Published: 2023-06-13 16:06:43 ET

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

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

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

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

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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 or to be registered pursuant to Section 12(g) of the Act. None.

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our business and operations in general, including: our ability to develop and commercialize additional pharmaceutical products; manufacturing or quality control problems, which may damage our reputation for quality production and require costly remediation; interruptions in our supply chain; disruptions of our or third party information technology systems or breaches of our data security or other cyber-attacks; the failure to recruit or retain key personnel; significant sales to a limited number of customers in our U.S. market; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions;

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in our generics medicines business: consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our generic products, both from competing products and increased regulation; delays in launches of new generic products; efforts of pharmaceutical companies to limit the use of generics including through legislation and regulations; the difficulty and expense of obtaining licenses to proprietary technologies; returns, allowances and chargebacks; and investigations of the calculation of wholesale prices;

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compliance, regulatory and litigation matters, including: uncertainties regarding actual or potential legal proceedings; costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; governmental investigations into selling and marketing practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risk;

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current challenges associated with conducting business globally, including uncertainty regarding the duration of military conflict between Russia and Ukraine, its magnitude and its adverse effects or economic instability, major hostilities or terrorism;

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other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

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compliance matters, including lapses by our U.S. or overseas employees, third-party distributors or marketing and distribution agents in complying with the U.S. Foreign Corrupt Practices Act and other worldwide anti-bribery laws,  which could result in adverse consequences to us, including without limitation causing us to be subject to injunctions or limitations on future conduct, be required to modify our business practices and compliance programs and/or have a compliance monitor imposed on us, or suffer other criminal or civil penalties or adverse impacts, including lawsuits by private litigants or investigations and fines imposed by local authorities;

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risks of reputational damage and other adverse effects in the event of inadequate performance and management of environmental, social and governance (“ESG”) and climate change topics; and

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those discussed in the sections entitled “risk factors”, “business overview” and “operating and financial review and prospects” and elsewhere in this report.

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the existence of government-imposed price controls, tender systems, mandatory discounts and rebates, and pricing transparency mandates;

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more governments using international reference pricing to set the price of drugs based on international comparisons (Refer to “Our Principal areas of Operations - Global Generic segment” in Item 4.A. below for details);

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increased difficulty in obtaining and maintaining satisfactory drug reimbursement rates;

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increase in cost containment policies related to health expenses in the context of economic slowdown; and

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more demanding evaluation criteria applied by Health Technology Assessment (“HTA”) agencies when considering whether to cover new drugs at a certain price level.

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We may fail to successfully integrate our acquisitions in accordance with our business strategy.

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The initial rationale for the acquisition may not remain viable due to a variety of factors, including unforeseen regulatory changes and market dynamics after the acquisition, and this may result in a significant delay and/or reduction in the profitability of the acquisition.

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We may not be able to retain the skilled employees and experienced management that may be necessary to operate the businesses we acquire. If we cannot retain such personnel, we may not be able to locate or hire new skilled employees and experienced management to replace them.

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We may purchase a company that has contingent liabilities that include, among others, known or unknown patent or product liability claims or environmental liability claims.

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We may purchase companies located in jurisdictions where we do not have operations and as a result we may not be able to anticipate local regulations and the impact such regulations have on our business.

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demand significantly in excess of forecast demand, which may lead to supply shortages (this is particularly challenging before the launch of a new product);

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supply chain disruptions, including those due to natural or man-made disasters at one of our facilities or at a critical supplier or vendor;

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delays in construction of new facilities or the expansion of existing facilities, including those intended to support future demand for our products (the complexities associated with biologics facilities, especially for drug substance, increases the probability of delay);

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the inability to supply products due to a product quality failure or regulatory agency compliance action such as license withdrawal, product recall or product seizure;

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other manufacturing or distribution problems, including changes in manufacturing production sites, limits to manufacturing capacity due to regulatory requirements, changes in the types of products produced, or physical limitations or other business interruptions that could impact continuous supply; and

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the difficulties inherent in the manufacture and sale of sterile products, including oncology products, which are technically complex to manufacture, and require sophisticated environmental controls. Because the production process for such products is so complex and sensitive, any production failures may lead to lengthy supply interruptions.

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A framework has been prescribed for disclosure of material events and information by listed entities to the Indian stock exchanges. Certain events mentioned in the regulations are deemed material and disclosure is mandatory. Subject companies are also required to make adequate disclosure of events or information which may have material effect. Certain events are to be disclosed based on application of the guidelines for materiality as prescribed. The Board of Directors is required to frame a policy for determination of materiality and disclose the same on the website of the company.

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Entities are required to frame policies on preservation of documents, determination of material subsidiaries, risk management, code of conduct, remuneration of directors, key managerial personnel and other employees, board diversity, materiality of related party transactions and dealing with related party transactions, criteria for evaluation of directors, and certain other matters.

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general market conditions,

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speculative trading in our shares and ADSs, and

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developments relating to our peer companies in the pharmaceutical industry.

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Global Generics;

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Pharmaceutical Services and Active Ingredients (“PSAI”); and

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Others.

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to bring expensive medicines within reach;

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to address unmet patient needs;

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to help patients manage disease better;

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to work with partners to help them succeed; and

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to enable and help our partners ensure that our products are always available where needed.

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being committed to environmental stewardship;

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making our products accessible and affordable for patients;

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contributing to a fairer and more socially inclusive world; and

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enhancing trust with our stakeholders.

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market leadership in our chosen spaces;

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operational excellence and continuous improvement to drive productivity; and

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patient focused innovation.

Through

our business operations, we:

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Develop, formulate, manufacture, and sell a portfolio of high-quality generic versions of expensive innovator medicines products at an affordable price to address the unmet needs of the patients.

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Create strong value brands leveraging our field force in the branded generics business.

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Provide a portfolio of complex, differentiated, high quality and affordable active pharmaceutical ingredients for our customers backed by strong chemistry and synthesis skills.

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Offer a strong value proposition through cost leadership, backward integration, best in class customer service, and a strong compliance track record for our customers.

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Create differentiated, relevant, and clinically proven products in a wide range of food, supplements, and beverage categories to improve the patients’ health outcomes and improve their quality of life

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Continue to build innovative, differentiated digital-first models for a wider range of products to address the unmet needs of the patient and enhanced customer engagement.

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Branded Generics : We seek to have a portfolio that is strongly focused on delivering first-to-market, differentiated products to doctors and patients. Many of our brands hold significant market shares in the molecule and therapy areas where they are present. We have also entered into strategic partnerships with third parties to sell our products in markets where we have not established our own sales and distribution operations.

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Unbranded Generics : We aim to ensure that our development capabilities remain strong and enable us to deliver products that are first to market, tough-to-make and technologically challenging.

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Biologics : Our biologics business seeks to accelerate access to biosimilar products globally through process development and relevant clinical research. We were the first company to launch a biosimilar version of rituximab in 2007, and have launched multiple biosimilar products in India and other key markets.

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Our product offerings in our API business are positioned to offer intellectual property and technology-advanced products to enable launches ahead of others at competitive prices.

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Through our pharmaceutical services business, we aim to offer niche product service capabilities, technology platforms, and competitive cost structures to innovator and biotechnology companies.

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Are anchored in our purpose and in alignment with our strategy;

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Are opportunities in areas where there is an unserved or underserved or unarticulated need for the patients;

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Are leveraging or there is a path to leverage our current endowments;

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Are areas where we believe we have or can build an advantage that will earn us the right-to-win; and

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Are a meaningful opportunity for our company.

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Safety : The concept of safety has been imbued in the operating culture throughout our organization. Specific initiatives are being carried out to increase safety awareness, to achieve a safe working environment, to avoid accidents and injuries, and to minimize the loss of manufacturing time.

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Quality : We are fully dedicated to quality and have robust quality processes and systems in place at our developmental and manufacturing facilities to ensure that every product is safe and of high quality. In addition, we have integrated “Quality by Design” to build quality into all processes and use quality tools to minimize process risks.

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Operational Excellence :  We apply a continuous improvement framework to the critical operations and processes in our value chain. With an operating and management review rhythm, we review and refine the business processes across the organization to measure and improve their performance.

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Leadership Development : We are focused on developing leaders, as well as enhancing leadership behavior, across our organization through focused efforts and structured leadership development programs.

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			For the year ended March 31,
Segment			2023										2022								2021
			(Rs. in millions, U.S.$ in millions)
Global Generics			U.S.$2,601			Rs.213,768				87 %				Rs.179,170				84%				Rs.154,404				81%
PSAI			354			29,069				12%				30,740				14%				31,982				17%
Others			37			3,042				1%				4,481				2%				3,336				2%
Total Revenue			U.S.$2,992			Rs.245,879				100%				Rs.214,391				100%				Rs.189,722				100%

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T he D rugs a nd Co s m e t i c s A c t , 1940 a nd t he D ru g s a nd C o s m e t i c s R u l e s , 1945;

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T he D rugs a nd M a g i c R e m e d i e s ( O b j e ct i on a b l e A d v e r t i s e me n t s ) A ct , 1954;

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T he N a r c o t i c D rugs a nd Ps y c h o t ro p i c S ub s t a n c e s A c t , 1985;

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T he D rugs ( P r i c e Con t ro l ) O rd e r, 19 9 5 and 2013, r e a d i n c o n j un c t i on w it h t he E ss e n t i a l Co mm od i t i e s A c t , 19 5 5; and

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T he National Pharmaceuticals Pricing Policy, 2012.

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Optimizing the national calendar of preventive vaccinations and vaccinations according to epidemiological indicators. It will include the most complete list of infections, the incidence of which is controlled by the vaccine.

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To stimulate scientific development and preclinical research in the field of creating immunobiological drugs.

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The localization of the full cycle of vaccine production in domestic organizations.

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To ensure safe conditions for immunization and pharmacovigilance of its results.

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The improvement of the state policy in the field of immunoprophylaxis of infectious diseases.

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To increase public awareness of the benefits of vaccination.

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one-on-one meetings and communications between healthcare professionals and medical product representatives, except for participation in clinical trials, pharmacovigilance, group educational events and certain other limited exceptions approved by Russia’s Healthcare Organization Administration;

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the acceptance by a healthcare professional of compensation, gifts or entertainment paid by medical product representatives;

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the agreement by a healthcare professional to prescribe or recommend a drug product or medical equipment; and

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the engagement by a healthcare decision maker in a “conflict of interest” transaction with a medical product representative, unless approved by regulators pursuant to certain specified procedures.

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the system would provide price controls on products designated as vital and essential medicines;

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consumers would be able to compare the price of the drug to its official price limit, find which pharmacies do have the drug available, and get the product information;

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manufacturers would be able to get real time data on the logistics and storage of their products in the market;

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pharmacists could get information related to the price, and monitor expiration dates;

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health care institutions would be able to track registration and prices; and

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federal agencies would have capability to monitor all medicinal products on the market to facilitate price controls as well as report on and analyze the industry.

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Child resistant packaging matter complaint under the False Claims Act (“FCA”);

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Ranitidine recall and litigation;

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United States Antitrust Multi-District Litigations;

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Civil Investigative Demand from the Office of the Attorney General, State of Texas

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Subpoena duces tecum from the Office of the Attorney General, California

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Subpoenas from the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the office of the Attorney General for the State of Connecticut; and

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Civil Investigative Demand from the Civil Division of the DOJ.

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Global Generics;

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Pharmaceutical Services and Active Ingredients; and

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Others.*

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Chargebacks : Chargebacks are issued to wholesalers for the difference between our invoice price to the wholesaler and the contract price through which the product is resold in the retail part of the supply chain. The information that we consider for establishing a chargeback accrual includes the historical average chargeback rate over a period of time, current contract prices with wholesalers and other customers, and estimated inventory holding by the wholesaler. With this methodology, we believe that the results are more realistic and closest to the potential chargeback claims that may be received in the future period relating to inventory on which a claim is yet to be received as at the end of the reporting period. In addition, as part of our book closure process, a chargeback validation is performed in which we track and reconcile the volume of inventory for which we should carry an appropriate provision for chargeback. We procure the inventory holding statements and data through an electronic data interface with our wholesalers (representing approximately 93% of the total value of chargebacks outstanding at every year end reporting date) as part of this reconciliation. On the basis of this volume reconciliation, chargeback accrual is validated. For the chargeback rate computation, we consider different contract prices for each product across our customer base. This chargeback rate is adjusted (if necessary) on a periodic basis for expected future price reductions.

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Shelf Stock Adjustments: Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by us, and are accrued when the prices of certain products decline as a result of increased competition or otherwise. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better reflect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifically limit the age of the stock on which a credit would be offered.

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Rebates : Rebates (direct and indirect) are generally provided to customers as an incentive to stock and sell our products. Rebate amounts are based on a customer’s purchases made during an applicable period. Rebates are paid to wholesalers, chain drug stores, health maintenance organizations or pharmacy buying groups under a contract with us. We determine our estimates of rebate accruals primarily based on the contracts entered into with our wholesalers and other direct customers and the information received from them for secondary sales made by them. For direct rebates, liability is accrued whenever we invoice to direct customers. For indirect rebates, the accruals are based on a representative weighted average percentage of the contracted rebate amount applied to inventory sold and delivered by us to wholesalers or other direct customers.

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Refund Liability: We account for sales returns accrual by recording refund liability concurrent with the recognition of revenue at the time of a product sale. This liability is based on our estimate of expected sales returns. We deal in various products. Accordingly, our estimate of sales returns is determined primarily by our historical experience.

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Medicaid: We estimate the portion of our sales that may get dispensed to customers covered under Medicaid programs based on the proportion of units sold in the previous two quarters for which a Medicaid claim could be received as compared to the total number of units sold in the previous two quarters. The proportion is based on an analysis of the actual Medicaid claims received for the preceding four quarters. In addition, we also apply the same percentage on the derived estimated inventory sold and delivered by us to our wholesalers and other direct customers to arrive at the potential volume of products on which a Medicaid claim could be received. We use this approach because we believe that it corresponds to the approximate six-month time period it takes for us to receive claims from the various Medicaid programs. After estimating the number of units on which a Medicaid claim is to be paid, we use the latest available Medicaid reimbursement rate per unit to calculate the Medicaid accrual. In the case of new products, accruals are done based on specific inputs from our marketing team or data from the publications of IQVIA.

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Cash Discounts: We offer cash discounts to our customers, on a selective basis and in line with industry practice, to encourage prompt payment. Accruals for such cash discounts do not involve any significant variables. These are accrued for at the time of invoicing and adjusted subsequently to reflect the actual experience.

a)

Estimated inventory —Inventory volumes on which a chargeback claim that is expected to be received in the future are determined using the validation process and methodology described above (see “Chargebacks” above). When such a validation process is performed, we note that the difference represents an immaterial variation. Therefore, we believe that our estimation process regarding this variable is reasonable.

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Unit pricing rate —At any point in time, inventory volumes on which we carry our chargeback accrual represents approximately 1.1 to 1.4 month of sales volumes. Therefore, the sensitivity of price changes on our chargeback accrual only relates to such volumes. Assuming that the chargebacks were processed within such period, we analyzed the impact of changes of prices for the periods beginning April 1, 2022, 2021 and 2020, respectively, and ended March 31, 2023, 2022 and 2021, respectively, on our estimated inventory levels computed based on the methodology described above (see “Chargebacks” above). The impact on net sales on account of such price variation may not be significant.

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*

Currently, we do not separately track provisions and adjustments, in each case to the extent relating to prior years for chargebacks. However, the adjustments are expected to be non-material. The volumes used to calculate the closing balance of chargebacks represent approximately 1.1 to 1.4 months equivalent of sales, which corresponds to the pending chargeback claims yet to be processed.

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Currently, we do not separately track the credits and payments, in each case to the extent relating to prior years for chargebacks, rebates, Medicaid payments or refund liability.

(1)

Chargeback provisions and payments for the year ended March 31, 2022 were each higher as compared to the year ended March 31, 2021, primarily as a result of higher sales volumes and also due to higher pricing rates per unit for chargebacks on account of reductions in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products. The foregoing were partially off-set due to a lower pricing rates per unit for chargebacks, primarily on account of a reduction in the invoice price to wholesalers for certain of our products. The rebate provisions and payments for the year ended March 31, 2022 were each lower as compared to the year ended March 31, 2021, primarily as a result of lower pricing rates per unit for rebates, due to reduction in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products.

(2)

Chargeback provisions and payments for the year ended March 31, 2023 were each higher as compared to the year ended March 31, 2022, primarily as a result of higher sales volumes and also due to higher pricing rates per unit for chargebacks on account of reduction in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products. The foregoing were partially off-set due to a lower pricing rates per unit for chargebacks, primarily on account of a reduction in the invoice price to wholesalers for certain of our products. The rebate provisions and payments for the year ended March 31, 2023 were each lower as compared to the year ended March 31, 2022, primarily as a result of lower pricing rates per unit for rebates, due to reduction in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products.

(3)

Our overall provision for refund liability as of March 31, 2023 relating to our North America Generics business was U.S.$35 million compared to a provision of U.S.$24 million as of March 31, 2022. This increase in our provision for refund liability was primarily attributable to new product launches, volume growth and product mix changes for the year ended March 31, 2023 compared to the year ended March 31, 2022.

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Percentages mentioned against the segments are with reference to the total revenue of our company; and percentages mentioned against geographies represent the sales in the respective geography as a percentage of the total revenue from that segment.

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an increase of approximately 20% resulting from new products launched during the year ended March 31, 2023 ;

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an increase of approximately 2% resulting from a net increase in the sales volumes of existing products in this segment;

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an increase of approximately 3% resulting from foreign exchange rate gains;

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an increase of approximately 2% resulting from divestment of some of our non-core brands; and

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the foregoing was partially offset by a decrease of approximately 8% resulting from the net impact of changes in sales prices of the products in this segment.

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revenues from new products launched during the year ended March 31, 2023, such as lenalidomide capsules, sorafenib and pemetrexed injection;

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an increase in volumes for certain of our existing products, such as icosapent ethyl and daptomycin; and

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the foregoing was partially offset by reduced sales, primarily due to price erosion from increased competition for certain products, such as icosapent ethyl and vasopressin.

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an increase of 8% on account of increased personnel costs, primarily on account of annual raises and new hires ;

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an increase of 3% in selling and advertisement expenses;

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an increase of 2% due to higher travel and vehicle expenses; and

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the foregoing was partially offset by a decrease of 2% on account of reduced sales commissions, and a decrease of 1% in legal fees.

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a net foreign exchange gain of Rs.2,225 million for the year ended March 31, 2023 compared to a net foreign exchange gain of Rs.1,835 million for the year ended March 31, 2022; and

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an increase in fair value changes and profit on sale of units of mutual funds to Rs.1,028 million for the year ended March 31, 2023 compared to fair value changes and profit on sale of units of mutual funds of Rs.306 million for the year ended March 31, 2022.

	·	a net increase in interest expense to Rs.248 million for the year ended March 31, 2023, compared to a net interest income of Rs.7 million for the year ended March 31, 2022; and

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a net change in carrying value of investment to Rs. 152 million for the year ended March 31, 2023, compared to Rs. 29 million for the year ended March 31, 2022.

(a)

changes in our jurisdictional mix of earnings (i.e., an increase in the proportion of our profits from lower tax jurisdictions and a decrease in the proportion of our profits from higher tax jurisdictions) for the year ended March 31, 2023 compared to the year ended March 31, 2022; and

(b)

recognition of a previously unrecognized deferred tax asset on operating tax losses, primarily pertaining to our subsidiary Dr. Reddy’s Laboratories SA, Switzerland, as we believe that it is probable that there will be available taxable profits against which such tax losses can be utilized.

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		For the year ended March 31,
		2023				2022				2021
		( Rs. in millions)
Net cash from/(used in):
Operating activities			Rs. 58,875				Rs. 28,108				Rs. 35,703
Investing activities			(41,373	)			(26,387	)			(22,660	)
Financing activities			(26,861	)			(2,422	)			(298	)
Net (decrease)/increase in cash and cash equivalents			Rs. (9,359	)			Rs. (701	)			Rs. 12,745

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net purchases of other investments of Rs.23,366 million for the year ended March 31, 2023, as compared to net purchases of other investments of Rs.11,201 million for the year ended March 31, 2022; and

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the acquisition of property, plant and equipment, and other intangible assets, net of disposals, of Rs.18,784 million for the year ended March 31, 2023, as compared to Rs.15,733 million for the year ended March 31, 2022.

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the acquisition of property, plant and equipment, and other intangible assets, net of disposals, of Rs.15,733 million for the year ended March 31, 2022, as compared to Rs.12,476 million for the year ended March 31, 2021; and

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net purchases of other investments of Rs.11,201 million for the year ended March 31, 2022, compared to net proceeds from other investments of Rs.4,110 million for the year ended March 31, 2021.

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net repayment of short-term borrowings of Rs.19,382 million for the year ended March 31, 2023, as compared to net proceeds from short-term borrowings of Rs.3,520 million for the year ended March 31, 2022;

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payments of dividends of Rs.4,979 million for the year ended March 31, 2023, compared to payments of dividends of Rs.4,146 million for the year ended March 31,2022;

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interest payments of Rs.1,853 million for the year ended March 31, 2023, compared to interest payments of Rs.1,345 million for the year ended March 31, 2022; and

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payments of the principal portion of lease liabilities of Rs.1,015 million for the year ended March 31, 2023 compared to payments of the principal portion of lease liabilities of Rs.785 million for the year ended March 31, 2022.

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payments of dividends of Rs.4,146 million for the year ended March 31, 2022, compared to payments of dividends of Rs.4,147 million for the year ended March 31,2021;

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interest payments of Rs.1,345 million for the year ended March 31, 2022, compared to interest payments of Rs.1,321 million for the year ended March 31, 2021;

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payments of the principal portion of lease liabilities of Rs.785 million for the year ended March 31, 2022, compared to payments of the principal portion of lease liabilities of Rs.754 million for the year ended March 31, 2021;

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purchases of treasury shares of Rs.1,193 million for the year ended March 31, 2021; and

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net proceeds from short-term borrowings of Rs.3,520 million for the year ended March 31, 2022, compared to net proceeds of short-term and long-term borrowings of Rs.6,848 million for the year ended March 31, 2021.

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(1)

“BRL” means Brazilian reals, “INR” means Indian rupees, “MXN” means Mexican pesos, “RUB” means Russian roubles, “U.S.$” means United States Dollars and “UAH” means Ukrainian hryvnia.

(2)

“TIIE” means the Equilibrium Inter-Banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio) and “CDI” means the Brazilian interbank deposit rate (Certificado de Depósito Interbancário).

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Global Generics , where our research and development activities are directed at the development of product formulations, process validation, bioequivalence testing and other data needed to prepare a growing list of drugs that are equivalent to numerous brand name products for sale in the highly regulated markets of the United States and Europe as well as emerging markets. Global Generics also includes our biologics business, where research and development activities are directed at the development of biologics products for the emerging as well as highly regulated markets. Our biologics research and development facility caters to the highest development standards, including cGMP, Good Laboratory Practices and bio-safety level IIA. Global Generics also include the products where we focus on the research, development, and commercialization of differentiated formulations.

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Pharmaceutical Services and Active Ingredients , where our research and development activities concentrate on development of chemical processes for the synthesis of API for use in our Global Generics segment and for sales in the emerging and developed markets to third parties. Our research and development activities also support our pharmaceutical services business, where we continue to leverage the strength of our process chemistry and finished dosage development expertise to target innovator as well as emerging pharmaceutical companies. The research and development is directed toward providing services to support the entire pharmaceutical value chain, from discovery all the way to the market.

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(1)

Except for Mr. K. Satish Reddy and Mr. G.V. Prasad, all of the directors are independent directors under the corporate governance rules of the New York Stock Exchange.

(2)

Full-time director.

(3)

Brother-in-law of Mr. G.V. Prasad.

(4)

Brother-in-law of Mr. K. Satish Reddy.

(5)

Appointed with effect from August 1, 2022.

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(1)

Brother-in-law of Mr. G.V. Prasad.

(2)

Brother-in-law of Mr. K. Satish Reddy.

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(1)

Compensation for part of the year, term ended on July 30, 2022.

(2)

Compensation for part of the year, term ended on October 29, 2022.

(3)

Compensation for part of the year, resigned on January 6, 2023.

(4)

Compensation for part of the year, appointed as an independent director with effect from August 1, 2022.

78

(1)

These compensation amounts do not include share based payment expense arising from stock options. However, the number of options granted during the year are mentioned separately in the above table.

(2)

These compensation amounts include superannuation benefits and provident fund benefits. The executive officers are also covered under our Gratuity and Compensated Absences Plans along with the other employees. Proportionate amounts of the cost for gratuity and compensated absences accrued under the plans have not been separately computed or included in the above disclosure, as the amount payable to the officer is inherently variable and our annual contributions to funds established to furnish such payments are lump sums based on actuarial projections for the fund as a whole. Refer to Note 28 (“Share-based payments”) of our consolidated financial statements for further details on the foregoing benefits.

(3)

The options vest on various dates beginning in the year ended March 31, 2024 and ending in the year ended March 31, 2027 subject to the employee being in continued service on the date of vesting. The options expire after five years from the date of vesting. The options are granted under the Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 and the Dr. Reddy’s Employees Stock Option Scheme, 2018. For each of the foregoing options, one equity share or ADR (as applicable) will be issued upon its exercise.

(4)

These grants were in the form of options to acquire our ADRs.

(5)

These executive officers served for part of the year. Mr. M V Narasimham was inducted into the Management Council in May 2022. Mr. Sushrut Kulkarni and Dr. Ranjana Pathak joined our company as Management Council members in May and July 2022 respectively. However, the compensation set forth above is for the full year ended March 31, 2023 for these executive officers.

79

(1)

Full time director.

(2)

Non-full time independent director.

(3)

Reflects service through May 31, 2023.

(4)

Proposal for re-appointment for a second term as Independent director being placed before our shareholders at our forthcoming annual general meeting scheduled on July 27, 2023.



Audit Committee.



Nomination, Governance and Compensation Committee.



Science, Technology and Operations Committee.



Risk Management Committee.



Stakeholders’ Relationship Committee.



Sustainability and Corporate Social Responsibility Committee (formerly known as the Corporate Social Responsibility Committee).



Banking and Authorization Committee (formerly known as the Management Committee).

80



Mr. Sridar Iyengar (Chairman);



Ms. Kalpana Morparia;



Ms. Shikha Sharma;



Dr. K.P. Krishnan; and



Mr. Arun M. Kumar.



Supervise our financial reporting process;



Review our quarterly and annual financial results, along with related public disclosures and filings, before providing them to the Board;



Review the adequacy of our internal controls, including the plan, scope and performance of our internal audit function;



Discuss with management our major policies with respect to risk assessment and risk management;



Hold discussions with external auditors on the nature, scope and process of audits and any views that they have about our financial control and reporting processes;



Ensure compliance with accounting standards and with listing requirements with respect to the financial statements;



Recommend the appointment and removal of external auditors and their remuneration;



Recommend the appointment of cost auditors;



Review the independence of auditors;



Ensure that adequate safeguards have been taken for legal compliance both for us and for our subsidiaries;



Review the financial statements of our subsidiary companies, in particular investments made by them;



Review and approve related party transactions;



Review the functioning of whistle blower mechanism;



Review the implementation of applicable provisions of the Sarbanes-Oxley Act, 2002;



Scrutinize our inter-company loans and investments;



Examine the valuation of our undertakings or assets, wherever it is necessary;



Review compliances undertaken under the regulations for prohibition of insider trading;



Evaluate internal financial controls; and



Review suspected fraud, if any, committed against our Company .

81



Examine the structure, composition and functioning of the Board, and recommend changes, as necessary, to improve the Board’s effectiveness;



Formulate policies on remuneration of Directors, key managerial personnel and other employees, and on Board diversity;



Formulate criteria for evaluation of Directors and the Board as a whole and the Committees;



Assess our policies and processes in key areas of corporate governance, other than those explicitly assigned to other Board Committees, with a view to ensuring that we are at the forefront of good governance practices; and



Regularly examine ways to strengthen our organizational health, by improving the hiring, retention, motivation, development, deployment and behavior of management and other employees. In this context, the Committee also reviews the framework and processes for motivating and rewarding performance at all levels of the organization, reviews the resulting compensation awards, and makes appropriate proposals for Board approval. In particular, it recommends all forms of compensation to be granted to our Directors, executive officers and key managerial personnel.



Ms. Kalpana Morparia (Chairperson);



Dr. K.P. Krishnan; and



Mr. Arun M. Kumar.



Review scientific, medical and technical matters and operations involving our development and discovery programs (generic and proprietary), including major internal projects, business development opportunities, interaction with academic and other outside research organizations;



Review and monitor management’s actions in creating valuable intellectual property;



Review safety and quality of our operations;



Review the status of non-infringement patent challenges; and



Review and monitor management’s actions and plans in building and nurturing science in our organization in line with our business strategy.



Mr. Leo Puri; and



Ms. Penny Wan.

82

		Formulate a detailed Risk Management Policy which shall include:

·

A framework for identification of internal and external risks specifically faced by our company, including financial, operational, sectoral, sustainability (particularly, ESG related risks), information, cyber security risks or any other risk as may be determined by the Committee;

·

Measures for risk mitigation including systems and processes for internal control of identified risks; and

·

A business continuity plan.



Discuss with senior management our enterprise risk management and provide oversight as may be needed;



Periodically review the Risk Management Policy, at least once in two years, including by considering the changing industry dynamics and evolving complexity;



Ensure that it is apprised of our more significant risks, including certain country risks and cyber security risks, along with the risk mitigation steps implemented to ensure effective enterprise risk management; and



Review risk disclosure statements in any public documents or disclosures, where applicable.



Ms. Shikha Sharma (Chairperson);



Mr. Leo Puri;



Mr. Sridar Iyengar; and



Ms. Penny Wan.



To review our sustainability and other environment, social and governance related vision and goals on an ongoing basis;



To review and provide oversight over our programs, policies, practices, and strategies related to sustainability;



To review sustainability and environmental, social and governance (“ ESG ”) disclosures; and



To act as a nodal committee for guidance on sustainability and overall ESG goals and to review and monitor progress and all other matters incidental thereto.



Formulate and recommend to the Board, a Corporate Social Responsibility Policy (“CSR Policy”) which shall indicate the activities to be undertaken by us as specified in Schedule VII of the Companies Act, 2013;



Provide guidance on our various CSR initiatives undertaken and monitor implementation and adherence to our CSR programs and policies from time to time;



Recommend to the Board an Annual CSR Action Plan delineating the CSR projects or programs to be undertaken during the financial year; and



Appoint an independent agency/firm to carry out impact assessment study, if any.

83



Dr. K.P. Krishnan (Chairman);



Ms. Kalpana Morparia;



Mr. G.V. Prasad; and



Mr. K. Satish Reddy.



Review of investor complaints and how they were redressed;



Review of queries received from investors;



Review of work done by our share transfer agent; and



Review of corporate actions related to our security holders.



Ms. Kalpana Morparia (Chairperson);



Mr. G.V. Prasad; and



Mr. K. Satish Reddy.

84

	(1)	Includes quality, technical services and warehouse.

(2)

Includes business development.

(3)

Includes employees engaged in contract research services provided to other companies.

(4)

Includes shared services, corporate business development and the intellectual property management team.

85

										FMV Value																																								Par Value
Name		No. of Shares Held (1)				% of Outstanding Capital				Exercise Price				No. of options held (4)				Exercise Price				No. of options held (4)				Exercise Price				No. of options held (4)				Exercise Price				No. of options held (4)				Exercise Price				No. of options held (4)				Exercise Price				No. of options held (4)
Mr. G.V. Prasad (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Mr. K. Satish Reddy (2)			901,002				0.54				-				-				-				-				-				-				-				-				-				-				-				-
Ms. Kalpana Morparia (2)			10,800				0.01				-				-				-				-				-				-				-				-				-				-				-				-
Mr. Sridar Iyengar (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Mr. Leo Puri (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Ms. Shikha Sharma (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Dr. K.P. Krishnan (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Mr. Arun M. Kumar (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Ms. Penny Wan (2)			-				-				-				-				-				-				-				-				-				-				-				-				-				-
Mr. Erez Israeli (3)(5)			30,785				0.01				1,982				102,960				2,814				44,900				3,679				65,740				5,301				3,380				3,905.80				59,087				5				26,385
Mr. Parag Agarwal			-				-				-				-				-				-				-				-				5,301				112				-				-				5				760
Mr. M.V. Ramana			26,197				0.01				2,607				4,200				2,814				4,200				3,679				4,660				5,301				492				3,905.80				9,144				5				8,365
Ms. Archana Bhaskar			10,579				0.00				2,607				3,400				2,814				2,250				3,679				2,820				5,301				320				3,905.80				5,897				5				6,119
Mr. Sanjay Sharma			-				-				-				-				2,814				1,000				3,679				1,670				5,301				352				3,905.80				5,243				5				5,794
Mr. Deepak Sapra			4,462				0.00				2,607				3,900				2,814				3,200				3,679				2,140				5,301				220				3,905.80				2,624				5				7,738
Mr. Marc Kikuchi (3)(5)			21,605				0.01				-				-				2,814				2,600				3,679				13,840				5,301				720				3,905.80				12,990				5				11,255
Mr. Patrick Aghanian (3)			-				-				-				-				-				-				3,679				2,480				5,301				300				3,905.80				5,201				5				9,444
Mr. Mukesh Rathi			2,600				0.00				2,607				975				2,814				1,450				3,679				1,740				5,301				140				3,905.80				2,426				5				3,219
Mr. Sushrut Kulkarni			32				0.00				-				-				-				-				-				-				-				-				3,905.80				5,656				-				-
Mr. M V Narasimham			9,442				0.00				2,607				1,950				2,814				2,175				3,679				2,320				5,301				124				3,905.80				2,565				5				8,472
Dr. Ranjana Pathak (3)			-				-				-				-				-				-				-				-				-				-				-				-				5				14,002

(1)

All shares have voting rights.

(2)

Not eligible for grant of stock options.

(3)

These grants were in the form of options to acquire ADRs.

	(4)	The options vest on various dates between the year ending March 31, 2024 and the year ending March 31, 2027. The options expire after five years from the date of vesting. Each of the options results in the issuance of one equity share or ADR, as applicable, upon its exercise.
	(5)	“No. of shares held” represents the shares underlying ADRs.

86

(1)

50% vesting at the end of second year and 50% vesting at the end of fourth year from the grant date.

(2)

100% vesting at the end of third year from the grant date.

(3)

33.33% each year, starting after one year from the grant date.

(4)

25% each year, starting after one year from the grant date.

(5)

Pursuant to approval by the Nomination, Governance and Compensation Committee, these granted options were cancelled on October 27, 2022.

87



Mr. K. Satish Reddy (Chairman of the Board);



Mrs. K. Samrajyam Reddy, mother of Mr. K. Satish Reddy, M r s. Deepti Reddy, wife of Mr. K . Satish Reddy, Mrs. G. Anuradha, wife of Mr. G.V. Prasad, Mr. G. Sharathchandra Reddy, son of Mr. G.V. Prasad, and Ms. G. Vani Sanjana Reddy and Ms. G. Mallika Reddy, daughters of Mr. G.V. Prasad (hereafter collectively referred as the “Family Members”);



Kallam Satish Reddy HUF, which is affiliated with Mr. K. Satish Reddy and G.V. Prasad HUF, which is affiliated with Mr. G.V. Prasad ( Co-Chairman and Managing Director); and



The APS Trust owns 20.62% of the equity. Mr. G.V. Prasad, Mr. K. Satish Reddy, Mrs. G. Anuradha, Mrs. Deepti Reddy and their bloodline descendants are the beneficiaries of the APS Trust. Mr. G.V. Prasad and Mr. K. Satish Reddy are the trustees of the APS Trust.

		Equity Shares Beneficially Owned (1)
		Status as on March 31, 2022								Status as on April 22, 2022 (After giving effect to the Scheme of Amalgamation)								Status as on March 31, 2023
Name		Number of Shares				Percentage of Shares				Number of Shares				Percentage of Shares				Number of Shares				Percentage of Shares
Dr. Reddy’s Holdings Limited (2)			41,325,300				24.83	%			-				-				-				-
APS Trust			-				-				34,345,308				20.64	%			3,4345,308				20.62	%
K. Satish Reddy HUF			-				-				5,523,677				3.32	%			5,523,677				3.32	%
G.V. Prasad HUF (3)(4)			1,117,940				0.67	%			2,543,418				1.53	%			2,543,418				1.53	%
Mr. K. Satish Reddy (3)			898,432				0.54	%			901,002				0.54	%			901,002				0.54	%
Family Members			1,119,456				0.67	%			1,147,723				0.69	%			1,147,723				0.69	%
Subtotal promoter group			44,461,128				26.72	%			44,461,128				26.72	%			44,461,128				26.70	%
Others/public float			121,964,721				73.28	%			121,964,721				73.28	%			122,066,748				73.30	%
Total number of shares outstanding			166,425,849				100.00	%			166,425,849				100.00	%			166,527,876				100.00	%

(1)

Beneficial ownership is determined in accordance with rules of the U.S. Securities and Exchange Commission, which provides that shares are beneficially owned by any person who has voting or investment power with respect to the shares. All information with respect to the beneficial ownership of any principal shareholder has been furnished by that shareholder and, unless otherwise indicated below, we believe that persons named in the table have sole voting and sole investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable.

(2)

As on March 31, 2022, the APS Trust had owned approximately 83.11% of the equity of Dr. Reddy’s Holdings Limited, and thus may have been deemed to beneficially own all of the equity shares directly held by Dr. Reddy’s Holdings Limited. For more details on the Scheme of Amalgamation for the merger of Dr. Reddy’s Holdings Limited into Dr. Reddy’s Laboratories Limited, refer to Note 33 of our consolidated financial statements.

(3)

Mr. G.V. Prasad and Mr. K. Satish Reddy are the trustees of the APS Trust. Accordingly, each of Mr. G.V. Prasad and Mr. K. Satish Reddy may be deemed to beneficially own all of the equity shares directly held by the APS Trust. Each of Mr. G.V. Prasad and Mr. K. Satish Reddy disclaims such beneficial ownership pursuant to Rule 13d-4 of the Securities Exchange Act of 1934.

88

(4)

On March 26, 2021 the shares held by Mr. G.V. Prasad was transferred to a G.V. Prasad HUF.

(1)

Each of the APS Trust, Mr. G.V. Prasad and Mr. K. Satish Reddy may be deemed to beneficially own all of the equity shares.

(2)

Pursuant to the Scheme of Amalgamation and Arrangement approved by Hon’ble National Company Law Tribunal, Hyderabad Bench, vide Order dated April 5, 2022, Dr. Reddy’s Holdings Limited was merged with Dr. Reddy’s Laboratories Limited effective from April 8, 2022.

		R eport of Independent Registered Public Accounting Firm
		Consolidated statements of financial position as of March 31, 2023 and 2022



Consolidated income statements for the years ended March 31, 2023, 2022 and 2021



Consolidated statements of comprehensive income for the years ended March 31, 2023, 2022 and 2021



Consolidated statements of changes in equity for the years ended March 31, 2023, 2022 and 2021



Consolidated statements of cash flows for the years ended March 31, 2023, 2022 and 2021



Notes to the consolidated financial statements

89

90

91

92

93

94

95

i.

A person resident outside India who is not a NRI, an overseas citizen of India or a former Overseas Corporate Body (“OCB”), may transfer by way of sale or gift, the equity instruments held by him to any person resident outside India;

ii.

A NRI may transfer by way of sale or gift, the equity instruments held by that person to another NRI or to any person resident outside India; or

iii.

A person resident outside India holding the equity instruments of an Indian company in accordance with the NDI Rules, (a) may transfer such equity instrument to a person resident in India by way of sale or gift; or (b) may sell such equity instrument on a recognized Stock Exchange in India through a registered broker.

96



Eligible Issuer – Only a company incorporated in India and listed on a recognized stock exchange in India is allowed to issue the underlying securities for issuance of DRs, which must be permissible securities (as discussed below), and only their holders may transfer such underlying securities.



Permissible Holders – Indian residents and NRIs are not allowed to be permissible holders or beneficial owners of DRs. However, this restriction is not applicable in case the DRs are issued to NRIs pursuant to any share-based employee benefit scheme(s), that are implemented by the listed company in line with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, or any bonus issue or any rights issue of shares.



Obligations of Listed Company – The listed company must comply with applicable laws and regulations and ensure that only permissible securities are issued as the underlying securities for any DR issuance. Further, the listed company must issue such permissible securities only to the permissible holders. The listed company shall be responsible for identification of any holder (like NRI), who are issued DRs in terms of any share-based employee benefit scheme(s). Further, the listed company must provide the information of NRI DR holders to the designated depository in India, for the purpose of monitoring foreign investment limits.



Minimum Public Shareholding – In the case of issuance of new DRs, the listed company shall ensure that the limit on foreign holding of permissible securities as prescribed under applicable FEMA regulations is not exceeded and shall comply with the minimum public shareholding norms in India, after excluding the permissible securities held by the depository.



Minimum Price - The minimum price for the issuance or transfer of permissible securities is the price applicable to the corresponding mode of issue (i.e., public offer, preferential allotment or qualified institutions placement) to domestic investors in India under applicable laws.

97



a period or periods of at least 182 days; or



at least 60 days and, within the four preceding fiscal years has been in India for a period or periods amounting to at least 365 days.

98

Taxation

of Distributions.

•

gains from a sale of ADSs outside India by a non-resident to another non-resident are not taxable in India;

•

long-term capital gains realized by a resident and an employee from the transfer of the ADSs will be subject to tax at the rate of 10%, plus the applicable surcharges and the education cess; short-term capital gains on such a transfer will be taxed at graduated rates with a maximum of 30%, plus the applicable surcharges and the education cess;

•

long-term capital gains realized by a non-resident upon the sale of equity shares obtained from the conversion of ADSs are subject to tax at a rate of 10%, excluding the applicable surcharges and the Education Cess; and short-term capital gains on such a transfer will be taxed at the rate of tax applicable to the seller; and

•

long-term capital gain realized by a non-resident upon the sale of equity shares obtained from the conversion of ADSs is exempt from tax. However, effective as of April 1, 2018, long-term capital gains on sales of equity shares in excess of Rs.100,000 are subject to tax at a rate of 10% without indexation. However, gains incurred on or prior to January 31, 2018 will be grandfathered. Consequently, the current exemption under Section 10(38) of the Income-tax Act has been withdrawn and short-term capital gain is taxed at 15%, excluding the applicable surcharges and the Education Cess, if the sale of such equity shares is settled on a recognized stock exchange and the applicable securities transaction tax (“STT”) is paid on such sale.

99

i.

At the rate of 10% of such tax, if the total income is exceeding Rs.5,000,000 but not exceeding Rs.10,000,000;

ii.

At the rate of 15% of such tax, if the total income is exceeding Rs.10,000,000 but not exceeding Rs.20,000,000;

iii.

At the rate of 25% of such tax, if the total income is exceeding Rs.20,000,000 but not exceeding Rs.50,000,000; and

iv.

At the rate of 37% of such tax, if the total income is exceeding Rs.50,000,000.

100



With respect to a sale and purchase of equity shares (i) both the buyer and seller are required to pay a STT at the rate of 0.1% of the transaction value of the securities, if the transaction is a delivery based transaction (i.e., the transaction involves actual delivery or transfer of shares); or (ii) the seller of the shares is required to pay a STT at the rate of 0.025% of the transaction value of the securities, if the transaction is a non-delivery based transaction (i.e., the transaction is settled without taking delivery of the shares).



With respect to a sale and purchase of an option with respect to securities (i) upon the sale of the option, the seller is required to pay a STT at the rate of 0.05% of the option premium; and (ii) upon exercise of the option, the buyer is required to pay a STT at the rate of 0.125% of the settlement price.



With respect to a sale and purchase of futures with respect to securities, the seller is required to pay a STT at the rate of 0.01% of the transaction value.

101

102

103

104



75% or more of its gross income for the taxable year is passive income; or



on average for the taxable year, 50% or more of the total value of its assets produce or are held for the production of passive income (as of the end of each quarter of its taxable year).



pay an interest charge together with tax calculated at ordinary income rates on “excess distributions” (as the term is defined in relevant provisions of the U.S. tax laws) and on any gain on a sale or other disposition of our equity shares or ADSs;



if an election is made to be a “qualified electing fund” (as the term is defined in relevant provisions of the U.S. tax laws), include in their taxable income their pro rata share of undistributed amounts of our income; or



if the equity shares are “marketable” and a mark-to-market election is made, to mark-to-market the equity shares each taxable year and recognize ordinary gain and, to the extent of prior ordinary gain, recognize ordinary loss for the increase or decrease in market value for such taxable year.

105

(1)

“AUD” means Australian dollars, “BRL” means Brazilian reals, “CAD” means Canadian dollars, “COP” means Colombian pesos, “CLP” means Chilean pesos, “EUR” means Euros, “GBP” means U.K. pounds sterling, “INR” means Indian  rupees, “ MXN” means Mexican pesos, “RON” means Romanian new leus, “RUB” means Russian roubles, “U.S.$” means United States dollars and “ZAR” means South African rands.

106

(1)

“ BRL” means Brazilian reals, “INR” means Indian rupees, “MXN” means Mexican pesos, “RUB” means Russian roubles, “U.S.$” means United States Dollars and “UAH” means Ukrainian hryvnia.

(2)

“LIBOR” means the London Inter-bank Offered Rate, “TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “T-bill” means India Treasury bill and “CDI” means Brazilian interbank deposit rate (Certificado de Depósito Interbancário).

107

108

Category (as defined by SEC)		Depositary actions			Associated Fee
(g) Other		Expenses incurred on behalf of holders in connection with:			The amount of such expenses incurred by the Depositary.
		·	compliance with foreign exchange control regulations or any law or regulation relating to foreign investment;
		·	the depositary’s or its custodian’s compliance with applicable law, rule or regulation;
		·	stock transfer or other taxes and other governmental charges;
		·	cable, telex, facsimile transmission/delivery;
		·	expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency); or
		·	any other charge payable by depositary or its agents.

109

110

(a)

Disclosure Controls and Procedures

(b)

Management’s Annual Report on Internal Control Over Financial Reporting

111

(c)

Attestation Report of the Registered Public Accounting Firm.

112

(d)

Changes in internal control over financial reporting

113

	(1)	The ESOS Trust has purchased an aggregate of 661,601 equity shares as of March 31, 2023. Out of these, an aggregate of 49,295 equity shares was transferred to employees (including 24,100 shares transferred during the year ended March 31, 2023) pursuant to exercises of stock options (cash and cashless exercises) granted under the Dr. Reddy’s Employees Stock Option Scheme, 2018. The ESOS Trust sold an aggregate of 25,195 equity shares on the market during the year ended March 31, 2023 in connection with cashless exercises.
	(2)	During the year ended March 31, 2023, an aggregate of 48,032 equity shares representing unappropriated inventory of shares that are not backed by grants, acquired through secondary market acquisitions were sold for an aggregate consideration of Rs. 211 million in the secondary market pursuant to requirements under Chapter II Regulation 3(12) of the SEBI (share based employee benefits and sweat equity) Regulations, 2021.

114

(i)

establish an independent audit committee that has specified responsibilities;

(ii)

provide prompt certification by its chief executive officer of any non-compliance with any corporate governance rules;

(iii)

provide periodic written affirmations to the NYSE with respect to its corporate governance practices; and

(iv)

provide a brief description of significant differences between its corporate governance practices and those followed by U.S. companies.

115

116

Standard for U.S. NYSE Listed Companies			Our practice
Each listed company must submit an executed Written Affirmation annually to the NYSE. In addition, each listed company must submit an interim Written Affirmation each time that any of the following occurs:			We filed our most recent annual written affirmation, in the form specified by the NYSE, on July 23, 2022.   We filed the requisite interim written affirmation consequent to the appointment of Mr. Arun M. Kumar as a member of our audit committee in the form specified by the NYSE, on August 5, 2022.
·	an audit committee member who was deemed independent is no longer independent;
·	a member has been added to the audit committee;
·	the listed company or a member of its audit committee is eligible to rely on and is choosing to rely on a Securities Exchange Act Rule 10A-3 (“Rule 10A-3”) exemption;
·	the listed company or a member of its audit committee is no longer eligible to rely on or is choosing to no longer rely on a previously applicable Rule 10A-3 exemption;
·	a member has been removed from the listed company’s audit committee resulting in the company no longer having a Rule 10A-3 compliant audit committee; or
·	the listed company determined that it no longer qualifies as a foreign private issuer and will be considered a domestic company under Section 303A.
The annual and interim Written Affirmations must be in the form specified by the NYSE.

117

118

119

120

121

122

123

124

( 1 )

Represents mark to market gain or loss on financial assets classified as fair value through other comprehensive income (“FVTOCI”).  Depending on the category and type of the financial asset, the mark to market gain or loss is either reclassified to the income statement or to retained earnings upon disposal of the investment.

(2)

The Company has created a Special Economic Zone (“SEZ”) Reinvestment Reserve out of profits of its eligible SEZ Units in accordance with the terms of Section 10AA(1) of the Indian Income Tax Act, 1961. This reserve is to be utilized by the Company for acquiring Plant and Machinery in accordance with Section 10AA(2) of such Act.

(3)

The Company has created a Debenture Redemption Reserve out of profits of its subsidiary Aurigene Pharmaceutical Services Limited that issued debentures in accordance with the terms of Section 18(7)(iv) & 18(7)(v) AA(1) of the of Companies (Share Capital and Debentures) Rules, 2014. This reserve is to be utilized by the Company for payment of dividend and redemption of debentures.

(4)

Represents gain on disposal of financial instruments classified as FVTOCI instruments re-classified to retained earnings.

(5)

Refer   to Note 33 (“Merger of Dr. Reddy’s Holdings Limited into Dr. Reddy’s Laboratories Limited”) of these consolidated financial statements.

125

126

1.

 

Reporting entity

 

Dr. Reddy’s Laboratories Limited (the “parent company”), together with its subsidiaries and joint ventures (collectively, the “Company”), is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. The Company offers a portfolio of products and services including active pharmaceutical ingredients (“APIs”), generics, branded generics, biosimilars, over the counter (“OTC”) products and pharmaceutical services.

 

 

The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India, Cambridge in the United Kingdom; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India, Cuernavaca-Cuautla in Mexico and Mirfield in the United Kingdom; and its principal markets are in India, Russia, the United States, and Germany. The Company’s shares trade on the Bombay Stock Exchange, the National Stock Exchange, the NSE IFSC Limited in India and on the New York Stock Exchange in the United States.

2.

 

Basis of preparation of financial statements

 

a.

 

Statement of compliance

 

These consolidated financial statements as of and for the year ended March 31, 2023 comply in all material aspects with the International Financial Reporting Standards and its interpretations (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

These consolidated financial statements have been prepared by the Company as a going concern on the basis of relevant IFRS that are effective or elected for early adoption at the Company’s annual reporting date, March 31, 2023. These consolidated financial statements were authorized for issuance by the Company’s Board of Directors on June

1

3

, 2023.

 

b. Basis of measurement

 

These consolidated financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the statement of financial position:

 



derivative financial instruments are measured at fair value;



financial assets are measured either at fair value or at amortized cost, depending on the classification;



employee defined benefit assets/(liabilities) are recognized as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;



long-term borrowings are measured at amortized cost using the effective interest rate method;



share-based payments are measured at fair value;



investments in joint ventures are accounted for using the equity method;



assets held for sale are measured at fair value;



assets acquired and liabilities assumed as part of business combinations are measured at fair value;



contingent consideration arising out of business combination are measured at fair value; and



right-of-use the assets are recognized at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs, incurred, if any.

 

c.

 

Convenience translation (unaudited)

These consolidated financial statements have been prepared in Indian rupees. Solely for the convenience of the reader, these consolidated financial statements as of and for the year ended March 31, 2023 have been translated into U.S. dollars at the certified foreign exchange rate of U.S.$1.00 = Rs.82.19, as published by the Federal Reserve Board of Governors on March 31, 2023. 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. Such convenience translation is not subject to audit by the Company’s Independent Registered Public Accounting Firm.

 

127

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

2. Basis of preparation of financial statements (continued)

 

d. Use of estimates and judgments

 

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:

 



Notes 3(a) and 15 — Evaluation of joint arrangements;



Note 3(b) — Assessment of functional currency;



Notes 3(c), 30 and 31 — Financial instruments;



Notes 3(d) and 6 — Business combinations;



Notes 3(e) and (f) — Useful lives of property, plant and equipment and intangible assets;



Notes 3(g) – Determination of cost for right-of-use assets and lease term;



Notes 3(h) and 10— Valuation of inventories;



Notes 3(i), 12, 13 and 14— Measurement of recoverable amounts of cash-generating units;



Notes 3 (j) and 27 — Assets and obligations relating to employee benefits;



Notes 3 (k) and 28— Share-based payments;



Note 3(l) and 18 — Provisions and other accruals;



Note 3(m) — Measurement of transaction price in a revenue transaction (sales returns, rebates and chargeback provisions);



Note 3(p) and 25 — Evaluation of recoverability of deferred tax assets, and estimation of income tax payable and income tax expense in relation to uncertain tax positions; and



Note 32 — Contingencies.

 

e. Current and non-current classification

 

The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.  

 

All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in IAS 1,

“Presentation of financial statements”

.

 

Assets:

 

An asset is classified as current when it satisfies any of the following criteria:

 

a)

it is expected to be realized in, or is intended for sale or consumption in, the Company’s normal operating cycle;

b)

it is held primarily for the purpose of being traded;

c)

it is expected to be realized within twelve months after the reporting date; or

d)

it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

 

Liabilities:

 

A liability is classified as current when it satisfies any of the followi

ng

criteria:

 

a)

it is expected to be settled in the Company’s normal operating cycle;

b)

it is held primarily for the purpose of being traded;

c)

it is due to be settled within twelve months after the reporting date; or

d)

the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

 

Current assets and liabilities include the current portion of non-current assets and liabilities respectively. All other assets and liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current.  The operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. The Company has identified twelve months as its operating cycle.

128

 

3.

 

Significant accounting policies

 

New Standards adopted by the Company

 

Narrow-scope amendments to certain Standards

 

In May 2020, the IASB issued the following amendments:

 



Amendments to IFRS 3, “Business Combinations” which update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations.



Amendments to IAS 16, “Property, Plant and Equipment” which prohibit a company from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for its intended use. Instead, a company recognizes such sales proceeds and related costs in income statements.



Amendments to IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” which specify which costs a company needs to include when assessing whether a contract is onerous or loss-making.

 

These amendments are effective for annual reporting periods beginning on or after January 1, 2022 and these had no material impact on the consolidated financial statements.

 

Standards issued but not effective

 

Amendments to IAS 1, “

Presentation of Financial Statements

” regarding classification of liabilities as current or non-current

 

On January 23, 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, “

Presentation of Financial Statements”,

to specify the requirements for classifying liabilities as current or non-current. The amendments clarify what is meant by a right to defer settlement; that a right to defer must exist at the end of the reporting period; that the classification is unaffected by the likelihood that an entity will exercise its deferral right; and that only if the conversion option itself is classified as an equity instrument would settlement by way of own equity instruments be disregarded when determining whether the liability is current or non-current. In July 2021, the IASB decided to defer the effective date of these amendments to no earlier than January 1, 2024.

 

Amendments to IAS 1 and IFRS Practice Statement, “

Presentation of Financial Statements

”

 

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2, “

Making Materiality Judgments”

, in which it provides guidance and examples to help entities apply materiality judgments to accounting policy disclosures. The proposed amendments are effective for annual periods beginning on or after January 1, 2023.

 

Amendments to IAS 1, “

Presentation of Financial Statements

” regarding classification of non-current liabilities with covenants

 

On October 31, 2022, the IASB issued amendments to IAS 1 to clarify the requirements for classifying non-current liabilities with covenants. The amendments specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require the Company to disclose information about these covenants in the consolidated financial statements. The proposed amendments are effective for reporting periods beginning on or after January 1, 2024. Earlier application is permitted.

Amendments to IAS 12, “

Income Taxes

” regarding assets and liabilities arising from a

s

ingle

t

ransaction

 

 

In May 2021, the IASB issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences. The proposed amendments will typically apply to transactions such as leases, for the lessee and decommissioning obligations.  

 

Paragraphs 15 and 24 of IAS 12 were also amended to include an additional condition where the initial recognition exemption is not applied. According to the amended guidance, a temporary difference that arises on initial recognition of an asset or liability is not subject to the initial recognition exemption if that transaction gave rise to equal taxable and deductible temporary differences.

 

These amendments should be applied for annual periods beginning on or after January 1, 2023.

 

Amendments to IAS 8, “

Accounting Policies, Changes in Accounting Estimates and Errors

”

 

In February 2021, the IASB issued amendments to IAS 8, in which it introduces a new definition of ‘accounting estimates’. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. The proposed amendments are effective for annual periods beginning on or after January 1, 2023.

 

IFRS 17, “

Insurance Contracts

”

 

In May 2017, the IASB issued IFRS 17,

“Insurance Contracts”

, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. This standard is effective for annual periods beginning on or after January 1, 2023.

 

129

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3.

 

Significant accounting policies (continued)

 

Standards issued but not effective (continued)

 

Amendments to IFRS 16

“Lease

s”

 

In September 2022, the IASB issued Amendments to IFRS 16,

“Leases”

, adding requirements on explaining the subsequent measurement of sale and leaseback transaction. These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction. These amendments are effective for annual reporting periods beginning on or after January 1, 2024. Earlier application is permitted.

 

Amendments to IAS 12

“Income Taxes”

In May 2023, the IASB issued “International Tax Reform—Pillar Two Model Rules (Amendments to IAS 12)”, which amended IAS 12, “

Income Taxes

” to include affects arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organization for Economic Co-operation and Development (“OECD”). The amendments give companies temporary relief from accounting for tax impacts arising from the OECD international tax reform. The amendments introduced:

i .

a temporary exception to the requirements to recognize and disclose information about tax impacts related to Pillar Two model rules; and

ii .

targeted disclosure requirements for affected entities.

 

Companies can benefit from the temporary exception immediately but are required to provide the disclosures for annual reporting periods beginning on or after January

1,

2023.

 

The Company believes that the potential impact of the amendments to IAS 12 Pillar Two Model Rules will depend on the adoption of Pillar Two models by the respective countries and any amendments made to their respective tax laws.

The

r

est of the aforesaid amendments are not expected to have a material impact on the consolidated financial statements.

 

Summary of significant accounting policies

 

a. Basis of consolidation

 

Subsidiaries

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at March 31, 2023.  Subsidiaries are all entities (including special purpose entities) that are controlled by the Company. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive. The financial statements of subsidiaries are included in these consolidated financial statements from the date that control commences until the date that control ceases.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of financial position, respectively.

 

Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a subsidiary of the Company uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that subsidiary’s financial statements in preparing the consolidated financial statements to ensure conformity with the Company’s accounting policies.

 

Joint arrangements (equity accounted investees)

 

Joint arrangements are those arrangements over which the parties have joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. The considerations made in determining whether significant influence or joint control are similar to those necessary to determine control over the subsidiaries.

 

A joint arrangement is either a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

 

With respect to joint operations, the Company recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses.

 

130

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3.

Significant accounting policies (continued)

 

a. Basis of consolidation (continued)

Investments in joint ventures are accounted for using the equity method and are initially recognized at cost. The carrying value of the Company’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The Company does not consolidate entities where the non-controlling interest (“NCI”) holders have certain significant participating rights that provide for effective involvement in significant decisions in the ordinary course of business of such entities. Investments in such entities are accounted by the equity method of accounting. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.

 

For the purpose of preparing these consolidated financial statements, the accounting policies of joint ventures have been changed where necessary to align them with the policies adopted by the Company. Furthermore, the financial statements of the joint ventures are prepared for the same reporting period as of the Company.

 

Consolidation procedure

 

For the purpose of preparing these consolidated financial statements, intra-group transactions are consolidated using the following procedures:

 

a.

   

Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent c

ompany

with those of its subsidiaries. For this purpose, income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognized in the consolidated financial statements at the acquisition date.

 

b.

   

Offset (eliminate) the carrying amount of the parent

 company

’s investment in each subsidiary and the parent

 company

’s portion of equity of each subsidiary.

 

c.

   

Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognized in assets, such as inventory and property, plant and equipment, are eliminated in full). Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements.

 

Changes in ownership interests

 

Acquisition of some or all of the NCI is accounted for as a transaction with equity holders in their capacity as equity holders. Consequently, the difference arising between the fair value of the purchase consideration paid and the carrying value of the NCI is recorded as an adjustment to retained earnings that is attributable to the parent company. The associated cash flows are classified as financing activities. No goodwill is recognized as a result of such transactions.

 

Loss of Control

 

At the time of loss of control, the Company

 



derecognizes the assets (including goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost ;



derecognizes the carrying amount of any non-controlling interests ;



derecognizes the cumulative translation differences recorded in equity ;



recognizes the fair value of the consideration received ;



recognizes the fair value of any investment retained ;



recognizes any surplus or deficit in income statement ; and



reclassifies the parent  company ’s share of components previously recognized in OCI to income statement or transferred directly to retained earnings, if required by other IFRSs as would be required if the Company had directly disposed of the related assets or liabilities

b. Foreign currency

 

Functional and presentation currency

These consolidated financial statements are presented in Indian rupees, which is the functional currency of the parent company. All financial information presented in Indian rupees has been rounded to the nearest million.

 

In respect of certain non-Indian subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company (i.e., the Indian rupee). The operations of these entities are largely restricted to importing of finished goods from the parent company in India, sales of these products in the foreign country and making of import payments to the parent company. The cash flows realized from sales of goods are available for making import payments to the parent company and cash is paid to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from the parent company. The financing of these subsidiaries is done directly or indirectly by the parent company.

131

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

b. Foreign currency (continued)

In respect of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been generally determined to be the local currency of those countries/regions, unless use of a different currency is considered appropriate.

 

Foreign currency transactions

 

Transactions in foreign currencies are translated to the respective functional currencies of entities within the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate at that date. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured.

 

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in the consolidated income statement in the period in which they arise.

 

However, foreign currency differences arising from the translation of the following items are recognized in OCI:

 



certain debt instruments classified as measured at FVTOCI;



certain equity instruments where the Company had made an irrevocable election to present in OCI subsequent changes in the fair value;



a financial liability designated as a hedge of the net investment in a foreign operation, to the extent that the hedge is effective; and



qualifying cash flow hedges, to the extent that the hedges are effective.

 

When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.

 

Foreign operations

 

Foreign exchange gains and losses arising from a monetary item receivable from a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of the net investment in the foreign operation and are recognized in OCI and presented within equity as foreign currency translation reserve (“FCTR”).

 

I

n case of foreign operations whose functional currency is different from the parent company’s functional currency, the assets and liabilities of such foreign operations, including goodwill and fair value adjustments arising upon acquisition, are translated to the reporting currency at exchange rates at the reporting date. The income and expenses of such foreign operations are translated to the reporting currency at the monthly average exchange rates prevailing during the year. Resulting foreign currency differences are recognized in OCI and presented within equity as part of FCTR. When a foreign operation is disposed of, in part or in full, such that control, significant influence or joint control is lost, the relevant amount in the FCTR is reclassified to the consolidated income statement.

c. Financial instruments

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

Financial assets

 

Initial recognition and measurement

 

All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial

asset.

 

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (e.g., regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

 

Trade receivables are recognized initially at the amount of consideration that is unconditional unless they contain significant financing components, in which case they are recognized at fair value. The Company’s trade receivables do not contain any significant financing component and hence are measured at the transaction price measured under IFRS 15,

“Revenue from Contracts with Customers”

.  

132

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

c. Financial instruments (continued)

 

 

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

 



Debt instruments at amortized cost;



Debt instruments at FVTOCI;



Debt instruments, derivatives and equity instruments at FVTPL; and



Equity instruments measured at FVTOCI.

 

Debt instruments at amortized cost

 

A “debt instrument” is measured at the amortized cost if both the following conditions are met:

 

a)

the asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and

b)

contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding.

 

After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method and are subject to impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate.

 

Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on de-recognition is recognized directly in the consolidated income statement and presented in “other income, net”. The losses arising from impairment are recognized in the consolidated income statement. This category generally applies to trade and other receivables.

 

Debt instrument at FVTOCI

 

A “debt instrument” is classified as at the FVTOCI if both of the following criteria are met:

 

a)

the objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets; and

b)

the asset’s contractual cash flows represent SPPI.

 

Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognized in the OCI. However, the Company recognizes interest income, impairment losses and reversals and foreign exchange gain or loss in the consolidated income statement. On de-recognition of the asset, cumulative gain or loss previously recognized in OCI is reclassified to the consolidated income statement. Interest earned while holding a FVTOCI debt instrument is reported as interest income using the effective interest rate method.

 

Debt instrument at FVTPL

 

FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.

 

In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency (referred to as an “accounting mismatch”).

 

Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the consolidated income statement.

Equity investments

 

All equity investments within the scope of IFRS 9 are measured at fair value. Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies, are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in OCI subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made upon initial recognition and is irrevocable.

 

If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to the consolidated income statement, even on sale of investment.

 

However, on sale the Company may transfer the cumulative gain or loss within equity. Equity investments designated as FVTOCI are not subject to impairment assessment.  

 

Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the consolidated income statement.

 

 

133

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

c. Financial instruments (continued)

 

De-recognition

 

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company’s consolidated statement of financial position) when:

 



the rights to receive cash flows from the asset have expired; or



both (1) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and (2) either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

 

Impairment of trade receivables and other financial assets

 

In accordance with IFRS 9, the Company applies the expected credit loss (“ECL”) model for measurement and recognition of impairment loss on trade receivables or any contractual right to receive cash or another financial asset.

 

For this purpose, the Company follows a “simplified approach” for recognition of impairment loss allowance on the trade receivable balances. The application of this simplified approach does not require the Company to track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.

 

As a practical expedient, the Company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables. The provision matrix is based on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

 

Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

 

The Company’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

 

Financial liabilities at FVTPL

 

Financial liabilities at FVTPL include financial liabilities held for trading and financ

ial

liabilities designated upon initial recognition as at FVTPL. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

 

Gains or losses on liabilities held for trading are recognized in the consolidated income statement.

 

Financial liabilities designated upon initial recognition at FVTPL are designated as such at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains or losses are not subsequently transferred to the consolidated income statement.

 

However, the Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the consolidated income statement. The Company has not designated any financial liability as FVTPL.

 

134

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

c. Financial instruments (continued)

 

Loans and borrowings

 

Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in the consolidated income statement over the period of the borrowings using the effective interest method.

 

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated income statement when the liabilities are derecognized as well as through the effective interest rate amortization process.

 

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the consolidated income statement.

 

De-recognition

 

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated income statement.

 

Derivative financial instruments

The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, U.K. pounds sterling, Russian roubles, Brazilian reals, Swiss francs, South African rands, Kazakhstan tenges, Romanian new leus, Australian dollars and Euros, and foreign currency debt in U.S. dollars, Russian roubles, Mexican pesos, Ukrainian hryvnias and Brazilian reals.

 

The Company uses derivative financial instruments such as foreign exchange forward contracts, option contracts and swap contracts to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy. Derivatives are classified as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

Hedges of highly probable forecasted transactions

 

The Company classifies its derivative financial instruments that hedge foreign currency risk associated with highly probable forecasted transactions as cash flow hedges and measures them at fair value. The effective portion of such cash flow hedges is recorded in the Company’s hedging reserve as a component of equity and re-classified to the consolidated income statement as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions. The ineffective portion of such cash flow hedges is recorded in the consolidated income statement as finance costs immediately.

The Company also designates certain non-derivative financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for hedge of foreign currency risk associated with highly probable forecasted transactions. Accordingly, the Company applies cash flow hedge accounting to such relationships. Re-measurement gain or loss on such non-derivative financial liabilities is recorded in the Company’s hedging reserve as a component of equity and reclassified to the consolidated income statement as part of the hedged item in the period corresponding to the occurrence of the forecasted transactions.

 

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in OCI, remains there until the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in OCI is recognized immediately in the consolidated income statement.

 

Hedges of recognized assets and liabilities

 

Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is applied, are recognized in the consolidated income statement. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating to the monetary items, are recognized in the consolidated income statement. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the consolidated income statement.   

 

135

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

c. Financial instruments (continued)

 

Hedges of changes in the interest rates

 

Consistent with its risk management policy, the Company uses interest rate swaps to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For this purpose, “short-term” means investments having original maturities of three months or less from the date of investment. Bank overdrafts that are repayable on demand form an integral part of the Company’s cash management and are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

 

d. Business combinations and goodwill

 

Business combinations are accounted for using the acquisition method, regardless of whether equity instruments or other assets are acquired. The acquisition date is the date on which control is transferred to the acquirer. Judgment is applied in determining the acquisition date and determining whether control is transferred from one party to another. Control exists when the Company is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through power over the entity. In assessing control, potential voting rights are considered only if the rights are substantive.

 

The Company determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organized workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.

 

The consideration transferred for the acquisition of a subsidiary is comprised of:

 



fair values of the assets transferred;



liabilities incurred to the former owners of the acquired business;



equity interests issued by the Company;



fair value of any asset or liability resulting from a contingent consideration arrangement; and



fair value of any pre-existing equity interest in the subsidiary.

 

At the acquisition date, identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values.  For each business combination, the Company elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets.

 

Acquisition related costs are expensed as incurred.  

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognized in the consolidated income statement.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

 

Contingent consideration is classified either as equity or a financial liability. Contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Amounts classified as a financial liability are subsequently re-measured to fair value, with changes in fair value recognized in the consolidated income statement.

 

Goodwill is initially measured at cost, being the excess of the aggregate of:



the consideration transferred,



the amount of any non-controlling interest in the acquired entity, and



the acquisition date fair value of any previous equity interest in the acquired entity,

over the fair value of the net identifiable assets acquired is recorded as goodwill.

 

136

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

d. Business combinations and goodwill (continued)

 

If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the consolidated income statement as a bargain purchase.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.  

 

e. Property, plant and equipme

nt

 

Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for its intended use.

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.

 

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

 

Capital work in progress is stated at cost, net of accumulated impairment loss, if any.  

 

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.  Gains and losses upon disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net within “Other income, net” in the consolidated income statement.

 

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of repairs and maintenance are recognized in the consolidated income statement as incurred.

 

Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the carrying amount of the asset given up.

137

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

e. Property, plant and equipment (continued)

 

Depreciation

 

Depreciation is recognized in the consolidated income statement on a straight line basis over the estimated useful lives of property, plant and equipment. The depreciation expense is included in the costs of the functions using the asset. Land is not depreciated but subject to impairment.

 

Depreciation methods, useful lives and residual values are reviewed at each reporting date and any changes are considered prospectively. The estimated useful lives are as follows: 

Buildings
- Factory and administrative buildings	20 - 50 years
- Ancillary structures	3 - 15 years
Plant and equipment	3 - 15 years
Furniture, fixtures and office equipment	3 - 10 years
Vehicles	4 - 5 years

Software for internal use, which is primarily acquired from third-party vendors and which is an integral part of a tangible asset, including consultancy charges for implementing the software, is capitalized as part of the related tangible asset. Subsequent costs associated with maintaining such software are recognized as expense as incurred. The capitalized costs are amortized over the estimated useful life of the software or the remaining useful life of the tangible fixed asset, whichever is lower.

 

Advances paid towards the acquisition of property, plant and equipment outstanding at each reporting date and the cost of property, plant and equipment not ready to use before such date are disclosed under capital work-in-progress. Assets not ready for use are not depreciated but are tested for impairmen

t

.

 

f. Goodwill and other intangible assets

Recognition and measurement

Goodwill		Goodwill represents the excess of consideration transferred, together with the amount of non-controlling interest in the acquiree, over the fair value of the Company’s share of identifiable net assets acquired. Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying value of the equity accounted investee.
Other intangible assets		Other intangible assets that are acquired by the Company and that have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition.
Research and development		Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding are recognized in the consolidated income statement when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if:      development costs can be measured reliably;      the product or process is technically and commercially feasible;      future economic benefits are probable; and      the Company intends to, and has sufficient resources, to complete development and to use or sell the asset. The expenditures to be capitalized include the cost of materials and other costs directly attributable to preparing the asset for its intended use. Other development expenditures are recognized in the consolidated income statement as incurred. As of March 31, 2023, none of the development expenditure amounts has met the aforesaid recognition criteria  for cap italization.
Separate acquisition of intangible assets		Payments to third parties that generally take the form of up-front payments and milestones for in-licensed products, compounds and intellectual property are capitalized. The Company’s criteria for capitalization of such assets are consistent with the guidance given in paragraph 25 of IAS 38, “ Intangible Assets” . (i.e., the receipt of economic benefits embodied in each intangible asset separately purchased or licensed in the transaction is considered to be probable).
In-Process Research and Development assets		Acquired research and development intangible assets that are under development are recognized as In-Process Research and Development (“IPR&D”) assets. IPR&D assets are not amortized, but evaluated for potential impairment on an annual basis or when there are indications that the carrying value may not be recoverable. Any impairment charge on such IPR&D assets is recorded in the consolidated income statement under “Impairment of non-current assets”.

138

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

f. Goodwill and other intangible assets (continued)

Subsequent expenditures
Other intangible assets		Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, is recognized in the consolidated income statement as incurred.
IPR&D assets		Subsequent expenditure s  on an IPR&D project acquired separately or in a business combination are :      recognized as an expense when incurred, if it is a research expenditure;      recognized as an expense when incurred, if it is a development expenditure that does not satisfy the criteria for recognition as an intangible asset in paragraph 57 of IAS 38; or      added to the carrying amount of the acquired IPR&D project, if it is a development expenditure that satisfies the recognition criteria in paragraph 57 of IAS 38.

 

Amortization

 

Amortization is recognized in the consolidated income statement on a straight-line basis over the estimated useful lives of intangible assets. The amortization expense is recognized in the income statement in the expense category that is consistent with the function of the intangible asset. Intangible assets that are not available for use are amortized from the date they are available for use.

 

The estimated useful lives are as follows:

Product related intangibles		3 – 25 years
Other intangibles		3 - 15 years

The amortization period and the amortization method for intangible assets with a finite useful life are reviewed at each reporting date. Changes in the expected useful lives or expected pattern of consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate and are treated as change in accounting estimate.

 

Goodwill, intangible assets relating to products in development, other intangible assets not available for use and intangible assets having indefinite useful life are subject to impairment testing at each reporting date. All other intangible assets are tested for impairment when there are indications that the carrying value may not be recoverable. All impairment losses are recognized immediately in the consolidated income statement

under “Impairment of non-current assets”

.

 

De-recognition of intangible assets

 

Intangible assets are de-recognized either on their disposal or where no future economic benefits are expected from their use. Losses arising on such de-recognition are recorded in the consolidated income statement, and are measured as the difference between the net disposal proceeds, if any, and the carrying amount of respective intangible assets as at the date of de-recognition.

 

g. Leases

 

The Company assesses at contract inception whether a

c

ontract is or contains a lease, which applies if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset at the commencement date of the lease - i.e., the date the underlying asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis.

 

Lease liabilities include the net present value of the following lease payments to be made over the lease term:

 



fixed payments (including in-substance fixed payments), less any lease incentives receivable;



variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;



amounts expected to be payable by the Company under residual value guarantees;



the exercise price of a purchase option if the Company is reasonably certain to exercise that option; and



payments of penalties for terminating the lease, if the lease term reflects the Company exercising that option.

 

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, then the lessee’s incremental borrowing rate is used. Such borrowing rate is calculated as the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Company’s lease liabilities are included in borrowings.

 

139

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

g.

 

Leases (continued)

 

Lease payments are allocated between principal and interest cost. The interest cost is charged to consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

 

Right-of-use assets are measured at cost less accumulated depreciation and accumulated impairment, comprised of the following:

 



the amount of the initial measurement of lease liability;



any lease payments made at or before the commencement date less any lease incentives received;



any initial direct costs; and



restoration costs.

 

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

 

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognized on a straight-line basis as an expense in the consolidated income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

 

The right-of-use assets are initially recognized on the statement of financial position at cost, which is calculated as the amount of the initial measurement of the corresponding lease liability, adjusted for any lease payments made at or prior to the commencement date of the lease, any lease incentive received and any initial direct costs incurred by the Company.  

 

h. Inventories

 

Inventories are valued at the lower of cost

or

net realizable value.  

 

Inventories consist of raw materials, stores and spares, work in progress and finished goods. The cost of all categories of inventories is based on the weighted average method. Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of finished goods and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. Stores and spares consists of packing materials, engineering spares (such as machinery spare parts) and consumables (such as lubricants, cotton waste and oils), which are used in operating machines or consumed as indirect materials in the manufacturing process.

 

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

 

The factors that the Company considers in determining the provision for slow moving, obsolete and other non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, aging of inventory and introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. The Company considers all these factors and adjusts the inventory provision to reflect

its

actual experience on a periodic basis.

 

i. Impairment

 

Non-financial assets

 

The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment test is performed each year at March 31.

 

The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).

 

The goodwill acquired in a business combination is, for the purpose of impairment testing, allocated to cash-generating units that are expected to benefit from the synergies of the combination.

 

An impairment loss is recognized in the consolidated income statement if the estimated recoverable amount of an asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

 

140

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

i. Impairment (continued)

 

An impairment loss in respect

of

goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill that forms part of the carrying amount of an investment in a joint venture is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in a joint venture is tested for impairment as a single asset when there is objective evidence that the investment in a joint venture may be impaired.

 

An impairment loss in respect of equity accounted investee is measured by comparing the recoverable amount of investment with its carrying amount. An impairment loss is recognized in the consolidated income statement, and reversed if there has been a favorable change in the estimates used to determine the recoverable amount.

 

j. Employee benefits

 

Short-term employee benefits

 

Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

Defined contribution plans

 

The Company’s contributions to defined contribution plans are charged to the consolidated income statement as and when the services are received from the employees.

 

Defined benefit plans

 

The liability in respect of defined benefit plans and other post-employment benefits is calculated using the projected unit credit method consistent with the advice of qualified actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit obligation. In countries where there is no deep market in such bonds, the market interest rates on government bonds are used. The current service cost of the defined benefit plan, recognized in the consolidated income statement, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes, curtailments and settlements. Past service costs are recognized immediately in the consolidated income statement. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in the consolidated income statement. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions for defined benefit obligation and plan assets are recognized in OCI in the period in which they arise.

 

When the benefits under a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in the consolidated income statement. The Company recognizes gains or losses on the settlement of a defined benefit plan obligation when the settlement occurs.

 

Termination benefits

 

Termination benefits are recognized as an expense in the consolidated income statement when the Company is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense in the consolidated income statement if the Company has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

 

Other long-term employee benefits

 

The Company’s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and previous periods. That benefit is discounted to determine its present value. Re

-

measurements are recognized in the consolidated income statement in the period in which they arise.

 

Compensated absences

 

The Company’s current policies permit certain categories of its employees to accumulate and carry forward a portion of their unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof in accordance with the terms of such policies. The Company measures the expected cost of accumulating compensated absences as the additional amount that the Company incurs as a result of the unused entitlement that has accumulated at the reporting date. Such measurement is based on actuarial valuation as at the reporting date carried out by a qualified actuary.

141

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

k. Share based payments

 

Equity settled share-based payment transactions

 

The grant date fair value of options granted to employees is recognized as an expense in the consolidated income statement, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and performance conditions at the vesting date. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognized in connection with share-based payment transaction is presented as a separate component in equity under “share-based payment reserve”. The amount recognized as an expense is adjusted to reflect the actual number of stock options that vest.

 

Cash settled share-based payment transactions

 

The fair value of the amount payable to employees in respect of share-based payment transactions which are settled in cash is recognized as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at the settlement date based on the fair value of the share-based payment transaction. Any changes in the liability are recognized in the consolidated income statement.  

 

l. Provisions

A provision is recognized in the consolidated income statement if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

 

Restructuring

 

A provision for restructuring is recognized in the consolidated income statement when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided.

 

Onerous contracts

A provision for onerous contracts is recognized in the consolidated income statement when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract.

 

Reimbursement rights

 

Expected reimbursements for expenditures required to settle a provision are recognized in the consolidated income statement only when receipt of such reimbursements is virtually certain. Such reimbursements are recognized as a separate asset in the statement of financial position, with a corresponding credit to the specific expense for which the provision has been made.

 

Contingent liabilities and contingent assets

 

A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

 

Contingent assets are not recognized in the financial statements. A contingent asset is disclosed where an inflow of economic benefits is probable. Contingent assets are assessed continually and, if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

 

142

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

m. Revenue

 

The Company’s revenue is derived from sales of goods, service income and income from licensing arrangements. Most of such revenue is generated from the sale of goods. The Company has generally concluded that it is the principal in its revenue arrangements.

 

Sale of goods

 

Revenue is recognized when the control of the goods has been transferred to a third party. This is usually when the title passes to the customer, either upon shipment or upon receipt of goods by the customer.  At that point, the customer has full discretion over the channel and price to sell the products, and there are no unfulfilled obligations that could affect the customer’s acceptance of the product.  

 

Revenue from the sale of goods is measured at the transaction price which is the consideration received or receivable, net of returns, taxes and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.

 

In arriving at the transaction price, the Company considers the terms of the contract with the customers and its customary business practices. The transaction price is the amount of consideration the Company is entitled to receive in exchange for transferring promised goods or services, excluding amounts collected on behalf of third parties. The amount of consideration varies because of estimated rebates, returns and chargebacks, which are considered to be key estimates. Any amount of variable consideration is recognized as revenue only to the extent that it is highly probable that a significant reversal will not occur. The Company estimates the amount of variable consideration using the expected value method

.

 

Presented below are the points of recognition of revenue with respect to the Company’s sale of goods:

Particulars		Point of recognition of revenue
Sales of generic products in India		Upon delivery of products to distributors by clearing and forwarding agents of the Company. Control over the generic products is transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents.
Sales of active pharmaceutical ingredients and intermediates in India		Upon delivery of products to customers (generally formulation manufacturers), from the factories of the Company.
Export sales and other sales outside of India		Upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue generating activities to be completed, in which case revenue is recognized once all such activities are completed.

 

Profit share revenues

 

The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partner’s ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.

 

Revenue in an amount equal to the base sale price is recognized in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognized as revenue only to the extent that it is highly probable that a significant reversal will not occur.

 

At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.

 

Out licensing arrangements, milestone payments and royalties

 

Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment received on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. In cases where the transaction has two or more

performance obligations, the Company accounts for the completed obligation (for example the transfer of title) as a separate unit of accounting and record revenue upon delivery of that component, provided that the Company can make a reasonable estimate of the fair value of the undelivered component. Otherwise, non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognized over the balance period in which the Company has pending performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues on achievement of such milestones, or over the performance period depending on the terms of the contract. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.

Royalty income earned through a license is recognized when the underlying sales have occurre

d.

143

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

m. Revenue (continue

d

)

 

Provision for chargeback, rebates and discounts

 

Provisions for chargeback, rebates, discounts and Medicaid payments are estimated and provided for in the year of sales and recorded as reduction of revenue. A chargeback claim is a claim made by the wholesaler for the difference between the price at which the product is initially invoiced to the wholesaler and the net price at which it is agreed to be procured from the Company. Provisions for such chargebacks are accrued and estimated based on historical average chargeback rate actually claimed over a period of time, current contract prices with wholesalers/other customers and estimated inventory holding by the wholesaler.

 

Shelf stock adjustments

 

Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by the Company, and are accrued when the prices of certain products decline as a result of increased competition or otherwise. These credits are customary in the pharmaceutical industry, and are intended to reduce the customer inventory cost to better reflect the current market prices. The determination to grant a shelf stock adjustment to a customer is based on the terms of the applicable contract, which may or may not specifically limit the age of the stock on which a credit would be offered.

 

Refund Liability

 

The Company accounts for sales returns accrual by recording refund liability concurrent with the recognition of revenue at the time of a product sale. This liability is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of actual sales returns, levels of inventory in the distribution channel, estimated shelf life, any revision in the shelf life of the product, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors.

At the time of recognizing the refund liability, the Company also recognizes an asset, (i.e., the right to the returned goods) which is included in inventories for the products expected to be returned.  The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods.

 

Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

 

Services

 

Revenue from services rendered, which primarily relate to contract research, is recognized in the consolidated income statement as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed.

 

License fees

 

License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognized when control transfers to the third party and the Company’s performance obligations are satisfied. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognized in the period in which the Company completes all its performance obligations.

 

n. Shipping and handling costs

 

Shipping and handling costs incurred to transport products to customers, and internal transfer costs incurred to transport the products from the Company’s factories to its various points of sale, are included in selling, general and administrative expenses.

 

o. Finance income and expense

 

Finance income consists of interest income on funds invested, dividend income and gains on the disposal of financial assets. Interest income is recognized in the consolidated income statement as it accrues, using the effective interest method. Dividend income is recognized in the consolidated income statement on the date that the Company’s right to receive payment is established. The associated cash flows are classified as investing activities in the statement of cash flows. Finance expenses consist of interest expense on loans and borrowings.

 

Borrowing costs are recognized in the consolidated income statement using the effective interest method. The associated cash flows are classified as financing activities in the statement of cash flows.

 

144

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

o. Finance income and expense (continued)

 

Foreign cu

rre

ncy gains and losses are reported on a net basis within finance income and expense. These primarily include: exchange differences arising on the settlement or translation of monetary items; changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied; and the ineffective portion of cash flow hedges.

 

p. Income tax

 

Income tax expense consists of current and deferred tax. Income tax expense is recognized in the consolidated income statement except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

 

Deferred tax liabilities are recognized for all taxable temporary differences, except:

 



temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;



temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and



taxable temporary differences arising upon the initial recognition of goodwill.

 

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

 



When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and



In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

 

Any deferred tax asset or liability arising from deductible or taxable temporary differences in respect of unrealized inter-company profit or loss on inventories held by the Company in different tax jurisdictions is recognized using the tax rate of the jurisdiction in which such inventories are held. Withholding tax arising out of payment of dividends to shareholders under the Indian Income tax regulations is not considered a tax expense for the Company and all such taxes are recognized in the statement of changes in equity as part of the associated dividend payment.

 

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

Current and deferred tax is recognized in the consolidated income statement, except to the extent that it relates to items recognized in OCI or directly in equity. In this case, the tax is also recognized in OCI or directly in equity, respectively.

 

Accruals for uncertain tax

po

sitions require management to make judgments of potential exposures. Accruals for uncertain tax positions are measured using either the most likely amount or the expected value amount, depending on which method the entity expects to better predict the resolution of the uncertainty. Tax benefits are not recognized unless the tax positions will probably be accepted by the tax authorities. This is based upon management’s interpretation of applicable laws and regulations and the expectation of how the tax authority will resolve the matter. Once considered probable of not being accepted, management reviews each material tax benefit and reflects the effect of the uncertainty in determining the related taxable amounts.

 

 q. Earnings per share

 

The Company presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company

by

the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which includes all stock options granted to employees.

 

145

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

3. Significant accounting policies (continued)

 

r. Government grants and incentives

 

The Company recognizes government grants only when there is reasonable assurance that the conditions attached to them will be complied with, and the grants will be received. Government grants received in relation to assets are presented as a reduction to the carrying amount of the related asset. Grants related to income are deducted in reporting the related expense in the consolidated income statement.

 

Export entitlements from government authorities are recognized in the consolidated income statement as a reduction from “Cost of Revenues” when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.

 

s. Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Chief Executive Officer of the Company is responsible for allocating resources and assessing performance of the operating segments and accordingly is identified as the chief operating decision maker.

 

t.

Treasury shares

 

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated income statement on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in the share premium.

 

u. Non-currents assets held for sale

 

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense. The criteria for held for sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Property, plant and equipment

are

not depreciated or amortized once classified as held for sale. Assets classified as held for sale are presented separately as current items in the statement of financial position.

 

v. Rounding of amounts

 

All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest million currency units unless otherwise stated.

4.

 

Determination of fair values

 

The Company’s accounting policies and disclosures require the determination of fair value, for certain financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

 

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

 

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 



Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities.



Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.



Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

146

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

4.

Determination of fair values

(continued)

 

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

External valuers are involved for valuation of significant assets, such as assets acquired in a business combination and significant liabilities, such as contingent consideration. Involvement of external valuers is determined by the Management, based on market knowledge, reputation, independence and whether professional standards are maintained.

 

(i) Property, plant and equipment

 

Property, plant and equipment, if acquired in a business combination or through an exchange of non-monetary assets, is measured at fair value on the acquisition date. For this purpose, fair value is based on appraised market values and replacement cost.

 

(ii) Intangible assets

 

The fair value of brands, technology related intangibles, and patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of these brands, technology related intangibles, patents or trademarks being owned (the “relief of royalty method”). The fair value of customer related, product related and other intangibles acquired in a business combination has been determined using the multi-period excess earnings method. Under this method, value is estimated as the present value of the benefits anticipated from ownership of the intangible assets in excess of the returns required or the investment in the contributory assets necessary to realize those benefits.

 

(iii) Inventories

 

The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

 

(iv)Investment in equity and debt securities and units of mutual funds

 

The fair value of marketable equity and debt securities is determined by reference to their quoted market price at the reporting date. For debt securities where quoted market prices are not available, fair value is determined using pricing techniques such as discounted cash flow analysis.

 

In respect of investments in mutual funds, the fair values represent net asset value as stated by the issuers of these mutual fund units in the published statements. Net asset values represent the price at which the issuer will issue further units in the mutual fund and the price at which issuers will redeem such units from the investors.

 

Accordingly, such net asset values are analogous to fair market value with respect to these investments, as transactions of these mutual funds are carried out at such prices between investors and the issuers of these units of mutual funds.

 

(v) Derivatives

 

The fair value of foreign exchange forward contracts is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of foreign currency option and swap contracts and interest rate swap contracts is determined based on the appropriate valuation techniques, considering the terms of the contract.

 

(vi) Non-derivative financial liabilities

 

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. In respect of the Company’s borrowings that have floating rates of interest, their fair value approximates carrying value.

 

(vii) Share-based payment transactions

 

The fair value of employee stock options is measured using the Black-Scholes-Merton valuation model. Measurement inputs include share price on grant date, exercise price of the instrument, expected volatility (based on weighted average historical volatility), expected life of the instrument (based on historical experience), expected dividends, and the risk free interest rate (based on government bonds).

 

(viii) Contingent consideration

 

The fair value of the contingent consideration arising out of business combination is estimated by applying the income approach. The fair value measurement is based on significant inputs that are not observable in the market, which IFRS 13,

“Fair Value Measurement”

refers to as Level 3 inputs.

147

5.  

Segment reporting

 

The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating segment.  The Co-Chairman and Managing Director was previously the CODM of the Company. Pursuant to certain organizational changes, effective December 1, 2020, the office of Chief Executive Officer (“CEO”) assumed the authority and responsibility for making decisions about resources to be allocated to various segments and assessing their performance. Consequently, the CEO is the CODM of the Company.

 

The Company’s reportable operating segments are as follows:

 



Global Generics;



Pharmaceutical Services and Active Ingredients (“PSAI”); and



Other s. *

As discussed below, Proprietary Products ceased to be a reportable operating segment effective April 1, 2022.

 

Global Generics.

This segment consists of the Company’s business of manufacturing and marketing prescription and over-the-counter finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Company’s biologics business.

 

Pharmaceutical Services and Active Ingredients

. This segment primarily consists of the Company’s business of manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as “API”, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. The Company also serves its customers with incremental value added products, including semi-finished and finished formulations, which are included in this segment. This segment also includes the Company’s pharmaceutical services business, which provides contract research services and manufactures and sells active pharmaceutical ingredients in accordance with the specific customer requirements.

Others.*

This segment consists of the Company’s other business operations which includes its wholly-owned subsidiaries, Aurigene Oncology Limited (“AOL”) (formerly Aurigene Discovery Technologies Limited) and SVAAS Wellness Limited (“SVAAS”), and the Company’s Proprietary Products business. AOL is a discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation. AOL works with established pharmaceutical and biotechnology companies through customized models of drug-discovery collaborations. SVAAS is in the business of providing digital healthcare and information technology enabled business support services. The Proprietary Products business focuses on the research and development of differentiated formulations and is expected to earn revenues arising out of monetization of such assets and subsequent royalties, if any.

 

 

*

As the revenues and gross profits of the Proprietary Products segment are considerably lower than the quantitative thresholds mentioned in IFRS 8, “Operating Segments”, the Company believes that

the

 

Proprietary Products segment no longer qualifies to be a reportable segment and consequently, effective April 1, 2022, the Company included the financial information relating to its  

former

 

Proprietary Products segment in “Others”. The corresponding information relating to the Proprietary Products segment for earlier periods has been restated to reflect the aforementioned change

 

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated financial statements.

 

148

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

5. Segment reporting (continued)

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated financial statements.

Segment information:		For the Year Ended March 31,
Reportable segments		Global Generics												PSAI												Others (2)												Total
		2023				2022				2021				2023				2022				2021				2023				2022				2021				2023				2022				2021
Revenues (1)		Rs.	213,768			Rs.	179,170			Rs.	154,404			Rs.	29,069			Rs.	30,740			Rs.	31,982			Rs.	3,042			Rs.	4,481			Rs.	3,336			Rs.	245,879			Rs.	214,391			Rs.	189,722
Gross profit		Rs.	132,719			Rs.	103,270			Rs.	91,111			Rs.	4,715			Rs.	6,821			Rs.	9,426			Rs.	1,909			Rs.	3,749			Rs.	2,540			Rs.	139,343			Rs.	113,840			Rs.	103,077
Selling, general and administrative expenses																																							68,026				62,081				54,650
Research and development expenses																																							19,381				17,482				16,541
Impairment of non-current assets																																							699				7,562				8,588
Other income, net																																							(5,907	)			(2,761	)			(982	)
Results from operating activities																																						Rs.	57,144			Rs.	29,476			Rs.	24,280
Finance income, net																																							2,853				2,119				1,653
Share of profit of equity accounted investees, net of tax																																							370				703				480
Profit before tax																																						Rs.	60,367			Rs.	32,298			Rs.	26,413
Tax expense, net																																							15,300				8,730				9,175
Profit for the year																																						Rs.	45,067			Rs.	23,568			Rs.	17,238

 

(1)

Revenues for the year ended March 31, 2023 do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which amount to Rs.7,577 (as compared to Rs.6,255 and Rs.6,905 for the years ended March 31, 2022 and 2021, respectively)   and from the PSAI segment to the Others segment which amount to Rs.128 (as compared to Rs.0 and Rs.0 for the years ended March 31, 2022 and 2021, respectively).

 

(2)

As the revenues and gross profits of the Proprietary Products segment are considerably lower than the quantitative thresholds mentioned in IFRS 8, “Operating Segments”, the Company believes that Proprietary Products segment no longer qualifies to be a reportable segment and consequently, effective April 1, 2022, the Company included the financial information relating to the Proprietary Products segment in “Others”. The corresponding information relating to Proprietary Products segment for earlier periods has been restated to reflect the aforementioned change.

149

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

5. Segment reporting (continued)

Revenues within the Global Generics segment:

 

Revenues by therapeutic areas in the Company’s Global Generics segment is given below:

 

		For the Year Ended March 31,
		2023				2022				2021
Oncology		Rs.	48,671			Rs.	17,051			Rs.	16,842
Nervous System			27,888				26,159				29,040
Pain Management			23,585				18,437				15,531
Gastrointestinal			23,439				23,386				21,132
Respiratory			17,074				15,085				11,089
Anti-Infective			17,066				22,526				12,906
Cardiovascular			16,187				14,856				15,460
Hematology			10,316				11,737				4,959
Dermatology			6,749				6,797				5,240
Nutraceuticals			5,876				4,530				4,059
Others			16,917				18,606				18,146
To t al		Rs.	213,768			Rs.	179,170			Rs.	154,404

Revenues within the PSAI segment:

 

Revenues by therapeutic areas in the Company’s PSAI segment is given below

:

 

		For the Year Ended March 31,
		2023				2022				2021
Cardiovascular		Rs.	6,625			Rs.	7,729			Rs.	9,834
Oncology			4,252				2,526				2,385
Nervous System			3,753				3,017				2,704
Pain Management			3,729				4,513				4,657
Anti-Infective			2,346				5,450				4,126
Gastrointestinal			1,064				982				1,098
Diabetology			998				544				350
Respiratory			810				676				1,317
Dermatology			716				498				768
Genitourinary			637				705				825
Others			4,139				4,100				3,918
Total		Rs.	29,069			Rs.	30,740			Rs.	31,982

Revenues by geography:

 

The following table shows the distribution of the Company’s revenues by country, based on the location of the customers:

 

	For the Year Ended March 31,
Country		2023				2022				2021
India		Rs.	50,499			Rs.	43,986			Rs.	36,252
United States			106,683				80,564				76,702
Russia			21,228				20,879				15,816
Others (1)			67,469				68,962				60,952
		Rs.	245,879			Rs.	214,391			Rs.	189,722

 

(1)

Others include Germany, the United Kingdom, Ukraine, Romania, Brazil, South Africa, China, Canada and other countries across the world.

   

 

150

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

5. Segment reporting (continued)

Assets by geography:

 

The following table shows the distribution of the Company’s non-current assets (other than financial instruments and deferred tax assets) by country, based on the location of assets:

 

		As of March 31,
Country		2023				2022
Ind i a		Rs.	91,873			Rs.	83,166
Switzerland			5,070				4,748
United States			3,276				3,851
Germany			776				1,263
O t h e rs			5,336				5,244
		Rs.	106,331			Rs.	98,272

 

The following table shows the distribution of the Company’s property, plant and equipment including capital work in progress and intangible assets acquired during the year (other than goodwill arising on business combination) by country, based on the location of assets:

 

		For the Year Ended March 31,
Country		2023				2022
Ind i a		Rs.	18,362			Rs.	15,580
Switzerland			1,209				195
United States			532				260
Others			732				1,198
		Rs.	20,835			Rs.	17,233

 

Depreciation

and amortization, included in cost of revenues, by reportable segments:

 

		For the Year Ended March 31,
		2023				2022				2021
Global Generics		Rs.	3,269			Rs.	3,078			Rs.	3,435
PSAI			2,773				2,507				2,578
Others			69				42				48
		Rs.	6,111			Rs.	5,627			Rs.	6,061

Information about major customers

 

There are no customers which individually accounted for more than 10% of the revenues during the year ended March 31, 2023.

 

Revenues from two customers of the Company's Global Generics segment were Rs.20,596 and Rs.10,339, representing approximately 10%  and 5%, respectively, of the Company’s total revenues for the year ended March 31, 2022.

 

Revenues from two customers of the Company's Global Generics segment were Rs.19,341 and Rs.9,867, representing approximately 10%  and 5%, respectively, of the Company’s total revenues for the year ended March 31, 2021.

151

6.  

Business Combinations

 

A.

Acquisition of Nimbus Health, GmbH

On February 3, 2022, the Company entered into an agreement with Nimbus Health, GmbH (“Nimbus Health”) to acquire 100% of the share capital of Nimbus Health along with the existing employees.  

 

The Company completed the acquisition effective as of February 24, 2022.

 

The consideration involved an upfront payment of Rs.337, and additional performance and milestone-based earn-outs over the next four years pursuant to fulfillment of certain conditions.

 

Nimbus Health is a licensed pharmaceutical wholesaler in Germany focusing on medical cannabis based products. The acquisition will allow the Company to build on Nimbus Health strengths and introduce medical cannabis-based medicines as a promising treatment option for patients.

 

The Company has accounted for the transaction under IFRS 3, “

Business Combinations

”.

 

During the three months ended June 30, 2022, the Company completed the purchase price allocation.

There is no change in the fair values of assets and liabilities which was included on a provisional basis as of March 31, 2022

.

 

Tabulated below are the fair values of the assets acquired, including goodwill, and liabilities assumed on the acquisition date:

 

Particulars		Amount
Cash		Rs.	337
Payment through Escrow account			84
Total consideration		Rs.	421
Assets acquired
Goodwill		Rs.	260
Property, plant and equipment			2
Other intangible assets			106
Inventories			144
Trade receivables			45
Cash and cash equivalents			11
Other assets			2
Deferred tax asset			2
Liabilities assumed
Trade payables			(141	)
Other liabilities			(10	)
Total net assets		Rs.	421

 

The total goodwill of Rs.260 consists largely of the synergies and economies of scale expected from the acquired business, together with the value of the workforce acquired. This goodwill has been assigned to the Company’s Global Generics segment.

 

The amount of revenue and loss pertaining to the acquired business was not material for the year ended March 31, 2023 and 2022.

152

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

6. Business Combinations (continued)

 

 

B .	Business Transfer Agreement with Wockhardt Limited

In February 2020, the Company had entered into a Business Transfer Agreement (“BTA”) with Wockhardt Limited (“Wockhardt”) to acquire select divisions of its branded generics business in India and the territories of Nepal, Sri Lanka, Bhutan and Maldives for a total consideration of up to Rs. 18,500.

 

This acquisition included a portfolio of 62 brands in multiple therapy areas along with 2,051 employees engaged in operations of the acquired Business.

 

The aforesaid consideration includes a contingent amount of Rs. 3,000 (the “Holdback Amount”) which was subject to release if the revenue from sales of the products forming part of the Business Undertaking during the twelve (12) months post-closing exceeded Rs. 4,800, the Company was required to pay to Wockhardt an amount equal to two (2) times the amount by which the revenue exceeded Rs. 4,800, subject to the maximum of the Holdback Amount. As of March 31, 2020, the acquisition of this Business Undertaking was subject to certain closing conditions.

 

The transaction was completed on June 10, 2020.The Company had recognized the fair values of the assets acquired, including goodwill and liabilities assumed upon completion of purchase price allocation during the period ended September 30, 2020. Liabilities assumed included fair value of contingent consideration of Rs 561 recognized by applying the income approach.

 

The Company has accounted for the transaction under IFRS 3.

 

During the year ended March 31, 2021, the Company, after taking into account the revenue of the products until twelve months post-closing (i.e., June 9, 2021), re-measured the contingent consideration to be Rs.420.

 

As of March 31, 2023 and 2022, the outstanding amount of contingent consideration is Rs.187 and Rs 194, respectively.

 

The amount of revenue included in the consolidated income statements for the year ended March 31, 2021 pertaining to the acquired business since June 10, 2020 is Rs. 3,887 and for the years ended March 31, 2023 and 2022 it is Rs. 5,322 and Rs. 5,474, respectively. The acquired business has been integrated into the Company’s existing activities and it is not practicable to identify the impact on the Company profit in the year.

153

7.

 

Cash and cash equivalents

 

Cash and cash equivalents consist of the following:

 

8.  

Other investments

 

Other investments consist of investments in units of mutual funds, equity securities, bonds, commercial paper, limited liability partnership firm, market linked debentures and term deposits with banks (i.e., certificates of deposit having an original maturity period exceeding 3 months).

The details of such investments as of

March 

31, 2023 and 2022 are as follows:

 

		As of March 31, 2023												As of March 31, 2022
		Cost				Unrealized gain/(loss)				Fair value/ amortized cost				Cost				Unrealized gain				Fair value/ amortized cost
Current portion
In units of mutual funds		Rs.	37,635			Rs.	545			Rs.	38,180			Rs.	16,714			Rs.	37			Rs.	16,751
In term deposits with banks			11,524				-				11,524				9,340				-				9,340
In bonds			2,893				-				2,893				2,249				-				2,249
In market linked debentures			1,000				(6	)			994				-				-				-
In commercial paper			2,328				-				2,328				973				-				973
In equity securities			214				(144	)			70				214				(14	)			200
Others			29				-				29				-				-				-
		Rs.	55,623			Rs.	395			Rs.	56,018			Rs.	29,490			Rs.	23			Rs.	29,513
Non-current portion
In term deposits with banks		Rs.	-				-			Rs.	-			Rs.	2,000				-			Rs.	2,000
In equity securities (1)			2,701				(2,419	)			282				2,701				(1,701	)			1,000
In limited liability partnership firm			400				(22	)			378				400				(14	)			386
In bonds			-				-				-				256				-				256
Others			-				-				-				26				-				26
		Rs.	3,101			Rs.	(2441	)		Rs.	660			Rs.	5,383			Rs.	(1,715	)		Rs.	3,668

 

  

(1)

Primarily represents the investment in shares of Curis, Inc. The cost of acquisition was Rs.2,699. As of March 31, 2023 and 2022, the Company has recognized an unrealized loss of Rs.2,431 and Rs.1,713, respectively , in the OCI for the fair value changes

 

For the purpose of measurement, the aforesaid investments are classified as follows

:

154

9.

 

Trade and other receivables

		As of March 31,
		2023				2022
Current
Trade and other receivables, gross		Rs.	73,743			Rs.	67,958
Less: Allowance for credit losses			(1,258	)			(1,194	)
Trade and other receivables, net		Rs.	72,485			Rs.	66,764
Non-current
Trade and other receivables, gross (1)		Rs.	-			Rs.	54
Less: Allowance for credit losses			-				-
Trade and other receivables, net		Rs.	-			Rs.	54

 

(1)

Balance as of March 31, 2022 repr esented a mounts receivable pursuant to an out-licensing arrangement with a customer. As these amounts were not expected to be realized within twelve months from the end of the reporting date, they were disclosed as non-current.

 

During the year ended March 31, 2023, pursuant to an arrangement with a bank, the Company sold to the bank certain of its trade receivables forming part of its Global Generics segment, on a non-recourse basis. The receivables sold were mutually agreed upon with the bank after considering the creditworthiness and contractual terms with the customer. The Company has transferred substantially all the risks and rewards of ownership of such receivables sold to the bank, and accordingly, the same were derecognized in the statements of financial position. As on March 31, 2023, the amount of trade receivables de-recognized pursuant to the aforesaid arrangement was Rs.12,376.

 

In accordance with IFRS 9, the Company uses the expected credit loss (“ECL”) model for measurement and recognition of impairment loss on its trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of IFRS 15.

For this purpose, the Company uses a provision matrix to compute the expected credit loss amount for trade receivables. The provision matrix takes into account external and internal credit risk factors and historical data of credit losses from various customers.

 

The details of changes in allowance for credit losses during the years ended March 31, 2023 and 2022, are as follows:

 

10.  

Inventories

 

Inventories consist of the following:

 

		As of March 31,
		2023				2022
Raw materials		Rs.	12,075			Rs.	13,707
Work-in-progress			11,698				12,886
Finished goods (includes stock-in-trade)			20,971				20,491
Packing materials, stores and spares			3,926				3,800
		Rs.	48,670			Rs.	50,884

 

Details of inventories recognized in the consolidated income statement are

as

follows:

 

		For the Year Ended March 31,
		2023				2022				2021
Raw materials, consumables and changes in finished goods and work in progress		Rs.	71,708			Rs.	69,838			Rs.	58,268
Inventories write-down			4,869				4,584				2,521

 

During the years ended March 31, 2023 and 2022, amount

s

of Rs.3,111 and Rs.691

,

 respectively, representing government grants

,

has been accounted for as a reduction from cost of revenues.

155

11.

 

Other asset

s

		As of March 31,
		2023				2022
Current
Balances and receivables from statutory authorities (1)		Rs.	10,120			Rs.	8,455
Export benefits receivable (2)			598				1,016
Prepaid expenses			1,452				1,138
Others (3)			7,899				3,293
		Rs.	20,069			Rs.	13,902
Non-current
Security deposits		Rs.	668			Rs.	670
Others			132				224
		Rs.	800			Rs.	894

 

(1)

Balances and receivables from statutory authorities primarily consist of amounts recoverable towards the goods and service tax (“GST”), excise duty and value added tax, and from customs authorities of India.

 

(2)

Export benefits receivables primarily consist of amounts receivable from various government authorities of India towards incentives on export sales made by the Company.

 

(3)

Others primarily includes advances given to vendors and employees, security deposits, interest accrued but not due on investments, and claims receivable.

12.  

Property, plant and equipment

 

The following is a summary of the changes in carrying value of property, plant and equipment:

 

Particulars		Land				Buildings				Plant and equipment				Furniture, fixtures and office equipment				Vehicles				Total
Gross carrying value
Balance as of April 1, 2021		Rs.	4,228			Rs.	27,520			Rs.	78,634			Rs.	6,252			Rs.	1,257			Rs.	117,891
Additions			-				1,037				9,941				738				621				12,337
Assets acquired through business combinations (1)			-				1				-				1				-				2
Disposals			-				(221	)			(1,219	)			(186	)			(391	)			(2,017	)
Effect of changes in foreign exchange rates			5				85				313				9				(32	)			380
Balance as of March 31, 2022		Rs.	4,233			Rs.	28,422			Rs.	87,669			Rs.	6,814			Rs.	1,455			Rs.	128,593
Balance as of April 1, 2022		Rs.	4,233			Rs.	28,422			Rs.	87,669			Rs.	6,814			Rs.	1,455			Rs.	128,593
Additions			11				1,852				12,952				1,196				662				16,673
Disposals			-				(844	)			(3,002	)			(428	)			(160	)			(4,434	)
Effect of changes in foreign exchange rates			74				294				1,024				70				19				1,481
Balance as of March 31, 2023		Rs.	4,318			Rs.	29,724			Rs.	98,643			Rs.	7,652			Rs.	1,976			Rs.	142,313
Accumulated Depreciation/Impairment loss
Balance as of April 1, 2021		Rs.	-			Rs.	9,790			Rs.	54,661			Rs.	5,303			Rs.	804			Rs.	70,558
Depreciation for the year			-				1,718				5,554				572				308				8,152
Impairment (2)			64				872				1,626				7				1				2,570
Disposals			-				(118	)			(1,092	)			(182	)			(342	)			(1,734	)
Effect of changes in foreign exchange rates			-				20				167				7				(11	)			183
Balance as of March 31, 2022		Rs.	64			Rs.	12,282			Rs.	60,916			Rs.	5,707			Rs.	760			Rs.	79,729
Balance as of April 1, 2022		Rs.	64			Rs.	12,282			Rs.	60,916			Rs.	5,707			Rs.	760			Rs.	79,729
Depreciation for the year			-				1,726				5,888				675				326				8,615
Impairment (2)			-				-				40				4				-				44
Disposals			-				(526	)			(2,644	)			(398	)			(117	)			(3,685	)
Effect of changes in foreign exchange rates			4				211				806				56				27				1,104
Balance as of March 31, 2023		Rs.	68			Rs.	13,693			Rs.	65,006			Rs.	6,044			Rs.	996			Rs.	85,807

156

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

12. Property, plant and equipment (continued)

 

Particulars

Land

Buildings

Plant and equipment

Furniture, fixtures and office equipment

Vehicles

Total

Net carrying value

As of April 1, 2021

Rs.

4,228

Rs.

17,730

Rs.

23,973

Rs.

949

Rs.

453

Rs.

47,333

As of March 31, 2022

Rs.

4,169

Rs.

16,140

Rs.

26,753

Rs.

1,107

Rs.

695

Rs.

48,864

Add: Capital-work-in-progress

Rs.

13,394

Less: Impairment of Capital-work-in-progress (2)

(89

)

Total as of March 31, 2022

Rs.

62,169

As of March 31, 2023

Rs.

4,250

Rs.

16,031

Rs.

33,637

Rs.

1,608

Rs.

980

Rs.

56,506

Add: Capital-work-in-progress

Rs.

9,944

Add: Impairment reversal of Capital-work-in-progress (2)(3)

12

Total as of March 31, 2023

Rs.

66,462

 

(1)

Refer to Note 6 of these consolidated financial statements for further details.

(2)

During the year ended March 31, 2022, there was a significant decline in the expected cash flows of the Company’s subsidiary, Dr. Reddy’s Laboratories Louisiana, LLC (Shreveport Cash Generating Unit (“CGU”)). Consequently, the Company tested the carrying amount of the CGU, being the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or group of assets. This resulted in the recoverable amount of the CGU being lower than its carrying amount. Accordingly, the Company recognized an impairment loss of the entire carrying value of Rs.2,570 for property, plant and equipment, Rs.89 for capital-work-in-progress and Rs.392 for goodwill.  This impairment loss pertains to the Company’s Global Generics segment.

 

In Addition, a further impairment loss of Rs.44 representing the additions made to property, plant and equipment during the year ended March 31, 2023 has been recognized as the recoverable amount continues to be lower than the carrying value.

 

This impairment loss pertains to the company’s Global Generics Segment

 

(3)

Reversal of impairment on capitalization of assets  for the Shreveport  CGU.

 

Leases

 

The Company has lease contracts for various items of plant and equipment, vehicles and other equipment used in its operations. Below are the carrying amounts of right-of-use assets recognized and the movements during

the

year included in the above property, plant and equipment.

 

Particulars		Land				Buildings				Plant and equipment				Furniture, fixtures and office equipment				Vehicles				Total
Gross carrying value
Balance as of April 1, 2021		Rs.	81			Rs.	3,886			Rs.	18			Rs.	51			Rs.	604			Rs.	4,640
Additions			-				98				-				16				360				474
Disposals			-				(202	)			(1	)			-				(199	)			(402	)
Effect of changes in foreign exchange rates			(2	)			(23	)			(1	)			-				(10	)			(36	)
Balance as of March 31, 2022		Rs.	79			Rs.	3,759			Rs.	16			Rs.	67			Rs.	755			Rs.	4,676
Balance as of April 1, 2022		Rs.	79			Rs.	3,759			Rs.	16			Rs.	67			Rs.	755			Rs.	4,676
Additions			-				197				-				18				371				586
Disposals			-				(794	)			(13	)			-				(136	)			(943	)
Effect of changes in foreign exchange rates			5				43				-				-				(12	)			36
Balance as of March 31, 2023		Rs.	84			Rs.	3,205			Rs.	3			Rs.	85			Rs.	978			Rs.	4,355
Accumulated Depreciation
Balance as of April 1, 2021		Rs.	-			Rs.	1,335			Rs.	15			Rs.	25			Rs.	321			Rs.	1,696
Depreciation for the year			-				656				1				12				189				858
Disposals			-				(99	)			(1	)			-				(155	)			(255	)
Effect of changes in foreign exchange rates			-				(19	)			(1	)			(1	)			(3	)			(24	)
Balance as of March 31, 2022		Rs.	-			Rs.	1,873			Rs.	14			Rs.	36			Rs.	352			Rs.	2,275
Balance as of April 1, 2022		Rs.	-			Rs.	1,873			Rs.	14			Rs.	36			Rs.	352			Rs.	2,275
Depreciation for the year			-				626				1				13				239				879
Disposals			-				(512	)			(13	)			-				(95	)			(620	)
Effect of changes in foreign exchange rates			-				19				1				-				(5	)			15
Balance as of March 31, 2023		Rs.	-			Rs.	2,006			Rs.	3			Rs.	49			Rs.	491			Rs.	2,549

 

157

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

12. Property, plant and equipment (continued)

 

Leases (continued)

 

Net carrying value
As of April 1, 2021		Rs.	81			Rs.	2,551			Rs.	3			Rs.	26			Rs.	283			Rs.	2,944
As of March 31, 2022		Rs.	79			Rs.	1,886			Rs.	2			Rs.	31			Rs.	403			Rs.	2,401
As of March 31, 2023		Rs.	84			Rs.	1,199			Rs.	-			Rs.	36			Rs.	487			Rs.	1,806

 

The following are the amounts recognized in income statement:

 

		For the Year Ended March 31,
		2023				2022
Depreciation expense of right-of-use assets		Rs.	879			Rs.	858
Interest expense on lease liabilities			214				221

 

The Company had total cash outflows for leases of Rs.1,571 and Rs.1,341 during the years ended March 31, 2023 and 2022, respectively.  

The maturity analysis of lease liabilities is disclosed in Note 17 of these consolidated financial statements.

 

Capital commitments

 

As of March 31, 2023 and 2022, the Company was committed to spend Rs.8,340 and Rs.7,991, respective

ly

, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

 

Interest capitalization

 

During the years ended March 31, 2023 and 2022, the Company capitalized interest cost of Rs.426 and Rs.268, respectively, with respect to qualifying assets. The rate for capitalization of interest cost for the years ended March 31, 2023 and 2022 was approximately 7.62% and 4.65%, respectively.

13.  

Goodwill

 

Goodwill arising upon business combinations is not amortized but tested for impairment at least annually or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired.

 

The following table presents the changes in goodwill during the years ended March 31, 2023 and 2022:

  

		As of March 31,
		2023				2022
Opening balance, gross		Rs .	21,094			Rs.	20,852
Goodwill arising on business combinations (1)			-				260
Effect of translation adjustments			99				(18	)
Impairment loss (2) (3)			(16,948	)			(16,676	)
Closing balance		Rs.	4,245			Rs.	4,418

 

 

The carrying amount of goodwill (other than those arising upon investment in a joint venture) was allocated to the cash generating units as follows:

 

		As of March 31,
		2023				2022
PSAI-Active Pharmaceutical Operations		Rs.	997			Rs.	997
Global Generics-Complex Injectables			1,483				1,396
Global Generics-North America Operations ( 3 )			631				631
Global Generics-Branded Formulations ( 2 )			1,021				1,281
Others			113				113
		Rs.	4,245			Rs.	4,418

 

(1)

Refer to Note 6 (“Business Combinations”) of these consolidated financial statements for further details.

(2)

 

During the year ended March 31, 2023, the Company assessed performance of

the 

Nimbus Health business against the initial estimates and recognized an impairment charge of the carrying values of Rs.272. This impairment loss pertains to the Company’s Global Generics segment.

( 3 )

During the year ended March 31, 2022, the Company recorded impairment loss of Rs.392 pertaining to the Shreveport CGU.  Refer to Note 12 (“Property plant and equipment”) of these consolidated financial statements for further details. Such goodwill was included as part of “Global Generics-North America Operations”.

 

The impairment loss of Rs.16,948 and 16,676 for the years ended March 31, 2023 and 2022, respectively, includes Rs.

16,003 pertaining to the Company’s German subsidiary, betapharm Arzneimittel GmbH, which is part of the Company’s Global Generics segment. This impairment loss was recorded for the years ended March 31, 2009 and 2010.

 

For the purpose of impairment testing, goodwill is allocated to a cash generating unit, representing the lowest level within the Company at which goodwill is monitored for internal management purposes and which is not higher than the Company’s operating segment.

 

158

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

13. Goodwill (continued)

The recoverable amounts of the above cash generating units have been assessed using a value-in-use model. Value in use is generally calculated as the net present value of the projected post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially, a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. Key assumptions upon which the Company has based its determinations of value-in-use include:

 

a )

Estimated cash flows for five years, based on management’s projections.

 

b )

A terminal value arrived at by extrapolating the last forecasted year cash flows to perpetuity, using a constant long-term growth rate of   0%. This long-term growth rate takes into consideration external macroeconomic sources of data. Such long-term growth rate considered does not exceed that of the relevant business and industry sector.

 

c )

The after tax discount rates used are based on the Company’s weighted average cost of capital.

 

d )

The after tax discount rates used range from 7.4% to 12.5% for various cash generating units. The pre-tax discount rates range from 9.7% to 19.3%.

 

The Company believe

s

that any reasonably possible change in the key assumptions on which a recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit.

14.  

Other intangible assets

 

The following is a summary of changes in the carrying value of intangible assets:

 

		Product related intangibles				Customer related intangibles (2)				Others				Total
Gross carrying value
Balance as of April 1, 2021		Rs.	107,233			Rs.	-			Rs.	4,070			Rs.	111,303
Additions			816				-				379				1,195
Assets acquired through business combinations (2)			5				98				3				106
Disposals/De-recognitions (3)			(6,398	)			-				(5	)			(6,403	)
Effect of changes in foreign exchange rates			1,254				-				1				1,255
Balance as of March 31, 2022		Rs.	102,910			Rs.	98			Rs.	4,448			Rs.	107,456
Balance as of April 1, 2022		Rs.	102,910			Rs.	98			Rs.	4,448			Rs.	107,456
Additions (1)			6,830				-				766				7,596
Disposals/De-recognitions (3)			(687	)			-				-				(687	)
Effect of changes in foreign exchange rates			4,377				7				3				4,387
Balance as of March 31, 2023		Rs.	113,430			Rs.	105			Rs.	5,217			Rs.	118,752
Amortization/impairment loss
Balance as of April 1, 2021		Rs.	73,452			Rs.	-			Rs.	2,203			Rs.	75,655
Amortization for the year			3,415				-				257				3,672
Impairment loss			4,511				-				-				4,511
Disposals/De-recognitions (3)			(4,519	)			-				(2	)			(4,521	)
Effect of changes in foreign exchange rates			892				-				1				893
Balance as of March 31, 2022		Rs.	77,751			Rs.	-			Rs.	2,459			Rs.	80,210
Balance as of April 1, 2022		Rs.	77,751			Rs.	-			Rs.	2,459			Rs.	80,210
Amortization for the year			3,670				-				351				4,021
Impairment loss			273				103				19				395
Disposals/De-recognitions			(687	)			-				-				(687	)
Effect of changes in foreign exchange rates			3,959				2				3				3,964
Balance as of March 31, 2023		Rs.	84,966			Rs.	105			Rs.	2,832			Rs.	87,903
Net carrying value
As of April 1, 2021		Rs.	33,781			Rs.	-			Rs.	1,867			Rs.	35,648
As of March 31, 2022		Rs.	25,159			Rs.	98			Rs.	1,989			Rs.	27,246
As of March 31, 2023		Rs.	28,464			Rs.	-			Rs.	2,385			Rs.	30,849

 

159

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

14. Other intangible assets (continued)

(1)

Additions during the year ended March 31, 2023, primarily consists of:

·

The acquisition of the cardiovascular brand and trademark Cidmus® in India from Novartis AG for total consideration of Rs.4,633 (U.S.$61).

·

The acquisition of a portfolio of branded and generic injectable products from Eton Pharmaceuticals, Inc. for an upfront payment of Rs.395 (U.S.$5) and certain other milestone payments of up to U.S.$30 payable upon completion of the respective milestones.

·

The acquisition of rights in brimonidine tartrate ophthalmic solution 0.025 %, the private label equivalent of Lumify®, in the United States from Slayback Pharma LLC for Rs.722 (U.S.$9) plus certain other milestone payments of up to U . S.$3 payable upon completion of the respective milestones.

 

(2)

Refer to Note 6 (“Business Combinations”) of these consolidated financial statements for further details.

 

(3)

Disposals/de-recognitions for the year ended March 31, 2022 primarily include the following IPR&D assets:



Rs.4,498 upon its settlement with Hatchtech Pty Limited regarding their civil litigation and arbitration, relating to the acquisition of the product Xeglyze®. Refer to Note 32 (“Contingencies”) of these consolidated financial statements under “Civil Litigation and Arbitration with Hatchtech Pty Limited” for further details.



Rs.1,879 upon sale of all rights relating to anti-cancer agent E7777 (denileukin diftitox) to Citius Pharmaceuticals, Inc. (“Citius”).

 

In-process   re search and development assets (“IPR&D”)

 

Tabulated below is the reconciliation of amounts relating to in-process research and development assets as at the beginning and at the end of the year:

 

		As of March 31,
		2023				2022
Opening balance		Rs.	138			Rs.	6,113
Add : Additions during the year			395				153
Less : Disposals/De-recognitions (1)			-				(1,879	)
Less : Impairments during the year			-				(4,435	)
Effect of changes in exchange rates			16				186
Closing balance		Rs.	549			Rs.	138

 

(1)

During the year ended March 31, 2022, the Company entered into a definitive agreement with Citius Pharmaceuticals, Inc. (“Citius”) for the sale of all of its rights relating to its anti-cancer agent E7777 (denileukin diftitox) to Citius. The Company received Rs.2,951 (U.S.$40) as an upfront amount upon the closing of the transaction, and is entitled to a milestone payment of up to U.S.$40 related to the cutaneous Tcell lymphoma (“CTCL”) upon indication regulatory approval and up to U.S.$70 in milestone payments upon additional indication regulatory approvals. Further, the Company will receive certain sales-based milestone payments and tiered earn-out payments. Consequently, for this definitive agreement, the Company de-recognized Rs.1,879 representing the carrying cost of such asset, and an amount of Rs.1,064, representing the excess of sale consideration over the carrying cost, has been recognized as gain on sale of intangible assets and was included under “Other (income)/expense, net”. The transaction pertains to the Company’s Proprietary Products business (reflected in the Others segment).

 

Interest capitalization

 

During the years ended March 31, 2023 and 2022, the Company capitalized interest cost of Rs.0 and Rs.153, respectively, with respect to certain qualifying assets. The rate for capitalization of interest cost for the year ended March 31, 2022 ranged from 4.42% to 4.89%.

 

Impairment losses recorded for the year ended March 31, 2023

 

Impairment of intangibles pertaining to acquisition of Nimbus Health business:

 

During the year ended March 31, 2023, the Company assessed performance of products acquired as part of

the

 

Nimbus Health business against the initial estimates and recognized an impairment charge towards product related intangibles of carrying value of Rs.103 towards product related intangibles. This impairment loss pertains to the Company’s Global Generics segment.

 

Other impairments:

During the year ended March 31, 2023, consequent to adverse market conditions with respect to certain products related intangibles, the Company assessed the recoverable amount of certain products and recognized impairment loss of Rs.251 and Rs.41 

pertaining to products

form

ing

 part of the Company’s Global Generics and PSAI segments respectively.

 

Impairment

losses recorded for the year ended March 31, 2022

 

During the year ended March 31, 2022, there were significant changes to the market conditions for certain of the Company’s products forming part of the Company's Others segment (pertaining to its Proprietary products business) and Global Generics segment. The changes include a decrease in the market potential of products, increased competition leading to lower volumes, and revenues not being in line with projections. Due to these adverse market developments, the Company recorded an impairment loss of the complete carrying value for assets as follows:

 

- Rs.4,337 relating to PPC-06 (Tepilamide Fumarate Extended Release Tablets), an IPR&D asset forming part of the Company's Others segment; and

 

- Rs.174 pertaining to other IPR&D and other intangible assets forming part of the Company’s Global Generics segment.

 

The Company used the discounted cash flow approach to calculate the value-in-use which considered assumptions such as revenue projections, rate of generic penetration, estimated price erosion, the useful life of the asset and the net cash flows have been discounted based on post tax discount rate.

 

160

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

14.

Other intangible assets (continued)

Impairment

losses recorded for the year ended March 31, 2021

 

Total impairment charges for the year ended March 31, 2021 were Rs.8,542, of which Rs.3,180 was attributable to impairment of gNuvaring, Rs.3,291 was attributable to impairment of Xeglyze® and the balance of Rs.2,071 was attributable to other product related intangibles.

All of these charges were recorded in impairment of non-current assets in the consolidated income statement.

 

Impairment of gNuvaring

 

During the year ended March 31, 2021, there were significant changes to the generics market for Ethinyl estradiol/Ethenogestral vaginal ring (a generic equivalent to Nuvaring®), one of the 8 ANDAs acquired from Teva in June 2016. The changes include the launch by a competitor of a generic version of the product in January 2021. Due to these adverse market developments, the Company tested the carrying value of this product at the product cash generating unit (“CGU”) level, being the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount was determined by reference to the product’s value-in-use or fair value less costs to sell, whichever is higher. This resulted in the value-in-use being the recoverable value of the product. Accordingly, the Company recorded an impairment loss of Rs.3,180 for the year ended March 31, 2021. This impairment loss pertained to the Company’s Global Generics segment. With this impairment, the carrying value of the asset has been reduced to Rs.0.

 

Impairment of Xeglyze®

 

Consequent to the decline in the market potential of the product Xeglyze® forming part of the Company's Others segment (pertaining to its Proprietary products business), the Company recorded an amount of Rs.3,291 as impairment loss for the year ended March 31, 2021.

 

Other intangible assets

 

With respect to the saxagliptin/metformin (generic version of Kombiglyze®-XR) and phentermine and topiramate (generic version of Qsymia®), two of the 8 ANDAs acquired from Teva in June 2016, there has been a significant decrease in the market potential of these products, primarily due to higher than expected value erosion. Accordingly, the Company assessed the recoverable amount by revisiting market volume, share and price assumptions for these two products and recorded an amount of Rs.1,587 as impairment loss for the year ended March 31, 2021. This impairment loss pertained to the Company’s Global Generics segment.

 

In view of the specific triggers occurring in the year with respect to some other product related intangible assets forming part of the Company's Global Generics segment, the Company determined that there was a decrease in the market potential of these products primarily due to higher than expected price erosion and increased competition leading to lower volumes. Consequently, the Company recorded an amount of Rs.484 as impairment loss for the year ended March 31, 2021.

The Company used the discounted cash flow approach to calculate the value in use, with the assistance of independent appraisers. The key assumptions considered in the calculation are as follows:

a.

Weighted average of probability adjusted revenue projections, which take into consideration different scenarios such as the base case, the upside case and the downside case;

b.

Rate of generic penetration and estimated price erosion throughout the period;

c.

Estimate of useful life over which the product is expected to generate cash flows; and

d.

the net cash flows have been discounted based on a post-tax discounting tax rate of 8%.

Significant separately acquired intangible assets

 

Details of significant separately acquired intangible assets as of March 31, 2023 are as follows:

 

161

15.

Investment in equity accounted investees

 

		As of March 31,
		2023				2022
Equity shares held in Kunshan Rotam Reddy Pharmaceutical Company Limited, China			4,645			Rs.	4,259
Equity shares held in DRES Energy Private Limited, India			57				59
		Rs.	4,702			Rs.	4,318

Details of the Company’s investment in Kunshan Rotam Reddy Pharmaceuticals Company Limited:

 

Kunshan Rotam Reddy Pharmaceuticals Company Limited (“Reddy Kunshan”) is engaged in manufacturing and marketing of finished dosages in China. The Company’s interest in Reddy Kunshan was 51.3% as of March 31, 2023 and 2022. Four directors of the Company are on the board of Reddy Kunshan, which consists of eight directors. Under the terms of the joint venture agreement, all major decisions with respect to operating activities, significant financing and other activities are taken by the approval of at least five of the eight directors of Reddy Kunshan’s board. As the Company does not control Reddy Kunshan’s board and the other partners have significant participation rights, the Company’s interest in Reddy Kunshan has been accounted for under the equity method of accounting.

 

Summary financial information of Reddy Kunshan, as translated into the reporting currency of the Company and not adjusted for the percentage ownership held by the Company, is as follows:

 

		As of/for the Year Ended March 31,
		2023				2022				2021
Ownership			51.3	%			51.3	%			51.3	%
Total current assets		Rs.	6,972			Rs.	7,569			Rs.	8,778
Total non-current assets			3,372				2,460				892
Total assets		Rs.	10,344			Rs.	10,029			Rs.	9,670
Equity		Rs.	8,696			Rs.	7,944			Rs.	6,088
Total current liabilities			1,648				2,085				3,582
Total equity and liabilities		Rs.	10,344			Rs.	10,029			Rs.	9,670
Revenues		Rs.	9,323			Rs.	9,867			Rs.	9,017
Expenses			8,598				8,480				8,117
Profit for the year		Rs.	725			Rs.	1,387			Rs.	900
Company’s share of profits for the year		Rs.	372			Rs.	712			Rs.	461
Carrying value of the Company’s investment (1)		Rs.	4,645			Rs.	4,259			Rs.	3,307
Translation adjustment arising out of translation of foreign currency balances		Rs.	692			Rs.	678			Rs.	438

 

(1)

Includes Rs.181 representing the goodwill on acquisition of investment.

 

Details of the Company’s investment in DRES Energy Private Limited:

16.  

Trade and other payables

 

Trade and other payables consist of the following:

		As of March 31,
		2023				2022
Trade payables		Rs.	17,857			Rs.	15,971
Due to creditors for expenses			4,827				6,691
Due to capital creditors			3,760				2,910
		Rs.	26,444			Rs.	25,572

 

For details regarding the Company’s exposure to currency and liquidity risks, see Note 31 of these consolidated financial statements

under

“

Liquidity risk

”.

162

17.

   

Loans and borrowings

 

Short-term borrowings

 

Short-term borrowings primarily consist of “pre-shipment credit” drawn by the parent company and other unsecured loans drawn by parent company and certain of its subsidiaries in Russia, Brazil, Mexico, Ukraine and Switzerland which are repayable within 12 months from the date of drawdown.

 

Short-term borrowings consist of the following:

 

		As of March 31,
		2023				2022
Pre-shipment credit		Rs.	-			Rs.	18,211
Other working capital borrowings			7,390				8,871
		Rs.	7,390			Rs.	27,082

 

The interest rate profile of short-term borrowings from banks is given below:

 

	As of March 31,
	2023				2022
	Currency (1)		Interest Rate (2)		Currency (1)		Interest Rate (2)
Other working capital borrowings	RUB		9.87% to  10.40%		RUB		8.88%
	MXN		TIIE + 1.15%		MXN		TIIE + 1.15%
	INR		9.15%		INR		4.00%
	BRL		CDI + 1.2%		BRL		CDI + 1.79%
	UAH		21.00%		UAH		13.00%
	-		-		U.S.$		1 Months LIBOR+ 80 bps
Pre-shipment credit	-		-		INR		3 Months T-bill – 5 bps
	-		-		INR		3 Months T-bill
	-		-		INR		3 Months T-bill + 25 bps

 

(1)

“INR” means Indian rupees, “U.S.$” means United States Dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “BRL” means Brazilian reals and “UAH” means Ukrainian hryvnia.

(2)

“LIBOR” means the London Inter-bank Offered Rate, “TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “T-bill” means India Treasury bill and “CDI” means Brazilian interbank deposit rate (Certificado de Depósito Interbancário).

 

Long-term borrowings

 

Long-term borrowings consist of the following:

 

		As of March 31, 2023								As of March 31, 2022
		Non-current				Current				Non-current				Current
Non-convertible debentures by the APSL subsidiary (1)			-				3,800				3,800				-
Lease Liabilities			1,278				1,004				1,946				1,017
		Rs.	1,278			Rs.	4,804			Rs.	5,746			Rs.	1,017

 

(1)

“APSL subsidiary” refers to Aurigene Pharmaceutical Services Limited.

 

During the year ended March 31, 2021, the APSL subsidiary issued non-convertible debentures for

 

Rs.3,800.

The aforesaid non-convertible debentures are unsecured and repayable at par after

 3 years following the date of issue (i.e.,  by June 2023).

 

The interest rate profiles of long-term borrowings (other than obligations under leases) as of March 31, 2023 and 2022 were as follows:

 

		As of March 31,
		2023								2022
		Currency (1)				Interest Rate				Currency (1)				Interest Rate
Non-convertible debentures			INR				6.77	%			INR				6.77	%

 

(1)	“INR” means Indian rupees .

163

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

17.

Loans and borrowings (continued)

The aggregate maturities of long-term loans and borrowings, based on contractual maturities, as of March 31, 2023 were as follows:

 

Maturing in		Non- convertible debentures				Obligations under leases				Total
Less than 1 year		Rs.	3,800			Rs.	1,004			Rs.	4,804
1-2 years			-				992				992
2-3 years			-				242				242
3-4 years			-				38				38
4-5 years			-				6				6
Thereafter			-				-				-
		Rs.	3,800			Rs.	2,282			Rs.	6,082

 

The aggregate maturities of long-term loans and borrowings, based on contractual maturities, as of March 31, 2022 were as follows:

Maturing in		Non- convertible debentures				Obligations under leases				Total
Less than 1 year		Rs.	-			Rs.	1,017			Rs.	1,017
1-2 years			3,800				868				4,668
2-3 years			-				809				809
3-4 years			-				155				155
4-5 years			-				65				65
Thereafter			-				49				49
		Rs.	3,800			Rs.	2,963			Rs.	6,763

Uncommitted lines of credit from banks

 

The Company had uncommitted lines of credit of Rs.68,516 and Rs.39,989 as of March 31, 2023 and 2022, respectively, from its banks for working capital requirements. The Company draw upon these lines of credit based on its working capital requirements.

 

Reconciliation of liabilities arising from financing activities during the year ended March 31, 2023:

 

Particulars		Long-term borrowings (1)				Short-term borrowings				Total
Opening balance		Rs.	6,763			Rs.	27,082			Rs.	33,845
Recognition of right-of-use liability during the year			177				-				177
Payment of principal portion of lease liabilities			(1,015	)			-				(1,015	)
Borrowings made during the year			-				49,234				49,234
Borrowings repaid during the year			-				(68,616	)			(68,616	)
Effect of changes in foreign exchange rates			157				(310	)			(153	)
Closing balance		Rs.	6,082			Rs.	7,390			Rs.	13,472

Reconciliation of liabilities arising from financing activities during the year ended March 31, 2022:

Particulars		Long-term borrowings (1)				Short-term borrowings				Total
Opening balance		Rs.	7,163			Rs.	23,136			Rs.	30,299
Recognition of right-of-use liability during the year			327				-				327
Payment of principal portion of lease liabilities			(785	)			-				(785	)
Borrowings made during the year			-				51,518				51,518
Borrowings repaid during the year			-				(47,998	)			(47,998	)
Effect of changes in foreign exchange rates			58				426				484
Closing balance		Rs.	6,763			Rs.	27,082			Rs.	33,845

 

(1)

Includes current portion.

164

18.  

Provisions

 

The details of changes in provisions during the year ended March 31, 2023 are as follows:

 

Particulars		Refund Liability (1)				Environmental liability (2)				Legal and others (3)				Total
Balance as at beginning of the year		Rs.	3,583			Rs.	57			Rs.	675			Rs.	4,315
Provision made during the year, net of reversals			4,606				-				63				4,669
Provision used during the year			(3,649	)			-				-				(3,649	)
Effect of changes in foreign exchange rates			176				2				-				178
Balance as at end of the year		Rs.	4,716			Rs.	59			Rs.	738			Rs.	5,513
Current			4,716				-				738				5,454
Non-current			-				59				-				59
			4,716				59				738				5,513

 

(1)

Refund liability is accounted for by recording a provision based on the Company’s estimate of expected sales returns. See Note 3.m of these consolidated financial statements for the Company’s accounting policy on refund liability.

 

(2)

As a result of the acquisition of a unit of The Dow Chemical Company in April 2008, the Company assumed a liability for contamination of the Mirfield site acquired of Rs.39 (carrying value Rs.59). The seller is required to indemnify the Company for this liability. Accordingly, a corresponding asset has also been recorded in the consolidated statements of financial position.

 

(3)

Primarily consists of provision recorded towards the potential liability arising out of a litigation relating to cardiovascular and anti-diabetic formulations. Refer to Note 32 (Contingencies) of these consolidated financial statements under “Product and patent related matters - Matters relating to National Pharmaceutical Pricing Authority and Litigation relating to Cardiovascular and Anti-diabetic formulations” for further details.

19.  

Other liabilities

 

Other liabilities consist of the following:

 

		As of March 31,
		2023				2022
Current
Accrued expenses		Rs.	21,844			Rs.	20,055
Employee benefits payable			7,474				5,662
Statutory dues payable			4,571				3,675
Deferred revenue (1)			812				1,235
Advance from customers			1,169				1,341
Others			3,602				2,024
		Rs.	39,472			Rs.	33,992
Non-current
Deferred revenue (1)		Rs.	1,555			Rs.	1,597
Others			1,293				825
		Rs.	2,848			Rs.	2,422

 

(1)

Refer to Note 22   (“Revenue from contracts with customers and trade receivables”) for details of deferred revenue.

165

21.

Earnings per share

 

The calculation of basic and diluted earnings per share for the years ended March 31, 2023, 2022 and 2021 was based on the profit attributable to equity shareholders of the Company, being Rs.45,067, Rs.23,568 and Rs.17,238, respectively.

 

The weighted average number of equity shares outstanding, used for calculating the basic earnings per share, are as follows:

 

		For the Year Ended March 31,
		2023				2022				2021
Number of equity shares at the beginning of the year (excluding treasury shares)			165,957,378				165,726,030				165,776,132
Effect of treasury shares held during the year			2,138				-				(56,014	)
Effect of equity shares issued on exercise of stock options			75,374				156,667				124,222
Weighted average number of equity shares – Basic			166,034,890				165,882,697				165,844,340
Earnings per share of par value Rs.5 – Basic		Rs.	271.43			Rs.	142.08			Rs.	103.94

 

The weighted average number of equity shares outstanding, used for calculating the diluted earnings per share, are as follows:

 

		For the Year Ended March 31,
		2023				2022				2021
Weighted average number of equity shares – Basic			166,034,890				165,882,697				165,844,340
Dilutive effect of stock options outstanding (1)			353,280				455,937				471,701
Weighted average number of equity shares – Diluted			166,388,170				166,338,634				166,316,041
Earnings per share of par value Rs.5 – Diluted		Rs.	270.85			Rs.	141.69			Rs.	103.65

 

(1)

As of March 31, 2023, 2022 and 2021, 286,533, 13,284 and 235,460 options, respectively, were excluded from the diluted weighted average number of equity shares calculation because their effect would have been anti-dilutive. The average market value of the Company’s shares for the purpose of calculating the dilutive effect of stock options was based on quoted market prices for the year during which the options were outstand ing .

22.

Revenue from contracts with customers and trade receivables

 

Revenue from contracts with customers:

 

		For the Year Ended March 31,
		2023				2022				2021
Sales		Rs.	234,595			Rs.	205,144			Rs.	184,202
Service income			4,508				4,380				4,105
License fees (1)			6,776				4,867				1,415
		Rs.	245,879			Rs.	214,391			Rs.	189,722

 

(1)

During the year ended March 31, 2023, this primarily includes the following amounts:

·

Rs.902 from the sale of brands Z&D, Pedicloryl, Pecef and Ezinapi to J.B. Chemicals and Pharmaceuticals Limited;

·

Rs.1,399 from the sale of brands Styptovit-E, Finast, Finast-T and Dynapres to Torrent Pharmaceuticals Limited and

·

Rs.2,640 from the sale of certain non-core dermatology brands to Eris Lifesciences Limited

 

The amounts recognized above are adjusted for expected sales returns. These transactions pertain to the Company’s Global Generics segment.

 

During the year ended March 31, 2022, the Company entered into the following agreements:

 

·

An agreement with Alium JSC for the sale of the Company’s territorial rights relating to two of its anti-bacterial brands (Ciprolet® and Levolet®) in Russia and certain countries of the former Soviet Union. The consideration for the arrangement is Rs.1,971 and the Company recognized revenue of Rs.1,774 for the performance obligations relating to the milestones met. This transaction pertains to the Company’s Global Generics segment.

 

·

An agreement with Mankind Pharma Limited towards the sale of two of the Company's brands (Daffy bar and Combihale) in India, which formed part of the Company’s Global Generics segment. License fees includes an amount of Rs.390 towards the aforesaid sales transaction.

 

·

A definitive agreement with BioDelivery Sciences International, Inc. (“BDSI”), pursuant to which the Company sold its U.S. and Canada territory rights for ELYXYB (celecoxib oral solution) 25 mg/mL, to BDSI.  Upon successful completion of the closing conditions, the Company had recognized Rs.1,084 from this transaction. This transaction pertains to the Company’s Others segment (pertaining to its Proprietary products business).

 

Refer to Note 5 (“Segment reporting”) for details on revenues by therapeutic area, and revenues by geography.

 

Deferred revenue:

 

Tabulated below is the reconciliation of deferred revenue for the years ended March 31, 2023 and 2022.

 

		For the Year Ended March 31,
		2023				2022
Balance as of April 1		Rs.	2,832			Rs.	2,583
Revenue recognized during the year			(2,091	)			(1,961	)
Milestone payment received during the year			1,626				2,210
Balance as of March 31		Rs.	2,367			Rs.	2,832
Current			812				1,235
Non-current			1,555				1,597

 

167

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

22.  Revenue from contracts with customers and trade receivables (continued)

 

Significant gross to net adjustments relating to

Company’s North America Generics business (amounts in U.S.$ millions)

:

 

A roll-forward for each major accrual for the Company’s North America Generics business for the fiscal years ended March 31, 2021, 2022 and 2023 is as follows:

 

Particulars		Chargebacks				Rebates				Medicaid				Refund Liability (3)
		(All amounts in U.S.$)
Beginning Balance: April 1, 2020			156				80				11				24
Current provisions relating to sales during the year			1,702				245				21				15
Provisions and adjustments relating to sales in prior years			*				-				-				-
Credits and payments**			(1,656	)			(247	)			(19	)			(20	)
Ending Balance: March 31, 2021			202				78				13				19
Beginning Balance: April 1, 2021			202				78				13				19
Current provisions relating to sales during the year ( 1 )			1,897				235				23				25
Provisions and adjustments relating to sales in prior years			*				-				-				-
Credits and payments**			(1,836	)			(219	)			(23	)			(20	)
Ending Balance: March 31, 2022			263				94				13				24
Beginning Balance: April 1, 2022			263				94				13				24
Current provisions relating to sales during the year (2)			2,121				209				22				32
Provisions and adjustments relating to sales in prior years			*				-				-				-
Credits and payments**			(2,137	)			(216	)			(22	)			(21	)
Ending Balance: March 31, 2023			247				87				13				35

 

*

Currently, the Company does not separately track provisions and adjustments, in each case to the extent relating to prior years for chargebacks. However, the adjustments are expected to be non-material. The volumes used to calculate the closing balance of chargebacks represent approximately 1.1 to 1.4 months equivalent of sales, which corresponds to the pending chargeback claims yet to be processed.

 

**

Currently, the Company does not separately track the credits and payments, in each case to the extent relating to prior years for chargebacks, rebates, M edicaid payments or refund liability.

 

(1)

Chargebacks provisions and payments for the year ended March 31, 2022 were each higher as compared to the year ended March 31, 2021, primarily as a result of higher sales volumes and also due to higher pricing rates per unit for chargebacks  on account of reduction s in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products .   The foregoing  were partially off-set due to a lower pricing rates per unit for chargebacks ,  primarily on account of a reduction in the invoice price to wholesalers for certain of our products. The rebates provisions and payments for the year ended March 31, 2022 were each lower as compared to the year ended March 31, 2021, primarily as a result of lower pricing rates per unit for rebates, due to reduction in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products.

 

(2)

Chargebacks provisions and payments for the year ended March 31, 2023 were each higher as compared to the year ended March 31, 2022, primarily as a result of higher sales volumes and also due to higher pricing rates per unit for chargebacks  on account of reduction s in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products, The foregoing were partially off-set due to a lower pricing rates per unit for chargebacks ,  primarily on account of a reduction in the invoice price to wholesalers for certain of our products. The rebates provisions and payments for the year ended March 31, 2023 were each lower as compared to the year ended March 31, 2022, primarily as a result of lower pricing rates per unit for rebates, due to reduction in the contract prices through which the product is resold in the retail part of the supply chain for certain of our products.

 

(3)

The Company ’ s overall provision for   refund liability as of March 31, 2023 relating to the Com pany ’ s North America Generics business was U.S.$35 , compared to a liability of U.S.$24 as of March 31, 2022. This increase in the Company’s   provision for such  liability was primarily attributable to a   new product launches, volume growth and product mix changes for the year ended March 31, 2023 a s compared to the year ended March 31, 2022.

 

The estimates of “gross-to-net” adjustments for the Company’s operations in India and other countries outside of the United States relate mainly to refund liability in all such operations, and certain rebates to healthcare insurance providers are specific to the Company’s German operations. The pattern of such refund liability is generally consistent with the Company’s gross sales. In Germany, the rebates to healthcare insurance providers mentioned above are contractually fixed in nature and do not involve significant estimations by the Company.

 

168

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

22.

Revenue from contracts with customers and trade receivables (continued)

Refund liabilities:

		For the Year Ended March 31,
		2023				2022
Balance at the beginning of the year		Rs.	3,583			Rs.	2,824
Provision made during the year, net of reversals			4,606				4,406
Provision used during the year			(3,649	)			(3,699	)
Effect of changes in foreign exchange rates			176				52
Balance at the closing of the year		Rs.	4,716			Rs.	3,583
Current		Rs.	4,716			Rs.	3,583
Non-current			-				-

 

Contract asset:

As mentioned in the accounting policies for refund liability set forth in Note 3.m. of these consolidated financial statements, the Company recognizes an asset (i.e., the right to the returned goods), for the products expected to be returned. The Company initially measures this asset at the former carrying amount of the inventory, less any expected costs to recover the goods, including any potential decreases in the value of the returned goods. Along with re-measuring the refund liability at the end of each reporting period, the Company updates the measurement of the asset recorded for any revisions to its expected level of returns, as well as any additional decreases in the value of the returned products.

As of March 31, 2023 and 2022, the Company had Rs.48 and Rs.43, respectively, as contract assets representing the right to returned goods.

 

Contract liabilities:

2 3.

Other income, net

 

Other income, net consists of the following:

		For the Year Ended March 31,
		2023				2022				2021
Loss/(gain) on sale/disposal of non-current assets, net (1)(2)		Rs.	1,211			Rs.	(1,119	)		Rs.	42
Sale of spent chemicals			(391	)			(348	)			(270	)
Scrap sales			(280	)			(206	)			(142	)
Miscellaneous income, net (3)			(6,447	)			(1,088	)			(612	)
		Rs.	(5,907	)		Rs.	(2,761	)		Rs.	(982	)

 

(1)

Included in the year ended March 31, 2023, is an amount of Rs.991 (EUR 11.36) representing the loss on sale of assets, pursuant to an agreement with Delpharm Development Leiden B.V for the transfer of certain assets, liabilities and employees at its site at Leiden, Netherlands. This transaction pertains to the Company’s Global Generics segment.

 

(2)

Included in the year ended March 31, 2022, is an amount of Rs.1,064 representing gain on sale of intangible assets, pursuant to a definitive agreement with Citius for the sale of all of its rights relating to its anti-cancer agent E7777 (denileukin diftitox). Refer to Note 14 (“Other intangible assets”) of these consolidated financial statements for further details.

 

(3)

Miscellaneous income for the year ended March 31, 2023 includes an amount of Rs.5,638 (U.S.$71.39 discounted to present value) towards the settlement of an ongoing patent litigation relating to the launch of a product with Indivior Inc., Indivior UK Limited, and Aquestive Therapeutics, Inc.  Refer to Note 32 (“Contingencies – Product and patent related matters – Launch of Product”) in these consolidated financial statements for further details.

169

24.  

Finance income, net

 

Finance income, net consists of the following:

 

		For the Year Ended March 31,
		2023				2022				2021
In t e r e s t i n c o me		Rs.	1,180			Rs.	965			Rs.	826
Fair value changes and profit on sale of financial instruments measured at FVTPL, net			876				277				557
F or e i gn e x c h a nge g a i n, net			2,225				1,835				1,240
Miscellaneous income, net			-				-				-*
Finance income (A)		Rs.	4,281			Rs.	3,077			Rs.	2,623
In t e r e s t e xp e n s e		Rs.	(1,428	)		Rs.	(958	)		Rs.	(970	)
Finance expense (B)		Rs.	(1,428	)		Rs.	(958	)		Rs.	(970	)
Finance income, net [(A)+(B)]		Rs.	2,853			Rs.	2,119			Rs.	1,653

 

*	Rounded to the nearest million.

25.  

Income taxes

 

a.   

Income tax expense/(benefit) recognized in the consolidated income statement

 

Income tax expense/(benefit) recognized in the consolidated income statement consists of the following:

 

		For the Year Ended March 31,
		2023				2022				2021
Current taxes
Domestic		Rs.	8,768			Rs.	4,180			Rs.	5,849
Foreign			4,090				2,231				2,323
		Rs.	12,858			Rs.	6,411			Rs.	8,172
Deferred taxes
Domestic		Rs.	3,891			Rs.	2,165			Rs.	2,736
Foreign			(1,449	)			154				(1,733	)
		Rs.	2,442			Rs.	2,319			Rs.	1,003
Tax expense, net		Rs.	15,300			Rs.	8,730			Rs.	9,175

b.  

Income tax expense/(benefit) recognized directly in equity

 

Income tax expense/(benefit) recognized directly in equity consists of the following:

 

		For the Year Ended March 31,
		2023				2022				2021
Tax effect on changes in fair value of other investments		Rs.	-			Rs.	(293	)		Rs.	293
Tax effect on effective portion of change in fair value of cash flow hedges			(354	)			288				319
Tax effect on foreign currency translation differences			48				-				-
Tax effect on actuarial gains/losses on defined benefit obligations			69				(12	)			(73	)
		Rs.	(237	)		Rs.	(17	)		Rs.	539

170

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

25.  Income taxes (continued)

 

c.

   

Reconciliation of effective tax rate

 

The following is a reconciliation of the Company’s effective tax rates for the years ended March 31, 2023, 2022 and 2021:

 

		For the Year Ended March 31,
		2023				2022				2021
Profit before income taxes		Rs.	60,367			Rs.	32,298			Rs.	26,413
Enacted tax rate in India			34.94	%			34.94	%			34.94	%
Computed expected tax expense		Rs.	21,092			Rs.	11,285			Rs.	9,229
Effect of:
Differences between Indian and foreign tax rates		Rs.	(3,807	)		Rs.	(427	)		Rs.	810
Unrecognized deferred tax assets/(recognition of previously unrecognized deferred tax assets, net)			(757	)			97				1,220
Expenses not deductible for tax purposes			201				208				230
Income exempt from income taxes			(769	)			(1,619	)			(1,807	)
Foreign exchange differences			(204	)			(55	)			(18	)
Tax expense on distributed/undistributed earnings of subsidiary outside India			-				(220	)			-
Income from sale of capital assets			(602	)			(305	)			-
Others			146				(234)				(489	)
Income tax expense/(benefit)		Rs.	15,300			Rs.	8,730			Rs.	9,175
Effective tax rate			25%				27%				35%

 

The Company’s effective tax rate for the year ended March 31, 2023 was lower compared to the year ended March 31, 2022 primarily on account of:

 

·

changes in the Company’s jurisdictional mix of earnings (i.e., increase in the proportion of the Company’s profits from lower tax jurisdictions and decrease in the proportion of the Company’s profits from higher tax jurisdictions) for the year ended March 31, 2023 as compared to the year ended March 31, 2022; and

·

recognition of a previously unrecognized deferred tax asset on operating tax losses, primarily pertaining to Dr. Reddy’s Laboratories SA, Switzerland, as the Company believes that it is probable that there will be available taxable profits against which such tax losses can be utilized.

 

T

he Company’s effective tax rate for the year ended March 31, 2022 was lower as compared to the year ended March 31, 2021 primarily on account of:

 

·

a lower profit base during the year ended March 31, 202 1 on account of impairment losses, a permanent difference resulting in a higher tax rate . After adjusting these impairment losses, the adjusted effective tax rate stands at 26.5% for the year ended March 31, 2021; and

 

·

inclusion of income from sale of capital assets, which is taxable at a rate lower than the enacted tax rate for the year ended March 31, 2022. Consequently, the effective tax rate for the year ended March 31, 2022 was lower by approximately  1% on account of income from the sale of capital assets.

The Company has considered the impact of recent tax regulations and developments, including updates to its estimate on the impact of adoption of the Taxation Laws (Amendment) Act 2019, in determining its “Tax expense, net” for the year ended March 31 2023.

 

d.    Unrecognized deferred tax assets

 

The details of unrecognized deferred tax assets are summarized below:

 

		As of March 31,
		2023				2022
Deductible temporary differences, net		Rs.	293			Rs.	538
Operating tax loss carry-forward			4,074				4,590
		Rs.	4,367			Rs.	5,128

 

During the year ended March 31, 2023, the Company recognized deferred tax assets on certain operating tax losses, primarily pertaining to Dr. Reddy’s Laboratories SA, Switzerland, as the Company believes that it is probable that there will be available taxable profits against which such tax losses can be utilized.

 

Deferred income tax liability is not provided on undistributed earnings of Rs.30,429 and Rs.18,471 as of March 31, 2023 and 2022, respectively of subsidiaries, where it is expected that earnings of the subsidiaries will not be distributed in the foreseeable future. Generally, the Company indefinitely reinvests all of the accumulated undistributed earnings of subsidiaries, and accordingly, has not recorded any deferred taxes in relation to such undistributed earnings of its subsidiaries.  

 

171

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

25.  Income taxes (continued)

 

e.  

Deferred tax assets and liabilities

 

The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities and a description of the items that created these differences is given below:

 

		As of March 31,
		2023				2022
Deferred tax assets/(liabilities):
Inventories		Rs.	3,363			Rs.	3,197
Minimum Alternate Tax*			-				3,929
Trade and other receivables**			2,808				710
Operating/other tax loss carry-forward			2,086				2,053
Other current assets and other current liabilities, net			935				1,546
Property, plant and equipment			(3,139	)			(3,300	)
Other intangible assets			138				34
Others			172				(25	)
Net deferred tax assets		Rs.	6,363			Rs.	8,144

 

*

As per Indian tax laws, companies are liable for a Minimum Alternate Tax (“MAT”) when current tax, as computed under the provisions of the Income Tax Act, 1961 (“Tax Act”), is determined to be below the MAT computed under section 115JB of the Tax Act. If in any year the Company pays a MAT, then it is entitled to claim credit of the MAT paid over and above the normal tax liability in the subsequent years. The MAT credit is eligible to be carried forward and set-off in the future against the current tax liabilities over a period of 15 years starting from the succeeding fiscal year in which such credit was generated

 During the year ended March 31, 2023 the Company has utilized the available MAT credit.

.

 

**The final regulations addressing changes in

U.S

 

income recognition rules under Treas. Reg. sections 1.451-3 and 1.451-8 were published on January 6, 2021, and are effective for tax years beginning on or after January 1, 2021. The final regulations

,

which are mandatory for tax years beginning after December 31, 2020, are consistent with the Internal Revenue Service’s position and therefore create the need for the Company to change its current accounting method used for chargebacks to align with the final regulations. As a consequence of the new regulations, Dr. Reddy’s Laboratories Inc. U.S.A. has created a deferred tax asset and deferred tax liability in the financial statements reported for the year ending March 31, 2022.

 

In assessing whether the deferred income tax assets will be realized, management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets and tax loss carry-forwards is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategy in making this assessment. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will realize the benefits of those recognized deductible differences and tax loss carry-forwards. Recoverability of deferred tax assets is based on estimates of future taxable income. Any changes in such future taxable income would impact the recoverability of deferred tax assets.

 

Operating loss carry-forward consists of business losses, unabsorbed depreciation and unabsorbed interest carry-forwards. A portion of this total loss can be carried indefinitely and the remaining amounts expire at various

dates ranging from 2024 through 2040

.

 

f.    

Movement in deferred tax assets and liabilities during the years ended March 31, 2023 and

2022

.

		As of March 31, 2022				Recognized in income statement				Recognized in equity				As of March 31, 2023
Deferred tax assets/(liabilities):
Inventories		Rs.	3,197			Rs.	166			Rs.	-			Rs.	3,363
Minimum Alternate Tax			3,929				(3,929	)			-				-
Trade and other receivables			710				2,098				-				2,808
Operating/other tax loss carry-forward			2,053				33				-				2,086
Other current assets and other current liabilities, net			1,546				(611	)			-				935
Property, plant and equipment			(3,300	)			161				-				(3,139	)
Other intangible assets			34				104				-				138
Others			(25	)			(40	)			237				172
Net deferred tax assets		Rs.	8,144			Rs.	(2,018	)		Rs.	237			Rs.	6,363

172

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

25.  Income taxes (continued)

 

The details of movement in deferred tax assets and liabilities are summarized below:

Deferred tax assets/(liabilities):		As of March 31, 2021				Recognized in income statement				Recognized in equity				As of March 31, 2022
Inventories		Rs.	3,997			Rs.	(800	)		Rs.	-			Rs.	3,197
Minimum Alternate Tax			4,748				(819	)			-				3,929
Trade and other receivables			569				141				-				710
Operating/other tax loss carry-forward			2,593				(540	)			-				2,053
Other current assets and other current liabilities, net			1,404				142				-				1,546
Property, plant and equipment			(2,548	)			(752	)			-				(3,300	)
Other intangible assets			(283	)			317				-				34
Others			(188	)			146				17				(25	)
Net deferred tax assets		Rs.	10,292			Rs.	(2,165	)		Rs.	17			Rs.	8,144

 

 

The amounts recognized in the consolidated income statement for the years ended March 31, 2023 and 2022 include Rs.424 and Rs.154, respectively, which represent exchange differences arising due to foreign currency translations.

 

g.    

Uncertain tax positions

 

The Company is contesting various disallowances by the Income Tax authorities

 

in India and Mexico

. The associated tax impact for disallowances being more likely than not to be accepted by

t

ax authorities is Rs.3,384

,

and accordingly, no provision is made in these consolidated financial statements as of March 31, 2023.

26.   

Nature of Expense

 

The

following

table shows supplemental information related to certain “nature of expense” items for the years ended March 31, 2023, 2022 and 2021:

 

Employee benefits		For the Year Ended March 31,
		2023				2022				2021
Cost of revenues		Rs.	13,571			Rs.	11,594			Rs.	11,529
Selling, general and administrative expenses			27,505				22,486				20,052
Research and development expenses			5,389				4,778				4,718
		Rs.	46,465			Rs.	38,858			Rs.	36,299

 

		For the Year Ended March 31,
Depreciation		2023				2022				2021
Cost of revenues		Rs.	6,111			Rs.	5,627			Rs.	6,061
Selling, general and administrative expenses			1,511				1,476				1,491
Research and development expenses			993				1,049				975
		Rs.	8,615			Rs.	8,152			Rs.	8,527

		For the Year Ended March 31,
Amortization		2023				2022				2021
Cost of revenues		Rs.	-			Rs.	-			Rs.	-
Selling, general and administrative expenses			3,997				3,651				4,171
Research and development expenses			24				21				98
		Rs.	4,021			Rs.	3,672			Rs.	4,269

 

In addition, for details relating to costs of material consumed, refer to Note 10 of these consolidated financial statements.

173

27.  

Employee benefits

 

Total employee benefit

s

expenses, including share-based payments, incurred during the years ended March 31, 2023, 2022 and 2021 amounted to Rs.46,465, Rs.38,858 and Rs.36,299, respectively.

 

Gratuity benefits provided by the parent company

 

In accordance with applicable Indian laws, the

parent

c

ompany has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by the Government of India and in debt securities and equity securities of Indian companies.

 

The components of gratuity cost recognized in the income statement for the years ended March 31, 2023, 2022 and 2021 consist of the following:

 

		For the Year Ended March 31,
		2023				2022				2021
Current service cost			364			Rs.	328			Rs.	281
Interest on defined benefit liability			30				33				8
Past service cost			17				-				-
Gratuity cost recognized in income statement		Rs.	411			Rs.	361			Rs.	289

 

Details of the employee benefits obligations and plan assets are provided below:

 

		As of March 31,
		2023				2022
P r e s e nt v a l ue of funded ob l i g a t i ons		Rs.	3,076			Rs.	2,894
F a i r v a l ue of p l a n a ss e t s			(3,093	)			(2,350	)
Net defined benefit (Asset)/liability r e c og n i z e d		Rs.	(17	)		Rs.	544

 

Details of changes in the present value of defined benefit obligations are as follows:

 

		As of March 31,
		2023				2022
D e f i n e d b e n e f i t o b l i g a t i ons a t t he b e g i nn i ng of t he y e a r		Rs.	2,894			Rs.	2,628
Current s e r v i c e c o s t			364				328
In t e r e s t on defined obligations			171				144
Past service cost			17				-
Re-measurements due to:
Actuarial loss/(gain) due to change in financial assumptions			(61	)			7
Actuarial loss/(gain) due to demographic assumptions			(32	)			24
Actuarial loss/(gain) due to experience changes			67				60
B e n e f it s p a i d			(344	)			(293	)
Liabilities assumed/ (transferred) (1)			0	(2)			(4	)
D e f i n e d b e n e f i t o b l i g a t i ons a t t he e nd o f t he y e a r		Rs.	3,076			Rs.	2,894

 

(1)

Liabilities assumed/(transferred):

During the year ended March 31, 2023, an amount of Rs.0 (round

ed

to the nearest million) represents the transfer of liabilities on account of transfer of employees between the parent company and its subsidiaries.

During the year ended March 31, 2022, an amount of Rs.(4) represents the transfer of liabilities on account of transfer of employees between the parent company and its subsidiaries.

( 2 )

Rounded to the nearest million.

174

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

27.  Employee benefits (continued)

 

Details of changes in the fair value of plan assets are as follows:

 

		As of March 31,
		2023				2022
Fair value of plan assets at the beginning of the year		Rs.	2,350			Rs.	1,997
Employer contributions			885				496
Interest on plan assets			141				111
Re-measurements due to:
Return on plan assets excluding interest on plan assets			62				43
Benefits paid			(344	)			(293	)
Assets transferred (1)			(1	)			(4	)
Plan assets at the end of the year		Rs.	3,093			Rs.	2,350

 

(1)

Assets transferred:

·

During the year ended March 31, 2023, an amount of Rs.(1) represents the transfer of plan assets on account of the transfer of employees between the parent company and its subsidiaries.

·

During the year ended March 31, 2022, an amount of Rs.(4) represents the transfer of plan assets on account of the transfer of employees between the parent company and its subsidiaries.

 

Sensitivity Analysis:

 

		As of March 31, 2023
Defined benefit obligation without effect of projected salary growth		Rs.	2,000
Add: Effect of salary growth			1,076
Defined benefit obligation with projected salary growth			3,076
Defined benefit obligation, using salary growth rate plus 50 basis points			3,160
Defined benefit obligation, using salary growth rate minus 50 basis points			2,996
Defined benefit obligation, using discount rate minus 50 basis points			2,995
Defined benefit obligation, using discount rate plus 50 basis points			3,162

 

Summary of the actuarial assumptions:

The actuarial assumptions used in accounting for the Gratuity plan are as follows:

 

The assumptions used to determine benefit obligations:

 

		For the Year Ended March 31,
		2023				2022				2021
Discount rate			7.30	%			6.45	%			6.00	%
Rate of compensation increase			9.00	%			8.50	%			8.00	%

 

Disaggregation of plan assets:

The Gratuity Plan’s weighted-average asset allocation as of March 31, 2023 and 2022, by asset category, was as follows:

 

		As of March 31,
		2023				2022
Funds managed by insurers			100	%			100	%

 

175

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

27.  Employee benefits (continued)

The expected future cash flows in respect of gratuity as of March 31, 2023 were as follows:

 

Expected contribution		Amount
During the year ended March 31, 2024 (estimated)		Rs.	-
Expected future benefit payments
March 31, 2024			496
March 31, 2025			469
March 31, 2026			444
March 31, 2027			417
March 31, 2028			388
Thereafter			2,735

Pension plan of the Company’s subsidiary, Industrias Quimicas Falcon de Mexico

All employees of the Company’s Mexican subsidiary, Industrias Quimicas Falcon de Mexico (“Falcon”)

,

are entitled to a pension benefit in the form of a defined benefit pension plan. The Falcon pension plan provides for payment to vested employees at retirement or termination of employment. Liabilities in respect of the pension plan are determined by an actuarial valuation, based on which the Company makes contributions to the pension plan fund. This fund is administered by a third party, who is provided guidance by a technical committee formed by senior employees of Falcon.

 

The components of net pension cost recognized in the income statement for the years ended March 31, 2023, 2022 and 2021 consist of the following:

 

		For the Year Ended March 31,
		2023				2022				2021
Current service cost		Rs.	15			Rs.	16			Rs.	13
Interest on defined benefit liability			4				10				8
Total cost recognized in income statement		Rs.	19			Rs.	26			Rs.	21

 

Details of the employee benefits obligations and plan assets are provided below:

		As of March 31,
		2023				2022
P r e s e nt v a l ue of funded ob l i g a t i ons		Rs.	291			Rs.	271
F a i r v a l ue of p l a n a ss e t s			(248	)			(215	)
Net defined benefit liability r e c og n i z e d		Rs.	43			Rs.	56

 

Details of changes in the present value of defined benefit obligations are as follows:

 

		As of March 31,
		2023				2022
D e f i n e d b e n e f i t o b l i g a t i ons a t t he b e g i nn i ng of t he y e a r		Rs.	271			Rs.	307
Current s e r v i c e c o s t			15				16
In t e r e s t on defined obligations			27				24
Re-measurements due to:
Actuarial loss/(gain) due to change in financial assumptions			(27	)			(40	)
Actuarial loss/(gain) due to change in demographic			(3	)			-
Actuarial loss/(gain) due to experience changes			32				3
B e n e f it s p a i d			(74	)			(58	)
Foreign exchanges differences			50				19
D e f i n e d b e n e f i t o b l i g a t i ons a t t he e nd o f t he y e a r		Rs.	291			Rs.	271

 

176

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

27.  Employee benefits (continued)

 

Details of changes in the fair value of plan assets are as follows:

 

		As of March 31,
		2023				2022
Fair value of plan assets at the beginning of the year		Rs.	215			Rs.	169
Employer contributions			74				84
Interest on plan assets			23				15
Re-measurements due to:
Return on plan assets excluding interest on plan assets			(32	)			(6	)
Benefits paid			(74	)			(58	)
Foreign exchanges differences			42				11
Plan assets at the end of the year		Rs.	248			Rs.	215

 

Sensitivity Analysis:

 

		As of March 31, 2023
Defined benefit obligation without effect of projected salary growth		Rs.	205
Add: Effect of salary growth			86
Defined benefit obligation with projected salary growth			291
Defined benefit obligation, using salary growth rate plus 50 basis points			303
Defined benefit obligation, using salary growth rate minus 50 basis points			280
Defined benefit obligation, using discount rate minus 50 basis points			303
Defined benefit obligation, using discount rate plus 50 basis points			281

 

Summary of the actuarial assumptions:

The actuarial assumptions used in accounting for the Falcon defined benefit plans are as follows:

 

The assumptions used to determine benefit obligations:

 

		For the Year Ended March 31,
		2023				2022				2021
Discount rate			10.50	%			9.25	%			7.75	%
Rate of compensation increase			4.50	%			4.50	%			4.50	%

 

Disaggregation of plan assets:

The Falcon pension plan’s weighted-average asset allocation as of March 31, 2023 and 2022, by asset category, was as follows:

 

		As of March 31,
		2023				2022
Funds managed by insurers			50	%			50	%
Others			50	%			50	%

 

The expected future cash flows in respect of post-employment benefit plans in Mexico as of March 31, 2023 were as follows:

 

Expected contribution		Amount
During the year ended March 31, 2024 (estimated)		Rs.	-
Expected future benefit payments
March 31, 2024			5
March 31, 2025			6
March 31, 2026			11
March 31, 2027			22
March 31, 2028			29
Thereafter			710

Provident fund benefits

 

Certain categories of employees of the Company receive benefits from a provident fund, a defined contribution plan. Both the employee and employer each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs.1,142, Rs.1,013 and Rs.906 to the provident fund plan during the years ended March 31, 2023, 2022 and 2021, respectively.

 

177

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

27.  Employee benefits (continued)

 

Superannuation benefits

Certain categories of employees of the Company participate in superannuation, a defined contribution plan administered by the Life Insurance Corporation of India. The Company makes monthly contributions based on a specified percentage of each covered employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs.127, Rs.83 and Rs.84 to the superannuation plan during the years ended March 31, 2023, 2022 and 2021, respectively.

 

Other contribution plans

In the United States, the Company sponsors a defined contribution 401(k) retirement savings plan for all eligible employees who meet minimum age and service requirements. The Company contributed Rs.171, Rs.131 and Rs.139 to the 401(k) retirement savings plan during the years ended March 31, 2023, 2022 and 2021, respectively. The Company has no further obligations under the plan beyond its monthly matching contributions.

 

In the United Kingdom, certain social security benefits (such as pension, unemployment and disability) are funded by employers and employees through mandatory National Insurance contributions. The contribution amounts are determined based upon the employee’s salary. The Company has no further obligations under the plan beyond its monthly contributions. The Company contributed Rs.214, Rs.166 and Rs.143 to the National Insurance during the years ended March 31, 2023, 2022 and 2021, respectively.

 

Compensated absences

 

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was Rs.1,059 and Rs.1,061 as of March 31, 2023 and 2022, respectively.

28.

 

 Share-based payments

 

Dr. Reddy’s Employees Stock Option Scheme, 2002 (the “DRL 2002 Plan”):

 

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on September 24, 2001. The DRL 2002 Plan covers all employees and directors (excluding promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2002 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

 

The DRL 2002 Plan, as amended at annual general meetings of shareholders held on July 28, 2004 and on July 27, 2005, provides for stock option grants in two categories:

 

Category A

: 300,000 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

 

Category B

: 1,995,478 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).

 

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Committee may, after obtaining the approval of the shareholders in the annual general meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

 

178

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28.  

Share-based payments

 (

c

ontinued

)

 

After the stock split effected in the form of a stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides for stock option grants in the above two categories as follows:

 

Particulars		Number of options reserved under category A				Number of options reserved under category B				Total
Options reserved under original Plan			300,000				1,995,478				2,295,478
Options exercised prior to stock dividend date (A)			94,061				147,793				241,854
Balance of shares that can be allotted on exercise of options (B)			205,939				1,847,685				2,053,624
Options arising from stock dividend (C)			205,939				1,847,685				2,053,624
Options reserved after stock dividend (A+B+C)			505,939				3,843,163				4,349,102

 

The term of the DRL 2002 plan was extended for a period of 10 years effective as of January 29, 2012 by the shareholders at the Company’s Annual General Meeting held on July 20, 2012.

 

Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended March 31, 2023 and 2022 is as follows:

 

Category A — Fair Market Value Options:

There was no stock activity under this category

during the years ended March 31, 2023 and 2022,

and there were no stock options outstanding under this category as of March 31, 2023 and 2022.

 

Category B — Par Value Options:

Stock options activity

under this category

during the years ended March 31, 2023 and 2022 was as set forth in the below table.

 

		For the Year Ended March 31, 2023
Category B — Par Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			207,175			Rs.	5.00			Rs.	5.00				74
Granted during the year			-				-				-				-
Expired/forfeited during the year			(14,476	)			5.00				5.00				-
Exercised during the year			(40,363	)			5.00				5.00				-
Outstanding at the end of the year			152,336			Rs.	5.00			Rs.	5.00				65
Exercisable at the end of the year			27,094			Rs.	5.00			Rs.	5.00				41

 

		For the Year Ended March 31, 2022
Category B — Par Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			217,253			Rs.	5.00			Rs.	5.00				69
Granted during the year			106,870				5.00				5.00				91
Expired/forfeited during the year			(30,322	)			5.00				5.00				-
Exercised during the year			(86,626	)			5.00				5.00				-
Outstanding at the end of the year			207,175			Rs.	5.00			Rs.	5.00				74
Exercisable at the end of the year			21,235			Rs.	5.00			Rs.	5.00				43

 

The weighted average grant date fair value of options granted during the year ended March 31, 2022 was Rs.4,985 per option. The weighted average share price on the date of exercise of options during the years ended March 31, 2023 and 2022 was Rs.4,246 and Rs.4,948 per share, respectively.

 

The aggregate intrinsic value of options exercised during the years ended March 31, 2023 and 2022 was Rs.171 and Rs.428, respectively. As of March 31, 2023, options outstanding had an aggregate intrinsic value of Rs.703 and options exercisable had an aggregate intrinsic value of Rs.125.

 

179

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28. 

Share-based payments (continued)

 

Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 (the “DRL 2007 Plan”)

 

The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on July 27, 2005. The DRL 2007 Plan became effective upon its approval by the Board of Directors on January 22, 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2007 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

 

The DRL 2007 Plan provides for option grants in two categories:

 

Category A

: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

 

Category B

: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).

 

Stock options activity under the DRL 2007 Plan for the above two categories of options during the years ended March 31, 2023 and 2022 was as follows:

 

	For the Year Ended March 31, 2023
Category A — Fair Market Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			266,214				Rs.1,982.00 to Rs.5,301.00			Rs.	2,823.04				56
Granted during the year			94,302				3,905.80				3,905.80				96
Expired/forfeited during the year			-				-				-				-
Exercised during the year			(4,335	)			2,607.00 to 3,679.00				2,948.77				-
Outstanding at the end of the year			356,181				Rs.1,982.00 to Rs.5,301.00				3,108.24				54
Exercisable at the end of the year			198,181				Rs.1,982.00 to Rs.5,301.00			Rs.	2,574.27				36

 

		For the Year Ended March 31, 2022
Category A — Fair Market Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			270,340				Rs.1,982.00 to Rs.3,679.00			Rs.	2,791.65				67
Granted during the year			5,144				5,301.00				5,301.00				90
Expired/forfeited during the year			(3,150	)			3,679.00				3,679.00				-
Exercised during the year			(6,120	)			2,607.00 to 3,679.00				3,078.55				-
Outstanding at the end of the year			266,214				Rs.1,982.00 to Rs.5,301.00				2,823.04				56
Exercisable at the end of the year			132,845				Rs.1,982.00 to Rs.3,679.00			Rs.	2,457.33				41

 

The weighted average grant date fair value of options granted during the years ended March 31, 2023 and 2022 was Rs.1,497 and Rs.1,841 per option, respectively. The weighted average share prices on the date of exercise of options during the years ended March 31, 2023 and 2022 was Rs.4,302 and Rs.4,967 per share, respectively.

The aggregate intrinsic value of options exercised during the year ended March 31, 2023 and 2022 was Rs.6 and Rs.12

, respectively

.

As of March 31, 2023, options outstanding had an aggregate intrinsic value of Rs.539 and options exercisable had an aggregate intrinsic value of Rs.300.

 

180

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28.  

Share-based payments (continued)

		For the Year Ended March 31, 2023
Category B — Par Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			147,015			Rs.	5.00			Rs.	5.00				68
Granted during the year			51,270				5.00				5.00				95
Expired/forfeited during the year			(40,060	) *			5.00				5.00				-
Exercised during the year			(57,329	)			5.00				5.00				-
Outstanding at the end of the year			100,896			Rs.	5.00			Rs.	5.00				68
Exercisable at the end of the year			12,467			Rs.	5.00			Rs.	5.00				39

* Pursuant to approval by the Nomination, Governance and Compensation Committee, 37,268 granted options were cancelled on October 27, 2022.

		For the Year Ended March 31, 2022
Category B — Par Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			141,999			Rs.	5.00			Rs.	5.00				71
Granted during the year			55,884				5.00				5.00				90
Expired/forfeited during the year			(18,996	)			5.00				5.00				-
Exercised during the year			(31,872	)			5.00				5.00				-
Outstanding at the end of the year			147,015			Rs.	5.00			Rs.	5.00				68
Exercisable at the end of the year			27,929			Rs.	5.00			Rs.	5.00				40

 

The weighted average grant date fair value of options granted during the years ended March 31, 2023 and 2022 was Rs.4,224 and Rs.5,235, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2023 and 2022 was Rs.4,331 and Rs.4,975, respectively.

 

The aggregate intrinsic value of options exercised during the years ended March 31, 2023 and 2022 was Rs.248 and Rs.158, respectively. As of March 31, 2023, options outstanding had an aggregate intrinsic value of Rs.466 and options exercisable had an aggregate intrinsic value of Rs.58.

 

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”)

 

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on July 27, 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

 

181

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28.  

Share-based payments (continued)

 

The DRL 2018 Plan provides for option grants having an exercise price equal to the fair market value of the underlying equity shares on the date of grant as follows:

 

Particulars		Number of securities to be acquired from secondary market				Number of securities to be issued by the Company				Total
Options reserved against equity shares			2,500,000				1,500,000				4,000,000
Options reserved against ADRs			-				1,000,000				1,000,000
Total			2,500,000				2,500,000				5,000,000

 

During the year ended March 31, 2023, an aggregate of

48,032

equity shares representing unappropriated inventory of shares that are not backed by grants, acquired through secondary market acquisitions were sold for an aggregate consideration of Rs. 211 in the secondary market pursuant to requirements under Chapter II Regulation 3(12) of the SEBI (share based employee benefits and sweat equity) Regulations, 2021.

 

The outstanding shares purchased from secondary market as of March 31, 2023 and 2022, are 371,144 and 468,471 shares for an aggregate consideration of Rs.1,269 and Rs.1,601, respectively.

 

Stock option activity under the DRL 2018 Plan during the years ended March 31, 2023 and 2022 was as follows:

 

	For the Year Ended March 31, 2023
Fair Market Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			251,035				Rs.2,607.00 to Rs.5,301.00			Rs.	3,170.57				64
Granted during the year			189,289				3,905.80 to 4,338.00				3,931.91				95
Expired/forfeited during the year			(24,152	)			2,607.00 to 5,310.00				3,510.83				-
Exercised during the year			(49,295	)			2,607.00 to 3,679.00				2,918.78				-
Outstanding at the end of the year			366,877				Rs.2,607.00 to Rs.5,301.00			Rs.	3,574.91				69
Exercisable at the end of the year			104,920				Rs.2,607.00 to Rs.5,301.00			Rs.	3,002.16				43

 

		For the Year Ended March 31, 2022
Fair Market Value Options		Shares arising out of options				Range of exercise prices				Weighted average exercise price				Weighted average remaining useful life (months)
Outstanding at the beginning of the year			385,930				Rs.2,607.00 to Rs.3,679.00			Rs.	3,056.51				71
Granted during the year			8,856				4,662.70 to 5,301.00				5,289.76				90
Expired/forfeited during the year			(37,021	)			2,607.00 to 5,310.00				3,157.39				-
Exercised during the year			(106,730	)			2,607.00 to 3,679.00				2,938.55				-
Outstanding at the end of the year			251,035				Rs.2,607.00 to Rs.5,301.00			Rs.	3,170.57				64
Exercisable at the end of the year			68,130				Rs.2,607.00 to Rs.3,679.00			Rs.	2,859.13				47

182

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28.

Share-based payments (continued)

 

The weighted average grant date fair value of options granted during the years ended March 31, 2023 and 2022 was Rs.1,492 and Rs.1,848 per option, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2023 and 2022 was Rs.4,388 and Rs.4,922 per share, respectively.

 

The aggregate intrinsic value of options exercised during the years ended March 31, 2023 and 2022 was Rs.72 and Rs.212, respectively. As of March 31, 2023, options outstanding had an aggregate intrinsic value of Rs.384 and options exercisable had an aggregate intrinsic value of Rs.110.

 

Valuation of stock options:

 

The fair value of services received in return for stock options

granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black–Scholes-Merton model at the date of the grant.

 

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control.

 

As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock based compensation expense could be materially impacted in future years.

 

The estimated fair value of stock options is recognized in the consolidated income statement on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The weighted average inputs used in computing the fair value of options granted were as follows:

 

		January 24, 2023
Expected volatility			27.73	%
Exercise price		Rs.	4,338.00
Option life			5.0 Years
Risk-free interest rate			7.21	%
Expected dividends			0.71	%
Grant date share price		Rs.	4,253.00

 

		October 27, 2022				October 27, 2022
Expected volatility			26.38	%			28.13	%
Exercise price		Rs.	5.00			Rs.	4,443.00
Option life			2.75 Years				5.0 Years
Risk-free interest rate			7.09	%			7.35	%
Expected dividends			0.67	%			0.67	%
Grant date share price		Rs.	4,491.00			Rs.	4,491.00

 

		July 27, 2022				July 27, 2022
Expected volatility			28.41	%			27.65	%
Exercise price		Rs.	4,212.00			Rs.	5.00
Option life			5.0 Years				6.0 Years
Risk-free interest rate			7.13	%			6.81	%
Expected dividends			0.70	%			0.70	%
Grant date share price		Rs.	4,260.00			Rs.	4,260.00

 

183

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

28.

 Share-based payments (continued)

 

		May 19, 2022				May 19, 2022				May 19, 2022
Expected volatility			28.27	%			28.28	%			28.32	%
Exercise price		Rs.	3,906.00			Rs.	3,906.00			Rs.	3,906.00
Option life			5.5 Years				4.5 Years				5.0 Years
Risk-free interest rate			7.24	%			7.13	%			7.17	%
Expected dividends			0.76	%			0.76	%			0.76	%
Grant date share price		Rs.	3,929.00			Rs.	3,929.00			Rs.	3,929.00

 

		October 28, 2021				October 28, 2021				October 28, 2021
Expected volatility			29.20	%			28.53	%			29.04	%
Exercise price		Rs.	4,663.00			Rs.	5.00			Rs.	5.00
Option life			5.0 Years				2.5 Years				5.0 Years
Risk-free interest rate			5.94	%			4.86	%			5.99	%
Expected dividends			0.55	%			0.55	%			0.54	%
Grant date share price		Rs.	4,570.00			Rs.	4,570.00			Rs.	4,570.00

 

		May 13, 2021				May 13, 2021
Expected volatility			29.38	%			30.02	%
Exercise price		Rs.	5,301.00			Rs.	5.00
Option life			5.0 Years				2.5 Years
Risk-free interest rate			5.70	%			4.64	%
Expected dividends			0.47	%			0.47	%
Grant date share price		Rs.	5,301.00			Rs.	5,301.00

 

Share-based payment expense

 

		For the Year Ended March 31,
		2023				2022				2021
Equity settled share-based payment expense (1)		Rs.	397			Rs.	592			Rs.	584
Cash settled share-based payment expense (2)			247				148				157
		Rs.	644			Rs.	740			Rs.	741

 

(1)

As of March 31, 2023 and 2022, there was Rs.516 and Rs.701, respectively, of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.87 years and 1.93 years, respectively.

 

(2)

Certain of the Company’s employees are eligible to receive share based payment awards that are settled in cash. These awards vest only upon satisfaction of certain service conditions which range from 1 to 4 years. These awards entitle the employees to a cash payment on the vesting date. The amount of the cash payment is determined based on the share price of the Company at the time of vesting. As of March 31, 2023 and 2022, there was Rs.222 and Rs.101, respectively, of total unrecognized compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.99 years and 1.82 years, respectively. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

184

29.

 

Related parties

 

The Company has entered into transactions with the following related parties:

 



Green Park Hotel and Resorts Limited for hotel services;



Green Park Hospitality Services Private Limited for catering and other services;



Dr. Reddy’s Foundation towards contributions for social development;



Kunshan Rotam Reddy Pharmaceuticals Company Limited for sales of goods and for research and development services;



Pudami Educational Society towards contributions for social development;



Indus Projects Private Limited for engineering services relating to civil works;



Dr. Reddy’s Institute of Life Sciences for research and development services ;



AverQ Inc. for professional consulting services;



Shravya Publications Private Limited for professional consulting services;



Samarjita Management Consultancy Private Limited for professional consulting services;



DRES Energy Private Limited for the purchase of solar power   and lease rentals received ;



Stamlo Industries Limited for hotel services;



Iosynth Labs Private Limited for research and development services ;



Ahimsa Trust for contributions for social development; and



NICE Foundation for contributions for social development.

 

These are enterprises over which key management personnel have control or significant influence. “Key management personnel” consists of the Company’s Directors and members of the Company’s Management Council.

 

The Company has also entered into cancellable operating lease transactions with key management personnel and close members of their families.

 

Further, the Company contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity Plan for the benefit of its employees. See Note 27

of these consolidated financial statements for information on transactions between the Company and the Gratuity Fund.

 

The following is a summary of significant related party transactions:

 

		For the Year Ended March 31,
		2023				2022				2021
Contributions towards social development		Rs.	482			Rs.	230			Rs.	230
Catering expenses paid			367				319				301
Purchase of solar power			121				124				127
Research and development services received			134				122				105
Sale of goods			110				21				22
License fee			62				57				-
Lease rentals paid			39				39				37
Facility management services paid			39				36				36
Hotel expenses paid			35				18				8
Civil works			33				52				55
Salaries to relatives of key management personnel			16				12				8
Professional consultancy services paid			2				75				30
Lease rentals received			1				1				1
Research and development services provided			-				-				93
Others			5				-				-

 

The Company had the following amounts due from related parties:

 

		As of March 31,
		2023				2022
Key management personnel and close members of their families		Rs.	8			Rs.	8
Other related parties			1				1

 

The Company had the following amounts due to related parties:

 

		As of March 31,
		2023				2022
Due to related parties		Rs.	17			Rs.	10

185

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

29. Related parties (continued)

 

The following table describes the components of compensation paid or payable to key management personnel for the services rendered during the applicable year ended:

 

		For the Year Ended March 31,
		2023				2022				2021
S a l a r i e s a nd o t h e r b e n e f it s		Rs.	912			Rs.	627			Rs.	803
Co n t r i bu t i ons t o d e f i n e d c on t r i bu t i on p l a ns			30				30				34
Co mm i ss i on t o d i r e c t o r s			378				305				301
S h a r e -b a s e d p a y m e n t s expense			194				214				259
		Rs.	1,514			Rs.	1,176			Rs.	1,397

 

Some

of the key management personnel of the Company are also covered under the Company’s Gratuity Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Company’s Gratuity Plan have not been separately computed or included in the above disclosure.

30.

 

Financial instruments

 

Financial instruments by category

 

The carrying value and fair value of financial instruments as of March 31, 2023 and 2022, respectively were as follows:

 

		As of March 31, 2023								As of March 31, 2022
		Total carrying value				Total fair value				Total carrying value				Total fair value
Assets:
Cash and cash equivalents		Rs.	5,779			Rs.	5,779			Rs.	14,852			Rs.	14,852
Other investments			56,678				56,678				33,181				33,181
Trade and other receivables			72,485				72,485				66,818				66,818
Derivative financial instruments			1,232				1,232				1,906				1,906
Other assets (1)			5,678				5,678				2,347				2,347
Total		Rs.	141,852			Rs.	141,852			Rs.	119,104			Rs.	119,104
Liabilities:
Trade and other payables		Rs.	26,444			Rs.	26,444			Rs.	25,572			Rs.	25,572
Derivative financial instruments			137				137				479				479
Long-term borrowings			6,082				6,082				6,763				6,763
Short-term borrowings			7,390				7,390				27,082				27,082
Other liabilities and provisions (2)			30,926				30,926				26,238				26,238
Total		Rs.	70,979			Rs.	70,979			Rs.	86,134			Rs.	86,134

 

(1)

Other assets that are not financial assets (such as receivables from statutory authorities, export benefit receivables, prepaid expenses, advances paid and certain other receivables) of Rs.15,191 and Rs.12,449 as of March 31, 2023 and 2022, respectively, are not included.

 

(2)

Other liabilities and provisions:



Other liabilities and provisions that are not financial liabilities (such as statutory dues payable, deferred revenue, advances from customers and certain other accruals) of Rs.16,907 and Rs.14,491 as of March 31, 2023 and 2022, respectively, are not included.



Amounts as of March 31, 2022 includes consideration payable of Rs.84 pursuant to the acquisition of Nimbus Health, GmbH . Refer to Note 6 (“Business Combinations”  for details.

 

Fair value hierarchy

 

Level 1

- Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2

- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

Level 3

- Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

 

186

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

30. Financial instruments (continued)

 

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March 31, 2023:

 

Particulars		Level 1				Level 2				Level 3				Total
FVTPL - Financial asset - Investments in units of mutual funds		Rs.	38,180			Rs.	-			Rs.	-			Rs.	38,180
FVTPL - Financial asset - Investment in limited liability partnership firm (2)			-				-				378				378
FVTPL - Financial asset - Investments in equity securities			70				-				1				71
FVTOCI - Financial asset - Investments in equity securities			281				-				-				281
FVTOCI - Financial asset - Investments in market linked   debentures			994				-				-				994
Derivative financial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts (1)			-				1,095				-				1,095

 

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March 31, 2022:

 

Particulars		Level 1				Level 2				Level 3				Total
FVTPL - Financial asset - Investments in units of mutual funds		Rs.	16,751			Rs.	-			Rs.	-			Rs.	16,751
FVTPL - Financial asset - Investment in limited liability partnership firm (2)			-				-				386				386
FVTPL - Financial asset - Investments in equity securities			200				-				1				201
FVTOCI - Financial asset - Investments in equity securities			999				-				-				999
Derivative financial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts (1)			-				1,427				-				1,427

 

	(1)	The Company enters into derivative financial instruments with various counterparties, principally financial institutions and banks. Derivatives which are valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs, including foreign exchange forward rates, interest rate curves and forward rate curves.
	( 2 )	Fair value of these instruments is determined based on independent valuation report, which considers net asset value method.

As of March 31, 2023 and 2022, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

 

Derivative financial instruments

The Company had a derivative financial asset and derivative financial liability of Rs.1,232 and Rs.137, respectively, as of March 31, 2023, as compared to derivative financial asset and derivative financial liability of Rs.1,906 and Rs.479, respectively, as of March 31, 2022, towards these derivative financial instruments.

 

Details of gain/(loss) recognized in respect of derivative contracts

The following table presents details in respect of the gain/(loss) recognized in respect of derivative contracts

to hedge highly probable forecast transaction

s

 

during the applicable year ended:

 

		For the Year Ended March 31 ,
		2023				2022				2021
Net gain recognized in finance costs in respect of foreign exchange derivative contracts and cross currency interest rate swaps contracts		Rs.	62			Rs.	245			Rs.	96
Net (loss)/ gain / recognized in equity in respect of hedges of highly probable forecast transactions, net of amounts reclassified from equity and recognized as component of revenue			(905	)			883				1,123
Net (loss)/ gain reclassified from equity and recognized as component of revenue occurrence of forecasted transaction			(4,375	)			525				340

 

The net carrying amount of the Company’s “hedging reserve” as a component of equity before adjusting for tax impact was a gain of Rs.379 as of March 31, 2023, compared to a gain of Rs.1,284 as of March 31, 2022.

 

187

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

30. Financial instruments (continued)

 

Outstanding foreign exchange derivative contracts

 

The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of March 31, 2023.

Category		Instrument		Currency (1)		Cross Currency (1)		Amounts		Buy/Sell
Hedges of recognized assets and liabilities		Forward contract		AUD		INR		AUD 10		Sell
		Forward contract		GBP		INR		GBP 13		Sell
		Forward contract		RUB		INR		RUB 2,614		Sell
		Forward contract		U.S.$		INR		U.S.$ 456		Sell
		Forward contract		U.S.$		MXN		U.S.$ 10		Buy
		Forward contract		ZAR		INR		ZAR 84		Sell
		Forward contract		U.S.$		RON		U.S.$ 21		Buy
		Forward contract		U.S.$		AUD		U.S.$ 4		Buy
		Forward contract		EUR		U.S.$		EUR 65		Buy
		Forward contract		GBP		U.S.$		GBP 52		Buy
		Forward contract		U.S.$		CLP		U.S.$ 3		Buy
		Forward contract		U.S.$		COP		U.S.$ 9		Buy
		Forward contract		U.S.$		BRL		U.S.$ 2		Buy
		Forward contract		EUR		INR		EUR 1		Sell
		Forward contract		CAD		INR		CAD 2		Sell
		Option contract		U.S.$		INR		U.S.$ 45		Sell
Hedges of highly probable forecast transactions		Forward contract		AUD		INR		AUD 4		Sell
		Forward contract		RUB		INR		RUB 3,380		Sell
		Forward contract		U.S.$		INR		U.S.$ 172		Sell
		Option contract		RUB		U.S.$		RUB 4,000		Sell
		Option contract		U.S.$		INR		U.S.$ 657		Sell

The following table gives details in respect of the notional amount of outstanding foreign exchange derivative contracts as of March 31, 2022.

Category		Instrument		Currency (1)		Cross Currency (1)		Amounts		Buy/Sell
Hedges of recognized assets and liabilities		Forward contract		AUD		INR		AUD 10		Sell
		Forward contract		GBP		INR		GBP 9		Sell
		Forward contract		RUB		INR		RUB 7,171		Sell
		Forward contract		U.S.$		INR		U.S.$ 720		Sell
		Forward contract		U.S.$		MXN		U.S.$ 21		Buy
		Forward contract		ZAR		INR		ZAR 31		Sell
		Forward contract		U.S.$		RUB		U.S.$ 1		Buy
		Forward contract		U.S.$		RON		U.S.$ 12		Buy
		Forward contract		U.S.$		AUD		U.S.$ 4		Buy
		Forward contract		GBP		U.S.$		GBP 48		Buy
		Forward contract		EUR		U.S.$		EUR 47		Buy
		Forward contract		U.S.$		KZT		U.S.$ 9		Buy
		Forward contract		U.S.$		CLP		U.S.$ 3		Buy
		Forward contract		U.S.$		COP		U.S.$ 7		Buy
		Forward contract		U.S.$		BRL		U.S.$ 3		Buy
		Forward contract		EUR		INR		EUR 2		Sell
		Forward contract		U.S.$		THB		U.S.$ 2		Buy
		Option contract		U.S.$		INR		U.S.$ 60		Sell
Hedges of highly probable forecast transactions		Forward contract		AUD		INR		AUD 4		Sell
		Forward contract		RUB		INR		RUB 9,600		Sell
		Forward contract		U.S.$		INR		U.S.$ 68		Sell
		Forward contract		ZAR		INR		ZAR 122		Sell
		Option contract		U.S.$		INR		U.S.$ 275		Sell

(1)

“AUD” means Australian dollars, “BRL” means Brazilian reals, “CAD” means Canadian dollars, “COP” means Colombian pesos, “CLP” means Chilean pesos, “EUR” means Euros, “GBP” means U.K. pounds sterling, “INR” means Indian rupees, “KZT” means Kazakhstan tenges, “MXN” means Mexican pesos, “RON” means Romanian new leus, “RUB” means Russian roubles, “THB” means Thai bahts, “U.S.$” means United States dollars and “ZAR” means South African rands.

 

188

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

30. Financial instruments (continued)

 

The table below summarizes the periods when the cash flows associated with highly probable forecast transactions that are classified as cash flow hedges are expected to occur:

 

		As of March 31,
		2023				2022
Cash flows in U.S dollars
Not later than one month		Rs.	5,505			Rs.	2,653
Later than one month and not later than three months			11,011				5,305
Later than three months and not later than six months			16,516				6,139
Later than six months and not later than one year			30,568				11,824
		Rs.	63,600			Rs.	25,921
Cash flows in Russian roubles
Not later than one month		Rs.	560			Rs.	460
Later than one month and not later than three months			1,665				1,513
Later than three months and not later than six months			4,545				3,528
Later than six months and not later than one year			1,030				3,331
		Rs.	7,800			Rs.	8,832
Cash flows in Australian dollars
Not later than one month		Rs.	-			Rs.	10
Later than one month and not later than three months			28				60
Later than three months and not later than six months			55				48
Later than six months and not later than one year			149				134
		Rs.	232			Rs.	252
Cash flows in South African rands
Not later than one month		Rs.	-			Rs.	41
Later than one month and not later than three months			-				98
Later than three months and not later than six months			-				146
La ter than six months and not later than one year			-				350
		Rs.	-			Rs.	635

 

Hedges of changes in the interest rates:

 

Consistent with its risk management policy, the Company uses interest rate swaps (including cross currency interest rate swaps) to mitigate the risk of changes in interest rates. The Company does not use them for trading or speculative purposes.

 

A net gain/(loss) of Rs.0 for each of the years ended March 31, 2023, 2022 and 2021, representing the changes in the fair value of interest rate swaps used as hedging instrument in a cash flow hedge is recognized in the statement of comprehensive income. For balance interest rate swaps, the changes in fair value (including cross currency interest rate swaps) are recognized as part of the finance costs. Accordingly, the Company has recorded, as part of finance cost, a net gain of Rs.0, Rs.32 and Rs.164 for the years ended March 31, 2023, 2022 and 2021, respectively.

31.

   

Financial risk management

 

The Company’s activities expose it to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s primary risk management focus is to minimize potential adverse effects of market risk on its financial performance. The Company’s risk management assessment and policies and processes are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor such risks and compliance with the same. Risk assessment and management policies and processes are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Board of Directors and the Audit Committee is responsible for overseeing the Company’s risk assessment and management policies and processes.

 

a.   

Market risk

 

Market risk is the risk of loss of future earnings, fair values or future cash flows that may result from adverse changes in market rates and prices (such as interest rates, foreign currency exchange rates and commodity prices) or in the price of market risk-sensitive instruments as a result of such adverse changes in market rates and prices. Market risk is attributable to all market risk-sensitive financial instruments, all foreign currency receivables and payables and all short-term and long-term debt. The Company is exposed to market risk primarily related to foreign exchange rate risk, interest rate risk and the market value of its investments. Thus, the Company’s exposure to market risk is a function of investing and borrowing activities and revenue generating and operating activities in foreign currencies.

 

189

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

31. Financial risk management (continued)

 

Foreign exchange risk

 

The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, U.K. pounds sterling, Russian roubles, Brazilian reals, Swiss francs, South African rands, Kazakhstan tenges, Romanian new leus, Australian dollars and Euros, and foreign currency debt in U.S. dollars, Russian roubles, Mexican pesos, Ukrainian hryvnias, Thai bahts, Chilean pesos, Colombian pesos and Brazilian reals. A significant portion of the Company’s revenues are in these foreign currencies, while a significant portion of its costs are in Indian rupees. As a result, if the value of the Indian rupee appreciates relative to these foreign currencies, the Company’s revenues measured in Indian rupees may decrease. The exchange rate between the Indian rupee and these foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. Consequently, the Company uses both derivative and non-derivative financial instruments, such as foreign exchange forward contracts, option contracts, currency swap contracts and foreign currency financial liabilities, to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecast transactions and recognized assets and liabilities.

 

The details in respect of the outstanding foreign exchange forward and option contracts are given in Note 30 to these consolidated financial statements.

 

In respect of the Company’s forward and option contracts, a 10% decrease/increase in the respective exchange rates of each of the currencies underlying such contracts would have resulted in:

•

a Rs.5,902/(5,905) increase/(decrease) in the Company’s hedging reserve and a Rs.3,118/(3,118) increase/(decrease) in the Company’s profit from such contracts, as of March 31, 2023;

 

•

a Rs.3,169/(2,937) increase/(decrease) in the Company’s hedging reserve and a Rs.5,378/(5,375) increase/(decrease) in the Company’s profit from such contracts, as of March 31, 2022; and

 

•

a Rs.4,824/(4,195) increase/(decrease) in the Company’s hedging reserve and a Rs.2,658/(2,658) increase/(decrease) in the Company’s profit from such contracts, as of March 31, 202 1 .

 

The following table analyzes foreign currency risk from non-derivative financial instruments as of March 31, 2023:

 

		U.S. dollars				Euro				Russian roubles				Others (1)				Total
Assets:
Cash and cash equivalents		Rs.	2,613			Rs.	228			Rs.	60			Rs.	131			Rs.	3,032
Other investments			6,263				-				-				-				6,263
Trade and other receivables			51,106				266				978				294				52,644
Other assets			627				31				1,250				14				1,922
Total		Rs.	60,609			Rs.	525			Rs.	2,288			Rs.	439			Rs.	63,861
Liabilities:
Trade and other payables		Rs.	9,745			Rs.	2,496			Rs.	530			Rs.	302			Rs.	13,073
Long-term borrowings			1,346				90				19				102				1,557
Other liabilities and provisions			8,433				81				104				540				9,158
Total		Rs.	19,524			Rs.	2,667			Rs.	653			Rs.	944			Rs.	23,788

 

The following table analyzes foreign currency risk from non-derivative financial instruments as of March 31, 2022:

 

		U.S. dollars				Euro				Russian roubles				Others (1)				Total
Assets:
Cash and cash equivalents		Rs.	11,468			Rs.	205			Rs.	80			Rs	87			Rs.	11,840
Other investments			26				-				-				-				26
Trade and other receivables			44,443				382				945				144				45,914
Other assets			125				19				3				17				164
Total		Rs.	56,062			Rs.	606			Rs.	1,028			Rs.	248			Rs.	57,944
Liabilities:
Trade and other payables		Rs.	6,742			Rs.	2,019			Rs.	455			Rs.	284			Rs.	9,500
Long-term borrowings			1,885				29				16				52				1,982
Other liabilities and provisions			6,258				146				123				413				6,940
Total		Rs.	14,885			Rs.	2,194			Rs.	594			Rs.	749			Rs.	18,422

 

* Rounded to the nearest million.

 

(1)

Others primarily consists of U.K. pounds sterling, Swiss francs, Romanian new leus, Chinese yuans (Renminbi), Canadian dollars and Ukrainian hryvnia.

 

190

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

31. Financial risk management (continued)

 

For the years ended March 31, 2023 and 2022, every 10% depreciation/appreciation in the exchange rate between the Indian rupee and the respective currencies for the above mentioned financial assets/liabilities would affect the Company’s net profit by Rs.4,007 and Rs.3,952, respectively.

 

Interest rate risk

 

As of March 31, 2023, the Company had Rs.648 of loans carrying a floating interest rate of CDI+1.2% and Rs.2,414 of loans carrying a floating interest rate of TIIE+1.15%.

 

As of March 31, 2022, the Company had loans with floating interest rates as follows: Rs.4,000 of loans carrying a floating interest rate of the 3 Months India Treasury Bill less 5 bps; Rs.13,800 of loans carrying a floating interest rate of the 3 Months India Treasury Bill; Rs.411 of loans carrying a floating interest rate of the 3 Months India Treasury Bill plus 25 bps; Rs.1,137 of loans carrying a floating interest rate of 1 Month LIBOR + 80bps; Rs.800 of loans carrying a floating interest rate of CDI+1.79%; and Rs.2,017 of loans carrying a floating interest rate of TIIE+1.15%.

 

For details of the Company’s short-term and long-term loans and borrowings, including interest rate profiles, refer to Note 17 of these consolidated financial statements.

 

For the years ended March 31, 2023, 2022 and 2021, every 10% increase or decrease in the floating interest rate component (i.e., CDI, and TIIE) applicable to its loans and borrowings would affect the Company’s net profit by Rs.37, Rs.89 and Rs.37, respectively.

 

The carrying value of the Company’s borrowings, interest component of which was designated in a cash flow hedge, was Rs.0 as of March 31, 2023 and 2022.

 

The Company’s investments in term deposits (i.e., certificates of deposit) with banks and short-term liquid mutual funds are for short durations, and therefore do not expose the Company to significant interest rates risk.

 

Note that “CDI” means Brazilian interbank deposit rate (Certificado de Depósito Interbancário),

“TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), and “LIBOR” means the London Inter-bank Offered Rate.

 

Commodity rate risk

 

Exposure to market risk with respect to commodity prices primarily arises from the Company’s purchases and sales of active pharmaceutical ingredients, including the raw material components for such active pharmaceutical ingredients. These are commodity products, whose prices may fluctuate significantly over short periods of time. The prices of the Company’s raw materials generally fluctuate in line with commodity cycles, although the prices of raw materials used in the Company’s active pharmaceutical ingredients business are generally more volatile. Cost of raw materials forms the largest portion of the Company’s cost of revenues. Commodity price risk exposure is evaluated and managed through operating procedures and sourcing policies.

As of March 31, 2023,

the Company had not entered into any material derivative contracts to hedge exposure to fluctuations in commodity prices.

 

b.   

Credit risk

 

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of expected losses in respect of trade and other receivables and investments.

 

Trade and other receivables

 

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which the Company grants credit terms in the normal course of business.

 

Investments

 

The Company limits its exposure to credit risk by generally investing in liquid securities and only with counterparties that have a good credit rating. The Company does not expect any losses from non-performance by these counter-parties, and does not have any significant concentration of exposures to specific industry sectors or specific country risks.

 

191

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

31.   Financial risk management (continued)

 

Details of financial assets – not due, past due and impaired

 

None of the Company’s cash equivalents, including term deposits (i.e., certificates of deposit) with banks, were past due or impaired as of March 31, 2023. The Company’s credit period for trade and other receivables payable by its customers generally ranges from 20 - 180 days.

 

The aging of trade and other receivables is given below:

 

		As of March 31,
Particulars			2023				2022
Neither past due nor impaired		Rs.	65,528			Rs.	51,505
Past due
Less than 365 days			7,092				15,501
More than 365 days			1,123				1,006
		Rs.	73,743			Rs.	68,012
Less : Allowance for credit losses			(1,258	)			(1,194	)
Total		Rs.	72,485			Rs.	66,818

 

See Note 9 of these consolidated financial statements for the activity in the allowance for credit losses on trade and other receivables.

 

Other than trade and other receivables, the Company has no significant class of financial assets that is past due but not impaired.

 

c.  

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages its liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to the Company’s reputation.

 

As of March 31, 2023 and 2022, the Company had uncommitted lines of credit from banks of Rs.68,516 and Rs.39,989, respectively.

 

As of March 31, 2023, the Company had working capital of Rs.121,095, including cash and cash equivalents of Rs.5,779, investments in term deposits with banks, bonds, market linked debentures and commercial papers, of Rs.17,739 and investments in units of mutual funds of Rs.38,180.

 

As of March 31, 2022, the Company had working capital of Rs.87,841, including cash and cash equivalents of Rs.14,852, investments in term deposits with banks, bonds and commercial papers, of Rs.12,562 and investments in units of mutual funds of Rs.16,751.

 

The table below provides details regarding the contractual maturities of significant financial liabilities (other than long-term borrowings and obligations under leases, which have been disclosed in Note 17 to these consolidated financial statements) as of March 31, 2023:

 

Particulars		2024				2025				2026				2027				Thereafter				Total
Trade and other payables		Rs.	26,444			Rs.	-			Rs.	-			Rs.	-			Rs.	-			Rs.	26,444
Bank overdraft, short-term borrowings			7,390				-				-				-				-				7,390
Derivative financial instruments			137				-				-				-				-				137
Other liabilities and provisions			30,110				-				-				-				816				30,926

 

The table below provides details regarding the contractual maturities of significant financial liabilities (other than long-term borrowings and obligations under leases, which have been disclosed in Note 17 to these consolidated financial statements) as of March 31, 2022:

 

192

32.   

Contingencies

 

The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings (collectively, “Legal Proceedings”), including patent and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is often difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company, based on internal and external legal advice, discloses information with respect to the nature and facts of the case.

 

The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

 

Although there can be no assurance regarding the outcome of any of the Legal Proceedings referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position result of operations or cash flows, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such Legal Proceedings were to result in judgments against the Company, such judgments could be material to its results of operations or cash flows in a given period.

 

Product and patent related matters

 

Launch of product

 

On June 14, 2018, the U.S. FDA granted the Company final approval for buprenorphine and naloxone sublingual film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg dosages, a therapeutic equivalent generic version of Suboxone® sublingual film. The U.S. FDA approval came after the conclusion of litigation in the U.S. District Court for the District of Delaware (the “Delaware District Court”), where the Delaware District Court held that patents covering Suboxone® sublingual film would not be infringed by the Company’s commercial launch of its generic sublingual film product. In light of the favorable decision from the Delaware District Court, the Company launched its generic sublingual film product in the United States immediately following the U.S. FDA approval on June 14, 2018. On July 12, 2019, the U.S. Court of Appeals for the Federal Circuit (“the Court of Appeals”) affirmed the

Delaware District Court’s ruling that the Company’s generic version of Suboxone® sublingual films did not infringe the two remaining patents at issue in the Delaware District Court’s case (U.S. patent numbers 8,603,514 and 8,015,150).

 

After the Delaware District Court’s decision

, Indivior filed a second lawsuit against the Company alleging infringement of three additional U.S. patents (numbers 9,687,454, 9,855,221 and 9,931,305) in the U.S. District Court for the District of New Jersey (the “New Jersey District Court”), styled Indivior Inc. et al. v. Dr. Reddy’s Laboratories S.A., Civil Action No. 2:17-cv-07111 (D.N.J.). Following the launch, on June 15, 2018, Indivior filed an emergency application for a temporary restraining order and preliminary injunction against the Company in the New Jersey District Court. Indivior’s motion alleged that the Company’s generic sublingual film product infringed one of three U.S. patents (number 9,931,305) at issue in the New Jersey District Court. Pending a hearing and decision on the injunction application, the New Jersey District Court initially issued a temporary restraining order against the Company with respect to further sales, offer for sales, and imports of its generic sublingual film product in the United States. Subsequently, on July 14, 2018, the New Jersey District Court granted a preliminary injunction in favor of Indivior. Under the order, Indivior was required to and did post a bond of U.S.$72 to pay the costs and damages sustained by the Company if it was found to be wrongfully enjoined. The Company immediately appealed the decision, and the Court of Appeals agreed to expedite the appeal.

 

On November 20, 2018, the Court of Appeals issued a decision vacating the preliminary injunction. The Court of Appeals denied Indivior’s petition for rehearing on February 4, 2019.

 

Indivior subsequently filed two emergency motions in the Court of Appeals to stay issuance of the mandate and to keep the preliminary injunction in place, which the Court of Appeals denied. Indivior then petitioned the U.S. Supreme Court to stay issuance of the mandate.

 

Indivior’s petition was denied by the Chief Justice of the U.S. Supreme Court on February 19, 2019, and the mandate was issued on the same day. The Company resumed sales of its generic sublingual film product after the mandate was issued.

 

On February 19, 2019, the New Jersey District Court entered a stipulated order of dismissal of Indivior’s claims under U.S. patent number 9,855,221. On November 5, 2019, the New Jersey District Court issued its claim construction decision construing certain terms in U.S. patent numbers 9,931,305 and 9,687,454. After such claim construction decision, on January 8, 2020, the New Jersey District Court entered a stipulated order that the Company’s generic sublingual film product does not infringe the asserted claims in U.S. patent number 9,931,305. In the stipulated order, Indivior reserved the ability to appeal the New Jersey District Court’s claim construction order. The Company filed a motion requesting that the New Jersey District Court enter partial final judgment in the Company’s favo

u

r relating to the allegations of infringement of U.S. patent number 9,931,305, which the District Court denied without prejudice on August 24, 2020, pending resolution of Indivior’s allegations relating to U.S. patent number 9,687,454.

 

193

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32. Contingencies (continued)

Launch of product (continued)

 

On November 11, 2019, a Magistrate Judge in the District of New Jersey granted the Company leave to file a counterclaim against Indivior that alleges that Indivior engaged in anticompetitive conduct by making false or misleading statements to the New Jersey District Court during the preliminary injunction proceedings in violation of federal antitrust laws. Indivior appealed the Magistrate Judge’s ruling to the New Jersey District Court Judge and, on August 24, 2020, the New Jersey District Court Judge denied Indivior’s appeal. The New Jersey District Court did grant Indivior’s motion to bifurcate the patent claims and the antitrust claims into two separate trials. Fact discovery closed on January 29, 2021, and expert discovery closed on September 24, 2021.  Indivior filed a motion for summary judgment that it is immune from antitrust liability under the Noerr-Pennington doctrine and that the Company is not entitled to seek damages in excess of the injunction bond. The Company filed a motion for summary judgment that Indivior’s remaining claims for patent infringement are barred by the doctrines of issue preclusion, claim preclusion, and prosecution laches and that Indivior’s damages claim should be limited to a reasonable royalty.  Summary judgment briefing closed on January 12, 2022.  No trial date had been set.

 

In addition to the

 

New Jersey

 District Court proceeding, on November 13, 2018, the Company filed two petitions for inter-partes review challenging the validity of certain claims of U.S. patent number 9,687,454 before the Patent Trial and Appeal Board (“PTAB”). On June 13, 2019, the PTAB agreed to institute inter-partes review on one of the two petitions filed by the Company. The PTAB heard oral argument in the pending inter-partes review challenge on March 3, 2020.

 

On June 2, 2020, the PTAB issued a final written decision in the Company’s favour finding that the Company had demonstrated that claims 1–5, 7, and 9–14 of U.S. Patent No. 9,687,454 (“the ’454 patent”) were unpatentable. The PTAB upheld the validity of only one of the challenged claims, claim 8. Additionally, claim 6 was not at issue in the inter-partes review and therefore not subject to the final written decision. Claims 6 and 8 remain asserted against the Company in the New Jersey District Court litigation. Indivior filed a timely notice of appeal of the PTAB’s Final Written Decision (“FWD”) for claims 1-5, 7, and 9-14, and the Company cross appealed the PTAB’s FWD on claim 8. On November 24, 2021, a panel of the Federal Circuit issued a decision affirming the PTAB’s decision in all respects.  On January 26, 2022, Indivior filed a petition with the Federal Circuit seeking rehearing of the panel’s decision. On March 16, 2022, the Federal Circuit denied Indivior’s petition for rehearing and the mandate was issued on March 23, 2022. As a result of the Federal Circuit’s decision, the only remaining valid claims of the ’454 patent to be litigated before the district court were claims 6 and 8.

 

On June 23, 2022, the Company entered into a settlement agreement with Indivior Inc. and Indivior UK Limited, and Aquestive Therapeutics, Inc. Under this settlement, the Company will receive payments totaling U.S.$72 by March 31, 2024. The agreement resolves all claims between the parties relating to the Company’s generic buprenorphine and naloxone sublingual film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg dosages, including Indivior’s and Aquestive’s patent infringement allegations and the Company’s antitrust counterclaims.

On June 28, 2022 the U.S. District Court for the District of New Jersey dismissed all claims and counterclaims pending in the case with prejudice, pursuant to a joint stipulation of dismissal filed by the parties.

 

Matters relating to National Pharmaceutical Pricing Authority

Norfloxacin, India litigation

 

The Company manufactures and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient norfloxacin. Under the Drugs (Prices Control) Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”) established by the Government of India had the authority to designate a pharmaceutical product as a “specified product” and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum selling price. The High Court had previously granted an interim order in favo

u

r of the Company; however it subsequently dismissed the case in April 2004.

 

The Company filed a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.

 

During the year ended March 31, 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was Rs.285 including interest.

 

The Company filed a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was Rs.77. The Company deposited this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional amount of Rs.30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s application to include additional legal grounds that the Company believed strengthened its defen

c

e against the demand.

 

194

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

32. Contingencies (continued)

 

Norfloxacin, India litigation

(continued)

For example, the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On July 20, 2016, the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO back to the High Court for further proceedings.

During the three months ended September 30, 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin formulations.

 

During the three months ended December 31, 2016, a writ petition pertaining to Norfloxacin was filed by the Company with the Delhi High Court.

In addition, the Company have filed writ petitions challenging the inclusion and designation of Theophylline/Doxofylline, Cloxacillin and Ciprofloxacin as “specified product” as per DPCO 1995 and the related Demand Notices issued thereunder. The matters are tagged along with the Norfloxacin matter and have been adjourned to July 12, 2023 for hearing.

 

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

 

Litigation relating to Cardiova

scular and Anti-diabetic formulations

 

In July 2014, the NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control) Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The Bombay High Court issued an order to stay the writ in July 2014. On September 26, 2016, the Bombay High Court dismissed the writ petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on October 25, 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.

 

During the three months ended December 31, 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum prices for 11 of its products. The Company has responded to these notices.

 

On March 20, 2017, the IPA filed an application before the Bombay High Court for the recall of the judgment of the Bombay High Court dated September 26, 2016. This recall application filed by the IPA was dismissed by the Bombay High Court on October 4, 2017. Further, on December 13, 2017, the IPA filed a Special Leave Petition with the Supreme Court for the recall of the judgment of the Bombay High Court dated October 4, 2017, which was dismissed by Supreme Court on January 10, 2018.

 

During the three months ended March 31, 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly overcharged amounts, along with interest. On July 13, 2017, in response to a writ petition which the Company had filed, the Delhi High Court set aside all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order. A personal hearing in this regard was held on July 21, 2017. On July 27, 2017, the NPPA passed a speaking order along with the demand notice directing the Company to pay an amount of Rs.776. On August 3, 2017, the Company filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on August 8, 2017, the Delhi High Court stayed the operation of the demand order and directed the Company to deposit Rs.100 and furnish a bank guarantee for Rs.676. Pursuant to the order, the Company deposited Rs.100 on September 13, 2017 and submitted a bank guarantee of Rs.676 dated September 15, 2017 to the Registrar General, Delhi High Court. On November 22, 2017, the Delhi High Cour

 

directed the Union of India to file a final counter affidavit within six weeks, subsequent to which the Company could file a rejoinder. On May 10, 2018, the counter affidavit was filed by the Union of India. The Company subsequently filed a rejoinder and both were taken on record by the Delhi High Court. The matter has been adjourned to August 4, 2023 for hearing.

 

Based on its best estimate, the Company has recorded a provision of Rs.395 under “Selling, general and administrative expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

 

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

 

195

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

Other product and patent related matters

 

Child resistant packaging matter complaint under the False Claims Act (“FCA”)

 

In May

 

2012

, the Consumer Product Safety Commission (the “CPSC”) requested that Dr. Reddy’s Laboratories Inc., a wholly-owned subsidiary of the Company in the United States, provide certain information with respect to compliance with requirements of special packaging for child resistant blister packs for 6 products sold by the Company in the United States during the period commencing in 2002 through 2011. The Company provided the requested information. The CPSC subsequently alleged in a letter dated April 30, 2014 that the Company had violated the Consumer Product Safety Act (the “CPSA”) and the Poison Prevention Packaging Act (the “PPPA”) and that the CPSC intended to seek civil penalties. Specifically, the CPSC asserted, among other things, that from or about August 14, 2008 through June 1, 2012, the Company sold prescription drugs having unit dose packaging that failed to comply with the CPSC's special child resistant packaging regulations under the PPPA and failed to issue general certificates of conformance. In addition, the CPSC asserted that the Company violated the CPSA by failing to immediately advise the CPSC of the alleged violations. The Company disagrees with the CPSC’s allegations.

Simultaneously, the U.S. Department of Justice (the “DOJ”) began to investigate a sealed complaint which was filed in the United States District Court for the Eastern District of Pennsylvania

(‘Court”)

under the Federal False Claims Act (“FCA”) related to these same issues (the “FCA Complaint”). The Company cooperated with the DOJ in its investigation. The DOJ and all States involved in the investigation

filed a notice of declination

stating each would not

 

to intervene in the FCA Complaint. On November 10, 2015, the FCA Complaint was unsealed and the plaintiff whistle-blowers, who are two former employees of the Company, proceeded without the DOJ’s and applicable States’ involvement. The unsealed FCA Complaint relates to the 6 blister pack products originally subject to the investigation and also 38 of the Company’s generic prescription products sold in the U.S. in various bottle and cap packaging.

The Company filed its response to the

 

plaintiff’s

FCA Complaint on February 23, 2016 in the form of a motion to dismiss for failure to state a claim upon which relief can be granted. On March 26, 2017, the Court granted the Company’s

motion to dismiss, dismissing the FCA Complaint and allowing the plaintiffs one more chance to refile this complaint in an attempt to plead sustainable allegations.

 

On March 29, 2017, the plaintiffs filed their final amended FCA Complaint, which the Company opposed and during the three months ended March 31, 2018, the Company obtained dismissal of the FCA Complaint with prejudice

.

The plaintiffs filed a petition with the Court requesting that the Court reconsider its decision to dismiss the FCA Complaint with prejudice, and that request was denied.

 

The parallel investigation by the CPSC under the CPSA and the PPPA was referred by the CPSC to the DOJ’s office in Washington, D.C. in April 2016, with the recommendation that the DOJ initiate a civil penalty action against the Company. The CPSC matter referred to the DOJ relates to five of the blister pack products.

 

On January 18, 2018, the Company and the DOJ entered into a settlement of the action and agreed to a consent decree providing for a civil penalty of U.S.$5 (Rs.319), and injunctive relief. The settlement was without adjudication of any issue of fact or law, and the Company has not admitted any violations of law pursuant to this settlement.

 

During the three months ended March 31, 2018, the Company obtained dismissal of the FCA Complaint with prejudice

.

The plaintiffs subsequently filed a petition with the Court requesting that the Court reconsider its decision to dismiss the FCA Complaint with prejudice, and that request was denied.

 

In June 2018, the plaintiffs filed their Notice of Appeal to the Third Circuit Court of Appeals. During the three months ended September 2018, the plaintiffs and the DOJ settled and thus this appeal was dismissed. The plaintiffs then filed an application for recovery of attorneys' fees from the Company under the "alternative remedy doctrine." The Company made opposing filings to this and in response the plaintiffs withdrew their application.

 

The Company believes that the likelihood of any liability that may arise on account of the FCA Complaint is not probable. Accordingly, no provision has been made in these consolidated financial statements.

 

Namenda Litigation

 

In August 2015, Sergeants Benevolent Assoc. Health & Welfare Fund (“Sergeants”) filed suit against the Company in the United States District Court for the Southern District of New York. Sergeants alleged that certain parties, including the Company, violated federal antitrust laws as a consequence of having settled patent litigation related to the Alzheimer’s drug Namenda® (memantine) tablets during a period from about 2009 until 2010. Sergeants seeks to represent a class of “end payor” purchasers of Namenda® tablets (i.e., insurers, other third-party payors and consumers).

 

Sergeants seeks damages based upon an allegation made in the complaint that the defendants entered into patent settlements regarding Namenda® tablets for the purpose of delaying generic competition and facilitating the brand innovator’s attempt to shift sales from the original immediate release product to the more recently introduced extended release product.

 

On August 23, 2020, the Company and certain other defendants entered into a settlement agreement. The settlement agreement calls for the dismissal with prejudice of the claims brought by the plaintiff on behalf of the putative class, in exchange for the payment of U.S.$0.4. The Company paid that amount into escrow. The Court preliminarily approved the settlement on October 5, 2020. The settlement agreement explicitly disclaims any liability or wrongdoing.

 

196

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Other product and patent related matters (continued)

 

Namenda Litigation (continued)

 

Following the settlement agreement, the Company recognized such amount in the income statement for the three months ended September 30, 2020.

 

The Court granted final approval of the settlement by order dated March 23, 2023.

 

On November 5, 2019 plaintiffs MSP Recovery Claims, Series LLC and MSPA Claims 1, LLC filed suit against the Company and other drug manufacturers in the United States District Court for the Southern District of New York. The claims in this complaint were similar in nature to the claims in the Sergeants lawsuit, and those cases were coordinated for discovery purposes. On April 14, 2020, with the consent of the Company and the other defendants, plaintiffs MSP Recovery Claims, Series LLC and MSPA Claims 1, LLC voluntarily dismissed their claims without prejudice.

 

Other class action complaints containing similar allegations to the Sergeants complaint have also been filed in the U.S. District Court for the Southern District of New York. However, apart from the Sergeants case described above, there are no such class actions that are pending and that name the Company as a defendant.

 

In addition, the State of New York filed an antitrust case in the U.S. District Court for the Southern District of New York. The case brought by the State of New York contained some (but not all) of the allegations set forth in the class action complaints, but the Company was not named as a party. The case brought by the State of New York was dismissed by stipulation on November 30, 2015.

 

The Company believes that the likelihood of any liability, apart from the settlement payment described above, that may arise on account of alleged violation of federal antitrust laws is not probable.

Accordingly, no

provision has been made in these consolidated financial statements.

 

Ranitidine recall and litigation

 

On October 1, 2019

, the Company initiated a voluntary nationwide recall (at the retail level for over-the-counter products and at the consumer level for prescription products) of its ranitidine medications sold in the United States due to the presence of N-Nitrosodimethylamine (“NDMA”) above levels established by the U.S. FDA. On November 1, 2019, the U.S. FDA issued a statement indicating that it had found levels of NDMA in ranitidine from its testing generally that were “similar to the levels you would expect to be exposed to if you ate common foods like grilled or smoked meats.” See

https://www.fda.gov/news-events/press-announcements/statement-new-testing-results-including-low-levels-impurities-ranitidine-drugs

. On April 1, 2020, the U.S. FDA issued a press release announcing that it was requesting manufacturers to withdraw all prescription and over-the-counter ranitidine drugs from the market immediately.

See

https://www.fda.gov/news-events/press-announcements/fda-requests-removal-all-ranitidine-products-zantac-market

.

 

Individual federal court personal injury lawsuits, as well as various class actions, were transferred to the In re Zantac (Ranitidine) Products Liability Litigation Multidistrict Litigation in the Southern District of Florida, MDL-2924 (“MDL-2924”). The Company and/or one or more of its U.S. subsidiaries have been named as a defendant in over 3,620 lawsuits in MDL-2924.  Approximately 3,000 of those cases have been filed since the MDL-2924 Court’s

Daubert

ruling which triggered a deadline for filings by claimants in the census registry who agreed to file their lawsuits in federal court.  The census registry established in MDL-2924 included tens of thousands of claimants who did not file complaints but preserved claims against the many pharmaceutical manufacturer, distributor and retailer defendants in MDL-2924.  In August of 2022, the defendants exited all registry plaintiffs alleging non-designated cancers (i.e. types of cancers that are not being pursued by plaintiffs’ leadership in the MDL-2924) and all registry plaintiffs alleging designated cancers who did not commit to filing a complaint in federal court.  As a result, state court filings commenced. MDL-2924 also involves a proposed nationwide consumer class action and a proposed nationwide class action for medical monitoring. A third-party payor class action was dismissed without prejudice.  On November 7, 2022, that dismissal was affirmed by the U.S. Court of Appeals for the Eleventh Circuit.

 

On December 31, 2020, the MDL-2924 Court ruled on multiple motions to dismiss in MDL-2924 and granted the generic manufacturers’ (the Company is a generic manufacturer) motion to dismiss based on federal preemption. The plaintiffs’ failure-to-warn and design defect claims against the Company were dismissed with prejudice, but the Court permitted plaintiffs to attempt to replead several claims/theories. Plaintiffs filed their amended complaints and the defendants, including the Company, filed motions to dismiss seeking dismissal of all claims against them on March 24, 2021. On July 8, 2021, the Court dismissed all claims, including the proposed nationwide consumer class action and proposed nationwide class action for medical monitoring, against the Company and other generic manufacturers with prejudice based on federal preemption. The MDL-2924 Court’s dismissal decisions have been piecemeal appealed by plaintiffs to the U.S. Court of Appeals for the Eleventh Circuit, resulting in at least four rounds of appeals.  Motions to dismiss rounds two and three of plaintiffs’ appeals have been filed, but no merits briefing or oral argument has yet occurred.  In addition, rounds two and three of plaintiffs’ appeals were stayed in light of the bankruptcy proceedings involving co-defendant Par Pharmaceutical (a subsidiary of Endo).  Plaintiffs sought relief from the bankruptcy stay as to the non-debtor defendants in the second round of appeals and the United States Court of Appeals for the 11th Circuit (“11th Circuit”) granted that request. However, another co-defendant, Lannett Co., recently filed bankruptcy, and the appeals remain stayed because of that entity’s bankruptcy proceedings. 

 

 

197

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Other product and patent related matters (continued)

 

Ranitidine recall and litigation (continued)

While the generic manufacturer defendants were previously dismissed with prejudice from MDL-2924 on federal preemption grounds, the brand manufacturer defendants were not dismissed, and therefore continued to litigate.  Following substantial briefing and argument, on December 6, 2022, the MDL-2924 Court entered an Omnibus Order on All Pending Daubert Motions and Defendants’ Summary Judgment Motion.  In so doing, the Court granted brand defendants’ motions to exclude plaintiffs’ expert witnesses and entered summary judgment in favor of the brand defendants as to all claims involving bladder, esophageal, gastric, liver, and pancreatic cancers.  The MDL-2924 Court then set a deadline of April 12, 2023 for plaintiffs to identify whether they plan to provide general causation expert reports as to any non-designated cancers.  In addition, the MDL-2924 Court issued an order to show cause why summary judgment should not be entered for designated cancers as to all defendants and an order to show cause why summary judgment should not be entered against all plaintiffs for designated cancers, regardless of the date the case was filed.  Briefing on the show cause orders took place in April and May of 2023. On May 15, 2023, the MDL-2924 Court issued an order entering summary judgment pursuant to rule 56(f), granting summary judgment on the basis of Daubert as to all defendants (including generics) in all cases alleging designated cancers filed before May 5, 2023.  The MDL-2924 Court also issued a Third Order to Show Cause pertaining to the economic class action complaint, and briefing continues with respect to that Order. Since the MDL-2924 Court’s

Daubert

decision, more than a thousand plaintiffs have filed Notices of Appeal.  Those appeals are in the initial stages in the 11th Circuit, and no motion practice or merits briefing has taken place yet.  The MDL-2924 judge also issued an indicative ruling, finding that, if the 11th Circuit returns jurisdiction to the District Court, she would grant summary judgment in favor of the generic defendants based on

Daubert

as to the designated cancers.  In light of the indicative ruling, the non-brand defendants have asked the 11th Circuit to remand the pending appeals back to the MDL-2924 Court, and the plaintiffs have opposed.  The 11th Circuit has not yet ruled.  Finally, the most recent round of appeals involves some cases naming Par and/or Lannett, and it is unclear how the bankruptcy stays will impact this round of appeals and/or the request for remand.

Several ranitidine-related actions are currently pending against the Company in state courts. The New Mexico State Attorney General filed suit against the Company’s U.S. subsidiary, and multiple other manufacturers and retailers. The State of New Mexico asserted claims of statutory and common law public nuisance and negligence against the Company.  The Company joined in an effort to transfer the case from the Santa Fe County Court to MDL-2924, but the case was remanded by the MDL-2924 Court to the Santa Fe County Court. Plaintiff filed an amended complaint on April 16, 2021. The defendants’ motions to dismiss, including the Company’s federal preemption motion to dismiss, were denied.  The case is currently in the discovery stage.  Trial has been scheduled on or after September 15, 2025. In November 2020, the City of Baltimore filed a similar action against the Company’s U.S. subsidiary, and multiple other manufacturers and retailers. The City of Baltimore asserted public nuisance and negligence claims against the Company. The City of Baltimore action also was transferred to MDL-2924 and subsequently was remanded to the Circuit Court of Maryland. The City of Baltimore filed an amended complaint, which the defendants moved to dismiss.  The Company’s federal preemption motion to dismiss was granted in February 2022 and it is not currently a defendant in the case. In January 2021, the Company was served in a Proposition 65 case filed by the Center for Environmental Health (“CFEH”) in the Superior Court of Alameda County, California. The plaintiff purports to bring the case on behalf of the people of California and alleges that the Company violated Proposition 65, a California law requiring manufacturers to disclose the presence of carcinogens in consumer products.  The Company and other defendants filed demurrers (motions to dismiss) in the case, and on May 7, 2021 the Court granted the generic manufacturer defendants’ demurrers without leave to amend the pleadings.  CFEH appealed that decision and appellate briefing is completed.  Oral argument took place on March 1, 2023.  On March 9, 2023, the appellate court affirmed dismissal of the generic manufacturer defendants.  The plaintiff is seeking appellate review from the California Supreme Court.

 

As mentioned, a large number of claimants were exited from the MDL-2924 census registry by the defendants. As a result, more than 360 plaintiffs have filed suit against the Company in California, Illinois, New Jersey, New York, and Pennsylvania state courts. More state court filings could follow. The California cases were filed in Alameda County and will be transferred to the existing Judicial Council Coordination Proceedings (“JCCP”) (which has been pending for years with respect to the brand defendants). The Illinois cases have been filed in Madison, St. Clair, and Cook Counties and have been consolidated for pretrial purposes in Cook County. Trial dates have been established in eight Cook County cases in which the Company is named as a defendant. Those trials are set for April 25, 2024, June 5, 2024, July 19, 2024, October 23, 2024, November 18, 2024, January 16, 2025, February 10, 2025, and February 20, 2025. Plaintiffs may seek additional trial settings. The Pennsylvania cases were filed in Philadelphia County and are consolidated in the Philadelphia Complex Litigation Center. The New York cases were filed in New York and Suffolk Counties, and consolidated in New York County. Generally, they allege, among other things, failure to warn, design defect and negligence. The defendants have moved, or intend to move, to dismiss these cases. The New Jersey cases were filed in Middlesex County, but were voluntarily dismissed as to the generic defendants on March 23, 2023.

 

The Company believes that all of the aforesaid complaints and asserted claims are without merit and it denies any wrongdoing and intends to vigorously defend itself against the allegations. Any liability that may arise on account of these claims is unascertainable at this time. Accordingly, no provision was made in these consolidated financial statements of the Company.

198

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Class Action and Other Civil Litigation on Pricing/Reimbursement Matters

 

On December 30, 2015 and on February 4, 2016, respectively, a class action complaint (the “First Pricing Complaint”) and another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1) the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets).

 

The First Pricing Complaint was removed to the U.S. District Court for the Eastern District of Pennsylvania (the “E.D.P.A. Federal Court”) and, pending the outcome of the First Pricing Complaint, the Second Pricing Complaint was stayed. On September 25, 2017, the E.D.P.A. Federal Court dismissed all the claims of the plaintiffs in the First Pricing Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs’ right to appeal the dismissal of the First Pricing Complaint expired.

 

Further, on November 17, 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies as defendants in the E.D.P.A. Federal Court. Subsequently, these complaints were consolidated into one amended complaint as part of a multi-district, multi

-

product litigation pending with the E.D.P.A. Federal Court. These complaints allege that the Company and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release tablets in the United States.

 

In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice.

 

In response to the consolidated new complaint, the Company filed a motion to dismiss in October 2017. The plaintiffs filed opposition to the motion to dismiss in December 2017 and a reply was filed by the Company in January 2018. In October 2018, the Court denied the motion to dismiss on the grounds that the allegations pled leave open the possibility of conspiracy. Therefore, discovery will proceed to look into this possibility.

 

The Company denies any wrongdoing, believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Also any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in these consolidated financial statements.

 

United States Antitrust Multi-District Litigations

 

The following cases against the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc., have been filed and are pending and consolidated in

In

re Generic Pharmaceutical Pricing Antitrust Litigation, MDL 2724, 14-MD-2724 (Eastern District of Pennsylvania)

,

Multi District Litigation (“MDL”) in the Eastern District of Pennsylvania (“MDL-2724”):

 

a)   

U.S. States Attorneys General Antitrust Complaints:

 

On October 30, 2017, the Attorneys General of forty-nine U.S. States, the Commonwealth of Puerto Rico and the District of Columbia, filed an Amended Complaint in the United States District Court for the Eastern District of Pennsylvania, against eighteen generic pharmaceutical companies (including the Company’s U.S. subsidiary) with respect to fifteen generic drugs, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fix prices and to allocate bids and customers in the United States in the sale of the fifteen named drugs. The Company’s U.S. subsidiary is specifically named as a defendant with respect to two generic drugs (meprobamate and zoledronic acid), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” with respect to the other thirteen generic drugs named. The Amended Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and the consumer protection and antitrust laws of each of the jurisdictions that are plaintiffs.

 

The Amended Complaint seeks injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis, on behalf of the plaintiff jurisdictions and their citizens and inhabitants. The Company denies any wrongdoing and intends to vigorously defend against the claims asserted.

 

199

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

United States Antitrust Multi-District Litigations (continued)

 

On May 10, 2019, the Attorneys General of forty-nine U.S. States, the Commonwealth of Puerto Rico and the District of Columbia, filed a Complaint in the United States District Court for the District of Connecticut against twenty-one generic pharmaceutical companies (including the Company’s U.S. subsidiary) and fifteen individual defendants, with respect to 114 generic drugs, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fix prices and to allocate bids and customers in the United States in the sale of the 114 named drugs. Under the MDL rules, this action will be designated a related “tag along” action and will be transferred to and become a part of the MDL-2724. The Company’s U.S. subsidiary is specifically named as a defendant with respect to five generic drugs (ciprofloxacin HCL tablets, glimepiride tablets, oxaprozin tablets, paricalcitol and tizanidine), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” with respect to the other thirteen generic drugs named. The Complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and the consumer protection and antitrust laws of each of the jurisdictions that are plaintiffs. The Complaint seeks injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis, on behalf of the plaintiff jurisdictions and their citizens and inhabitants. The Company denies any wrongdoing and intends to vigorously defend against the claims asserted.

 

b)   

Divalproex Antitrust Class Action Cases Filed by Direct Payor Plaintiffs, End Payor Plaintiffs and Indirect Reseller Plaintiffs Classes:

Since November 17, 2016, certain class action complaints on behalf of Direct Purchaser Plaintiffs, Indirect Reseller Plaintiffs and End Payor Plaintiffs classes were filed against the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc., and a number of other pharmaceutical defendants in the United States District Court for the District of Pennsylvania alleging that the Company’s U.S. subsidiary and the other named defendants have engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of divalproex ER tablets in the United States.

 

The actions allege violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and of state consumer protection and antitrust laws, and asserts claims of unjust enrichment, under a total of thirty-one States and the District of Columbia. The actions seek injunctive relief and recovery of treble damages, punitive damages, plus attorney’s fees and costs, on a joint and several basis, on behalf of the plaintiff classes. The Company denies any wrongdoing and intends to vigorously defend against these class action claims.

 

c)   

Pravastatin Antitrust Class Action Cases Filed by Direct Payor Plaintiffs, End Payor Plaintiffs and Indirect Reseller Plaintiffs Classes:

Since November 17, 2016, certain class action complaints on behalf of Direct Purchaser Plaintiffs, Indirect Reseller Plaintiffs and End Payor Plaintiffs classes were filed against the Company and a number of other pharmaceutical defendants in the United States District Court for the District of Pennsylvania, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets in the United States. The Company’s U.S. subsidiary has been dismissed from these actions, without prejudice, in exchange for a tolling agreement with the plaintiffs suspending the statute of limitations as to the claims asserted. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

d)   

Antitrust “Overarching Conspiracy” Cases Filed by Direct Payor Plaintiffs, End Payor Plaintiffs and Indirect Reseller Plaintiffs Classes:

In June 2018, three class action complaints were filed in the MDL-2724 by Direct Purchaser Plaintiffs, Indirect Resellers Plaintiffs and End Payor Plaintiffs classes. All three complaints allege conspiracies in restraint of trade in violation of Sections 1 of the Sherman Act, and violations of thirty-one State antitrust statutes and consumer protection statutes, and asserts claims of unjust enrichment seeking injunctive relief, recovery of treble damages, punitive damages, attorney's fees and costs against all named defendants o

n a joint and several basis

. They allege an “overarching conspiracy” among the named defendants involving fifteen drugs and, with slight variations, name approximately twenty-five generic pharmaceutical manufacturers including the Company’s U.S. subsidiary, Dr. Reddy’s Laboratories, Inc.

 

The drug-specific allegations against the Company’s U.S. subsidiary involve two of the fifteen drugs, meprobamate and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of thirty-one States’ antitrust statutes and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney's fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

e)    

Antitrust Case Filed by The Kroger Co., Albertsons Companies, LLC, and H.E. Butt Grocery Company, L.P.:

On January 22, 2018, each of the Kroger Co., Albertsons Companies, LLC, and H.E. Butt Grocery Company, L.P., filed a complaint against the Company’s U.S. subsidiary and thirty-three other companies alleging that they had engaged in a conspiracy to fix prices and to allocate bids and customers in the United States in the sale of the thirty named generic drugs. An amended complaint was filed on December 20, 2018. The Company’s U.S. subsidiary is specifically named as a defendant with respect to three generic drugs (divalproex ER, meprobamate and zoledronic acid), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” claim with respect to the other generic drugs named.

 

This action alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and seeks injunctive relief and recovery of treble damages, punitive damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis. The Company denies

any wrongdoing

and intends to vigorously defend against these class action claims.

 

200

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

United States Antitrust Multi-District Litigations (continued)

 

f)    

Antitrust Case Filed by Humana Inc.:

On August 3, 2018, Humana, Inc., filed a complaint against the Company’s U.S. subsidiary and thirty-nine other companies alleging that they had engaged in a conspiracy to fix prices and to allocate bids and customers in the United States in the sale of twenty-nine named generic drugs. On December 15, 2020, Humana, Inc., filed an Amended Complaint encompassing fifty-one defendants and a total of one hundred forty-nine drugs. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named as a defendant with respect to eighteen generic drugs: allopurinol, ciprofloxacin ER, eszopiclone, fluconazole, glimepiride, isotretinoin, lamotrigine ER, meprobamate, metoroprolol succinate ER, montelukast, omeprazole sodium bicarbonate, oxaprozin, paricalcitol, ranitidine, sumatriptan, tizanidine, valganciclovir, and zoledronic acid.  The Company’s subsidiary is also named as a co-conspirator on an alleged “overarching conspiracy” claim with respect to the other generic drugs named. The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of thirty-one States’ antitrust statutes and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney's fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

g)   

Antitrust Case Filed by Marion Diagnostic Center, LLC, and Marion Healthcare, LLC:

On September 25, 2018, Marion Diagnostic Center, LLC, and Marion Healthcare, LLC, filed a complaint in the MDL-2724, on behalf of themselves and a class of all direct purchasers from distributors, against the Company’s U.S. subsidiary and twenty-two other defendants, including a major distributor of pharmaceutical products, involving a total of sixteen generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to sixteen generic drugs. The complaint was amended December 21, 2018 and April 1, 2019. The Company’s U.S. subsidiary is specifically named with respect to two drugs: meprobamate and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of twenty-four States’ antitrust statutes and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney's fees and costs against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

h)   

Antitrust Case Filed by United Healthcare Services, Inc.:

On January 16, 2019, United Healthcare Services, Inc., filed a complaint against the Company’s U.S. subsidiary and forty-two other defendants, involving a total of thirty generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to the thirty drugs. The Company’s U.S. subsidiary is specifically named with respect to four drugs: divalproex ER, meprobamate, pravastatin and zoledronic acid. On December 15, 2020, United Healthcare Services filed an Amended Complaint increasing the number of drugs to 116. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named as a defendant with respect to 9 generic drugs: ciprofloxacin HCL, divalproex ER, glimepiride, meprobamate, oxaprozin, paricalcitol, pravastatin, tizanidine and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaints. The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of the thirty States’ antitrust laws and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney's fees and cost against all defendants on a joint and several basis.

The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

i)

Pennsylvania Court of Common Pleas Praecipe For a Writ of Summons Filed by 87 End Payor Entities consisting of Blue Cross Blue Shield Entities and other health insurance companies and HMO entities:

On July 19, 2019, a Praecipe For a Writ of Summons for a tort action was filed in the Pennsylvania Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division, by 87 Blue Cross Blue Shield entities, and other health insurance companies and HMO entities, against the Company’s U.S. subsidiary and 69 other defendants (consisting of 51 other pharmaceutical companies and 17 individuals). These 87 plaintiffs had been previously encompassed by the End Payor Plaintiff class actions in the MDL-2724. Only a Praecipe For Writ of Summons has been filed. No complaint has been filed and, therefore, the potential claims have not been asserted or delineated in any manner, including what drugs any such claims may relate to. A complaint may, at some point, be filed encompassing the claims asserted by the End Payor Plaintiffs in the MDL-2724 actions. On December 12, 2019, an Order of the Court of Common Pleas placed the matter “in Deferred Status Pending Further Developments in Related Federal Multidistrict Litigation.” Because no Complaint has been filed setting forth any claims, and because the action has been placed into Deferred Status, no response is required by the Company’s subsidiary at this time.

 

201

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32. Contingencies (continued)

United States Antitrust Multi-District Litigations (continued)

j)

Antitrust Case Filed by United Healthcare Services, Inc.:

On October

11, 2019, United Healthcare Services, Inc. filed a second complaint (which substantially tracks the second complaint filed by the State Attorneys General on May 10, 2019) against the Company’s U.S. subsidiary and twenty-four other defendants in the United States District Court for the District of Minnesota with respect to 116 generic drugs, alleging that the Company’s U.S. subsidiary and the other named defendants engaged in a conspiracy to fix prices and to allocate bids and customers in the United States in the sale of the 116 named drugs. Under the MDL rules, this action will be designated a related “tag along” action and will be transferred to and become a part of the MDL-2724. The Company’s U.S. subsidiary is specifically named as a defendant with respect to five generic drugs (ciprofloxacin HCL tablets, glimepiride tablets, oxaprozin tablets, paricalcitol and tizanidine), and is named as an alleged co-conspirator on an alleged “overarching conspiracy” with respect to the other generic drugs named. The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of the Minnesota antitrust laws and various other state antitrust and consumer protection laws, and asserts claims for unjust enrichment.

The complaint seeks injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

k)

Antitrust “Overarching Conspiracy” Cases Filed by Direct Payor Plaintiffs, End Payor Plaintiffs and Indirect Reseller Plaintiffs Classes:

On December 19, 2019, a new class action complaint was filed by the End Payor Plaintiffs. The complaint alleges a conspiracy in restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. §1, and violations of twenty-eight States’ antitrust statutes and twenty-nine States’ consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs. The complaint alleges an “overarching conspiracy” among the named defendants involving one hundred and thirty-five drugs and, with slight variations, names approximately thirty-six generic pharmaceutical manufacturers, including the Company’s U.S. subsidiary. The Complaint was amended September 4, 2020.

 

The drug-specific allegations against the Company’s U.S. subsidiary involve eight of the one hundred thirty-five drugs, including allopurinol, ciprofloxacin HCL, fluconazone, glimepiride, oxaprozine, paricalcitol, ranitidine HCL and tizanidine. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

On December 19, 2019, a new class action complaint was filed by certain pharmacy and hospital indirect purchaser plaintiffs. The complaint alleges a conspiracy in restraint of trade in violation of Sections 1 and 3 of the Sherman Act, 15 U.S.C. §1 and §3, and violations of forty-three States’ antitrust statutes and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, attorney’s fees and costs

against all named defendants o

n a joint and several basis

.

The complaint alleges an “overarching conspiracy” among the named defendants involving one hundred and sixty-two drugs and, with slight variations, names approximately twenty-eight generic pharmaceutical manufacturers, including the Company’s U.S. subsidiary, as well as seven pharmaceutical distributor defendants and sixteen individual defendants. The Complaint was amended July 2022.

 

The drug-specific allegations against the Company’s U.S. subsidiary involve nineteen drugs: allopurinol, capecitabine, ciprofloxacin HCL, divalproex ER, eszopiclone, fenofibrate, glimepiride, isotretinoin, lamotrigine ER, meprobamate, metoprolol ER, montelukast granules, omeprazole sodium bicarbonate, oxaprozine, paricalcitol, sumatriptan, tizanidine HCL, valganciclovir and zoledronic acid.

 

The complaints seek injunctive relief, statutory penalties, punitive damages, and recovery of treble damages, plus attorney’s fees and costs, against all named defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

l)

Antitrust Case Filed by Fourteen New York State Counties:

 

On November 18, 2019, a class action complaint was filed in the Supreme Court of the State of New York, Nassau County, by fourteen New York State Counties (Nassau, Allegany, Clinton. Cortland, Franklin, Fulton, Greene, Herkimer, Lewis, Madison, Montgomery, Niagara, Schenectady and Steuben). Fourteen counties in New York State filed a complaint against the Company’s U.S. subsidiary and thirty-three other defendants, involving a total of forty-five generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. The complaint alleges an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically named with respect to five drugs: glimepiride, glyburide-metformin, meprobamate, tizanidine and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint. The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

m)

Antitrust Case Filed by Health Care Services, Inc.:

 

On December 11, 2019, Health Care Services, Inc. filed a complaint against the Company’s U.S. subsidiary and thirty-eight other defendants, involving a total of one hundred twenty-eight generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. On December 15, 2020, Health Care Services filed an Amended Complaint naming a total of one hundred seventy drugs. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named with respect to nineteen drugs: allopurinol, ciprofloxacin HCL, divalproex ER, eszopiclone, fluconazole, glimepiride, isotretinoin, lamotrigine ER, meprobamate, metroprolol succinate ER, montelukast, omeprazole sodium bicarbonate, oxaprozine, paricalcitol, ranitidine, sumatriptan, tizanidine, valganciclovir and zoledronic acid. Plaintiffs allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaint. The complaint also alleges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §1 and §2, and violations of thirty-one States’ antitrust laws and twenty-seven States’ consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

 

202

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

United States Antitrust Multi-District Litigations (continued)

 

n)

Antitrust Case Filed by MSP Recovery Claims, Series LLC, MAO-MSO Recovery II, LLC, and MSPA Claims I, LLC (collectively “MSP Recovery”), as Assignees of certain Medicare Advantage Plans:

On December 16, 2019, MSP Recovery filed a complaint against the Company’s U.S. subsidiary and twenty-five other defendants, involving a total of sixteen generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to the sixteen drugs. The Company’s U.S. subsidiary is specifically named with respect to one drug: divalproex ER. The Complaint was amended on December 15, 2020, increasing the number of drugs to 197.

  

In the Amended Complaint, the Company’s U.S. subsidiary is named with respect to 9 drugs:

  

allopurinol, ciprofloxacin, divalproex ER, glimepiride, meprobamate, oxaprozin, paricalcitol, tizanidine and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaint.

 

The complaint alleges violations of Sections 1 and 3 of the Sherman Act, 15 U.S.C. §1 and §3, and violations of twenty-eight States’ antitrust laws and twenty-three States’ consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

o)

Antitrust Case Filed by Molina Healthcare Inc.:

On December 27, 2019, Molina Healthcare Inc. filed a complaint against the Company’s U.S. subsidiary and forty-one other defendants, involving a total of one hundred twenty-eight generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. On December 15, 2020, Molina Healthcare filed an Amended Complaint against a total of fifty-eight defendants involving one hundred eighty-four drugs. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named with respect to nineteen drugs: allopurinol, ciprofloxacin, divalproex ER, eszopiclone, fluconazole, glimepiride, isotretinoin, lamotrigine ER, meprobamate, metroprolol succinate ER, montelukast, omeprazole sodium bicarbonate, oxaprozine, paricalcitol, ranitidine, sumatriptan, tizanidine, valganciclovir and zoledronic acid. Plaintiffs allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaint. The complaint also alleges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §1 and §2, and violations of eleven States’ antitrust laws and consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

p)

Antitrust  Class Action by Direct Purchaser Plaintiff:

 On February 7, 2020, a new class action complaint was filed by Direct Purchaser Plaintiffs. The Complaint alleges a conspiracy in restraint of trade in violation of Sherman Act Sections 1 and 3.  The Complaint seeks recovery of treble damages pre-judgment and post-judgment interest and recovery of costs.  The Complaint was amended October 21, 2020. The Complaint, as amended, alleges an “overarching conspiracy” among the named defendants involving 131 drugs and 50 defendants including the Company’s U.S. subsidiary.  The drug specific allegations against the Company’s U.S. subsidiary involve seven drugs:  allopurinol, fluconazole, glimepiride, oxaprozin, paricalcitol, ranitidine and tizanidine. The Company denies any wrongdoing and intends to vigorously defend against these claims.

q)

    

Antitrust

Case

Filed by

Harri

s Co

unty, T

exas:

 

On March 1, 2020, Harris County, Texas filed a Complaint against the Company's U.S. Subsidiary and forty-two other defendants, involving a total of one hundred twenty-eight generic drugs, alleging an "overarching conspiracy" to fix prices and to rig bids and allocate customers with respect to the one hundred eighty-seven drugs. The case is in the process of being transferred to the MDL-2724 proceeding. The Company's U.S. subsidiary is specifically named with respect to twenty drugs: allopurinol, amoxicillin, ciprofloxacin HCL, divalproex ER, famotidine, fenofibrate, fluconazole, fluoxetine, glimepiride, glycopyrrolate, levalbuterol, meprobamate, naproxen, ondansetron, oxaprozin, pravastatin sodium, raloxifene HCL, ranitidine, tizanidine and zoledronic acid. Plaintiffs also allege that the Company's U.S. subsidiary (as well as all other manufacturers named) were part of a larger "overarching conspiracy" as to all the drugs named in the complaints.

 

The Complaint alleges violations of Sections 1 of the Sherman Act, 15 U.S.C. §1, violations of twenty-eight State's antitrust laws, violations of the Texas Deceptive Trade Practices Act and Texas Free Enterprise and Antitrust Act and asserts claims of unjust enrichment and civil conspiracy. The Complaint seeks injunctive relief, recovery of treble damages, punitive damages, disgorgement, and attorney's fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

r)

Antitrust Complaint Filed by Westchester County, Illinois Public Risk Fund and the United Crafts Benefits Fund Insurance Companies:

On March 16, 2022, an Amended Complaint was filed by the County of Westchester, the Illinois Public Risk Fund and the United Crafts Benefits Fund against the Company and 35 other defendants. The Amended Complaint alleges an overarching conspiracy to fix prices and allocate markets for 294 generic drugs. Of the 294 drugs, the Company is specifically named with respect to 13 drugs: allopurinol, ciprofloxacin, divalproex, glimepiride, isotretinoin, lamotrigine, meprobamate, metoprolol succinate, oxaprozin, paricalcitol, tizanidine, valganciclovir and zoledronic acid. The Complaint alleges violations of Sections 4 and 16 of the Clayton Act, as well as violations of the Antitrust Statutes of Illinois and New York and Unjust Enrichment claims under the laws of Illinois and New York. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

203

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

United States Antitrust Multi-District Litigations (continued)

s)

Pennsylvania Court of Common Pleas Praecipe For a Writ of Summons Filed by 7 End Payor Entities consisting of Blue Cross Blue Shield entities and other health insurance companies:

On

May 6, 2020, a Praecipe For a Writ of Summons for a tort action was filed in the Pennsylvania Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division, by 7 Blue Cross Blue Shield entities and other health insurance companies, against the Company’s U.S. subsidiary and 69 other defendants (consisting of 51 other pharmaceutical companies and 17 individuals). These 7 plaintiffs had been previously encompassed by the End Payor Plaintiff class actions in the MDL

-2724

. Only a Praecipe For Writ of Summons has been filed. No complaint has been filed and, therefore, the potential claims have not been asserted or delineated in any manner, including what drugs any such claims may relate to. A complaint may, at some point, be filed encompassing the claims asserted by the End Payor Plaintiff class actions in the MDL

-2724

actions. It is anticipated that this action will be placed in Deferred Status Pending Further Developments in the related MDL

-2724

case. Because no Complaint has been filed setting forth any claims, and because it is expected that the action will be placed into Deferred Status, no response is required by the Company’s subsidiary at this time.

 

t)

Antitrust Case Filed by Cigna Corp.:

On June 9, 2020, Cigna Corp. filed a complaint against the Company’s U.S. subsidiary and forty-one other defendants, involving a total of one hundred forty generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. On December 15, 2020, Cigna Corp. filed an Amended Complaint against a total of forty-two defendants encompassing a total of two hundred and thirty-nine drugs. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named with respect to twelve drugs: allopurinol, ciprofloxacin HCL, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozine, paricalcitol, pravastatin, ranitidine, tizanidine and zoledronic acid. Plaintiffs allege that the Company’s U.S. subsidiary (as well as all other manufacturers named) were part of a larger “overarching conspiracy” as to all of the drugs named in the complaint. The complaint also alleges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §1 and §2, and violations of thirty-one States’ antitrust laws and twenty-nine States’ consumer protection statutes, and asserts claims of unjust enrichment. The complaint seeks injunctive relief, recovery of treble damages, punitive damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

u)

Antitrust Case Filed by Rite Aid Corporation and Rite Aid Hdqtrs. Corp.:

On July 9, 2020, Rite Aid Corporation and Rite Aid Hdqtrs Corp. filed a complaint on their own behalf, and as assignee of McKesson Corporation with regard to drugs sold by McKesson to Rite Aid, against the Company’s U.S. subsidiary and forty-six other defendants, involving a total of one hundred thirty-five generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. On December 15, 2020, Rite Aid filed an Amended Complaint against a total of fifty-five defendants involving a total of one hundred eighty eight drugs. In the Amended Complaint, the Company’s U.S. subsidiary is specifically named with respect to eleven drugs: allopurinol, ciprofloxacin ER, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozine, paricalcitol, ranitidine, tizanidine and zoledronic acid. Plaintiff alleges that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint; and, alternatively, was part of an overarching conspiracy with eighteen of the defendants named with regard to forty-five of the drugs named. The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

v)

Antitrust Complaint Filed by Suffolk County, New York:

 

On August 27, 2020, Suffolk County, New York, filed a complaint against the Company’s U.S. subsidiary and forty-six other defendants, involving a total of one hundred thirty generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically named with respect to twelve drugs: ciprofloxacin ER, divalproex ER, fenofibrate, fluconazole, glimepiride, glyburide, metformin, oxaprozine, pravastatin, ranitidine, tizanidine and zoledronic acid. Plaintiffs allege that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint. The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

w)

Antitrust Complaint Filed by J M Smith:

On September 4, 2020, J M Smith Corporation, as assignee of Burlington Drug Company, filed a complaint against the Company’s U.S. subsidiary and fifty other defendants, involving a total of one hundred thirty generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically named with respect to eleven drugs: allopurinol, ciprofloxacin ER, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozin, paricalcitol, ranitidine, tizanidine and zoledronic acid.

204

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

United States Antitrust Multi-District Litigations (continued)

 

Plaintiffs allege that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint; The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

x)

Antitrust Complaint Filed by Walgreen Company:

On December 11, 2020, Walgreen Company filed a complaint against the Company’s U.S. subsidiary and fifty-four other defendants, involving a total of one hundred eighty-eight generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. Walgreen asserts claims on its own behalf and as assignee of Amerisource Bergen for drugs that Amerisource Bergen sold to Walgreen. The Company’s U.S. subsidiary is specifically named with respect to eleven drugs: allopurinol, ciprofloxacin ER, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozin, paricalcitol, ranitidine, tizanidine and zoledronic acid. Plaintiff alleges that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint. The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

y)

Antitrust Complaint Filed by CVS Pharmacy Inc.:

On December 15, 2020, CVS Pharmacy, Inc., filed a complaint against the Company’s U.S. subsidiary and fifty-seven other defendants, involving a total of four hundred four generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and allocate customers with respect to these drugs. CVS Pharmacy asserts claims on its own behalf and as assignee of Cardinal Health and McKesson for drugs that Cardinal Health and McKesson sold to CVS Pharmacy, Inc. The Company’s U.S. subsidiary is specifically named with respect to seven drugs: ciprofloxacin ER, glimepiride, meprobamate, oxaprozin, pravastatin, tizanidine and zoledronic acid. Plaintiff alleges that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint. The complaint also alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

z)

Antitrust Complaint Filed by Various Counties, Cities and Insurance Companies :

On December 15, 2020, a Complaint was filed in the Supreme Court of the State of New York, Suffolk County, by a group of 22 plaintiffs against the Company and 35 other defendants. Plaintiffs include 14 New York Counties (Albany, Cattaraugus, Chemung, Chenango, Columbia, Erie, Essex, Livingston, Monroe, Oneida, Onondaga, Otsego, Schuyler and Yates), the Town of Amherst, New York, the City of Poughkeepsie, New York, the City of Mobile, Alabama, the Counties of Osceola, Florida, and Shelby, Tennessee, and three insurance companies (Magnacare Insurance, Mebco and WCA Group Health Trust). The case has been transferred to, and consolidated with, the MDL-2724 litigation. The Complaint was amended on June 30, 2021. The Amended Complaint alleges an overarching conspiracy to fix prices and allocate markets for 294 generic drugs. Of the 294 drugs, the Company is specifically named with respect to 13 drugs: allopurinol, ciprofloxacin, divalproex, glimepiride, isotretinoin, lamotrigine, meprobamate, metoprolol succinate, oxaprozine, paricalcitol, tizanidine, valganciclovir and zoledronic acid. The Complaint alleges violations of Sections 1 and 2 of the Sherman Act, as well as violations of the Antitrust Statutes of Alabama, Florida, New York and Tennessee and Unjust Enrichment claims under the laws of Alabama, Florida, New York and Tennessee. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

aa)

Antitrust Complaint Filed by Westchester County, New York:

On

August 30

, 2021, a Complaint was filed in the Supreme Court of the State of New York, Westchester County, by Westchester County against the Company and 57 other defendants. The case has been removed to the United States District Court for the Southern District of New York and is in the process of being transferred to, and consolidated with, the MDL-2724 litigation. The complaint alleges an overarching conspiracy to fix prices and allocate markets for approximately 142 generic drugs. Of the 142 drugs, the Company is specifically named with respect to 3 drugs: divalproex, meprobamate, and zoledronic acid. The complaint alleges violations of Sections 1 and 3 of the Sherman Act, Sections 4 and 16 of the Clayton Act, and the Antitrust Statutes of New York, as well as Unjust Enrichment claims under the laws of New York. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

205

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

32.

Contingencies (continued)

United States Antitrust Multi-District Litigations (continued)

	b b )	Pennsylvania Court of Common Pleas Praecipe For a Writ of Summons Filed by 21 End Payor Entities consisting of A meriHe alth entities and other health insurance companies:

On

October 21, 2021, a Praecipe For a Writ of Summons for a tort action was filed in the Pennsylvania Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division, by 21 AmeriHealth entities and other health insurance companies, against the Company’s U.S. subsidiary and 74 other defendants (consisting of 50 other pharmaceutical companies and 24 individuals). Only a Praecipe of Writ of Summons has been filed. No complaint has been filed and, therefore, the potential claims have not been asserted or delineated in any manner, including what drugs any such claims may relate to. A complaint may, at some point, be filed encompassing the claims asserted by the End Payor Plaintiff class actions in the MDL-2724 actions. It is anticipated that this action will be placed in Deferred Status Pending Further Developments in the related MDL-2724 case. Because no Complaint has been filed setting forth any claims, and because it is expected that the action will be placed into Deferred Status, no response is required by the Company’s subsidiary at this time.

 

Note on Antitrust Complaints

The

Company believes that the aforesaid asserted claims

in subsections a) though

bb

) above

are without merit and intends to vigorously defend itself against the allegations. Also, any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in these consolidated financial statements.

 

Class Action under the Canadian Competition Act filed in Federal Court in Toronto, Canada

 

On June 3, 2020, a Class Action Statement of Claim was filed by an individual consumer in Federal Court in Toronto, Canada, against the Company’s U.S. and Canadian subsidiaries and 52 other generic drug companies. The Statement of Claim alleges an industry-wide, overarching conspiracy to violate Section 36 of the Canadian Competition Act by conspiring to allocate the market, fix prices, and maintain the supply of generic drugs in Canada. The action is brought on behalf of a class of all persons, from January 1, 2012 to the present, who purchased generic drugs in the private sector. The Statement of Claim states that it seeks damages against all defendants on a joint and several basis, attorney’s fees and costs of investigation and prosecution. An Amended Statement of Claim was served on the Company’s U.S. and Canadian subsidiaries on January 15, 2021 and added an additional 20 generic drug companies. The Amended Statement of Claim also removed the identification of defendant companies with conspiracy allegations regarding specific generic drugs and alleges a conspiracy to allocate the North America Market as to all generic drugs in Canada. A Second Fresh as Amended Statement of Claim was served on the Company's U.S. and Canadian subsidiaries on August 24, 2022 and adds an additional 10 drug companies. The Second Fresh as Amended Statement of Claim reinstituted the identification of defendant companies with conspiracy allegations regarding specific generic drugs.

 

The Company believes that the asserted claims are without merit and intends to vigorously defend itself against the allegations. Any liability that may arise on account of this claim is unascertainable. Accordingly, no provision was made in these consolidated financial statements.

 

Civil litigation with Mezzion

 

On January 13, 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by Mezzion. The Company filed a motion to dismiss Mezzion’s complaint on the technical grounds that the Court lacks jurisdiction over the Company. In January 2018, the

Court denied the Company’s motion to dismiss the complaint on the jurisdictional matter. The Company’s interlocutory appeal of said denial was also denied. The case is continuing in pretrial discovery.

 

The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted in Mezzion’s complaint.

Any liability that may arise on account of this claim is unascertainable.

Accordingly, no provision was made in these consolidated financial statements.

 

Civil Litigation and Arbitration with Hatchtech Pty Limited

 

On September 7, 2015, the Company’s Swiss subsidiary, Dr. Reddy’s Laboratories, S.A., entered into an Asset Purchase Agreement (“APA”) with Hatchtech Pty Limited (“Hatchtech”). Pursuant to the APA, the Company’s subsidiary acquired from Hatchtech the patented product Xeglyze®,

a topical lousicidal lotion for the treatment of head lice,

and all rights in the product. The APA provides that the Company would seek to obtain New Drug Application (“NDA”) approval from the U.S. FDA, and would then commercialize the product in the United States. The APA specifies certain milestone payments to be paid by the Company’s Swiss subsidiary to Hatchtech, including a U.S.$20 NDA approval milestone payment, a U.S.$25 ovicidal label approval milestone payment, and certain net sales milestone payments.

 

On July 24, 2020, the Company received the NDA approval from the U.S. FDA for the

Xeglyze

® product.

 

On September 25, 2020, the Company’s Swiss subsidiary filed an action in Delaware Chancery Court against Hatchtech to rescind the APA based upon claims of fraud, negligent misrepresentations and mutual mistake in connection with the acquisition of the product Xeglyze

®

, which was dismissed as being untimely under the Delaware statute of limitations.

 

206

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

Civil Litigation and Arbitration with Hatchtech Pty Limited (continued)

 

On October 8, 2020, Hatchtech filed an arbitration demand against the Swiss subsidiary before the American Arbitration Association, International Center for Dispute Resolution (“AAA-ICDR”), in New York City, claiming that it was owed U.S.$20 for the NDA approval milestone and U.S.$25 for the ovicidal label approval milestone.

 

On January 25, 2021, the Company’s Swiss subsidiary filed a Writ of Summons and Statement of Claim in Victoria at Melbourne, Australia, against Hatchtech (as a nominal party), certain of its officers and a principal shareholder, alleging misrepresentations in connection with the acquisition of the Xeglyze

®

product and seeking damages and other relief.

 

Based on its best estimate, the Company had recorded a provision for potential liability of U.S.$20 relating to the AAA-ICDR arbitration filed by Hatchtech and believed that the likelihood of any further liability that may arise pursuant to that arbitration to be not probable.

 

On June 14, 2021, the Company received the arbitration decision and an award was issued by the AAA-ICDR in favor of Hatchtech in an amount of U.S.$46.25 towards milestone payments, interest and fees.

 

Of the total amount of U.S.$46.25 awarded to Hatchtech, the amount of U.S.$45 (Rs.3,291) was recognized in the consolidated income statement under the heading “Impairment of non-current assets” and the balance of U.S.$1.25 (Rs.91) was recognized under the heading, “Selling, general and administrative expenses”.

 

On February 2, 2022, the Company and Hatchtech entered into a Global “Settlement and Transfer Agreement” dated February 2, 2022 pursuant to which the APA and all other agreements between the Company and Hatchtech were terminated, the pending litigation in Australia was dismissed with prejudice, the Company and Hatchtech exchanged mutual general releases of all claims that they had or may have against each other, and the Company transferred the Xeglyze

®

product (and all patents and intellectual property relating to the Xeglyze

®

product) back to Hatchtech for the sum of US $1 which Hatchtech paid and the Company received on February 15, 2022.

 

Securities Class Action Litigation

 

On August 25, 2017, a securities class action lawsuit was filed against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the District of New Jersey. The Company’s Co-Chairman, its Chief Operating Officer, and Dr. Reddy’s Laboratories, Inc., were also subsequently named as defendants in the case. The operative complaint alleges that the Company made false or misleading statements or omissions in its public filings, in violation of U.S. federal securities laws, and that the Company’s share price dropped and its investors were affected.

On May 9, 2018, the Company and other defendants filed a motion to dismiss the complaint in the

United States District Court for the District of New Jersey

.

On June 25, 2018, the plaintiffs filed an opposition to the motion to dismiss and, on July 25, 2018, a further reply in support of the motion to dismiss was filed by the Company. In August 2018, oral argument on the motion to dismiss was heard by the Court.

On March 21, 2019, the District Court issued its decision granting in part and denying in part the motion to dismiss. Pursuant to that decision, the Court dismissed the plaintiffs claims with respect to seventeen out of the twenty two alleged misstatements and omissions. On May 15, 2020, Dr. Reddy’s Laboratories Limited, Dr. Reddy’s Laboratories, Inc., and certain of the Company’s current or former directors and officers have entered into a Stipulation and Agreement of Settlement (the “Stipulation”) with lead plaintiff the Public Employees’ Retirement System of Mississippi in the putative securities class action filed against the defendants in the United States District Court for the District of New Jersey. As consideration for the settlement of the class action, the Company has agreed to pay U.S.$9.

 

The settlement is subject to the approval of the court and may be terminated prior to court approval pursuant to the grounds for termination set forth in the Stipulation. Subject to the terms of the Stipulation, in exchange for the settlement consideration, the lead plaintiff and members of the settlement class who do not opt-out of this settlement would release, among other things, the claims that were asserted, or that they could have asserted, in this class action. In entering into the settlement, the defendants do not admit, and explicitly deny, any liability or wrongdoing of any kind.

 

Subject to the terms of the Stipulation, the settlement resolves the remainder of the litigation.

 

As the Company is adequately insured with respect to the aforesaid liability, the settlement did not have any impact on the Company’s consolidated income statement for the year ended March 31, 2020.

 

The amount payable to the plaintiffs on account of the settlement and the corresponding receivable from the insurer have been presented under “other current assets” and “other current liabilities”, respectively, in the consolidated statement of financial position of the Company as of March 31, 2020.

 

On December 23, 2020, the court issued a final order and judgment approving the settlement. Pursuant to the settlement/court order, the escrow was funded on January 4, 2021. The effective date of the settlement occurred on February 1, 2021, upon transfer of the settlement fund balance into the final escrow account. As the transfer of funds to the final escrow account constitutes settlement of liability, the amount of liability has been derecognized during the year ended March 31, 2021.

 

207

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Veraring Litigation

A Complaint was filed on

November 15, 2021

in the Supreme Court of the State of New York, County of New York (trial court level) by Teva Pharmaceutical Industries Ltd. (“Teva”) against Dr. Reddy's Laboratories, S.A. (Case Index No.

656499/2021)

. This Complaint was subsequently amended by Teva on

January 26, 2022

.  In its Amended Complaint, Teva alleges that the Company breached the supply agreements between the parties relating to Veraring, failed to pay carrying costs, and breached the implied covenant of good faith and fair dealing, seeking monetary damages and all other remedies available under law. On

January 6, 2022

, the Company asserted counterclaims against Teva, asserting that Teva breached its contractual obligations to the Company by, among other things, failing to adhere to cGMP and producing product unfit for human use, seeking monetary damages and all other remedies available under law.

 

On March 15, 2023, Dr. Reddy’s Laboratories, S.A., on behalf of itself and affiliates, entered into a Settlement Agreement with Teva, on behalf of itself and affiliates, relating to the Veraring Litigation and Veraring. Pursuant to the Settlement Agreement, all claims between the parties have been dismissed with prejudice and without any admission of liability by any of the parties.

 

Other matters

 

Internal Investigation

 

The Company received an anonymous complaint in September 2020, alleging that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. The Company disclosed the matter to the U.S. Department of Justice (“DOJ”), Securities and Exchange Commission (“SEC”) and Securities Exchange Board of India. The Company engaged a U.S. law firm to conduct the investigation at the instruction of a committee of the Company’s Board of Directors. On July 6, 2021 the Company received a subpoena from the SEC for the production of related documents, which were provided to the SEC.

 

The Company made presentations to the SEC and the DOJ in relation to the investigation with respect to certain countries during the current and previous fiscal year. The Company also made a presentation to the SEC and the DOJ in relation to its Global Compliance Framework, including the ongoing enhancement initiatives, during the year ended March 31, 2023. The Company is complying with its listing obligations as it relates to updating the regulatory agencies. While the findings from the aforesaid investigations could result in government or regulatory enforcement actions against the Company in the United States and/or foreign jurisdictions, which can lead to civil and criminal sanctions under relevant laws, the outcomes including liabilities are not reasonably ascertainable at this time.

 

Civil Investigative Demand from the Office of the Attorney General, State of Texas

 

On or about November 10, 2014, Dr. Reddy’s Laboratories, Inc., one of the Company’s subsidiaries in the United States, received a Civil Investigative Demand (“CID”) from the Office of the Attorney General, State of Texas (the “Texas AG”) requesting certain information, documents and data regarding sales and price reporting practices in the U.S. marketplace for certain products (the “Covered Conduct”) for the time-period between January 1, 1995 and the date of the CID. On or about June 23, 2021, the Texas AG contacted the Company’s counsel to request additional information related to the Texas AG’s investigation and the Covered Conduct for the time-period of October 1, 2003 through February 29, 2012. The Company has continued to cooperate and respond to the Texas AG’s requests for information related to the Covered Conduct.

 

As on March 31, 2022, the Company based on its best estimate, recorded a provision of Rs.983 in this regard.

 

On June 1, 2022, Dr. Reddy’s Laboratories, Inc. entered into a Settlement Agreement and Release with the Texas AG and the Texas Health & Human Services Commission related to the Covered Conduct. Pursuant to the Settlement Agreement and Release, on July 6, 2022, Dr. Reddy’s Laboratories, Inc. paid the total sum of U.S.$12.9 to the State of Texas as a full and final settlement of any claims being investigated by the State of Texas in relation to the Covered Conduct. Neither Dr. Reddy’s Laboratories, Inc. nor the Company admitted to any facts or liability in connection with this settlement. The settlement was a compromise and settlement on disputed issues of fact and law.

 

Subpoena duces tecum from the Office of the Attorney General, California

 

On November 3, 2014, Dr. Reddy’s Laboratories, Inc. received a subpoena duces tecum to appear before the Office of the Attorney General, California (the “California AG”) and produce records and documents relating to the pricing of certain products. A set of five interrogatories related to pricing practices was served as well. On July 18, 2016, the California AG sent a letter to inform Dr. Reddy’s Laboratories, Inc. that, in light of the information which had been provided, no further information would be requested at such time in response to this subpoena.

 

Subpoenas from the Antitrust Division of the U.S. Department of Justice (“DOJ”)

 

On July 6, 2016, Dr. Reddy’s Laboratories, Inc. received a subpoena from the DOJ (Anti-trust Division) seeking information relating to the marketing, pricing and sale of certain of our generic products and any communications with competitors about such products. On May 15, 2018, another subpoena was served on Dr. Reddy’s Laboratories, Inc. by the DOJ (False Claims Division) seeking similar information. The Company has been cooperating, and intends to continue to fully cooperate, with these inquiries.

 

208

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Civil Investigative Demand from Civil Division of the DOJ

 

On May 15, 2018, Dr. Reddy’s Laboratories, Inc.

received a Civil Investigative Demand

from the Civil Division of the DOJ, enquiring

whether there have been any violations of the U.S. False Claims Act. This query arose from allegations that generic pharmaceutical manufacturers, including us, have engaged

in market allocation or price fixing agreements, or paid illegal remuneration, and caused false claims to be submitted in violation of the U.S. False Claims Act. The Company has been cooperating, and intends to continue to fully cooperate with the DOJ in responding to the demand.

 

Environmental matters

 

Land pollution

 

The Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollaram areas of Medak district of the then existing undivided state of Andhra Pradesh. The Company has been named in the list of polluting industries. In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollaram and Jeedimetla areas for discharging effluents which damaged the farmers’ agricultural land. The compensation was fixed at Rs.0.0013 per acre for dry land and Rs.0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of Rs.3. The Andhra Pradesh High Court disposed of the writ petition on February 12, 2013 and transferred the case to the National Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter is decided by the NGT. The NGT has, through its order dated October 30, 2015, constituted a Fact Finding Committee.

 

The NGT has also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the Company, along with the alleged polluting industries, has challenged the constitution and composition of the Fact Finding Committee. The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee are disposed of, the Fact Finding Committee shall not commence its operation.

 

The NGT, Chennai in a judgment dated October 24, 2017, disposed of the matter. The Bulk Drug Manufacturers Association of India (“BDMAI”), in which the Company is a member, subsequently filed a review petition against the judgment on various aspects.

 

The NGT, Delhi, in a judgment dated November 16, 2017 in another case in which the Company is not a party, stated that the moratorium imposed in the Patancheru and Bollaram areas shall continue until the Ministry of Environment, Forest and Climate Change passes an order keeping in view the needs of the environment and public health.

The Company filed an appeal challenging this judgment.

 

The High Court of Hyderabad heard the Company’s appeal challenging this judgment in July 2018 and directed the respondents to file their response within a period of four weeks. During the three months ended September 30, 2018, the respondents filed counter affidavits and the matter has now been adjourned for final hearing.

 

The appeal came up for hearing before the High Court of Hyderabad on October 25, 2018 and has been adjourned for further hearing.

The Hon’ble High Court has closed the matter in June 2022, by granting liberty for the Company to take proper recourse for remedies available under the NGT Act, 2010 before the Hon’ble Supreme Court of India.

 

On April 24, 2019, based upon the judgment of the NGT, Chennai dated October 24, 2017, the Government of Telangana has issued GO.Ms. No. 24 of 2019 that allows for expansion of production of all kinds of existing industrial units located within the stretch of Patancheru – Bollaram upon depositing an amount equivalent to 1% of the annual turnover of the respective unit for the concluded fiscal year, i.e., March 31, 2019. Accordingly, the Company made a provision of Rs.29.4, representing the probable cost of expansion, during the year ended March 31, 2019.

 

During the three months ended September, 2019, the Telangana State Pollution Control Board (“TSPCB”) issued Operational Guidelines basis the NGT, Chennai Order dated October 24, 2017, G.O.Ms. No. 24 dated April 24, 2019 and G.O.Ms. No. 31 dated May 24, 2019 and sought to recover retrospectively an amount of 0.5% of the annual turnover from the fiscal years 2016-2017 to 2018-2019 for all the industrial units situated in Patancheru and Bollaram for the purposes of restoration of such affected area. The Company has four industrial units situated in Patancheru and Bollaram. The Consent For Operation (“CFO”) for change of product mix application filed by one of the industrial unit of the Company has been recommended for issuance of CFO with change of product mix only upon payment of 0.5% of the annual turnover from the fiscal years 2016-2017 to 2018-2019 to the TSPCB. The Company intends to vigorously defend itself against the Operational Guidelines.

 

In November 2019, demand notices were issued by the TSPCB for collection of Corpus Fund of 0.5% as remediation fee on the previous year turnover as per Operational Guidelines dated August 3, 2019 issued by TSPCB under the guise of G.O.Ms No. 24 dated April 24, 2019 and G.O.Ms No. 31 dated May 24, 2019 and basis the judgment of NGT, Chennai dated October 24, 2017 for the fiscal years 2015-2016 to 2018-2019 received by CTO-1, CTO-2, CTO-3 and CTO-5 of the Company.

 

209

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Environmental matters (continued)

 

Land pollution(continued)

 

On November 22, 2019, The Hon’ble High Court of Judicature at Hyderabad issued an Interim Order which stayed the demand on the condition that the Company deposit Rs.60 as the remediation fee for the fiscal year 2018-2019 payable in the fiscal year 2019-2020. The deposit of Rs.60 was made and the Interim Order is continuing.

 The Hon’ble High Court has disposed of the matter with a liberty to the Company to approach the NGT, if necessary.

The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in the consolidated financial statements.

 

Water pollution and air pollution

 

During the year ended March 31, 2012, the Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control Board”) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of all new products at the Company’s manufacturing facilities in Hyderabad, India without obtaining a “Consent for Establishment”, (ii) cease manufacturing products at such facilities in excess of certain quantities specified by the APP Control Board and (iii) furnish a bank guarantee to assure compliance with the APP Control Board’s orders.

 

The Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the “APP Appellate Board”). The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD”) facilities and otherwise found no fault with the Company (on certain conditions). The APP Appellate Board’s decision was challenged by one of the petitioners that was pending in the National Green Tribunal, (the “NGT”), Delhi.

 

Separately, the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a notification in July 2013 that allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the installation of ZLD facilities and the outcome of cases pending in the NGT. Importantly, the notification directed pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to the point of generation.

 

In September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index, issued a notification that re-imposed a moratorium on expansion of industries in certain areas where some of the Company’s manufacturing facilities are located. This notification overrides the Andhra Pradesh Government’s notification that conditionally permitted expansion.

 

The appeals filed by Mr. K. Chidambaram against the Orders of the Appellate Authority, Andhra Pradesh are disposed as the same do not survive for consideration as the G.O. based on which the then APPCB had passed its order which was subject matter of appeal before the Appellate Authority has itself been amended vide order July 25, 2013. However, the NGT, Delhi passed a direction for the issue of pollution to be considered by the Joint Committee of Central Pollution Control Board, National Environmental Engineering Institute (“NEERI”), and the Telangana State Pollution Control Board to ascertain the present status of pollution issues in the Medak, Ranga Reddy, Mahaboobnagar and Nalagonda districts in the State of Telangana particularly in the Patancheru and Bollaram industrial clusters and file a report within three months before the NGT, Delhi.

 

Fuel Surcharge Adjustments

 

The Andhra Pradesh Electricity Regulatory Commission (the “APERC”) passed various orders approving the levy of Fuel Surcharge Adjustment (“FSA”) charges for the period from April 1, 2008 to March 31, 2013 by power distribution companies from all the consumers of electricity in the then existing undivided state of Andhra Pradesh, India where the Company’s headquarters and principal manufacturing facilities are located. Separate writ petitions filed by the Company for various periods, challenging and questioning the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the Supreme Court of India.

 

The total amount approved by APERC for collection by the power distribution companies from the Company in respect of FSA charges for the period from April 1, 2008 to March 31, 2013 is Rs.482.

After taking into account all of the available information and legal provisions, the Company has recorded Rs.219 as the potential liability towards FSA charges.

 

However, the

Company has paid, under protest

, an amount

of Rs.354 as demanded by the power distribution companies as part of monthly electricity bills. The Company remains exposed to additional financial liability should the orders passed by the APERC be upheld by the Courts.

 

During the three months ended June 30, 2016, the Supreme Court of India dismissed the Special Leave Petition filed by the Company in this regard for the period from April 1, 2012 to March 31, 2013. As a result, for the quarter ended June 30, 2016, the Company recognized an expenditure of Rs.55 (by de-recognizing the payments under protest) representing the FSA charges for the period from April 1, 2012 to March 31, 2013.

210

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

32.

Contingencies

(continued)

 

Indirect taxes related matters

 

Value Added Tax (“VAT”) matter

 

The Company has received various demand notices from the Government of Telangana’s Commercial Taxes Department objecting to the Company’s methodology of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the current status of the Company’s responsive actions.

 

Period covered under the notice		Amount demanded		Status
April 2006 to March 2009		Rs.66 plus 10% penalty		The State VAT Appellate Tribunal has remanded the matter to the assessing authority to re-compute the eligibility and penalty orders are set-aside. The Company filed appeal against the same with the High Court, Telangana.
April 2009 to March 2011		Rs.59 plus 10% penalty		The Company has filed an appeal before the Sales Tax Appellate Tribunal. The matter was remanded to the original adjudicating authority with a direction to re-calculate the eligibility for the year ended March 31, 2010.
April 2011 to March 2014		Rs.27 plus 10% penalty		The Appellate Deputy Commissioner issued an order partially in favour of the Company

 

The Company has recorded a provision of Rs.51 as of March 31, 2023 and believes that the likelihood of any further liability that may arise on account of the ongoing litigation is not probable.

 

Notices from Commissioner of Goods and Services Tax, India

 

In January 2020, the Commissioner of Goods and Services Tax, India issued notices alleging that the Company has improperly availed input tax credit of Rs.307. The Company then received an order from the Additional Commissioner of Goods and Services Tax in favor of the Company’s right to claim such input tax credit. Subsequently the tax authorities filed an appeal against the favorable order before the Commissioner of Goods and Services Tax (Appeals). Commissioner of Goods and Service Tax (Appeals) passed an order rejecting the Company’s right to claim such input tax credit availment. The Company has filed an Appeal against such order before Hon’ble High Court of Telangana. The Company believes that it has correctly distributed and availed the input tax credit within the provisions of the applicable Act and hence no additional liability will accrue in this regard.

 

With reference to availment of input tax credit relating to education cess, the Company has received order with tax demand of Rs.31

from the Goods and Service Tax (“GST”) authorities of various states pursuant to which it has recorded a provision of

Rs.31 as of March 31, 2023.

 

In February 2022, the Company has paid under protest an amount of Rs.123

 

towards a reversed GST charge

.

The Company believes that such GST amount paid is not payable and the entire amount will be refundable to the Company upon the refund claim by the Company.

 

Other indirect tax related matters

 

Additionally, the Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is Rs.463. The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less than probable. Accordingly, no provision is made in these consolidated financial statements as of March 31, 2023.

 

Others

 

Additionally, the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except as discussed above, the Company does not believe that there are any such contingent liabilities that are expected to have any material adverse effect on its consolidated financial statements.

211

33.   

Merger of Dr. Reddy’s Holdings Limited into Dr. Reddy’s Laboratories Limited

 

The Board of Directors, at its meeting held on July 29, 2019, had approved the amalgamation of Dr. Reddy’s Holdings Limited (“DRHL”), an entity held by the Promoter Group, which held 24.83% of Dr. Reddy’s Laboratories Limited (the “Company”)

,

into the Company (the “Scheme”). This Scheme was subject to the approval of shareholders, stock exchanges, the National Company Law Tribunal (“NCLT”) and other relevant regulators as per the provisions of Section 230 to 232 and any other applicable provisions of the Companies Act, 2013.

 

The Scheme was intended to simplify the shareholding structure and reduction of shareholding tiers. The Promoter Group cumulatively was to continue to hold the same number of shares in the Company, pre and post the amalgamation. All costs, charges and expenses relating to the Scheme was borne out of the surplus assets of DRHL. Further, any expense, if exceeding the surplus assets of DRHL, will be borne directly by the Promoter Group.

 

During the fiscal year ended March 31, 2020, the Scheme was approved by the board of directors, members and unsecured creditors of the Company. The no-observation letters from the BSE Limited and National Stock Exchange of India Limited were received on the basis of no comments received from Securities and Exchange Board of India (“SEBI”). The petition for approval of the Scheme was filed with the Hon’ble NCLT, Hyderabad Bench.

 

The aforementioned Scheme was approved by the NCLT, Hyderabad Bench vide its Order dated April 5, 2022. Subsequently, the Company filed the NCLT order with the Ministry of Company Affairs on April 8, 2022 (“Effective Date”). Pursuant to the Scheme of Amalgamation and Arrangement as approved by the NCLT, an aggregate of 41,325,300 equity shares, face value of Rs.5 each held by DRHL in the share capital of the Company have been cancelled and an equivalent 41,325,300 number of equity shares, face value of Rs.5 each were allotted to the shareholders of DRHL. There was no change in the total equity shareholding (Promoter/Public Shareholding) of the Company, on account of the allotment/ cancellation of equity shares pursuant to the approved Scheme.

 

The Scheme also provides that the Promoters of the Company will jointly and severally indemnify, defend and hold harmless the Company, its directors, employees, officers, representatives, or any other person authorized by the Company (excluding the Promoters) for any liability, claim, or demand, which may devolve upon the Company on account of this amalgamation.

34.   

Military conflict between Russia and Ukraine

 

The Company considered the uncertainty relating to the military conflict between Russia and Ukraine in assessing the recoverability of receivables, goodwill, intangible assets, investments and other assets. The outcome of the conflict is difficult to predict, and it could have an adverse impact on the macroeconomic environment. Management has considered all potential impacts of the conflict including adherence to global sanctions and other restrictive measures against Russia and any retaliatory actions taken by Russia. For this purpose, the Company considered internal and external sources of information up to the date of approval of these consolidated financial statements.

 

The Company’s supply chain has been impacted primarily in Russia and Ukraine, both in terms of higher freight costs and increase in the lead time by suppliers to deliver products. However, the Company has been able to service its customers without any significant shortages or disruptions. The Company based on its judgments, estimates and assumptions including sensitivity analysis, expects to fully recover the carrying amount of receivables, inventory, goodwill, intangible assets, investments and other assets. Accordingly, during the year ended March 31, 2023, the impact of this conflict on the Company’s operations and financial condition was not material. The Company will continue to closely monitor any material changes to future economic conditions.

35.   

The Code on Social Security, 2020

 

India’s Code on Social Security, 2020, which aims to consolidate, codify and revise certain existing social security laws, received Presidential assent in September 2020 and has been published in the Gazette of India. However, the related final rules have not yet been issued and the date on which this Code will come into effect has not been announced. The Company will assess the impact of this Code and the rules thereunder when they come into effect.

212

36.   

Regulatory Inspection of facilities

 

Tabulated below are the details of the U.S. FDA inspections carried out at other facilities of the Company:

213

37.   

Subsequent events

 

Please refer to Notes 20, 32 and 36 of these consolidated financial statements for the details of subsequent events relating to the proposed dividend, contingencies and Regulatory Inspection of facilities respectively.

 

Agreement with Mayne Pharma Group Limited (“Mayne”)

 

On February 27, 2023, the Company entered into an asset purchase agreement with Australia based Mayne, to acquire its U.S. generic prescription product portfolio. The portfolio consists of approximately

45

commercial products,

40

approved non-marketed products and

4

pipeline products, including a number of generic products focused on women’s health. Approved high-value products include a hormonal vaginal ring, a birth control pill and a cardiovascular product. This acquisition will complement the Company’s U.S. retail prescription pharmaceutical business with limited competition products.

 

Under the terms of the agreement, the Company acquired the portfolio for an upfront payment of

 U.S.$90

in cash, a contingent consideration of up to

 U.S.$15

, and consideration towards inventory and credits for certain accrued channel liabilities, to be determined on the closing date. The closing of this transaction was subject to satisfactory completion of closing conditions including the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

T

he acquisition was consummated on April 6, 2023 upon the completion of all closing conditions, and the Company paid net consideration of U.S.$93. Net consideration represents amounts transferred for acquisition of other intangible assets of U.S.$90 and inventories of U.S.$24 which amounts were adjusted with credits towards accrued channel liabilities of U.S.$21.

 

Settlement Agreement with Janssen Group

 

On April 27, 2023, the Company entered into a settlement agreement with Janssen Group, pursuant to which the Company received a one-time payment of CAD 9 in settlement of the claim brought in the Federal Court of Canada by the Company and its affiliates for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of Zytiga®(Abiraterone).

Allotment of shares under Share-based payment

 

On June 3, 2023, the Company allotted 16,666 equity shares to various employees (15,562 equity shares exercised at Rs.5 per share pursuant to the DRL 2002 Plan and 1,104 equity shares exercised at Rs.5 per share underlying 1,104 ADRs pursuant to the DRL 2007 plan).

214

38.   

Organizational structure

 

Dr. Reddy’s Laboratories Limited is the parent company. Tabulated below is the list of subsidiaries and joint ventures as of March 31, 2023:

 

Name of the subsidiary/joint venture		Country of Incorporation		Percentage of Direct/Indirect Ownership Interest
Aurigene Discovery Technologies (Malaysia) Sdn. Bhd.		Malaysia		100 % (3)
Aurigene Oncology Limited ( formerly Aurigene Discovery Technologies Limited )		India		100 %
Aurigene Pharmaceutical Services Limited		India		100 % (3)
beta Institut gemeinnützige GmbH		Germany		100 % (7)
betapharm Arzneimittel GmbH		Germany		100 % (7)
Cheminor Investments Limited		India		100%
Cheminor Employees Welfare Trust		India		Refer to below footnote (13)
Chirotech Technology Limited		United Kingdom		100% (2)(5)
Dr. Reddy’s Research Foundation		India		Refer to below footnote (13)
Dr. Reddy's Employees ESOS Trust		India		Refer to below footnote (13)
Dr. Reddy’s Farmaceutica Do Brasil Ltda.		Brazil		100%
Dr. Reddy’s Laboratories (EU) Limited		United Kingdom		100% (8)
Dr. Reddy’s Laboratories (Proprietary) Limited		South Africa		100% (8)
Dr. Reddy’s Laboratories (UK) Limited		United Kingdom		100% (5)
Dr. Reddy’s Laboratories Canada, Inc.		Canada		100% (8)
Dr. Reddy's Laboratories Chile SPA.		Chile		100% (8)
Dr. Reddy’s Laboratories, Inc.		U.S.A.		100% (8)
Dr. Reddy’s Laboratories Japan KK		Japan		100% (8)
Dr. Reddy’s Laboratories Kazakhstan LLP		Kazakhstan		100% (8)
Dr. Reddy’s Laboratories Louisiana, LLC		U.S.A.		100% (1)
Dr. Reddy’s Laboratories Malaysia Sdn. Bhd.		Malaysia		100% (8)
Dr. Reddy’s Laboratories New York, LLC		U.S.A.		100% (1)
Dr. Reddy ’ s Laboratories Philippines Inc.		Philippines		100% (8)
Dr. Reddy’s Laboratories Romania S.R.L.		Romania		100% (8)
Dr. Reddy’s Laboratories SA		Switzerland		100%
Dr. Reddy’s Laboratories Taiwan Limited		Taiwan		100% (8)
Dr. Reddy ’ s Laboratories (Thailand) Limited		Thailand		100% (8)
Dr. Reddy’s Laboratories LLC		Russia		100% (8)
Dr. Reddy’s Laboratories, LLC		Ukraine		100% (8)
Dr. Reddy’s New Zealand Limited		New Zealand		100% (8)
Dr. Reddy’s S.R.L.		Italy		100% (9)
Dr. Reddy’s Bio-Sciences Limited		India		100%
Dr. Reddy’s Laboratories (Australia) Pty. Limited		Australia		100% (8)
Dr. Reddy’s Laboratories S.A.S.		Colombia		100% (8)
Dr. Reddy’s Research and Development B.V.		Netherlands		100% (10)
Dr. Reddy’s Venezuela, C.A.		Venezuela		100% (8)
Dr. Reddy’s (Beijing) Pharmaceutical Co. Limited (from August 19, 2020)		China		100% (8)
DRES Energy Private Limited		India		26% (12)
DRL Impex Limited		India		100% (11)
Dr. Reddy’s Formulations Limited (from March 11, 2021)		India		100%
Idea2Enterprises (India) Private Limited		India		100%
Imperial Credit Private Limited		India		100%
Industrias Quimicas Falcon de Mexico, S.A. de CV		Mexico		100%
Kunshan Rotam Reddy Pharmaceutical Co. Limited		China		51.33% (4)
Lacock Holdings Limited		Cyprus		100% (8)
Nimbus Health, GmbH (from February 24, 2022)		Germany		100% (7)

 

215

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 

 

38.   

Organizational structure

(continued)

 

Name of the subsidiary/joint venture		Country of Incorporation		Percentage of Direct/Indirect Ownership Interest
Promius Pharma, LLC		U.S.A.		100% (1)
Reddy Holding GmbH		Germany		100% (8)
Reddy Netherlands B.V.		Netherlands		100% (8)
Reddy Pharma Iberia S.A.U.		Spain		100% (8)
Reddy Pharma Italia S.R.L.		Italy		100% (6)
Reddy Pharma SAS		France		100% (8)
SVAAS Wellness Limited		India		100%

 

(1)

Indirectly owned through Dr. Reddy’s Laboratories, Inc.

 

(2)

Entity under liquidation.

 

(3)

Indirectly owned through Aurigene Oncology Limited.

 

(4)

Kunshan Rotam Reddy Pharmaceutical Co. Limited is a subsidiary as per the Indian Companies Act, 2013, as the Company holds a 51.33% stake. However, the Company accounts for this investment by the equity method and does not consolidate it in the Company’s financial statements.

 

(5)

Indirectly owned through Dr. Reddy’s Laboratories (EU) Limited.

 

(6)

Indirectly owned through Lacock Holdings Limited.

 

(7)

Indirectly owned through Reddy Holding GmbH.

 

(8)

Indirectly owned through Dr. Reddy’s Laboratories SA.

 

(9)

Indirectly owned through Reddy Pharma Italia S.R.L.

 

(10)

Indirectly owned through Reddy Netherlands B.V.

 

(11)

Indirectly owned through Idea2Enterprises (India) Pvt. Limited.

 

(12)

Accounted in accordance with IFRS 11, “Joint Arrangements” .

 

(13)

The Company does not have any equity interests in this entity, but has significant influence or control over it.

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(1)

Previously filed on March 26, 2001 with the SEC along with Form F-1.

(2)

Previously filed on October 31, 2002 with the SEC along with Form S-8.

(3)

Previously filed with the Company’s Form 20-F for the fiscal year ended March 31, 2003.

(4)

Previously filed with the Company’s Form 20-F for the fiscal year ended March 31, 2006.

(5)

Previously filed with the Company’s Form 20-F for the fiscal year ended March 31, 2010.

(6)

Previously filed on March 5, 2007 with the SEC along with Form S-8.

(7)

Previously filed with the Company’s Form 20-F for the fiscal year ended March 31, 2011.

(8)

Incorporated by reference to Exhibit 99.1 to the Company’s Form 6-K dated September 25, 2015.

(9)

Previously filed on September 5, 2018 with the SEC along with Form S-8.

(10)

Incorporated by reference to Exhibit 99.2 to the Company’s Form 6-K dated June 2, 2022.

#

Certain confidential portions of this Exhibit were omitted because they both (i) are not material and (ii) are of the type that the Registrant treats as private and confidential.

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