Dr Reddy Laboratories : Annual Report for Fiscal Year Ending March 31, 2026 (Form 20-F)

About this update from Dr. Reddy's Laboratories Ltd.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS Overview We are an integrated global pharmaceutical company committed to accelerating access to affordable and innovative medicines. We derive our revenues from the sale of finished dosage forms, active pharmaceutical ingredients and intermediates, development and manufacturing services provided to innovator pharmaceutical and biotechnology companies, and license fees from marketing authorizations for our products. The Chief Operating Decision Maker ("CODM") evaluates our performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenues 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. Our Chief Executive Officer ("CEO") is the CODM of our company. Our reportable operating segments are as follows: · Global Generics; · Pharmaceutical Services and Active Ingredients; and · Others. Global Generics. This segment consists of our 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 our biologics business, and the portfolio of consumer healthcare brands in the Nicotine Replacement Therapy category (the "NRT Business"). Pharmaceutical Services and Active Ingredients. This segment primarily consists of our 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. We also serve our customers with incremental value added products including semi-finished and finished formulations, which are included in this segment. This segment also includes our 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 our other business operations which includes our wholly-owned subsidiaries, Aurigene Oncology Limited ("AOL") (formerly Aurigene Discovery Technologies Limited) and our 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. Our Proprietary Products business is focused on the research, development and commercialization of differentiated formulations and we derive revenues from such assets through event specific milestones and subsequent royalties, if any. The measurement of each segment's revenues, expenses and assets is consistent with the accounting policies that are used in preparation of our consolidated financial statements. 48 Critical Accounting Policies Critical accounting policies are defined as those that in our view are the most important to the portrayal of our financial condition and results and that require the most exercise of management's judgment. We consider the policies discussed under the following paragraphs to be critical for an understanding of our financial statements. The basis for preparation of our financial statements, accounting policies and application of these are discussed in detail in Notes 2, 3 and 4 to our consolidated financial statements. Accounting estimates and judgments While preparing financial statements in conformity with IFRS, we make certain estimates and assumptions that require difficult, subjective and complex judgments. These judgments affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses, the accompanying disclosures, and the disclosure of contingent liabilities at the statement of financial position date and the reported amount of income and expenses for the reporting period. Financial reporting results rely on our estimate of the effect of certain matters that are inherently uncertain. Future events rarely develop exactly as forecast and the best estimates require adjustments, as actual results may differ from these estimates under different assumptions or conditions. We continually evaluate these estimates and assumptions based on the most recently available information. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Refer to Note 2(d) ("Use of judgements, estimates and assumptions") in our consolidated financial statements for information about significant areas of estimation uncertainty and critical judgments. Accounting policy relating to Revenue from contracts with customers Our 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. We have generally concluded that we are the principal in our revenue arrangements. Accounting policies relating to revenues are as follows: 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, as per the terms agreed upon with 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 expected returns, taxes and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer, since we act as a principal in rendering those services. In arriving at the transaction price, we consider the terms of the contract with the customers and our customary business practices. The transaction price is the amount of consideration we are 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. We estimate the amount of variable consideration using the expected value method. Presented below are the points of recognition of revenue with respect to our sales of goods: Particulars Point of recognition of revenue Sales of generic products in India Control is transferred upon delivery of products to distributors by clearing and forwarding agents. Sales of active pharmaceutical ingredients and intermediates in India Upon delivery of products to 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. Export sales and other sales outside of India Upon delivery or dispatch of products to customers, subject to the terms of the applicable contract. 49 Profit share revenues From time to time, we enter into marketing arrangements with certain business partners for the sale of our products in certain markets. Under such arrangements, we sell our products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and are 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, we update the estimated transaction price (including updating our 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 Our 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 moreperformance obligations, we account 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 we 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 we have 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 occurred . Provision for chargeback, rebates, sales returns and discounts In our North America Generics business, our gross revenues are significantly reduced by chargebacks, rebates, sales returns, discounts, shelf stock adjustments, Medicaid payments and similar "gross-to-net" adjustments. Each of such adjustments are discussed in detail below. · 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 from our wholesalers (representing approximately 99% 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. · Shelf Stock Adjustments: Shelf stock adjustments are credits issued to customers to reflect decreases in the selling price of products sold by us, and accruals for shelf stock adjustments depend on future events upon material right obtained by customer when the prices of certain products decline as a result of price competition, new competitive launches 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. · 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 deductions based on contractual obligations, and include direct rebates, indirect rebates and other pricing adjustments 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. 50 · 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 and operate in various markets. Accordingly, our estimate of sales returns is determined primarily by our historical experience in the applicable market in which we operate. With respect to established products, we determine an estimate of sales returns provision primarily based on historical experience of the actual sales returns. Additionally, other factors that we consider in determining the estimate include 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 introduction of competitive new products, to the extent each of these factors impact our business and markets. We consider all of these factors and adjust the sales return provision to reflect our actual experience. With respect to new products introduced by us, those have historically been either extensions of an existing product line where we have historical experience or in a general therapeutic category where established products exist and are sold either by us or our competitors. We have not yet introduced products in a new therapeutic category where the sales returns experience of such products by us or our competitors (as we understand based on industry publications) is not known. The amount of sales returns for our newly launched products has not historically differed significantly from the sales returns experience of the then current products marketed by us or our competitors (as we understand based on industry publications). Accordingly, we do not expect sales returns for new products to be significantly different from expected sales returns of current products. We evaluate sales returns of all our products at the end of each reporting period and record necessary re-measurements to the refund liability and related asset, if any. · 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. · 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. We believe our estimation processes are reasonable methods of determining accruals for the "gross-to-net" adjustments. Chargeback accrual accounts for the highest element among the "gross-to-net" adjustments, and constituted approximately 86% of such "gross-to-net" adjustments for our North America Generics business for the year ended March 31, 2026. For the purpose of the following discussion, we are therefore restricting our explanations to this specific element. While chargeback accruals depend on multiple variables, the most pertinent variables are our estimates of inventories on which a chargeback claim is yet to be received and the unit price at which the chargeback will be processed. To determine the chargeback accrual applicable for a reporting period, we perform the following procedures to calculate these two variables: 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. b) Unit pricing rate -At any point in time, inventory volumes on which we carry our chargeback accrual represents approximately 1.0 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, 2025, 2024 and 2023, respectively, and ended March 31, 2026, 2025 and 2024, 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. 51 A roll-forward for each major accrual for our North America Generics business is presented below for our fiscal years ended March 31, 2024, 2025 and 2026: Particulars Chargebacks Rebates Medicaid Refund Liability (3) (All amounts in U.S.$ million) Beginning Balance: April 1, 2023 Current provisions relating to sales during the year 2,844 Provisions and adjustments relating to sales in prior years * - - - Credits and payments** (2,803 ) (307 ) (25 ) (21 ) Ending Balance: March 31, 2024 Beginning Balance: April 1, 2024 Current provisions relating to sales during the year (1) 2,720 Provisions and adjustments relating to sales in prior years -* -* -* -* Credits and payments** (2,665 ) (252 ) (29 ) (27 ) Ending Balance: March 31, 2025 Beginning Balance: April 1, 2025 Current provisions relating to sales during the year (2) 2,439 Provisions and adjustments relating to sales in prior years -* -* -* -* Credits and payments** (2,506 ) (237 ) (27 ) (33 ) Ending Balance: March 31, 2026 * 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 1.0 to 1.4 months equivalent of sales, which corresponds to the pending chargeback claims yet to be processed. ** 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) Chargebacks provisions and payments for the year ended March 31, 2025 were each lower as compared to the year ended March 31, 2024, primarily as a result of reduction in the invoice price to wholesalers for few of our major products. This was offset to some extent due to higher pricing rates per unit on 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. (2) Chargebacks provisions and payments for the year ended March 31, 2026 were each lower as compared to the year ended March 31, 2025, primarily as a result of reduction in the invoice price to wholesalers for few of our major products. This was offset to some extent due to higher pricing rates per unit on 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. (3) Our overall provision for refund liability as of March 31, 2026 relating to our North America Generics business was U.S.$47, compared to a liability of U.S.$42 as of March 31, 2025. The refund liability created for new product launches and volume growth, were off-set by the reductions in the contract prices and by product mix changes. The estimates of "gross-to-net" adjustments for our operations in India and other countries outside of the United States relate mainly to refund liability in all such operations, and certain rebates to healthcare insurance providers are specific to our German operations. The pattern of such refund liability is generally consistent with our gross sales. In Germany, the rebates to healthcare insurance providers mentioned above are contractually fixed in nature and do not involve significant estimations by us. Services Revenue from services rendered, which primarily relate to contract research, is recognized in the consolidated income statement as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognized as revenue over the expected period over which the related services are expected to be performed. 52 License fees License fees primarily consist of income from the out-licensing of intellectual property, and other licensing and supply arrangements with various parties. Revenue from license fees is recognized when control transfers to the third party and our performance obligations are satisfied. Some of these arrangements include certain performance obligations by us. Revenue from such arrangements is recognized in the period in which we complete all of our performance obligations. For other details on our material accounting policies, please refer to Note 3 of our consolidated financial statements. 5.A. Operating results Income Statement Data For the year ended March 31, 2026 2026 2025 2024 (Rs. in millions, U.S.$ in millions) Convenience translation into U.S.$ Revenues U.S.$ 3,580 Rs. 335,933 Rs. 325,535 Rs. 279,164 Cost of revenues 1,691 158,669 135,107 115,557 Gross profit 1,889 177,264 190,428 163,607 Selling, general and administrative expenses 1,137 106,763 93,870 77,201 Research and development expenses 24,058 27,380 22,873 Impairment of non-current assets, net 3,519 1,693 Other income, net (81) (7,627 ) (4,358 ) (4,199 ) Results from operating activities 50,551 71,843 67,729 Finance income, net 4,132 4,724 3,994 Share of profit of equity accounted investees, net of tax Profit before tax 54,817 76,784 71,870 Tax expense, net 12,351 19,539 16,186 Profit for the year U.S.$ Rs. 42,466 Rs. 57,245 Rs. 55,684 Attributable to: Equity holders of the parent company U.S.$ Rs. 42,850 Rs. 56,544 Rs. 55,684 Non-controlling interests (4) (384 ) - The following table sets forth, for the periods indicated, financial data as percentages of total revenues and the increase (or decrease) by item as a percentage of the amount over the comparable period in the previous years. Percentage of Sales Percentage For the year ended March 31, Increase/(Decrease) 2026 2025 2024 2025 to 2026 2024 to 2025 Revenues 100.0 % 100.0 % 100.0 % 3.2 % 16.6 % Gross profit 52.8 % 58.5 % 58.6 % (6.9 %) 16.4 % Selling, general and administrative expenses 31.8 % 28.8 % 27.7 % 13.7 % 21.6 % Research and development expenses 7.2 % 8.4 % 8.2 % (12.1 %) 19.7 % Impairment of non-current assets 1.0 % 0.6 % 0.0 % 107.9 56,333.3 % Other income, net (2.3 %) (1.3 %) (1.5 %) 75.0 3.8 % Results from operating activities 15.0 % 22.0 % 24.3 % (29.6 ) 6.1 % Finance income, net 1.2 % 1.5 % 1.4 % (12.5 ) 18.3 % Share of profit of equity accounted investees, net of tax 0.0 % 0.1 % 0.1 % (38.2 ) 47.6 % Profit before tax 16.3 % 23.6 % 25.7 % (28.6 ) 6.8 % Tax expense, net 3.7 % 6.0 % 5.8 % (36.8 ) 20.7 % Profit for the year 12.6 % 17.6 % 19.9 % (25.8 ) 2.8 % Attributable to: Equity holders of the parent company 12.8 % 17.4 % 19.9 % (24.2 %) 1.5 % Non-controlling interests (0.1 %) 0.2 % - (154.8 %) - 53 The following table sets forth, for the periods indicated, our consolidated revenues by segment: For the year ended March 31, 2026 2025 2024 (Rs. in millions) Revenues % of Segment revenue Revenues % of Segment revenue Revenues % of Segment revenue Global Generics Rs. 299,033 % Rs. 289,552 % Rs. 245,453 % PSAI 34,773 % 33,846 % 29,801 % Others 2,127 % 2,137 % 3,910 % Total Rs. 335,933 % Rs. 325,535 % Rs. 279,164 % Fiscal Year Ended March 31, 2026 compared to Fiscal Year Ended March 31, 2025 Revenues Our overall consolidated revenues were Rs.335,933 million for the year ended March 31, 2026, an increase of 3%, as compared to Rs.325,535 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, such revenues declined by 2% during the year ended March 31, 2026. This decrease was primarily on account of net decrease in sales prices of certain of our existing products including Lenalidomide in the United States. The following table sets forth, for the periods indicated, our consolidated revenues by geography: For the year ended March 31, 2026 2025 2024 Revenues % of Total Revenue* Revenues % of Total Revenue* Revenues % of Total Revenue* (Rs. in millions) Global Generics Rs. 299,033 % Rs. 289,552 % Rs. 245,453 % North America (the United States and Canada) 113,737 % 145,164 % 129,895 % Europe 55,501 ^ % 35,882 ^ % 20,511 % India 62,186 % 53,734 % 46,407 % Russia 34,786 % 25,958 % 22,301 % Other countries of the former Soviet Union and Romania 9,074 % 8,920 % 8,626 % Rest of the World 23,749 % 19,894 % 17,713 % PSAI 34,773 % 33,846 % 29,801 % Others 2,127 % 2,137 % 3,910 % Total Rs. 335,933 % Rs. 325,535 % Rs. 279,164 % * 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. ^ Includes revenues of Rs.28,189 million for the year ended March 31, 2026 and Rs.12,020 million for the year ended March 31, 2025 from the global portfolio outside of the United States of consumer brands in the Nicotine Replacement Therapy category acquired from Haleon UK Enterprises Limited (the "NRT Business"). For the year ended March 31, 2026, the average exchange rate of the U.S. dollar appreciated by 4.5%, that of the Euro appreciated by 12.8%, and that of the Russian rouble appreciated by 21.8%, against the Indian rupee compared to the year ended March 31, 2025. These changes in exchange rates on an overall basis increased our reported revenues. 54 Segment analysis Global Generics Revenues from our Global Generics segment were Rs.299,033 million for the year ended March 31, 2026, an increase of 3% compared to Rs.289,552 million for the year ended March 31, 2025. The increase was in three of four business geographies of this segment: Europe (which also includes the "NRT business"), "Emerging Markets" (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries from our "Rest of the World" markets, including Brazil, South Africa, Vietnam, China, and Colombia), and India. The foregoing were partially offset by a decline in revenues from North America (the United States and Canada). Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, such revenues declined by 2% during the year ended March 31, 2026, primarily on account of the following factors: · a decrease of approximately 10% resulting from the net impact of changes in sales prices of certain of our existing products in this segment, including the impact of the shelf stock adjustment claim ("SSA Claim") following a reduction in the price of our generic product Lenalidomide in the United States; the foregoing was partially offset by · an increase of approximately 5% resulting from a net increase in the sales volumes of certain of our existing products in this segment; and · an increase of approximately 3% resulting from additional revenues from new products launched between April 1, 2025 and March 31, 2026. North America (the United States and Canada): Our Global Generics segment's revenues from North America were Rs.113,737 million for the year ended March 31, 2026, a decrease of 22% compared to Rs.145,164 million for the year ended March 31, 2025. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of currency exchange rates), such revenues decreased by 24% for the year ended March 31, 2026, compared to the year ended March 31, 2025. This revenue decrease was largely attributable to a net decrease in the sales prices of certain of our existing products, including the impact of the SSA Claim. During the year ended March 31, 2026, we launched 25 new products in North America and made 15 new ANDA filings with the U.S. FDA. As of March 31, 2026, our cumulative ANDA filings were 339. As of March 31, 2026, we had 77 filings pending approval with the U.S. FDA (75 ANDAs and two NDAs under the 505(b)(2) route), including 21 tentative approvals. Of the 77 filings which are pending approval, 44 are Para graph IV filings, and we believe that we are the first to file with respect to 22 of these filings. Europe: Our Global Generics segment's revenues from Europe are primarily derived from Germany, the United Kingdom, Italy, Spain and France as well as the NRT Business. Such revenues from Europe were Rs.55,501 million for the year ended March 31, 2026, an increase of 55% compared to Rs.35,882 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, the foregoing increase was primarily on account of inclusion of revenues from the NRT Business for the full year ended March 31, 2026 as compared to revenues for the period subsequent to the acquisition during the year ended March 31, 2025, a net increase in sales volumes of certain of our existing products and additional revenues from new products launched between April 1, 2025 and March 31, 2026, all of which were partially offset by price erosion in certain of our existing products. During the year ended March 31, 2026, we launched 38 new products in Europe (excluding the NRT Business). India: Our Global Generics segment's revenues from India were Rs.62,186 million for the year ended March 31, 2026, an increase of 16% compared to Rs.53,734 million for the year ended March 31, 2025. This increase in revenues was largely attributable to a net increase in the sales prices and volumes of certain of our existing products . According to IQVIA in its Moving Annual Total report for the year ended March 31, 2026, our secondary sales in India grew by 12.1% during such period, compared to the India pharmaceutical market's growth of 9.9% during the same period. During the year ended March 31, 2026, we launched 28 new brands in India . Emerging Markets : Our Global Generics segment's re venues from "Emerging Markets" (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries from our "Rest of the World" markets, including Brazil, South Africa, Colombia, Vietnam, and China) were Rs.67,608 million for the year ended March 31, 2025, an increase of 23% compared to compared to Rs.54,772 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, the foregoing increase was largely attributable to a net increase in sales volumes of certain of our existing products and additional revenues from new products launched between April 1, 2025 and March 31, 2026. During the year ended March 31, 2026, we launched 179 new products across geographies in Emerging Markets. 55 Russia: Our Global Generics segment's re venues from Russia were Rs.34,786 million for the year ended March 31, 2026 , an increase of 34% compared to Rs.25,958 million for the year ended March 31, 2025 . In Russian rouble absolute currency terms (i.e., Russian roubles without taking into account the effect of currency exchange rates), such revenues increased by 15% for the year ended March 31, 2026, compared to the year ended March 31, 2025. This increase in absolute currency terms was largely attributable to a net increase in sales prices and volumes of certain of our existing products and to additional revenues from new products launched between April 1, 2025 and March 31, 2026 . Our over-the-counter ("OTC") division's revenues from Russia for the year ended March 31, 2025 were approximately 54% of our total revenues from Russia in this segment. According to IQVIA, as per its report for the year ended March 31, 2026 , our sales value (in Russian roubles) growth and volume growth from Russia for such period, as compared to the Russian pharmaceutical market was as follows: Year ended March 31, 2026 Increase /(Decrease) Dr. Reddy's Russian pharmaceutical market Sales value Volume Sales value Volume Prescription (Rx) 11.0 % 3.0 % 17.0 % 2.1 % Over-the-counter (OTC) 8.8 % 2.3 % 6.6 % (4.5 )% Total (Rx + OTC) 10.0 % 2.7 % 12.1 % (2.0 )% As per the above referenced IQVIA report, our market shares in Russia for the years ended March 31, 2026 and March 31, 2025 were as follows: Year ended March 31, Volume based Value based 2026 2025 2026 2025 Prescription (Rx) 3.8 % 3.8 % 1.8 % 1.9 % Over-the-counter (OTC) 1.7 % 1.6 % 1.9 % 1.8 % Total (Rx + OTC) 2.5 % 2.4 % 1.8 % 1.8 % Other countries of the former Soviet Union and Romania: Our Global Generics segment's revenues from other countries of the former Soviet Union and Romania were Rs.9,074 million for the year ended March 31, 2026 , an increase of 2% compared to Rs.8,920 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, the foregoing revenues declined for the year ended March 31, 2026, primarily on account of a net decrease in the sales volumes of certain of our existing products . "Rest of the World" Markets : We refer to all markets of this segment, other than North America, Europe, Russia and other countries of the former Soviet Union, Romania and India, as our "Rest of the World" markets. Our Global Generics segment's revenues from our "Rest of the World" markets were Rs.23,749 million for the year ended March 31, 2026, an increase of 19% compared to Rs.19,894 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, the foregoing increase is largely attributable to a net increase in the sales volumes of certain of our existing products and additional revenues from new products launched between April 1, 2025 and March 31, 2026 , both of which were partially offset by a net decrease in the sales prices of certain of our existing products. Pharmaceutical Services and Active Ingredients ("PSAI") Our PSAI segment's revenues were Rs.34,773 million for the year ended March 31, 2026, an increase of 3% compared to Rs.33,846 million for the year ended March 31, 2025. Excluding the impact of exchange rate fluctuations of the Indian rupee against the currencies in the markets in which we operate, the forgoing revenues declined by 1% for the year ended March 31, 2026, largely on account of a net decrease in sales prices of certain of our existing products. During the year ended March 31, 2026, we filed 128 Drug Master Files ("DMFs") worldwide. Cumulatively, our total active worldwide DMFs as of March 31, 2026, were 1,748, including 280 active DMFs in the United States. Gross Profit Our total gross profit was Rs.177,264 million for the year ended March 31, 2026, representing 52.8% of our revenues for that period, compared to Rs.190,428 million for the year ended March 31, 2025 , representing 58.5% of our revenues for that period. 56 The following table sets forth, for the period indicated, our gross profit by segment: For the year ended March 31, 2026 2025 2024 (Rs. in millions) Gross Profit % of Segment Revenue Gross Profit % of Segment Revenue Gross Profit % of Segment Revenue Global Generics Rs. 169,698 56.7 % 179,606 62.0 % Rs. 154,268 62.9 % PSAI 5,984 17.2 % 9,157 27.1 % 6,919 23.2 % Others 1,582 74.4 % 1,665 77.9 % 2,420 61.9 % Total Rs. 177,264 52.8 % Rs. 190,428 58.5 % Rs. 163,607 58.6 % The gross profit as a percentage of revenue from our Global Generics segment decreased to 56.7% for the year ended March 31, 2026, from 62.0% for the year ended March 31, 2025. This decrease was largely on account of price erosion in certain of our existing products, including the impact of the SSA Claim. The gross profit as a percentage of revenue from our PSAI segment decreased to 17.2% for the year ended March 31, 2026, from 27.1% for the year ended March 31, 2025. This decrease was primarily on account of lower operating leverage during the year ended March 31, 2026, as compared to the year ended March 31, 2025, unfavorable changes in our product mix (i.e., a decrease in the proportion of our profits from products with higher profit margins and an increase in the proportion from products with lower profit margins) and price erosion in certain of our existing products. Selling, general and administrative expenses Our selling, general and administrative expenses were Rs.106,763 million for the year ended March 31, 2026, an increase of 14% compared to Rs.93,870 million for the year ended March 31, 2025. This increase was largely attributable to the following: · an increase of 8% on account of higher sales and marketing expenses, including a provision related to a field tax audit report from the Federal Tax Service authority in respect of one of our foreign subsidiaries (as described in Note 31 of these consolidated financial statements); · an increase of 5% on account of increased personnel costs including incremental cost towards employee benefits arising from the implementation of New Labour Codes in India (as described in Note 26 of these consolidated financial statements) as well as on account of annual raises and new hires; · an increase of 3% due to higher spending on other costs, including travel expenses, depreciation and amortization; and · the foregoing were partially offset by a decrease of 2% on account of lower legal and professional fees and freight outward expenses. As a proportion of our total revenues, our selling, general and administrative expenses were higher at 31.8% for the year ended March 31, 2026, compared to 28.8% for the year ended March 31, 2025. Research and development expenses Our research and development expenses were Rs.24,058 million for the year ended March 31, 2026, a decrease of 12% compared to Rs.27,380 million for the year ended March 31, 2025. This decrease was primarily on account of lower development expenditures on certain products in our Global Generics segment, including our biosimilars business as well as in our PSAI segment. As a proportion of our total revenues, our research and development expense were lower at 7.2% for the year ended March 31, 2026, compared to 8.4% for the year ended March 31, 2025. Impairment of non-current assets Impairment of non-current assets were Rs.3,519 million for the year ended March 31, 2026, compared to Rs.1,693 million for the year ended March 31, 2025. The impairment charge for the year ended March 31, 2026 was higher on account of · discontinuation of certain of the research and development programs associated with our Chimeric Antigen Receptor T cell (CAR T) therapy portfolio resulting in an impairment of Rs.1,291 million; and · impairment of intangible related to Eftilagimod Alfa pursuant to discontinuation of the Phase III study in first line non-small cell lung cancer following the results of a futility analysis, resulting in an impairment of Rs.914 million. Please refer to Note 11 ("Property, plant and equipment") and Note 13 ("Other intangible assets") of our consolidated financial statements for further details. Other income, net Our other income, net was Rs.7,627 million for the year ended March 31, 2026, an increase of 75% compared to Rs.4,358 million for the year ended March 31, 2025. Our other income for the year ended March 31, 2026 was higher largely on account of gain on sale of non-current assets of Rs.1,890 million towards divestment of certain product related intangibles (i.e., trademarks). Please refer to Note 22 ("Other income, net") of our consolidated financial statements for further details. Finance income, net Our finance income, net was lower at Rs.4,132 million for the year ended March 31, 2026, as compared to Rs.4,724 million for the year ended March 31, 2025. This decrease in net finance income was largely attributable to: · a decrease in fair value changes and profit on sale of financial instruments measured at FVTPL, net of Rs. 2,359 million for the year ended March 31, 2026, compared to fair value changes and profit on sale of financial instruments measured at FVTPL, net of Rs.3,544 million for the year ended March 31, 2025; partially offset by · higher net foreign exchange gains of Rs.1,785 million for the year ended March 31, 2026, compared to Rs.1,322 million for the year ended March 31, 2025; and · lower net interest expense of Rs.12 million for the year ended March 31, 2025, compared to Rs.152 million for the year ended March 31, 2025. 57 Profit before tax As a result of the above, our profit before taxes was Rs.54,817 million for the year ended March 31, 2026, a decrease of 29% compared to Rs.76,784 million for the year ended March 31, 2025. Tax expense Our consolidated weighted average tax rate was 22.5% for the year ended March 31, 2026, compared to 25.4% for the year ended March 31, 2025. Our tax expense was Rs.12,351 million for the year ended March 31, 2026, compared to Rs.19,539 million for the year ended March 31, 2025. Please refer to Note 24 ("Income taxes") of our consolidated financial statements for further details. Profit for the year As a result of the above, our net profit was Rs.42,466 million for the year ended March 31, 2026, representing 12.6% of our total revenues for such year, compared to Rs.57,245 million for the year ended March 31, 2025, representing 17.6% of our total revenues for such year. Profit after tax attributable to the equity holders of the parent company was Rs.42,850 million for the year ending March 31, 2026, representing 12.8% of our total revenues for such period, compared to Rs.56,544 million for the year ending March 31, 2025, representing 17.4% of our total revenues for such period. Fiscal Year Ended March 31, 2025 compared to Fiscal Year Ended March 31, 2024 Refer to Item 5.A. of our Annual Report on Form 20-F for the fiscal year ended March 31, 2025. Fiscal Year Ended March 31, 2024 compared to Fiscal Year Ended March 31, 2023 Refer to Item 5.A. of our Annual Report on Form 20-F for the fiscal year ended March 31, 2024. 5.B. Liquidity and capital resources Liquidity and working capital We manage our liquidity by ensuring, to the extent possible, that we will always have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk to our reputation. We have primarily financed our operations through cash flows generated from operations and a mix of long-term and short-term borrowings. Our principal liquidity and capital needs are for the purchase of property, plant and equipment, regular business operations and research and development. Our principal sources of short-term liquidity are internally generated funds and short-term borrowings, which we believe are sufficient to meet our working capital requirements, in both the short term (i.e., the 12 months following the year ended March 31, 2026) and the long term (i.e., beyond such additional 12-month period). As of March 31, 2026, we had working capital of Rs.134,409 million, including cash and cash equivalents of Rs.15,368 million, investments in term deposits with banks, bonds and commercial papers of Rs.36,534 million and investments in units of mutual funds of Rs.35,912 million. As of March 31, 2025, we had working capital of Rs.119,720 million, including cash and cash equivalents of Rs.14,654 million, investments in term deposits with banks, bonds and commercial papers of Rs.9,948 million and investments in units of mutual funds of Rs.33,186 million. Our cash and cash equivalents are comprised of deposits with banks and financial institutions with high credit-ratings assigned by international and domestic credit-rating agencies which can be withdrawn at any point of time without prior notice or penalty on principal. These cash and cash equivalents included a restricted cash balance of Rs.369 million and Rs.544 million as of March 31, 2026 and 2025, respectively. These restrictions are primarily on account of balances held in unclaimed dividend accounts and other bank balances earmarked for specific purposes. Cash and cash equivalents are primarily held in U.S. dollars, Euros, Indian rupees, Russian rubles, Canadian Dollar, Australian Dollar, Chinese yuans (Renminbi), Romanian new leus and U.K. pounds sterling. Summary of statements of cash flows The following table summarizes our statements of cash flows for the years presented: For the year ended March 31, 2026 2025 2024 ( Rs. in millions) Net cash from/(used in): Operating activities Rs. 56,755 Rs. 46,428 Rs. 45,433 Investing activities (65,513 ) (58,077 ) (40,283 ) Financing activities 8,290 18,911 (3,763 ) Net increase/(decrease) in cash and cash equivalents Rs. (468 ) Rs. 7,262 Rs. 1,387 58 In addition to cash, inventory and accounts receivable, we had uncommitted lines of credit of Rs.49,109 million as of March 31, 2026 from our banks for working capital requirements. We draw upon these lines of credit based on our working capital requirements. Cash Flow from Operating Activities Year ended March 31, 2026 compared to year ended March 31, 2025 Our operating activities resulted in net cash inflows of Rs.56,755 million and Rs.46,428 million for the years ended March 31, 2026 and 2025, respectively. The increase in net cash inflow of Rs.10,327 million was primarily due to a decrease in our working capital requirements, largely on account of: · a decrease in other assets and other liabilities, net by Rs.897 million for year ended March 31, 2026, as compared to an increase in other assets and other liabilities, net of Rs.7,293 million for the year ended March 31, 2025. Such decrease was primarily due to a decrease in our balances in government incentives receivable and an increase in other current liabilities during the year ended March 31, 2026; and · an increase in inventories by Rs.8,601 million for the year ended March 31, 2026, as compared to Rs.12,753 million for the year ended March 31, 2025. Our average days' sales outstanding ("DSO") as of March 31, 2026 and March 31, 2025 were 108 days and 95 days, respectively. The increase in our DSO was primarily on account of (a) changes in the mix of our receivables, due to an increase in the proportion of our receivables having longer credit periods in the United States during the year ended March 31, 2026, (b) a decrease in the proportion of our trade receivables being de-recognized pursuant to a factoring arrangement with certain banks in Russia during the year ended March 31, 2026, as compared to the de-recognition for the year ended March 31, 2025, and (c) an increase in trade receivables from customers in our NRT business during the year ended March 31, 2026. 59 Year ended March 31, 2025 compared to year ended March 31, 2024 Our operating activities resulted in net cash inflows of Rs.46,428 million and Rs.45,433 million for the years ended March 31, 2025 and 2024, respectively. The increase in net cash inflow of Rs.995 million was primarily due to a decrease in our working capital requirements. Our average days' sales outstanding ("DSO") as of March 31, 2025 and March 31, 2024 were 95 days and 103 days, respectively. Cash Flow from Investing Activities Year ended March 31, 2026 compared to year ended March 31, 2025 Our investing activities resulted in net cash outflows of Rs.65,513 million and Rs.58,077 million for the years ended March 31, 2026 and 2025, respectively, the increase was primarily on account of the following: · net purchases of other investments of Rs.27,116 million for the year ended March 31, 2026, as compared to net proceeds from sale of other investments of Rs.25,118 million for the year ended March 31, 2025; and · acquisition of property, plant and equipment, and other intangible assets, net of disposals, of Rs.36,715 million for the year ended March 31, 2026, as compared to Rs.33,154 million for the year ended March 31, 2025. The amount spent during the year ended March 31, 2026 includes: o Rs.23,017 million towards property, plant and equipment to expand our production capacity for multiple products in various manufacturing and research and development facilities, primarily in our "Formulations Srikakulam Plant 11" and "API Srikakulam Plant"; and o Rs.7,478 million for the acquisition of STUGERON® and Progynova® trademarks in India. (Refer to Note 13 of these consolidated financial statements for further details). · the above increases in cash outflow towards investing activities during the year ended March 31, 2026 were partially offset due to the payment of Rs.53,096 million to Haleon UK Enterprises Limited for the acquisition of consumer healthcare brands in NRT category during the year ended March 31, 2025, as compared to Rs.3,152 million during the year ended March 31, 2026. (Refer to Note 35.B of these consolidated financial statements for further details) Year ended March 31, 2025 compared to year ended March 31, 2024 Our investing activities resulted in net cash outflows of Rs.58,077 million and Rs.40,283 million for the years ended March 31, 2025 and 2024, respectively, the increase was primarily on account of the following : · net proceeds from sale of other investments of Rs.25,118 million for the year ended March 31, 2025, as compared to net purchases of other investments of Rs.15,704 million for the year ended March 31, 2024; · acquisition of property, plant and equipment, and other intangible assets, net of disposals, of Rs.33,154 million for the year ended March 31, 2025, as compared to Rs.26,350 million for the year ended March 31, 2024; and · business acquisitions made of Rs.53,096 million for the year ended March 31, 2025, as compared to the business acquisitions made of Rs.0 million for the year ended March 31, 2024. Cash Flow from Financing Activities Year ended March 31, 2026 compared to year ended March 31, 2025 Our financing activities resulted in net cash inflows of Rs.8,290 million as compared to net cash outflows of Rs.18,911 million for the years ended March 31, 2026 and 2025, respectively, the increase was primarily on account of the following: · net proceeds from short-term borrowings of Rs.20,257 million for the year ended March 31, 2026, as compared to net proceeds from short-term borrowings of Rs.24,490 million for the year ended March 31, 2025; 60 · payments of dividends of Rs.6,659 million for the year ended March 31, 2026, as compared to payments of dividends of Rs.6,662 million for the year ended March 31, 2025; · interest payments of Rs.4,441 million for the year ended March 31, 2026, as compared to interest payments of Rs.3,483 million for the year ended March 31, 2025; · payments of the principal portion of lease liabilities of Rs.1,263 million for the year ended March 31, 2026, as compared to payments of the principal portion of lease liabilities of Rs.1,294 million for the year ended March 31, 2025; · payments made for the purchase of treasury shares of Rs.0 million for the year ended March 31, 2026, as compared to payments made for the purchase of treasury shares of Rs.1,389 million for the year ended March 31, 2025; and · proceeds from the issuance of non-controlling interest ("NCI") equity shares in a subsidiary of Rs.0 million for the year ended March 31, 2026, as compared to proceeds from issuance of NCI equity shares in a subsidiary of Rs.7,056 million for the year ended March 31, 2025. Year ended March 31, 2025 compared to year ended March 31, 2024 Our financing activities resulted in net cash inflows of Rs.18,911 million as compared to net cash outflows of Rs.3,763 million for the years ended March 31, 2025 and 2024, respectively, the increase was primarily on account of the following: · net proceeds from short-term borrowings of Rs.24,490 million for the year ended March 31, 2025, as compared to net proceeds from short-term borrowings of Rs.5,493 million for the year ended March 31, 2024; · payments of dividends of Rs.6,662 million for the year ended March 31, 2025, as compared to payments of dividends of Rs.6,648 million for the year ended March 31, 2024; · interest payments of Rs.3,483 million for the year ended March 31, 2025, as compared to interest payments of Rs.2,266 million for the year ended March 31, 2024; · payments of the principal portion of lease liabilities of Rs.1,294 million for the year ended March 31, 2025, as compared to payments of the principal portion of lease liabilities of Rs.1,147 million for the year ended March 31, 2024; · payments made for the purchase of treasury shares of Rs.1,389 million for the year ended March 31, 2025, as compared to payments made for the purchase of treasury shares of Rs.0 million for the year ended March 31, 2024; and · proceeds from the issuance of non-controlling interest ("NCI") equity shares in a subsidiary of Rs.7,056 million for the year ended March 31, 2025, as compared to proceeds from issuance of NCI equity shares in a subsidiary of Rs.0 million for the year ended March 31, 2024. Principal debt obligations The following table summarizes our principal debt obligations (excluding obligations under leases) outstanding as of March 31, 2026: Payments due by period Principal debt obligations Total Less than 1 year 1-5 years More than 5 years (Rs. in millions) Short-term borrowings (includes bank overdraft) Rs. 59,135 Rs. 59,135 Rs. - Rs. - Long-term borrowings Rs. 3,799 Rs. 3,799 Rs. - Rs. - Total obligations Rs. 62,934 Rs. 62,934 Rs. - Rs. - Annual rate of interest The following table provides details of annual rates of interest for our principal debt obligations (excluding obligations under leases) outstanding as of March 31, 2026: Debt Amounts in Millions Currency (1) Interest Rate (2) Working capital borrowings And Pre-shipment credit 59,135 RUB Key rate + 348 bps to 398 bps MXN TIIE + 1.35% INR T-bill + 35 bps to 55 bps REPO + 75 bps BRL CDI+1.55% Long term borrowings 3,799 INR 3 Months T-bill + 84 bps (1) "BRL" means Brazilian reals, "INR" means Indian rupees, "MXN" means Mexican pesos and "RUB" means Russian rubles. (2) "CDI" means Brazilian interbank deposit rate (Certificado de Depósito Interbancário), "Key rate" means the key interest rate published by the Central Bank of Russia, "REPO" means the "Repurchasing option" rate published by the Reserve Bank of India , "SOFR" means Secured Overnight Financing Rate, "T-bill" means India Treasury bill interest rate, "TIIE" means the Equilibrium Inter-Banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio). 61 Our short-term borrowings from banks are repayable within 6 to 12 months from the date of drawdown. Our objective in determining the borrowing maturity is to ensure a balance between flexibility, cost and continuing availability of funds. Subject to obtaining certain regulatory approvals, there are no legal or economic restrictions on the transfer of funds between us and our subsidiaries or for the transfer of funds in the form of cash dividends, loans or advances. Consistent with our risk management policy, we use interest rate swaps to mitigate the risk of changes in interest rates. Material cash requirements During the year ended March 31, 2026 our principal cash requirements were utilized for the purchase of property, plant and equipment of Rs.23,017 million, other intangible assets of Rs.13,698 million and investments of Rs.27,116 million. As of March 31, 2026, we had committed to spend Rs.9,716 million in capital expenditures under agreements to purchase property, plant and equipment. These amounts are net of capital advances paid in respect of such purchase commitments. These commitments will be funded through the cash flows generated from operations, cash and cash equivalents, other investments and the cash flows from borrowings as required. As of March 31, 2026 and 2025, we had uncommitted lines of credit from banks of Rs.49,109 million and Rs.50,904 million, respectively. 5.C. Research and development, patents and licenses, etc. Research and Development Our research and development activities can be classified into several categories, which run parallel to the activities in our principal areas of operations: · 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. · 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. In the years ended March 31, 2026, 2025 and 2024, we expended Rs.24,058 million, Rs.27,380 million and Rs.22,873 million, respectively, on research and development activities. These increases were primarily on account of higher developmental expenditures in our Global Generics business and PSAI business. Each of these business segments has its own research and development and patent policies, and has numerous products in various stages of development. For further information on these policies and these products, see "Item 4. Information on the Company - Item 4.B Business overview." Patents, Trademarks and Licenses We have filed and been issued num e rous patents in our principal areas of operations: Global Generics and Pharmaceutical Services and Active Ingredients. We expect to continue to file patent applications seeking to protect our innovations and novel processes in several countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our products or may even be challenged, invalidated or circumvented by our competitors. In addition, such patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products. As of March 31, 2026, we have more than 2,676 trademarks filed with the Registrar of Trademarks in India which are either registered or are pending registration. We have also filed registration applications for non-U.S. trademarks in other countries in which we do business. We market several products under licenses in several countries where we operate. 62 5.D. Trend Information Inflation In recent years, there has been an accelerated rate of global inflation (a trend which might continue in the near future) that has resulted, and may continue to result, in increased costs of labor, raw materials, other supplies and freight and distribution costs, among others. For the pharmaceutical industry, the pricing dynamics of our products generally does not provide the opportunity to pass on such costs to customers. Inflation may also result in higher interest rates and increased costs of capital. For additional details, see the discussion in Item 3.D. of this report under "Risk factors - Current economic conditions may adversely affect our industry, financial position, results of operations and cash flows." Military conflicts Countries and regions experiencing political and economic instability or armed conflicts (including Russia, Ukraine and the Middle East) can have adverse business, operational or financial impacts on us. For example, geopolitical instability and armed conflict and hostilities have disrupted and may continue to disrupt global supply chains, trade routes, energy markets, and transportation infrastructure. Current instability in the region has contributed to volatility in crude oil, natural gas, and petrochemical markets, which directly and indirectly affect the cost and availability of key pharmaceutical inputs, including solvents, intermediates, excipients, and packaging materials. Increases in energy linked input costs and related supply interruptions could raise our cost of goods sold, compress margins, and adversely impact profitability coverage, especially for products subject to fixed pricing, regulated pricing environments, or long term supply contracts. We are exploring several strategies to strengthen our business continuity safeguards, including diversified supply procurement and alternative coverage solutions. For additional details, see the discussion in Item 4.B. of this report under "Our Principal Areas of Operations - Global Generics Segment - Russia and other Countries of the former Soviet Union and Romania - Impact on our Operations due to the military conflict between Russia and Ukraine" and Item 3.D. of this report under "Risk Factors - We have operations in certain countries and geographies susceptible to political and economic instability that could lead to disruption or other adverse impact on such operations". Others For additional trend information, please see "Item 5.A - Fiscal Year Ended March 31, 2026 compared to Fiscal Year Ended March 31, 2025" and "Item 4. - Information on the Company". 5.E. Critical Accounting Estimates Not Applicable.

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