Dr Reddys Laboratories Ltd

to the Members of Dr. Reddy's Laboratories Ltd.

We have audited the attached Balance Sheet of Dr. Reddy's Laboratories Limited("the Company") as at 31 March 2011, the Profit and Loss Account and the CashFlow Statement of the Company for the year ended on that date, annexed thereto. Thesefinancial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted inIndia. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

As required by the Companies (Auditor's Report) Order, 2003 ('the Order'), as amended,issued by the Central Government of India in terms of sub-section (4A) of Section 227 ofthe Companies Act, 1956, we enclose in the Annexure a statement on the matters specifiedin paragraphs 4 and 5 of the said Order.

Further to our comments in the Annexure referred to above, we report that:

(a) we have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purpose of our audit;

(b) in our opinion, proper books of account as required by law have been kept by theCompany so far as appears from our examination of those books;

(c) the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt withby this report are in agreement with the books of account;

(d) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement dealt with by this report comply with the accounting standards referred to insub-section (3C) of Section 211 of the Companies Act, 1956, to the extent applicable;

(e) on the basis of written representations received from the directors, and taken onrecord by the Board of Directors, we report that none of the directors are disqualified asat 31 March 2011 from being appointed as a director in terms of clause (g) of sub-section(1) of Section 274 of the Companies Act, 1956; and

(f) in our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts give the information required by the Companies Act, 1956,in the manner so required and give a true and fair view in conformity with the accountingprinciples generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31March 2011;

(ii) in the case of the Profit and Loss Account, of the profit of the Company for theyear ended on that date; and

(iii) in the case of Cash Flow Statement, of the cash flows of the Company for the yearended on that date.

for B S R & Co.

Chartered Accountants

Firm Registration No.: 101248W

S Sethuraman

Partner

Membership No.: 203491

Place: Hyderabad

Date: 13 May 2011

Annexure to the Auditors' Report

The Annexure referred to in the auditors' report to the members of Dr. Reddy'sLaboratories Limited ("the Company") for the year ended 31 March 2011. We reportthat:

i. (a) The Company has maintained proper records showing full particulars, includingquantitative details and situation of fixed assets. The Company has a regular programme ofphysical verification of its fixed assets by which all fixed assets are verified in aphased manner over a period of 3 years. In our opinion, this periodicity of physicalverification is reasonable having regard to the size of the Company and the nature of itsassets. No material discrepancies were noticed on such verification.

(b) Fixed assets disposed off during the year were not substantial and therefore do notaffect the going concern assumption.

ii. (a) The inventory, except goods-in-transit and stocks lying with third parties, hasbeen physically verified by the management during the year. In our opinion, the frequencyof such verification is reasonable. For stocks lying with third parties at the year-end,written confirmations have been obtained.

(b) In our opinion, the procedures of physical verification of inventories followed bythe management are reasonable and adequate in relation to the size of the Company and thenature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticedon verification between the physical stocks and the book records were not material.

iii. (a) The Company has granted loans to thirteen companies (of which 6 loans areinterest free) covered in the register maintained under Section 301 of the Companies Act,1956. The maximum amount outstanding during the year was Rs 12,559 millions and theyear-end balance of such loans was Rs 8,638 millions.

(b) In our opinion, the rate of interest and other terms and conditions on which loanshave been granted to companies, firms or other parties listed in the register maintainedunder Section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to theinterest of the Company.

(c) In the case of loans granted to companies, firms or other parties listed in theregister maintained under Section 301, where stipulations have been made, the borrowershave been regular in repaying the principal amounts as stipulated and in the payment ofinterest.

(d) There is no overdue amount of more than Rupees one lakh in respect of loans grantedto any of the companies, firms or other parties listed in the register maintained underSection 301 of the Companies Act, 1956.

(e) The Company has not taken loans secured or unsecured from any companies, firms andother parties covered in the register maintained under Section 301 of the Companies Act,1956.

iv. In our opinion and according to the information and explanations given to us, andhaving regard to the explanation that purchases of certain items of inventories are forthe Company's specialized requirements and similarly certain goods sold are for thespecialized requirements of the buyers and suitable alternative sources are not availableto obtain comparable quotations, there is an adequate internal control system commensuratewith the size of the Company and the nature of its business with regard to purchase ofinventories and fixed assets and with regard to the sale of goods and services. We havenot observed any major weakness in the internal control system during the course of theaudit.

v. (a) In our opinion and according to the information and explanations given to us,the particulars of contracts or arrangements referred to in Section 301 of the CompaniesAct, 1956 have been entered in the register required to be maintained under that section.

(b) In our opinion, and according to the information and explanations given to us, thetransactions made in pursuance of contracts and arrangements referred to in point (a)above and exceeding the value of Rs 5 lakh with any party during the year, have been madeat prices which are reasonable having regard to the prevailing market prices at therelevant time except for the purchases of certain items of inventories which are forCompany's specialized requirements and similarly for sale of certain goods for thespecialized requirements of the buyers and for which suitable alternative sources are notavailable to obtain comparable quotations. However, on the basis of information andexplanations provided, the same appear reasonable.

vi. In our opinion, and according to the information and explanations given to us, theCompany has complied with the provisions of Section 58A, Section 58AA or other relevantprovisions of the Companies Act, 1956 and the rules framed thereunder / the directivesissued by the Reserve Bank of India (as applicable) with regard to deposits accepted fromthe public. Accordingly, there have been no proceedings before the Company Law Board orNational Company Law Tribunal (as applicable) or Reserve Bank of India or any Court or anyother Tribunal in this matter and no order has been passed by any of the aforesaidauthorities.

vii. In our opinion, the Company has an internal audit system commensurate with thesize and nature of its business.

viii. We have broadly reviewed the books of account maintained by the Company pursuantto the rules prescribed by the Central Government for maintenance of cost records underSection 209(1) (d) of the Companies Act, 1956, and are of the opinion that prima facie theprescribed accounts and records have been made and maintained. However, we have not made adetailed examination of the records.

ix. (a) According to the information and explanations given to us and on the basis ofour examination of the records of the Company, amounts deducted / accrued in the books ofaccount in respect of undisputed statutory dues including Provident Fund, InvestorEducation and Protection Fund, Employees' State Insurance, Income tax, Sales tax, Wealthtax, Service tax, Customs duty, Excise duty and other material statutory dues have beengenerally regularly deposited during the year by the Company with the appropriateauthorities.

(b) According to the information and explanations given to us, no undisputed amountspayable in respect of Provident Fund, Investor Education and Protection Fund, Employees'State Insurance, Income tax, Sales tax, Wealth tax, Service tax, Customs duty, Excise dutyand other material statutory dues were in arrears as at 31 March 2011 for a period of morethan six months from the date they became payable.

(c) Further, there were no dues on account of Cess under Section 441A of the CompaniesAct, 1956, since the date from which the aforesaid section comes into force has not yetbeen notified by the Central Government.

(d) According to the information and explanations given to us, the dues set out inAppendix 1 in respect of Income tax, Sales tax, Service tax, Customs duty and Excise dutyhave not been deposited with the appropriate authorities on account of disputes.

x. The Company does not have any accumulated losses at the end of the financial yearand has not incurred cash losses during the financial year and in the immediatelypreceding financial year.

xi. In our opinion and according to the information and explanations given to us, theCompany has not defaulted in repayment of dues to its bankers or to any financialinstitutions or to debenture holders.

xii. The Company has not granted loans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

xiii. In our opinion and according to the information and explanations given to us, theCompany is not a chit fund / nidhi / mutual fund / society.

xiv. According to the information and explanations given to us, the Company is notdealing or trading in shares, securities, debentures and other investments. Accordingly,clause 4(xiv) of the Order is not applicable.

xv. In our opinion and according to the information and explanations given to us, theterms and conditions on which the Company has given guarantees for loans taken by othersfrom banks or financial institutions are not prejudicial to the interests of the Company.

xvi. In our opinion and according to the information and explanations given to us, theterm loans taken by the company have been applied for the purpose for which they wereraised.

xvii. According to the information and explanations given to us and on an overallexamination of the balance sheet of the Company, we are of the opinion that no fundsraised on short-term basis have been used for long-term investment.

xviii. The Company has not made any preferential allotment of shares to companies,firms or parties covered in the register maintained under Section 301 of the CompaniesAct, 1956.

xix. During the year ended 31 March 2011, the Company has issued unsecured debenturesin accordance with the scheme of arrangement approved by the High Court of Andhra Pradesh,India. Accordingly, no security or charge in respect of such debentures has been created.

xx. The Company has not raised any money through public issue.

xxi. According to the information and explanations given to us, no fraud on or by theCompany has been noticed or reported during the course of our audit. However, an attemptto embezzle inventories amounting to Rs 6 millions was detected and rendered unsuccessfulby the Company.

for B S R & co.

Chartered Accountants

Firm Registration No.: 101248W

s Sethuraman

Partner

Membership No.: 203491

Place: Hyderabad

Date: 13 May 2011

Appendix 1 as referred to in para ix(d) of annexure to the Auditors' Report