Glenmark Life Sciences Ltd

NSE:GLS

Earnings Call Analysis

Steady Long-Term Margins amid Operational Shifts

The executive team addressed regulatory hurdles and maintained their guidance for long-term EBITDA margins around 30%, albeit expecting a near-term dip due to increased employee expenses. The company will carry on with the Production Linked Incentive (PLI) benefits until disassociation from the parent company, GPL Group. Management indicated that working capital strategies would be cautious given geopolitical volatility, opting to sustain inventory levels over aggressive adjustments. Despite uncertainties in timing, they projected two to three new customer projects to materialize over the next year. The oncology and complex business segments show promising growth, and the company is expecting an additional 3 projects matching the current revenue of INR 150 crores from existing projects.

A Mixture of Market Challenges and Business Opportunities

In the recent earnings call, the company addressed the prevailing economic and geopolitical uncertainties, mentioning specific challenges such as the Chinese economy's slowdown, global inflation, and potential oil price fluctuations due to geopolitical tensions. Despite these concerns, the company remains optimistic, bolstered by promising demand across multiple regions, including the U.S., Europe, LATAM, and India DMF business. Moreover, the chemical industry supply dynamics have been favorable, reflected by stable supply chains and advantageous commodity pricing due to an oversupply from China.

The Company's Commitment to Innovation and Efficiency

The company has allocated INR 37 crores to Research and Development (R&D), signifying its dedication to continual innovation, which constitutes 3.1% of sales. This commitment has been paralleled by steady working capital, maintained at 170 days in the first half of the financial year. They've also reported a robust cash flow from operations, amounting to INR 216 crores, with a net debt-free status and cash and cash equivalents totaling INR 443 crores.

Nurturing Core Relationships and Exploring New Projects

The business relationship with its parent company is secured for the next five years through an agreement ensuring continuity. This entails Glenmark Life Sciences (GLS) remaining an important API supplier to Glenmark Pharma, supplying over 65 APIs. The company anticipates a reduction in business contribution from Glenmark Pharma over time, aligning with divergent strategies but confirms to remain a significant supplier. In addition, there's a promising outlook for Contract Development and Manufacturing Organization (CDMO) projects, with current projects on track and new potential additions in the pipeline. These new CDMO projects could significantly enhance the business within the next year.

Strategic Investments and Capacity Expansion

To support growth, the company plans substantial capital expenditure, with INR 63 crores already spent in the first half and guidance of INR 150 crores to INR 200 crores for the current year. Additionally, Phase 1 construction of a 200 KL capacity at Solapur has begun, signaling a strategic investment to enhance production capabilities to meet the high demand in both backward integration and intermediates.

Margins Influenced by Market Dynamics and Internal Policies

There have been temporary margin pressures with EBITDA margins at 29%, down from the past 31%, influenced by costs incurred from talent management and employee bonuses. The company expects these impacts to persist throughout the current fiscal year but still aims to maintain EBITDA margins in the 30% range long-term. They emphasize that despite near-term costs, long-term margins will conform to their historical guidance of mid-teen revenue growth and about 30% EBITDA margins.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Glenmark Life Sciences Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Soumi Rao, General Manager of Corporate Communications. Thank you, and over to you, ma'am.

[Soumi Rao, executive]

Good evening, everyone. I welcome you all to the earnings conference call of Glenmark Life Sciences Limited for the quarter ended September 30, 2023. From Glenmark Life Sciences, we have with us Dr. Yasir Rawjee, our MD and CEO; and Mr. Tushar Mistry, our CFO.

Our Board has approved the results for the quarter ended September 30, 2023, and we have released the same to the stock exchanges and updated it on our website. Please note that the recording of the transcript of this call will be available on the website of the company.

Now I'd like to draw your attention to the fact that some of the information shared as part of this call, especially information with respect to our plans and strategies may contain certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts and assumptions that are subject to risks which could cause actual results to differ materially from these statements depending upon our economic conditions, government policies and other incidental factors.

Such statements should not be regarded by recipients as a substitute of their own judgment. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Our actual results may differ materially from those expressed in or implied by these forward-looking statements.

With that, I invite Dr. Yasir Rawjee to say a few words. Thank you, and over to you, doctor.

[Yasir Rawjee, executive]

Soumi, thank you. Good evening, and welcome, everyone, to our Q2 earnings call. Before I get into the discussion of GLS performance, let's just take a couple of minutes to discuss the economy and industry trends that are likely to have a direct or indirect impact on the business.

The economic landscape remains a little uncertain with the Chinese economy slowing down, which does have impact on the chemicals industry, plus the inflation across the globe continues to challenge economic stability in various parts of the world.

The geopolitical situation also could have some impact on oil prices and so that could have some impact on our business. But we've seen the worst, okay? So overall, if you look at the economic and geopolitical landscape, there are a few moving parts that will impact our business, can impact our business. But largely, things should be okay for our industry.

So coming to the industry itself, the demand landscape is very promising at present, okay? Demand has been strong for us across various regions, with the U.S. experiencing a surge in demand on the back of stabilized pricing environment. Europe and LATAM also continued to showcase sustained momentum along with our India DMF business.

The supply dynamics also show encouraging signs marked by enhanced stability in supply chain and oversupply from China on chemicals, resulting in better commodity and intermediate prices. So it reflects a resilient and positive pharmaceutical environment -- positive environment for our industry.

That said, we need to stay vigilant and adaptive to potential ramifications of the ongoing geopolitical and economic turbulence in the coming quarters. As far as GLS' performance goes, we are pleased to share that we achieved sales of INR 595 crores during the second quarter, continuing the growth trajectory with close to 17% growth.

Growth has been driven by a 20% growth in our Generic API business, which, to some extent, was offset by temporary dip in the CDMO revenue. The Generic API business was driven by both the Glenmark Pharma business, which grew close to 50% Y-o-Y as well as consistent upward momentum in the external business. It is crucial to highlight that the dip in the CDMO business in Q2 was temporary, and we are -- we expect demand to pick up in the second half of the current financial year.

If you look at our regional distribution, except for slight degrowth in Japan and ROW, all markets have performed exceedingly well. On the product pipeline, we have added 3 new products to our pipeline with 1 high-potent API and 2 complex APIs.

Coming to the high-potent API pipeline, we now have 12 products with total addressable market of $21 billion at the front end and 3 products have been validated so far. Now before I conclude, it is important to address the Glenmark Pharma's recent decision to divest its majority stake in Glenmark Life Sciences.

Glenmark Pharma will be divesting 75% stake in Glenmark Life Sciences to Nirma Limited. This transaction, we believe, is the beginning of a new chapter for GLS as Nirma becomes -- as Nirma Limited becomes the principal promoter of the company.

We believe this strategic move is poised to accelerate growth and will help create more value for our stakeholders in the long term. I would like to highlight that we will continue to operate as an independent API company and our core mission remains even with the change in ownership.

Strategy-wise, nothing on the -- nothing changes on the business front for the short term, but I would surely like to mention that there will be focus on additional growth levers going forward. Therefore, I see this event as an opportunity to further strengthen our position in the API industry and continue the strong growth trajectory with healthy margins.

The transaction, of course, is subject to necessary regulatory approvals. More insights will have to wait for strategic direction to be finalized with the new promoter once the transaction is completed. I urge for your patience until such time. However, I would like to highlight that it is vital to underscore that the core strategy of GLS will remain intact with any new strategy developed being only incremental to our core approach.

Looking ahead, we have good visibility for the second half on the Generic API side as well as CDMO, which gives us the confidence of delivering strong growth in the latter half of the financial year as well. This will translate into a strong FY '24 for us, provided the external environment remains conducive.

So with that, I now invite our CFO, Tushar Mistry, to discuss the financial performance for the quarter.

[Tushar Mistry, executive]

Thank you, Dr. Yasir. Hello, and good evening, everyone. Welcome to our Q2 FY '24 earnings call. I would like to briefly touch upon the key performance highlights for the quarter and half year ended 30th September 2023, and then we will open the floor for questions-and-answers.

We had a good growth this quarter with revenue from operations at INR 595 crores, a growth of 16.9% year-on-year and 2.9% on a sequential basis. As of Dr. Yasir mentioned, the growth was driven by a strong uptick in Generic API business.

The gross profit for the quarter was at INR 322 crores at 19.7% year-on-year growth. Gross margin for the quarter was at 54.1%, which expanded 120 basis points year-on-year. Sequentially, gross margin looks low, but please understand, Q1 was a quarter where all guns fired well for us.

EBITDA for the quarter was at INR 172 crores, up 12.3% year-on-year. EBITDA margin for the quarter was at 29% driven by better gross margin and higher employee expenses. Gross margin was driven by product mix, whereas higher employee expenses was driven by regular increment cycles and certain talent management costs which is expected to continue at similar levels in the near term.

However, it is important to note that we continue to have one of the lowest employee cost to revenue ratios in the industry.

Depreciation and amortization is in line with CapEx spends than last year. The PAT for the quarter stood at INR 118 crores, a growth of 10.6% year-on-year with PAT margins coming at 19.9%.

Let me quickly discuss half yearly numbers. Revenue from operations for half -- first half was at INR 1,174 crores, a growth of 17.5% year-on-year. Gross profit for H1 FY '24 was at INR 653 crores, up 23.1% year-on-year. Gross profit margin for H1 FY '24 expanded by 250 basis points year-on-year to 55.6%. EBITDA was at INR 367 crores, up 18.6% with EBITDA margins remaining steady at 31.3%.

PAT for H1 was at INR 255 crores, up 17.7%. Moving on to the segmental performance for Q2 FY '24. Generic API revenues grew by almost 20% to INR 543 crores, driven by strong growth in GPL business coupled with sustained growth in external business.

COVID business revenue was subdued at INR 25.3 crores driven by lower demand for one of the products. However, as Dr. Yasir mentioned, this was temporary, and we would have -- we have good demand visibility for second half of FY '24.

Looking at the therapeutic mix. CVS and CNS continued to lead the growth during the quarter with both therapies contributing 60% to the top line. R&D expenditure for the quarter was at INR 37 crores, which was 3.1% of our sales.

Touching upon the balance sheet and cash flow movement. Starting with working capital, working capital remains stable during H1 FY '24 at 170 days. And all the working capital components remain stable for the first half.

Coming to capital expenditure. CapEx for H1 was at INR 63 crores. I would also like to share an important update on the Solapur CapEx. The engineering work has started for a construction of Phase 1 of 200 KL in Solapur. We continue to remain a net debt-free company, and I'm happy to inform you that we have generated strong cash flow from operations of INR 216 crores in first half, with cash and cash equivalents of INR 443 crores on the books as of 30th September 2023.

To conclude, a strong demand scenario coupled with better visibility for H2 FY '24 makes us confident of delivering strong growth in FY '24.

With that, let us open the floor for Q&A. Thank you.

[Operator]

[Operator Instructions] We have the first question from the line of Nitesh Dutt from Burman Capital.

[Nitesh Dutt, analyst]

I have a question on our parent business. Can you give some color on how that business will evolve if there are any long-term contracts or whether the business will taper down in future? Any perspective on that?

[Yasir Rawjee, executive]

So parent business will continue. Of course, we have been operating at an arm's length. So in that sense, nothing changes, right? We -- but it's a significant business. There is an agreement that this business will continue for a period of 5 years, okay?

And just like Glenmark Pharma is an important customer for us. Glenmark Life Sciences is also an important supplier to Glenmark Pharma. We supply more than 65 APIs to Glenmark Pharma. So we expect that this business will be robust and will continue. Of course, we had guided in the past that with the sort of divergent strategies of Glenmark Pharma and Glenmark Life Sciences, we expect the overall contribution to our business from Glenmark Pharma to come down over a period of time, but we will continue to be an important supplier to them.

[Nitesh Dutt, analyst]

Got it. And sir, can you share some details around this 5-year agreement? Is it sort of a guaranteed offtake kind of agreement or is any kind of growth embedded in that?

[Yasir Rawjee, executive]

Yes. So like I said, right, our business with Glenmark Pharma has been an arm's length business. We, of course, need to be competitive, right? And so far, we have been competitive and have retained a significant business. Also, you need to realize that most of the business that we are doing with Glenmark Pharma, over 95% of the business is a regulated market business, right? So with a number of approvals that we have over multiple markets, right, this is a fairly sticky business and would continue.

[Operator]

The next question comes from the line of Charul Agrawal from Bank of America.

[Charul Agrawal, analyst]

Sir, could you help us understand how the CDMO business will move from where. You have mentioned that new projects that will pick up from towards. So could you share update on those?

[Yasir Rawjee, executive]

Okay. So see, CDMO has been a little bit lumpy, right? In the past, you've seen this as well. The good news for us on CDMO is that the current projects are on track on account of slowed demand on 1 of the projects, right? One of the commercial projects we saw this quarter, a dip in this quarter. But overall, this business will continue.

The other thing on the CDMO business is we've had a lot of traction from new customers or new projects, which we are currently -- where our API is being currently qualified. So the outlook on the CDMO business for us is going to be pretty strong going forward, right? In about a year's time, we should see at least another 2 to 3 projects added to the basket.

[Charul Agrawal, analyst]

Sir, could you also help understand if among the new capacity that is planned, the brownfield capacity, is there some capacity that will be devoted towards CDMO? And if so, how much would it be for CDMO?

[Yasir Rawjee, executive]

So as far as capacity goes, it's an overall capacity build. So if you recall, in Ankleshwar, we had taken up this 1 large block of 400 KL of which 192 KL came online in Q4 of last year. And this -- by this Q4, we will have another 208 KL built out. So that's going to be significant.

Now this will be both for the generic as well as the CDMO business. So we don't have dedicated capacities for CDMO. So far, none of our CDMO customers have asked for dedicated capacity. It's only 1 project, 1 current commercial project that has a dedicated capacity. And that is by virtue of the technology that is in use for that project. So overall, for our CDMO projects, we don't have dedicated capacity.

[Charul Agrawal, analyst]

Sir, 1 last question for me. Tushar, if you could help us understand what would be the CapEx guidance? And then would the OpEx come for the Ankleshwar plant? Has it already come in or is it supposed to come from next quarter?

[Tushar Mistry, executive]

So Charul, we have been guiding to INR 150 crores to INR 200 crores of CapEx in the current year. We will be more towards the INR 200 crores of CapEx in the current year is how we are looking at CapEx for the current year.

[Charul Agrawal, analyst]

And regarding the OpEx, is it already raised for the Ankleshwar plant or will it come over from the next quarter?

[Tushar Mistry, executive]

So we have expansions happening in Ankleshwar, also in the Dahej and also a bit of Solapur that I explained in my opening remarks. So we are starting on Solapur as well now. Some part of that is dedicated towards that as well.

[Operator]

[Operator Instructions] The next question is from the line of Sumit Gupta from Motilal Oswal.

[Sumit Gupta, analyst]

So I have 2 questions. First is regarding the employee expenses. So there has been like nearly 300 bps jump in the employee expenses as percentage of sales. And why is this so? And what is the trend do you see going forward?

And second question is on the line of the like EBITDA margin. So in 2Q on like there is 1 trend that 2Q, in general, is moderate with respect to other quarters. So why is that so?

[Tushar Mistry, executive]

Actually, the answer for both is the employee cost itself. So your question on employee cost, as I again mentioned in my opening remarks, there are certain talent management costs, there are certain expenses that we have incurred on bonuses through some employees, which will have impact in the -- which have impacted in the current quarter as will continue to have some impact in the near term.

And that's what we are seeing for the current year, the impact will remain. And that also answers your EBITDA margin question where the margin has come to 29% compared to around 31% in the past.

[Sumit Gupta, analyst]

Okay. So this trend would like continue in '24 and '25, this 28%, 29% EBITDA margin?

[Tushar Mistry, executive]

This is for the current year that I'm saying, not for the -- we'll see for the next year, we'll guide as we come closer to that time.

[Operator]

[Operator Instructions] The next question is from the line of [ Bala Murali Krishna ] from Oman Investment Advisors.

[Unknown Analyst]

Regarding CDMO business, 1 project is getting delayed because of some regulatory approvals since the last few quarters. Could you please update on that? What is the status on that...

[Yasir Rawjee, executive]

Yes. So see, from us, from GLS' perspective, API has been supplied, okay? And the customer has taken validation batches already at their end. But they are looking to enter 50-plus markets here, right? So from a regulatory perspective, they are aligning all their regulatory filings, and as a result of which there have been delays. But it is on track. It is going well, okay?

So we do expect it to come, hopefully, by the end of this year, okay? But like I said earlier to Charul's question is that we have added -- we are actively pursuing other CDMO projects which are moving much faster. And in about a year's time, we should see another 2 to 3 projects added to our pipeline. Currently, our entire CDMO business is driven by 3 commercial projects. So another 2 or 3 will make a significant impact on our CDMO revenue.

[Unknown Analyst]

Yes, that's fine. And regarding this margins, so when this -- for upcoming 4, 5 years when GPL -- is supposed to supply to GPL. So is there any possibility to get some impact on the margins where we can maintain the same 30% kind of margin for the maybe 2, 3 years down the line?

[Yasir Rawjee, executive]

Yes. So again, right, the GPL business is an arm's length business, right? We continue to remain competitive on that business. And -- the margin profile is an overall -- it's a function of our mix, right? And considering that we've got a fairly large number of launch molecules coming up, right, plus CDMO business growing relatively, we expect that the margin profile will at least stay in the same region.

[Unknown Analyst]

Okay. And regarding this upcoming 200 KL capacity addition in H2. So we can see on the incremental revenues from this or it's like consumption will be catered to [indiscernible]?

[Yasir Rawjee, executive]

No. We have planned part of it for backward integration and part of it for intermediate. So the demand is high, right, for both segments, the BI as well as the intermediate. So we expect that it will have a fairly quick uptake on utilization. The new capacity that will come online by Q4.

[Operator]

[Operator Instructions] The next question is from the line of [ S. Mukherjee ] from Nomura.

[Saion Mukherjee, analyst]

Yes. Sir, I wanted to understand this agreement with Glenmark. So you have an agreement for 5 years for offtake. Are there any other clauses like non-compete clause, can Glenmark produce some of the APIs for it's in-house consumption and also on pricing, what kind of protection we have in [indiscernible]

[Yasir Rawjee, executive]

Tushar?

[Tushar Mistry, executive]

Yes. So, Saion, this is -- the non-compete is there for both Glenmark Pharma as well as for Nirma as well. So Glenmark Pharma will have to restrict from doing the APIs that Glenmark Life Sciences is doing. And so will Nirma will have to avoid doing any formulations that Glenmark Pharma is being using Glenmark Life Science APIs.

[Saion Mukherjee, analyst]

Okay. So for, let's say, future pipeline projects for Glenmark, Glenmark can develop its own APIs for its internal use? I mean is it restricted to the basket that Glenmark Life Sciences is currently catering to or even for, let's say, future baskets, future products over the next 5 years, is there a restriction there as well?

[Tushar Mistry, executive]

The pipeline products can be done by Glenmark Life Sciences or by Glenmark Pharma, depending upon how the arrangement goes, but there is no restriction there.

[Yasir Rawjee, executive]

Yes, I just like to clarify on the pipeline, right, Glenmark Pharma has already qualified quite a few GLS APIs. So that will come under the agreement. But anything new, right, that they want to develop, right, that they can go ahead and develop because I had explained in 1 of my earlier calls that there is a divergence in the portfolio approach of GLS and GPL, right?

And so if we are not going to develop certain APIs for our own reasons, driven by our business, right, they are free to go ahead and develop those APIs because it doesn't anyway fit in our bucket.

[Saion Mukherjee, analyst]

Okay. And sir, secondly, have you sort of shared any guidance?

[Yasir Rawjee, executive]

Shared what? Could you please repeat? Your question was not clear.

[Saion Mukherjee, analyst]

Yes. Sorry, sir, I was asking EBITDA margin guidance for this year and for FY '25.

[Tushar Mistry, executive]

So we stick to our guidance that we have been giving in the past for a long term -- from a long-term perspective, that both on the revenue as well as on EBITDA revenues will be within the mid-teens range and the EBITDA margins will be around 30% kind of range over the long-term period.

[Saion Mukherjee, analyst]

Okay. And do you think you'll have 30% even this year, FY '24?

[Tushar Mistry, executive]

This year, as I mentioned, there are certain employee-related expenses also coming in, which will have some temporary impact. But other than that, we will remain within that range.

[Saion Mukherjee, analyst]

Okay. So this quarter's EBITDA margin is representative of what we should expect for the full FY '24? Will that be a right assumption?

[Tushar Mistry, executive]

You can assume that, I would say.

[Saion Mukherjee, analyst]

Okay. And sir, finally, a more strategic question in terms of -- I don't know, I mean, at this point, how much you can share, but within the Nirma [Technical Difficulty].

[Operator]

Excuse me, Mr. Mukherjee, the line for you is unclear at the moment. If you could please repeat your question?

[Saion Mukherjee, analyst]

Yes. Am I audible now?

[Operator]

Yes, this is better.

[Saion Mukherjee, analyst]

Yes, sorry. I was asking from a strategic perspective, what -- under the Nirma Group, what all you think you can do, which were possibly you couldn't have pursued under -- within the Glenmark framework. So if you can elaborate that? Is that the CDMO piece coming out of a generic company or anything like that, if you can elaborate? Strategically how things change for Life Sciences now?

[Yasir Rawjee, executive]

No, see, from a strategic perspective, right, we will stay on track with respect to the strategy, right? However, once the regulatory approvals come through and the transaction is closed, then we would explore various options because you realize that the API space is extremely wide. And there are a large number of opportunities that for historical reasons, we have not pursued, okay?

So very likely that once the regulatory approvals come through and the transaction is concluded, we would be sitting and sort of working out the strategy with the new promoters. And so things will become better clarified once that happens. So I'd request that you give us some time before we come through on that. It's very difficult to speculate at this point, right, in terms of what we will be doing. But I can say that we expect to do more, for sure.

[Saion Mukherjee, analyst]

And sir, when you say more, is it more on the CDMO side, some developing relationship with innovators? I mean anything on that -- color you can give? Or I mean, at this point, is there anything that Nirma brings to the table which can help?

[Yasir Rawjee, executive]

So that's what -- see, CDMO and API are part of our current strategy anyway, right? I mean, and we -- like I explained earlier, right? We've been getting significant traction on CDMO even now, right? And given the fact that it's a more sticky business, right? I mean that's something we will definitely continue.

What I'm referring to is things that in the past that we did not do, right? So these are the things that we would kind of explore with the new promoters, right, to see if we can expand in different directions. Like I said, too early to sort of put something on the table because we really like to have this to be a joint kind of have a clear understanding between us and the new promoters. So give us some time and we'll certainly come back. The key thing is that we first need to go through the regulatory approvals.

[Operator]

[Operator Instructions] The next question is from the line of Saad Shaikh from BOB Capital Markets.

[Saad Shaikh, analyst]

So my question was with regards to the PLI benefits we have recorded in the past for 3 quarters. So since we are disassociated with the parent and they have the PLI mandate, so how this benefit will be going forward? Could you comment on that?

[Tushar Mistry, executive]

Sorry, you're saying the PLI benefit going forward?

[Saad Shaikh, analyst]

Yes, after Nirma takeover.

[Tushar Mistry, executive]

Yes. So -- the current understanding is that the PLI benefit will continue until the time we are a part of the GPL Group. Beyond that timeline, we are still exploring what possibilities will be there and how it will pan out. We don't have the clarity yet on that. But nevertheless, even if it had to be there, it's 100 to 150 basis points of impact which we are sure we'll be able to cover, otherwise.

[Saad Shaikh, analyst]

Okay. And on working capital, is there any plans to improve from there onwards?

[Tushar Mistry, executive]

No. I think the effort to keep on improving on that continues, but as doctor explained, the geopolitical scenario currently is so volatile that we don't want to be very thin on the working capital. We rather would invest some part in it and sit on some of the inventories rather than do too much correction there.

And we are being cautious there. So we have not increased the working capital from the levels that we saw in March. We have remained at that level. But we don't expect it to go significantly high from here or anything that can significantly change from here.

[Operator]

[Operator Instructions] The next question is from the line of Charul Agrawal from Bank of America.

[Charul Agrawal, analyst]

I wanted to clarify regarding the EBITDA margin guidance for FY '24.

[Yasir Rawjee, executive]

Yes, Charul, go ahead. So I just give that to Saion, that -- the long-term margin remains to what we have been guiding in the past of EBITDA margin in the range of around 30%, and that will remain. In the near term, it will -- you will see some dip happening in the current year because of the employee expenses that we saw.

But otherwise, from an overall long-term perspective, it should remain in the range that we have been guiding.

[Charul Agrawal, analyst]

But, sir, even for the current year given that you are expecting CDMO to pick up over the next quarter and employee costs were already elevated this quarter, do we expect -- like do we not expect margins to recover from this level?

[Tushar Mistry, executive]

So again, it's a matter of product mix and CDMO playing out. I mean CDMO is something that we are expecting. We'll see how that plays out, depending on that, we'll -- so we are not saying that it may or may not have an impact on the margin. But it is all a matter of timing and CDMO is not something that we are absolutely certain that this will happen at this point of time.

It's -- there's a lot of regulatory involvement there. So it has to play out as per the timelines, right?

[Charul Agrawal, analyst]

Sir, you had called out that you were in advance discussions with 2 other customers and for those who had supplied validation batches and expected it to commercialize into work. So is it not -- is it still very uncertain or what is the outlook on those?

[Yasir Rawjee, executive]

No, Charul, it's not uncertain. The reason we were able to so categorically put it on the table now is because we have already supplied validation quantity, right? And that's why I said in a year from now, we would expect another 2 projects -- 2 to 3 projects to come in, right?

Let's realize that once we supply validation quantities, there's an approval cycle like Tushar was explaining, okay? And so whether it -- when it impacts our numbers is something we would not be able to say for certain. Whether it hits us and whether it benefits us in Q4 or whether it goes to Q2 of next year is something that needs to be seen, right? So that's where we can't be absolutely certain that these 2 new projects that are likely to happen soon, right, will kick in this year or by next year, that's the point.

[Operator]

[Operator Instructions] The next question is from the line of [ Bala Murali Krishna ] from -- sorry, that's Naman Bhansali from Perpetuity Ventures LLP.

[Naman Bhansali, analyst]

I just have 1 question with Nirma coming up on the Board, how do you see the management Board to change or would there be the total same Board? Or how would the roles change, if any?

[Yasir Rawjee, executive]

So the management will continue, Naman. Management -- there is no change in the management that we see. Obviously, the representation of Glenmark Pharma on the Board of Glenmark Life Sciences will go down and there will be representations from Nirma coming on board of Glenmark Life Sciences.

That is what we see as a change that is happening. As far as the senior leadership team and the other members of the Glenmark Life Sciences, they will continue as they are operating today. There's no change in that.

[Naman Bhansali, analyst]

Okay. Got it. And second question would be on the synergies. So Nirma has a big chemicals business going on. So do you see any other further synergies into our business? And secondly, on 1 point, you mentioned that you would be open to exploring other CDMO opportunities which you haven't done previously. So are there any such opportunities which could be opening up with the promotor change?

[Tushar Mistry, executive]

See, Naman, from a long-term growth strategy perspective, we'll have to really wait for us to interact with the new promoters and get the strategies in line with them. As of now, our strategy that we have been talking about in the past remains. Whatever will come, will come on top of that.

So it will only be accretive to our current strategy. But we would -- really that we'll have to wait until the time all the regulatory approvals and all are done, and then we are able to then interact with the new promoters to give some strategic way forward on this.

[Naman Bhansali, analyst]

Got it. Got it. And lastly, just to point out the oncology and complex business which we are bidding into, so when do you see the medium pick up coming in, in this particular segment of the business?

[Yasir Rawjee, executive]

So see, onco has picked up really well, like we explained last time, we have 9 molecules already in onco in the pipeline, okay? Three have been validated already, okay? And we continue to see a good amount of traction in all of them. Of course, they are at various stages in development. Some have sort of immediate offtake in terms of validation, others because they are newer APIs, right, are currently being seeded with customers.

So they are in various stages of the development life cycle. But the good thing is that I think we made the right play at the right time with onco. And with our onco facility also coming up on thin time, we are able to validate the new APIs in time to be able to supply to customers. Commercial will sort of take its time. But I mean, some of them will happen pretty soon.

[Naman Bhansali, analyst]

Got it. Got it. I understand. And 1 last, if I can squeeze in, related to the employee benefits expenses. So we are seeing a INR 67 crores number this quarter. And historically, we've seen that Q2 is a higher number for us, but it tapers down for the remaining quarters. So are we expecting a phenomena this year also; Q3, Q4 will take a dip?

[Yasir Rawjee, executive]

Sorry, Naman, you are again talking about the employee cost part?

[Naman Bhansali, analyst]

Yes, yes. I was saying that in Q2, generally, we have seen it is a higher number, but over the next second half of the year, it generally tapers down a little bit from that day.

[Tushar Mistry, executive]

So you will see a bit higher than what it has been in the normal times in the past. So you should expect some higher costs for the current year.

[Naman Bhansali, analyst]

Got it. And you mentioned some talent acquisitions going on in that space. So could you point out any specific ones?

[Tushar Mistry, executive]

Sorry?

[Naman Bhansali, analyst]

You mentioned in the opening comments that there are some talent acquisitions going on due to the...

[Tushar Mistry, executive]

No. I mentioned not talent acquisition; talent management, I mentioned. So it is more to do it from a management perspective, nor from an acquisition. No new -- no further acquisitions that we are looking at from a talent perspective.

[Operator]

[Operator Instructions] The next question is from the line of [ Bala Murali Krishna ] from Oman Investment Advisors.

[Unknown Analyst]

Regarding the CDMO business, if we can commercialize the upcoming quarters, what would be the peak revenue potential we can expect in FY '25, FY '26?

[Yasir Rawjee, executive]

[ Mr. Murali Krishna ], you'll have to repeat. I could not follow the question, please.

[Unknown Analyst]

Yes. In the CDMO segment, if we can commercialize the upcoming 2, 3 projects which you are talking about in the upcoming year. So what could be the peak revenue potential we can expect in FY '25 from the CDMO sector?

[Yasir Rawjee, executive]

So currently, we do about INR 150 crores with 3 projects, right? The 2 projects that I mentioned, plus the one that has been taking some time. So if we add another 3 projects, we would expect revenues of a similar nature.

[Operator]

[Operator Instructions] Ladies and gentlemen, we will take that as a last question for today. On behalf of Glenmark Life Sciences, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.