Form 6-K - Dr. Reddy's

Research and development expenses
Research and development costs increased by 30.2% to Rs.1,050.1 million for the three months ended June 30, 2008 from Rs.806.3 million for
the three months ended June 30, 2007. As a percentage of revenues, research and development expenditures accounted for 7.0% of our total
revenue for the three months ended June 30, 2008 as compared to 6.7% for the three months ended June 30, 2007. This increase was largely
attributable to an increase in manpower expenses due to an increase in the number of employees and annual raises. Also, bio-study costs
increased due to higher research and development activity undertaken during the three months ended June 30, 2008.
Other expense/(income), net
Other expense was Rs.241.1 million for the three months ended June 30, 2008 as compared to income of Rs.82.7 million for the three months
ended June 30, 2007. This was primarily due to recording of provision of Rs.514.9 million towards probable losses on account of recent
developments of the Eli Lilly damage claim on its olanzapine patent in Germany. This decrease was partially offset by recognition of negative
goodwill in respect of the Dow Pharma Unit, recognized in the profit and loss account, of Rs.150.4 million, and also an increase in income
from spent chemicals for the three months ended June 30, 2008.
Results from operating activities
As a result of the foregoing, our results from operating activities decreased to Rs.1,117.8 million for the three months ended June 30, 2008, as
compared to Rs.1,764.0 million for the three months ended June 30, 2007.
Finance income, net
For the three months ended June 30, 2008, our finance income decreased by 51.4% to Rs.77.0 million, from Rs.158.4 million for the three
months ended June 30, 2007, primarily as a result of the reasons described below.
Our interest income decreased to Rs.69.4 million for the three months ended June 30, 2008 from Rs.261.4 million for the three months
ended June 30, 2007, primarily due to a reduction in our fixed deposit base which was primarily utilized for acquisitions and other
operating activities.
Foreign exchange gain was Rs.175.8 million for the three months ended June 30, 2008 as compared to Rs.299.4 million for the three
months ended June 30, 2007. For the three months ended June 30, 2008, there was a mark to market gain partially offset by losses on
short U.S.$/INR forward contracts and options taken to hedge foreign currency receivables and deposits, and further offset by translation
and realization losses on packing credit loans in foreign currencies, all due to depreciation of the rupee by Rs.2.915 per U.S.$. For the
three months ended June 30, 2007, the rupee appreciated by Rs.2.765 per U.S.$, resulting in a gain on short U.S.$/INR forward contracts
and translation gains on packing credit loans in foreign currencies, thereby offsetting the loss on translation of U.S.$ deposits.
For the three months ended June 30, 2008, our interest expenses decreased by 41.9% to Rs.243.0 million from Rs.418.3 million for the
three months ended June 30, 2007. This was primarily due to a decrease in the interest expenditures on short term loans and borrowings
for the three months ended June 30, 2008 as a result of our repayment of a short term packing credit loan facility. Also, interest expense
on long term debt decreased for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 due to
repayment of a EURO 16.5 million loan during the intervening period as per the repayment schedule.
Profit before income tax
As a result of the foregoing, profit before income taxes and minority interest decreased to Rs.1,195.1 million for the three months ended
June 30, 2008, as compared to Rs.1,918.4 million for the three months ended June 30, 2007.
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