Order in the matter of exemption application under regulation 11(1) of Takeover Regulations, 2011 - Dr. Reddy's Laboratories ltd

1. Dr. Reddy’s Laboratories Ltd (hereinafter referred to as “Target Company”) is a Pharmaceutical Company, having its Registered Office at 8-2-337, Road No. 3, Banjara Hills, Hyderabad - 500 034. The equity shares of the Target Company are listed on the Bombay Stock Exchange Limited (hereinafter referred to as ‘BSE’) and the National Stock Exchange of India Limited (hereinafter referred to as ‘NSE’). The depository receipts of the Target Company are listed on the New York Stock Exchange. 2. Mr. G. V. Prasad in the capacity of Trustee of the APS Trust (herein after referred to as ‘acquirer’ or “applicant”) and also in the capacity of authorized representative of the other Trustees of the APS Trust have filed an application dated September 26, 2011 with SEBI under regulation 3(1)(l) read with 4(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed indirect acquisition of 39,128,328 (23.08%) equity shares of face value Rs.5/- each of the target company by way of gift. Subsequent to the notification of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (‘Takeover Regulations, 2011’), the applicant vide letter dated January 09, 2012 requested SEBI to consider the aforesaid application under regulation 11(1) of the Takeover Regulations, 2011 seeking exemption from the compliance of the regulation 3(1) of Takeover Regulations, 2011 with respect to the proposed indirect acquisition of 23.08% shares in the Target company. 3. The acquirer/APS Trust is a private family Trust. The settlers of the Trust are Dr. K. Anji Reddy, his wife Ms. K. Samrajyam, his son Mr. Satish Reddy and daughter-in-law Ms. Deepti Reddy, his daughter Ms. G. Anuradha and son-in-law Mr. G. V. Prasad and two grandchildren. The Trustees of the APS Trust are Dr. K. Anji Reddy, Mr. Satish Reddy and Mr. G. V. Prasad. The beneficiaries of the Trust are Dr. K. Anji Redddy, his son Mr. Satish Reddy, his daughter Ms. G. Anuradha, his dauther-in-law Ms. Deepti Reddy, his son-in-law Mr. G. V. Prasad and their bloodline descendents (‘Reddy Family).

4. As per the shareholding pattern of the Target Company as on June 30, 2011, the total shareholding of the promoter group was 25.61%. Out of the said 25.61% shareholding, Dr. Reddy’s Holdings Limited (“DRHL”) holds 23.08% and other promoter group entities namely Dr. K. Anji Reddy, Ms. K. Samrajyam, Mr. Satish Reddy, Mr. G. V. Prasad, Ms. G. V. Anuradha (PACs) collectively hold 2.53%. 5. The details of shareholding of DRHL are given below:

Promoters of DRHL Shareholding (%)

Dr. K. Anji Reddy 40% K. Satish Reddy 16.61% G. V. Prasad 5.43% G. Anuradha 19.36% 83.17% K. Deepti Reddy 0.01% K. Samrajyam 0.01% G.V. Sanjana Reddy 1.75% G.V. Prasad (HUF) 3.46% K. Satish Reddy (HUF) 13.37% 16.83% Total 100% 100%

6. Under the proposed transfer, 83.17% of the equity shares of DRHL consisting of shares held by Dr. K. Anji Reddy, Mr. Satish Reddy, Mr. G.V. Prasad, Ms. G. Anuradha, Ms. Deepti Reddy, Ms. K. Samrajyam and Ms. G. V. Sanjana Reddy (collectively termed as “Transferors”) will be transferred to the APS Trust/acquirer as represented by its trustees by way of a gift/settlement in the trust. K. Satish Reddy (HUF) and G. V. Prasad (HUF) collectively hold 16.83% in DRHL. The acquirer, therefore, would be indirectly holding 23.08% in the target company, pursuant to the transfer of 83.17% shareholding in DRHL. The PACs are directly holding 2.53% shares in the target company. The acquirer along with the PACs would, thus, be collectively holding 25.61% in the target company, which would trigger regulation 3(1) of the Takeover Regulations, 2011. 7. In respect of the said indirect acquisition in the Target Company, the acquirer has sought exemption from making an open offer in terms of Regulation 3(1) of Takeover Regulations, 2011 in view of the following: a) The indirect acquisition for which exemption is sought will take place pursuant to a private family arrangement intended to streamline succession and welfare of the Reddy family and is a non-commercial transaction which will not prejudice the interests of the public shareholders of the Target Company in any manner. b) The proposed gift of 83.17% of the shares of DRHL to the APS Trust is only an internal re-organization within the Reddy Family. There will be no change in control or management of the Target Company pursuant to the proposed gift to the APS Trust. c) There will be no change in the shareholding pattern for promoter group of the Target Company pursuant to the proposed gift of shares of DRHL to the APS Trust. d) The change in the identity of persons who will indirectly exercise voting rights over the Target Company through DRHL will only be between persons who, in their personal capacities, are promoters of the Target Company and are also relatives of the Transferors.

8. The shareholding pattern of the Target Company (before and after the proposed indirect acquisition) as per the aforesaid application is as under:-

Before the proposed After the proposed Number of acquisition acquisition registered % of Shareholders’ shareholders shares/ % of category Number of Number of as on date of total shares/ shares/ total shares/ voting application voting voting voting rights held rights capital rights held Promoter and Promoter group 11 43,417,812 25.61% 43,417,812 25.61%

Mutual 201 10,647,487 6.28% 10,647,487 6.28% Fund/UTI Financial Institutions/Ban 28 607,676 0.36% 607,676 0.36% ks Insurance 20 13,186,508 7.78% 13,186,508 7.78% Companies Foreign Institutional 451 44,425,053 26.20% 44,425,053 26.20% Investors Bodies 1230 10,194,402 6.01% 10,194,402 6.01% Corporate Individual 70,103 16,995,283 10.03% 16,995,283 10.03%

Shareholders Others ( ADRs & Foreign 2 30,052,265 17.73% 30,052,265 17.73% National) Total 72,046 169,526,486 100.00 169,526,486 100.00

9. The aforesaid application dated September 26, 2011 was forwarded to the Takeover Panel in terms of regulation 11(5) of the Takeover Regulations, 2011. After examination of the facts and circumstances stated in the application, the Takeover Panel, vide its report dated March 29, 2012 recommended as under- “The indirect acquisition pursuant to the proposed gift is only an internal reorganization of the shareholding of DRHL within the Reddy Family for the purpose of a private family arrangement for the benefit of the members of the Reddy Family. The indirect acquisition will not be a commercial transaction. There will be no change of control or management of the Target Company pursuant to the proposed gift of shares of DRHL to the APS Trust. The Trustees of the APS Trust (that is, the Acquirers) through whom control is exercised over the assets of the APS Trust, are promoters of the Target Company. Consequently, there will be no change in the control or management of the Target Company pursuant to the proposed gift of shares to the APS Trust. In the view of the above, the panel was of the view that the indirect acquisition for which exemption is sought will not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

Further, there will be no change of control, or shareholding of the Target Company pursuant to the aforesaid indirect acquisition. Accordingly, the panel recommends exemption to the applicants, as prayed for in their application for exemption.” 10. I have considered the application seeking grant of exemption, the above mentioned recommendation of the Takeover Panel and other material available on record. I note that the Trustees of the APS are also promoters of the Target Company. The acquirer is currently not holding any shares in the target company. However, the PACs are holding 2.53% in the target company directly. Pursuant to the proposed indirect acquisition by the acquirer, the shareholding of the acquirer would go up form NIL to 23.08% in the target company. The collective shareholding of the acquirer and the PACs would go up from 2.53% to 25.61% in the Target Company. It is observed that the proposed transfer of shares of DRHL resulting in indirect acquisition of shares of the Target Company would take place between two entities namely Trustees of the APS Trust and promoter-transferors of the Target Company who comprise of the same set of individuals, namely members of Dr. Reddy’s Family.

The pre-shareholding and post shareholding of the promoter group in the Target Company would, therefore, remain unchanged. Thus, there will not be any change in the management or control of the Target Company. Further, the proposed acquisition shall not affect or prejudice the interests of the public shareholders of the Target Company in any manner. 11. In view of the above, I agree with the recommendations of the Takeover Panel and consider it to be a fit case for granting exemption from the requirements of regulation 3(1) of the Takeover Regulations, 2011. 12. In view of the above findings, I, in exercise of the powers conferred upon me by virtue of Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 11(5) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the acquirer, the APS Trust from complying with the requirements of regulation 3(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with regard to the proposed indirect acquisition of 39,128,328 (23.08%) equity shares of face value Rs.5/- each of the target company, namely Dr. Reddy’s Laboratories Ltd. by way of gift.

13. The exemption is granted subject to the following conditions: a. The proposed acquisition shall be completed within 30 days from the date of this order and the acquirer shall file a report with SEBI in the manner provided in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 within 21 days from the date of the acquisition. b. The statements/averments made or facts/figures given in the application are true and correct to the best knowledge of Target Company. c. The acquirer/target company shall ensure compliance with the statements, disclosures and undertakings made in the application and subsequent correspondences. d. This exemption is limited to the requirements of making open offer under regulation 3(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and shall not be construed as exemption from the requirements of disclosure required under Chapter V of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, compliance of SEBI (Prohibition of Insider Trading) Regulations, 1993, the Listing Agreement or any other applicable Acts, Rules and Regulations.

DATE: May 03, 2012 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA