0 0.0 10.5 0.0
Secured Loans 269.0 386.0 642.0 6144.3 1779.7
Unsecured Loans 14571.0 19590.0 19042.0 18762.3 29389.4
Total Debt 14840.0 19976.0 19684.0 24906.6 31169.1
Total Liabilities 52608.0 55237.0 64653.0 64889.7 51857.9
APPLICATION OF FUNDS :
Gross Block 64468.0 65027.0 54878.0 47203.0 42012.8
Less: Accumulated Depreciation 40946.0 35757.0 15753.0 11848.8 8095.6
Net Block 23522.0 29270.0 39125.0 35354.2 33917.2
Capital Work in Progress 7622.0 4296.0 2684.0 2897.8 1398.2
Investments 3580.0 523.0 4821.0 1341.2 1337.2
Current Assets, Loans & Advances
Inventories 13394.0 13250.0 11019.0 7471.5 6665.2
Sundry Debtors 11599.0 14406.0 6522.0 7810.4 5104.4
Cash and Bank 6600.0 5623.0 7447.0 18610.1 9796.2
Loans and Advances 6609.0 5519.0 5349.0 3600.4 5051.9
Total Current Assets 38202.0 38798.0 30337.0 37492.4 26617.7
Less : Current Liabilities and Provisions
Current Liabilities 16746.0 15118.0 10333.0 9853.5 8527.6
Provisions 3502.0 1994.0 1175.0 1375.4 2129.9
Total Current Liabilities 20248.0 17112.0 11508.0 11228.9 10657.5
Net Current Assets 17954.0 21686.0 18829.0 26263.5 15960.2
Deferred Tax Assets 1074.0 793.0 247.0 95.1 26.6
Deferred Tax Liability 1144.0 1331.0 1053.0 1062.1 781.5

Corporate Financial Reporting and Analysis, 2010 Page 22

 Net Deferred Tax -70.0 -538.0 -806.0 -967.0 -754.9
Total Assets 52608.0 55237.0 64653.0 64889.7 51857.9
Contingent Liabilities 901.0 1037.0 15041.0 1998.0 1310.5

B. Profit And Loss Statement

(Rs Million)
Year 2010 2009 2008 2007 2006
Sales Turnover 70,626.0 69,428.0 50,476.0 66,035.4 24,766.1
Excise Duty -740 -809 -845 -896.6 -1215.9
Net Sales 69,886.00 68,619.00 49,631.0 65,138.8 23,550.2
Stock Adjustments -247 1341 2309 518.9 422.3
LESS EXPENDITURE:
Raw Materials 20,370.0 20,358.0 18,034.0 26,724.5 7817
Power & Fuel Cost 1415 1227 976 812.4 535.3
Other Manufacturing Expenses 5487 7060 4147 3285.8 1779.3
Employee Cost 11,634.0 9716 7077 6251.3 3362.2
Selling and Administration Expenses 14,776.0 15,152.0 11,849.0 10,595.9 6463.3
Depreciation 4131 4977 4019 3791.1 1616.9
Operating Profit 11,826.0 11,470.0 5,838.0 14,196.7 2,398.5
Miscellaneous Expenses -6289 -17,946.0 -1417 -1371.6 -910.1
Other Income 1031 994 2051 1161.6 1208.5
Profit Before Interest & Tax 6,568.0 -5,482.0 6,472.0 13,986.7 2,696.9
Less: Interest & Financial Charges 385 1082 1022 1587.7 683.6
Profit Before Tax 6183 -6564 5450 12,399.0 2013.3
Less: Tax 2668 2608 1077 2743.7 545.9
Profit After Tax 3515 -9172 4373 9655.3 1467.4
Minority Interest(after tax) 0 0 -8 -3.6 0.1
Extraordinary Items -2183.9 -11,803.0 -8.8 36.8 223.8
Adjusted Net Profit 5698.9 2631 4389.8 9622.1 1243.5
Adjustments below Net Profit -326 0 -15 -81.8 0
P&L Balance brought forward 1036 12,001.0 8849 1185.4 366.6
Appropriations 3063 1793 1214 1913.8 648.5
Dividend 1900 1053 631 629.7 383.5
Preference Dividend 0 0 0 0 0
P&L Balance carried down 1162 1036 12,001.0 8848.7 1185.4

Corporate Financial Reporting and Analysis, 2010 Page 23

 C. Cash Flow Statement

Year ending Mar-10 Mar-09 Mar-08 Mar-07 Mar-06

Cash Flow From Operating Activities
Net Profit before Tax & Extraordinary Items 6183.0 -6563.0 5450.0 12399.0 2013.4
Adjustment For:
Depreciation 4131.0 4977.0 4019.0 3791.1 1616.9
Interest (Net) 63.0 625.0 281.0 1027.4 -22.7
Dividend Received -47.0 -53.0 -110.0 0.0 0.0
P/L on Sales of Assets 24.0 -14.0 11.0 -46.0 -320.2
P/L on Sales of Invest 0.0 -87.0 0.0 -0.9 3.9
Prov. & W/O (Net) 1363.0 1210.0 792.0 256.5 171.8
P/L in Forex 807.0 -485.0 224.0 -120.6 99.5
Fin. Lease & Rental Chrgs 0.0 0.0 0.0 0.0 0.0
Others 4583.0 14628.0 17.0 86.6 48.0
Op. Profit before Working Capital Changes 17107.0 14238.0 10684.0 17393.1 3610.6
Adjustment For 0.0 0.0 0.0 0.0 0.0
Trade & other receivables 2467.0 -7790.0 859.0 -2944.8 -882.0
Inventories -1154.0 -2556.0 -3875.0 -783.4 -1646.5
Trade Payables 3997.0 5035.0 416.0 1282.1 2278.8
Loans & Advances -1076.0 -145.0 -1424.0 -528.7 -2065.1

Cash Generated from/(used in) Operations 21341.0 8782.0 6660.0 14418.3 1295.8
Direct Taxes Paid -2831.0 -2791.0 -1532.0 -1829.3 -190.8
Cash Flow before Extraordinary Items 18510.0 5991.0 5128.0 12589.0 1105.0
Gain on Forex Exch. Tran 246.0 -114.0 0.0 140.5 0.0
Net Cash from Operating Activities 18756.0 5877.0 5128.0 12729.5 1105.0

Cash Flow from Investing Activities

Investment in Assets :
Purchased of Fixed Assets -9665.0 -6419.0 -5092.0 -4621.4 -1894.3
Sale of Fixed Assets 60.0 83.0 59.0 115.1 693.3
Financial/Capital Investment :
Purchase of Investments -24112.0 -12022.0 -15860.0 -400.8 -5344.3
Sale of Investments 21102.0 16401.0 12478.0 331.8 5274.9
Interest Received 233.0 368.0 655.0 493.2 682.5
Acquisition of Companies 0.0 -3461.0 -344.0 -66.7 -27026.0
Corporate Financial Reporting and Analysis, 2010 Page 24
 Others -80.0 0.0 -433.0 0.0 65.8
Net Cash Used in Investing Activities -12462.0 -5050.0 -8537.0 -4148.8 -27548.1

Cash Flow From Financing Activities

Proceeds:
From issue of shares (incl share premium) 17.0 5.0 15.0 10029.6 73.6
From other Long Term Borrowings 0.0 61.0 115.0 0.0 21622.8
From short Term Borrowings 7537.0 5596.0 3476.0 1147.5 6263.9
Payments:
Of the Long Tem Borrowings -3646.0 -1955.0 -7724.0 -1897.9 -9.9
Of the short term Borrowings -7672.0 -4549.0 -1941.0 -7071.8 -1.7
Interest Paid -321.0 -1071.0 -958.0 -1536.7 -628.0
Dividend Paid -1232.0 -738.0 -737.0 -437.5 -436.4
Net Cash Used in Financing Activities -5317.0 -2651.0 -7754.0 233.2 26884.3

Net Inc/(Dec) in Cash and Cash Equivalent 977.0 -1824.0 -11163.0 8813.9 441.2
Cash and Cash Equivalents at Beginning of the
year 5623.0 7447.0 18610.0 9796.2 9355.0
Cash and Cash Equivalents at End of the year 6600.0 5623.0 7447.0 18610.1 9796.2

2. QUATERLY FINANCIAL RESULTS

Quarter Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08

Gross Sales 16,831.30 16,310.10 17,509.60 18,524.20 18,189.40 19,688.60 18,426.70 16,206.10
Excise Duty 0 84.5 78.3 77.3 0 74.4 82.6 144.8
Net Sales 16,831.30 16,225.60 17,431.30 18,446.90 18,189.40 19,614.20 18,344.10 16,061.30
Other Operating Income 0 232.3 147.4 133.5 0 114.2 119.1 141.8
Other Income 191.1 -67 91.3 292.1 45.8 171.1 89.6 92.6
Total Income 17,022.40 16,390.90 17,670.00 18,872.50 18,235.20 19,899.50 18,552.80 16,295.70
Total Expenditure 13,416.20 13,517.20 18,332.10 14,983.70 13,795.00 29,247.70 14,998.50 13,767.00
PBIDT 3606.2 2873.7 -662.1 3888.8 4440.2 -9348.2 3554.3 2528.7
Interest 177.4 39 82.3 68.6 135.3 206.4 276.3 263.2
PBDT 3428.8 2834.7 -744.4 3820.2 4304.9 -9554.6 3278 2265.5
Depreciation 976 988.3 1117.8 993.9 1133.7 1335.6 1234.4 1227.6
Tax 357.3 788.4 468.5 427.8 726.5 1659.8 452 171.5
Reported Profit After Tax 2095.5 1058 -2330.7 2398.5 2444.7 -12,550.00 1591.6 866.4
Extra-ordinary Items 0 0 -4114.3 0 0 -14,628.40 0 0
Adjusted Profit After Extra-ordinary item 2095.5 1058 1783.6 2398.5 2444.7 2078.4 1591.6 866.4

EPS (Unit Curr.) 124.1 0 0 142.2 145.1 0 94.5 51.5

Equity 845.7 844.2 844.1 843.7 843.3 842.3 842.1 842

Corporate Financial Reporting and Analysis, 2010 Page 25

 3. COMMON SIZE BALANCE SHEETS: COMPARATIVE ANALYSIS

Company Cipla Dr reddy Ranbaxy

SOURCES OF FUNDS :
Share Capital 2.71% 1.60% 2.62%
Reserves Total 97.20% 70.19% 49.30%
Equity Share Warrants 0.00% 0.00% 2.19%
Equity Application Money 0.00% 0.00% 0.00%
Total Shareholders Funds 99.91% 71.79% 54.12%
Minority Interest 0.00% 0.00% 0.66%
Secured Loans 0.01% 0.51% 2.72%
Unsecured Loans 0.08% 27.70% 42.50%
Total Debt 0.09% 28.21% 45.22%
Total Liabilities 100.00% 100.00% 100.00%
APPLICATION OF FUNDS :
Gross Block 48.98% 122.54% 78.23%
Less: Accumulated Depreciation 14.98% 77.83% 22.28%
Net Block 34.00% 44.71% 55.95%
Lease Adjustment 0.00% 0.00% 0.00%
Capital Work in Progress 11.57% 14.49% 7.76%
Investments 4.17% 6.81% 6.74%
Current Assets, Loans & Advances 0.00% 0.00% 0.00%
Inventories 25.57% 25.46% 22.93%
Sundry Debtors 26.48% 22.05% 22.92%
Cash and Bank 1.05% 12.55% 15.47%
Loans and Advances 20.73% 12.56% 13.53%
Total Current Assets 73.83% 72.62% 74.86%
Less : Current Liabilities and Provisions
Current Liabilities 16.87% 31.83% 40.51%
Provisions 3.66% 6.66% 10.72%
Total Current Liabilities 20.53% 38.49% 51.22%
Net Current Assets 53.30% 34.13% 23.64%
Miscellaneous Expenses not written off 0.00% 0.00% 0.00%
Deferred Tax Assets 0.00% 2.04% 9.86%
Deferred Tax Liability 3.03% 2.17% 3.95%
Net Deferred Tax -3.03% -0.13% 5.91%
Total Assets 100.00% 100.00% 100.00%

Corporate Financial Reporting and Analysis, 2010 Page 26