Dr.

Reddy BetaPharm Acquisition

On February 15, 2006, Dr. Reddy's Laboratories Limited (DRL), a leading Indian
pharmaceutical company, acquired the fourth-largest generic pharmaceutical company in
Germany, Betapharm Arzneimittel GmbH (Betapharm) from the 3i Group PLC (3i) for US$570
million (480 million). The sale deal also included the 'beta institut for sociomedical research
GmbH' (beta Institut), a non-profit research institute founded and funded by betapharm to
conduct research on issues related to social aspects of medicine and health management. The
acquisition was hailed as the biggest overseas acquisition made by an Indian pharmaceutical
company. The synergies from the acquisition were expected to benefit both DRL and
Betapharm.

Initial contacts/discussions
Indian pharmaceuticals majors Ranbaxy, Wockhardt and Nicholas Piramal had also submitted
bids to acquire Betapharm Arzneimittel in addition to global majors like Teva, Sandoz and
certain Turkish companies, along with private equity players.

Announcement
The Hyderabad-based company Dr. Reddys signed a definitive agreement with 3i, the private
equity house that controls Betapharm, on Thursday, 16th February 2006, to
acquire 100 per cent equity of the German drug major. In a press release Dr Reddy's said the
transaction, subject to customary closing conditions, was expected to close in the first week
of March 2006.

Valuation
At the time of acquisition Betapharm was highly profitable, with estimated EBITDA margin of
24-26%. With assumptions and available industry data, we have done a quick NPV valuation
of betapharm and arrived at a value of 550-560 million (or Rs 380-400 per share) assuming
WACC of 12% and a sustainable growth rate of 5%. The payback period is likely to be 6-7 years
- ICICI Securities.
Analysts expected the betapharm acquisition to add $ 200 million to Dr Reddy's topline
immediately and the company's shares jumped 9.38 percent to hit its 52-week high price on
the Bombay Stock Exchange - Wednesday, March 15, 2006

Claimed Synergies from the Acquisition

Not only is Dr. Reddy's non-existent in Germany, but the market has deep-rooted sales and
distribution networks that makes inorganic expansion there tough and expensive for an
outsider.

2- Saion Mukherjee, Research Analyst, Brics Securities,in July 2006. The synergies from the
acquisition were expected to benefit both DRL and betapharm. Through this acquisition DRL
could get immediate access to the German generic market, the second-largest generic market
in the world after the US. Germany also accounted for 66 percent of the generic market in
Europe (Refer to Exhibit I for a list of the major generic markets in Europe). The acquisition
was expected to help DRL gain a strategic presence in the European market as the generic
drug market in Europe was expected to show strong growth due to rising public healthcare
costs.

It was also expected to help DRL realize its ambition of becoming a US$1 billion mid-size global
pharmaceutical company by 2008. betapharm was expected to benefit from the acquisition
as it would be able to add more products to its portfolio and grow at a much faster rate in
Germany. Besides, the acquisition would help it to utilize DRL's global product development
and marketing infrastructure to expand its presence in the European market in the long run.
Dr. Wolfgang Niedermaier (Niedermaier), CEO of betapharm, commented, "Dr. Reddy's
impressive pipeline of generic and innovative products and its high quality standards
combined with competitive manufacturing costs will help further develop our position in the
German market and offer an entry platform for the European market.
Its extensive and well-recognized corporate social responsibility activities perfectly fit with
our successful corporate philosophy and business model. We see Dr. Reddy's as our partner
of choice to build a successful joint future and continue betapharm's growth and success
story."
Though DRL was not the highest bidder, it clinched the deal largely due to the perceived
synergies between the two companies. DRL's strong commitment to corporate social
responsibility (CSR) initiatives too helped swing the deal in its favor as betapharm identified
with such initiatives through the activities conducted by beta Institut.
However, some analysts were of the opinion that DRL had paid too much to 3i for the
acquisition as the value of the acquisition was estimated to be more than three times the
annual sales of betapharm. Their argument was strengthened by the fact that another Indian
pharmaceutical major, Ranbaxy Laboratories Limited7 (Ranbaxy), which had also aggressively
competed for the acquisition and was a pre-sale favorite to bag the betapharm deal, pulled
out at the last minute quoting the high price. DRL, however, justified the premium price saying
that the advantages from the acquisition were manifold. A few also expressed their doubts as
to whether DRL could leverage any benefits in the short term as betapharm was reportedly
emerging from a lean period.
Financing of the deal

DRL had its war chest ready with a $200 million cash and remaining debt arranged from
domestic FIs. DRL funded the acquisition through a combination of internal accruals and
borrowings.

Closure of the deal

Dr. Reddy's Laboratories, announced the completion of 100 per cent acquisition of Betapharm
Group, Germany's fourth largest generic pharmaceutical firm, with a total enterprise value of
480 million Euros on Mar 07, 2006

http://www.drreddys.com/germany/dr-reddys-in-germany/

1993 Formation of betapharm in Augsburg, Germany

1998 Formation of the betapharm foundation

1999 Formation of beta Institut gemeinntzige GmbH (non-profit)

2004 Acquisition of betapharm by 3i

2006 As of March 2006 betapharm operates as a subsidiary of Dr. Reddy's Laboratories

Ltd. a global pharmaceutical company headquartered in India.

DR REDDY'S Laboratories has acquired the fourth-largest German generic drug maker
Betapharm Arzneimittel GmbH for euro 480 million (approximately Rs. 2,550 crore).
The Hyderabad-based company has signed a definitive agreement with 3i, the private equity
house that controls Betapharm, on Thursday to acquire 100 per cent equity of the German
drug major.
This is considered to be one of the biggest overseas acquisitions by an Indian pharmaceutical
company. The transaction would be funded using a combination of the company's internal
cash reserves and committed credit facilities. Other financial terms and conditions of the
transaction were, however, not disclosed.
This is the company's second acquisition in Europe. In 2002, it acquired the UK-based BMS
Laboratories and its wholly-owned subsidiary, Aurigene Discovery Technologies, for around
$12 million. In November 2005, Dr Reddy's acquired Roche's APIs business, in Cuernavaca,
Mexico, in a $59-million deal.
Betapharm commands 3.5 per cent share of the euro 27-billion German pharmaceutical
market. It had reported total sales of euro 164 million last year. It markets high-quality generic
drugs with focus on long-term therapy products with high prescription rates. It is the fastest
growing generic company over the past five years in Germany's top-10 with a strong track
record of successful product launches.
Commenting on the acquisition, Dr K. Anji Reddy, Chairman, Dr Reddy's Laboratories, said,
"We see our investment in Betapharm as a key strategic initiative towards becoming a mid-
sized global pharmaceutical company with strong presence in all key pharmaceutical markets.
Betapharm has created a strong growth platform and is well positioned for the future and we
are looking forward to partner with them in building a strategic presence in Europe."
On the strategic initiative, the company's Vice-Chairman and CEO, Mr G.V. Prasad, said,
"Betapharm with its differentiated business model has all the key elements for achieving
success in the fast-growing generics market in Germany. We strongly believe that this
strategic investment will generate substantial opportunities for long-term value creation for
both the companies. The combination of these two companies will enable Betapharm to
continue to expand its growth trajectory and at the same time provide a strong foundation to
leverage Dr Reddy's global product development and marketing infrastructure to build a
significant generics business in Europe in the long term."
Bharat Forge CDP Aluminiumtechnik

Bharat Forge, a Kalyani Group company, bought the German automotive supplier, CDP
Aluminiumtechnik GmbH & Co. KG in 2004. The company now operates as "Bharat Forge
Aluminiumtechnik (BFAT)". Bharat Forge's objective was to enter the rapidly growing
aluminum sector in the automotive supplier industry. The state-of-the-art German
technology and European customers were also important investment drivers. BFAT's
customers are the large OEMs, such as BMW, Audi, Volkswagen and Ford, for example. The
company has since developed and patented its own forging technology in the aluminum
sector. BFAT's site is close to Dresden in Saxony, an automotive industry cluster where BMW
and Porsche have also invested in new plant.

http://www.dw.com/en/indian-firms-do-good-business-in-germany/av-18763396

Bharat Forge Limited (BFL), the flagship company of the US$ 1.5 billion Kalyani Group, is a 'Full
Service Supplier' of engine and chassis components It is the largest exporter of auto
components from India and one of the leading chassis component manufacturers in the
world.The company was incorporated in 1961.

BFL has also focussed on achieving growth through acquisitions route. On November 22, 2003
it announced acquisition of Carl Dan Peddinghaus GmbH (CDP), one of the largest forging
companies in Germany.With this acquisition, BFL emerged as the second largest forging
company in the world.The acquisition of CDP Aluminiumtechnik (now renamed as Bharat
Forge Aluminiumtechnik) enabled the company to enter the aluminium auto parts industry in
Europe.

BFL has always been on the look out for acquisitions that would provide value through access
to technology, markets and technology. BFL acquired CDP and CDP Aluminumtechnik, both
based in Germany. These acquisitions have provided BFL access to customers in new
geographies, enhanced technological capabilities and enlarged the companys product range.

Exports comprise nearly 40 per cent of sales

Leading supplier of engine and chassis components to global customers
Strong relationship with 36 global customers like Toyota, GM, Honda, Mitsubishi,
Ford, Daimler Chrysler, Mercedes Benz, Caterpillar,Audi, Renault, Cummins, Dana etc
Made several acquisitions to achieve growth - CDP Aluminiumtechnik (a forging
company in Germany), Federal Forge (manufacturer of complex forged steel
components in the US) and Imatra Forging Group (having forging companies in
Sweden and Scotland).
Indian Companies in Germany
Within the European Union Germany is the biggest trading partner of India and the third most
favoured investment destination globally after the US and the UK. Indian investors prefer
Germany due to its numerous advantages. Germany has one of the biggest sales markets in
Europe. It is strategically located in the heart of Europe and it is well connected by road and
air to all European countries. Due to its favourable geographic location and to the removal of
trade obstacles it is an excellent hub for business expansion for Indian investors. Political
stability, legal transparency, efficient administration system, technological know-how and the
high-quality products offer attractive investment opportunities.

Due to the above described attractive opportunities many Indian enterprises entered to the
European market by using Germany as a Gateway to Europe.

Indian companies have invested over USD 7 billion in Germany. Currently there are more than
200 Indian companies operating in Germany.

Numerous Indian investments took place in the most diverse industrial sectors in the past
years and experts expect a wave of new acquisitions and involvements. Indian companies
have invested especially in the IT, automotive, pharma and biotech sectors.

The acquisition of Temmler Pharma by Lupin Pharmaceuticals, the takovers of Scholz

Edelstahl GmbH and Rege Holding by Amtek India were some of the notable investment
projects by Indian firms in Germany.

Data Services Provider companies Infosys Technologies, Wipro and Tata Consultancy Services
(TCS) have announced that they are searching for suitable acquisition candidates.

Mahindra, one of the largest vehicle manufacturer in India and the largest tractor
manufacturer in the world, is planning to enter to the German automotive industry as well.
With the German technological and engineering know-how they could enhance their cars and
expand their business on the world market.

Tata Group, the Indian multinational conglomerate company is currently in extensive

negotiations with the daughter company of the German Telekom, T-Systems. With the
acquisition of T-System, Tata could further develop and expand the IT services of its daughter
company, TSC (Tata Consultancy Services).

Due to the low exchange rate of the Euro and their strong financial power, Indian companies
and entrepreneurs are preparing for further company acquisitions in Western countries. The
Indian enterprises have a filled war chest and a low financial leverage compared to the
companies in the West. The Indian managers are well trained, work at a low cost and they
have a start-up mentality, all these make the Indian companies winner in the European
market.
India and Germany have agreed to establish exchange programs for Indian and German start-
up companies. Berlin is already a start-up hub, being a home of around 2000 start-up
companies. Synergies between the two countries would be beneficial for both sides. Both
countries have a lot to exchange in terms of ideas, skills, research, talent or funding in the
start-up industry.

There is a huge investment potential in the area of transport and mobility as well. Germany
is expert in transport infrastructure, where India needs more expertise.

Finding the right partner to invest into a foreign country it is not an easy decision. It requires
thorough considerations and detailed analysis. Intercultural differences can create a number
of barriers between foreign investors and the local businesses.