Employee stock incentive plans

12 Months Ended

Mar. 31, 2022

Disclosure Of Share based Payment Arrangement [Abstract]

Employee stock incentive plans

28. Employee stock incentive plans

Dr. Reddy’s Employees Stock Option Scheme, 2002 (the “DRL 2002 Plan”):

The Company instituted the DRL 2002 Plan for all eligible employees pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on September 24, 2001. The DRL 2002 Plan covers all employees and directors (excluding promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Committee”) administers the DRL 2002 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2002 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

The DRL 2002 Plan, as amended at annual general meetings of shareholders held on July 28, 2004 and on July 27, 2005, provides for stock option grants in two categories:

Category A: 300,000 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,995,478 stock options out of the total of 2,295,478 options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).

Under the DRL 2002 Plan, the exercise price of the fair market value options granted under Category A above is determined based on the average closing price for 30 days prior to the grant in the stock exchange where there is highest trading volume during that period. Notwithstanding the foregoing, the Committee may, after obtaining the approval of the shareholders in the annual general meeting, grant options with a per share exercise price other than fair market value and par value of the equity shares.

After the stock split effected in the form of a stock dividend issued by the Company in August 2006, the DRL 2002 Plan provides for stock option grants in the above two categories as follows:

Particulars	Number of options reserved under category A		Number of options reserved under category B		Total
Options reserved under original Plan		300,000		1,995,478		2,295,478
Options exercised prior to stock dividend date (A)		94,061		147,793		241,854
Balance of shares that can be allotted on exercise of options (B)		205,939		1,847,685		2,053,624
Options arising from stock dividend (C)		205,939		1,847,685		2,053,624
Options reserved after stock dividend (A+B+C)		505,939		3,843,163		4,349,102

The term of the DRL 2002 plan was extended for a period of 10 years effective as of January 29, 2012 by the shareholders at the Company’s Annual General Meeting held on July 20, 2012.

Stock option activity under the DRL 2002 Plan for the two categories of options during the years ended March 31, 2022 and 2021 is as follows: 

Category A — Fair Market Value Options: There was no stock activity under this category during the years ended March 31, 2022 and 2021, and there were no stock options outstanding under this category as of March 31, 2022 and 2021.

Category B — Par Value Options: Stock options activity under this category during the years ended March 31, 2022 and 2021 was as set forth in the below table.

	For the Year Ended March 31, 2022
Category B — Par Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		217,253		Rs.	5.00	Rs.	5.00		69
Granted during the year		106,870			5.00		5.00		91
Expired/forfeited during the year		(30,322	)		5.00		5.00		-
Exercised during the year		(86,626	)		5.00		5.00		-
Outstanding at the end of the year		207,175		Rs.	5.00	Rs.	5.00		74
Exercisable at the end of the year		21,235		Rs.	5.00	Rs.	5.00		43

	For the Year Ended March 31, 2021
Category B — Par Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		232,837		Rs.	5.00	Rs.	5.00		69
Granted during the year		92,092			5.00		5.00		93
Expired/forfeited during the year		(35,646	)		5.00		5.00		-
Exercised during the year		(72,030	)		5.00		5.00		-
Outstanding at the end of the year		217,253		Rs.	5.00	Rs.	5.00		69
Exercisable at the end of the year		46,130		Rs.	5.00	Rs.	5.00		44

The weighted average grant date fair value of options granted during the years ended March 31, 2022 and 2021 was Rs.4,985 and Rs.3,677 per option, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2022 and 2021  was Rs.4,948 and Rs.4,565 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended March 31, 2022 and 2021 was Rs.428 and Rs.328, respectively. As of March 31, 2022, options outstanding had an aggregate intrinsic value of Rs.889 and options exercisable had an aggregate intrinsic value of Rs.91.

Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 (the “DRL 2007 Plan”)

The Company instituted the DRL 2007 Plan for all eligible employees in pursuance of the special resolution approved by the shareholders in the Annual General Meeting held on July 27, 2005. The DRL 2007 Plan became effective upon its approval by the Board of Directors on January 22, 2007. The DRL 2007 Plan covers all employees and directors (excluding promoter directors) of DRL and its subsidiaries (collectively, “eligible employees”). The Committee administers the DRL 2007 Plan and grants stock options to eligible employees. The Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2007 Plan vest in periods ranging between one and four years and generally have a maximum contractual term of five years.

The DRL 2007 Plan provides for option grants in two categories:

Category A: 382,695 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the fair market value of the underlying equity shares on the date of grant; and

Category B: 1,148,084 stock options out of the total of 1,530,779 stock options reserved for grant having an exercise price equal to the par value of the underlying equity shares (i.e., Rs.5 per option).

Stock options activity under the DRL 2007 Plan for the above two categories of options during the years ended March 31, 2022 and 2021 was as follows:

	For the Year Ended March 31, 2022
Category A — Fair Market Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		270,340		Rs.	1,982.00 to Rs. 3,679.00	Rs.	2,791.65		67
Granted during the year		5,144			5,301.00		5,301.00		90
Expired/forfeited during the year		(3,150	)		3,679.00		3,679.00		-
Exercised during the year		(6,120	)		2,607.00 to 3,679.00		3,078.55		-
Outstanding at the end of the year		266,214		Rs.	1,982.00 to Rs. 5,301.00		2,823.04		56
Exercisable at the end of the year		132,845		Rs.	1,982.00 to Rs. 3,679.00	Rs.	2,457.33		41

	For the Year Ended March 31, 2021
Category A — Fair Market Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		202,760		Rs.	1,982.00 to Rs. 2,814.00	Rs.	2,353.62		72
Granted during the year		96,080			3,679.00		3,679.00		90
Expired/forfeited during the year		(13,348	)		2,607.00/ 2,814.00		2,678.03		-
Exercised during the year		(15,152	)		2,607.00/ 2,814.00		2,643.48		-
Outstanding at the end of the year		270,340		Rs.	1,982.00 to Rs. 3,679.00	Rs.	2,791.65		67
Exercisable at the end of the year		69,530		Rs.	1,982.00 to Rs. 2,814.00	Rs.	2,182.21		45

   

The weighted average grant date fair value of options granted during the years ended March 31, 2022 and 2021 was Rs.1,841 and Rs.1,255 per option, respectively. The weighted average share prices on the date of exercise of options during the years ended March 31, 2022 and 2021 was Rs.4,967 and Rs.4,506 per share, respectively.

The aggregate intrinsic value of options exercised during the year ended March 31, 2022 and 2021 was Rs.12 and Rs.28. As of March 31, 2022, options outstanding had an aggregate intrinsic value of Rs.392 and options exercisable had an aggregate intrinsic value of Rs.196.

	For the Year Ended March 31, 2022
Category B — Par Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		141,999		Rs.	5.00	Rs.	5.00		71
Granted during the year		55,884			5.00		5.00		90
Expired/forfeited during the year		(18,996	)		5.00		5.00		-
Exercised during the year		(31,872	)		5.00		5.00		-
Outstanding at the end of the year		147,015		Rs.	5.00	Rs.	5.00		68
Exercisable at the end of the year		27,929		Rs.	5.00	Rs.	5.00		40

	For the Year Ended March 31, 2021
Category B — Par Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		151,583		Rs.	5.00	Rs.	5.00		73
Granted during the year		52,316			5.00		5.00		89
Expired/forfeited during the year		(19,933	)		5.00		5.00		-
Exercised during the year		(41,967	)		5.00		5.00		-
Outstanding at the end of the year		141,999		Rs.	5.00	Rs.	5.00		71
Exercisable at the end of the year		15,393		Rs.	5.00	Rs.	5.00		41

The weighted average grant date fair value of options granted during the years ended March 31, 2022 and 2021 was Rs.5,235 and Rs. 3,631, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2022 and 2021 was Rs.4,975 and Rs.4,334, respectively.

The aggregate intrinsic value of options exercised during the years ended March 31, 2022 and 2021 was Rs.158 and Rs.182, respectively. As of March 31, 2022, options outstanding had an aggregate intrinsic value of Rs.631 and options exercisable had an aggregate intrinsic value of Rs.120.

Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”)

The Company instituted the DRL 2018 Plan for all eligible employees pursuant to the special resolution approved by the shareholders at the Annual General Meeting held on July 27, 2018. The DRL 2018 Plan covers all employees and directors (excluding independent and promoter directors) of the parent company and its subsidiaries (collectively, “eligible employees”). Upon the exercise of options granted under the DRL 2018 Plan, the applicable equity shares may be issued directly by the Company to the eligible employee or may be transferred from the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) to the eligible employee. The ESOS Trust may acquire such equity shares through primary issuances by the Company and/or by way of secondary market acquisitions funded through loans from the Company. The Nomination, Governance and Compensation Committee of the Board of the parent company (the “Compensation Committee”) administers the DRL 2018 Plan and grants stock options to eligible employees, but may delegate functions and powers relating to the administration of the DRL 2018 Plan to the ESOS Trust. The Compensation Committee determines which eligible employees will receive the options, the number of options to be granted, the exercise price, the vesting period and the exercise period. The vesting period is determined for all options issued on the date of grant. The options issued under the DRL 2018 Plan vest in periods ranging between the end of one and five years, and generally have a maximum contractual term of five years.

The DRL 2018 Plan provides for option grants having an exercise price equal to the fair market value of the underlying equity shares on the date of grant as follows:

Particulars	Number of securities to be acquired from secondary market		Number of securities to be issued by the Company		Total
Options reserved against equity shares		2,500,000		1,500,000		4,000,000
Options reserved against ADRs		-		1,000,000		1,000,000
Total		2,500,000		2,500,000		5,000,000

As of March 31, 2022, the outstanding shares purchased from secondary market are 468,471 shares for an aggregate consideration of Rs.1,601.

Stock option activity under the DRL 2018 Plan during the years ended March 31, 2022 and 2021 was as follows:

	For the Year Ended March 31, 2022
Fair Market Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		385,930		Rs.	2,607.00 to Rs. 3,679.00	Rs.	3,056.51		71
Granted during the year		8,856			4,662.70/ 5,301.00		5,289.76		90
Expired/forfeited during the year		(37,021	)		2,607.00 to 5,310.00		3,157.39		-
Exercised during the year		(106,730	)		2,607.00 to 3,679.00		2,938.55		-
Outstanding at the end of the year		251,035		Rs.	2,607.00 to Rs. 5,301.00	Rs.	3,170.57		64
Exercisable at the end of the year		68,130		Rs.	2,607.00 to Rs. 3,679.00	Rs.	2,859.13		47

	For the Year Ended March 31, 2021
Fair Market Value Options	Shares arising out of options			Range of exercise prices		Weighted average exercise price		Weighted average remaining useful life (months)
Outstanding at the beginning of the year		375,775		Rs.	2,607.00/ Rs. 2,814.00	Rs.	2,697.12		75
Granted during the year		150,740			3,679.00		3,679.00		90
Expired/forfeited during the year		(55,335	)		2,607.00 to 3,679.00		2,904.51		-
Exercised during the year		(85,250	)		2,607.00/ 2,814.00		2,671.71		-
Outstanding at the end of the year		385,930		Rs.	2,607.00 to Rs. 3,679.00	Rs.	3,056.51		71
Exercisable at the end of the year		71,225		Rs.	2,607.00/ Rs. 2,814.00	Rs.	2,665.63		51

The weighted average grant date fair value of options granted during the years ended March 31, 2022 and 2021 was Rs.1,848 and Rs.1,255 per option, respectively. The weighted average share price on the date of exercise of options during the years ended March 31, 2022 and 2021 was Rs.4,922 and Rs.4,609 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended March 31, 2022 and 2021 was Rs.212 and Rs.165, respectively. As of March 31, 2022, options outstanding had an aggregate intrinsic value of Rs.282 and options exercisable had an aggregate intrinsic value of Rs.77.

Valuation of stock options:

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options granted under the DRL 2002 Plan, DRL 2007 Plan and the DRL 2018 Plan has been measured using the Black–Scholes-Merton model at the date of the grant.

The Black-Scholes-Merton model includes assumptions regarding dividend yields, expected volatility, expected terms and risk free interest rates. In respect of par value options granted, the expected term of an option (or “option life”) is estimated based on the vesting term and contractual term, as well as the expected exercise behavior of the employees receiving the option. In respect of fair market value options granted, the option life is estimated based on the simplified method. Expected volatility of the option is based on historical volatility, during a period equivalent to the option life, of the observed market prices of the Company’s publicly traded equity shares. Dividend yield of the options is based on recent dividend activity. Risk-free interest rates are based on the government securities yield in effect at the time of the grant. These assumptions reflect management’s best estimates, but these assumptions involve inherent market uncertainties based on market conditions generally outside of the Company’s control.

As a result, if other assumptions had been used in the current period, stock-based compensation expense could have been materially impacted. Further, if management uses different assumptions in future periods, stock based compensation expense could be materially impacted in future years.

The estimated fair value of stock options is recognized in the consolidated income statement on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The weighted average inputs used in computing the fair value of options granted were as follows:

				Grants made on
	January 17, 2022			October 28, 2021			October 28, 2021
Expected volatility		28.60	%		29.20	%		28.53	%
Exercise price	Rs.	5.00		Rs.	4,663.00		Rs.	5.00
Option life		6.5 Years			5.0 Years			2.5 Years
Risk-free interest rate		6.52	%		5.94	%		4.86	%
Expected dividends		0.54	%		0.55	%		0.55	%
Grant date share price	Rs.	4,672.00		Rs.	4,570.00		Rs.	4,570.00

				Grants made on
	October 28, 2021			May 13, 2021			May 13, 2021
Expected volatility		29.04	%		29.38	%		30.02	%
Exercise price	Rs.	5.00		Rs.	5,301.00		Rs.	5.00
Option life		5.0 Years			5.0 Years			2.5 Years
Risk-free interest rate		5.99	%		5.70	%		4.64	%
Expected dividends		0.54	%		0.47	%		0.47	%
Grant date share price	Rs.	4,570.00		Rs.	5,301.00		Rs.	5,301.00

				Grants made on
	October 27, 2020			May 19, 2020			May 19, 2020
Expected volatility		30.81	%		29.12	%		30.47	%
Exercise price	Rs.	5.00		Rs.	3,679.00		Rs.	5.00
Option life		2.5 Years			5.0 Years			2.5 Years
Risk-free interest rate		4.36	%		5.67	%		4.62	%
Expected dividends		0.49	%		0.68	%		0.68	%
Grant date share price	Rs.	5,099.00		Rs.	3,700.00		Rs.	3,700.00

Share-based payment expense

	For the Year Ended March 31,
	2022		2021		2020
Equity settled share-based payment expense(1)	Rs.	592	Rs.	584	Rs.	521
Cash settled share-based payment expense(2)		148		157		94
	Rs.	740	Rs.	741	Rs.	615

(1) As of March 31, 2022 and 2021, there was Rs.701 and Rs.612, respectively, of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.93 years and 1.95 years, respectively.

(2) Certain of the Company’s employees are eligible for share-based payment awards that are settled in cash. These awards entitle the employees to a cash payment, on the exercise date, subject to vesting upon satisfaction of certain service conditions which range from 1 to 4 years. The amount of cash payment is determined based on the price of the Company’s ADSs at the time of vesting. As of March 31, 2022 and 2021, there was Rs.101 and Rs.126, respectively of total unrecognized compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.82 years and 1.88 years, respectively. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.