Ladies and gentlemen, good day and welcome to Glenmark Life Sciences Limited's Q1 FY22 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity to ask questions when the presentation concludes. I now hand the conference over to Soumi Rao, General Manager of Corporate Communications, Glenmark Life Sciences Limited. Thank you, and over to you, Miss Rao.
Thank you for joining us early this morning. We welcome you all to the Q1 FY 2022 earnings call of Glenmark Life Sciences Limited. This is our first earnings call post-listing. Today we have with us Dr. Yasir Rawjee, MD and CEO, Glenmark Life Sciences Limited, and Mr. Bhavesh Pujara, CFO, Glenmark Life Sciences Limited. As we begin the earnings call, here is a review of the operations of the company. For the first quarter ended 30th June 2021, Glenmark Life Sciences registered revenue from operations of INR 5,249 million, recording a YOY growth of 32.2%. EBITDA stood at INR 1,650.4 million for the quarter of FY 2022. EBITDA margin for the quarter was at 31.3%, similar to the margin profile for the whole of FY 2021.
Profit after tax was at INR 1,009.1 million, registering a growth of 34.5% against the first quarter of the previous financial year. The company's gross debt comprising of outstanding purchase considerations payable to the parent company was at INR 8,008.3 million as on ninth July 2021, and it has repaid the whole of its outstanding amount pursuant to the funds raised through the IPO. Working capital as on 30th June 2021 is at INR 9,089.4 million at 158 days on sales, improving from 176 days at the end of the financial year. I think this is the last financial year. Coming to the company's business performance. Revenues from the generic API segment increased 38.3% YOY to INR 4,803.4 million during the quarter.
This is driven by growth across all geographies. Key markets contributing to the growth are Latin America at 94.4%, North America at 35.5%, and rest of the world at 52.6%. The company's CDMO revenues registered a YOY growth of 11% at INR 388.9 million. This is mainly due to phasing of orders by customers, which is in line with our expectations. We expect a stronger sales trajectory from the next quarter. The company's regulated markets account for 67% of net sales in Q1 FY22, growing at 30.5% YOY, while emerging markets account for 33% of net sales in Q1 of FY22, growing at 37.6% YOY.
Products from key chronic therapeutic areas such as CVS, CNS, diabetes, pain management accounts for 56.1% of net sales in Q1 FY22, growing at 44.3% YOY. Amongst other operational highlights, the company filed 9 DMF/CEP across major markets, that is U.S., Europe, Japan, Russia, Brazil, South Korea, Taiwan, Canada, China, and Australia during the quarter, and the cumulative filing stands at 107 as on 30th June 2021. During this quarter, the company spent INR 185.4 million towards CapEx. In the generic API segment, during the quarter, the company continued development of its complex portfolio with strong progression of four iron complex molecules and four oncology molecules. The overall end market opportunity for these eight molecules is more than $15 billion.
With that, I would now like to invite Dr. Yasir Rawjee, MD and CEO of Glenmark Life Sciences Limited, to say a few words before we open the floor for the Q&A session. Before I do that, I'd like to read out the disclaimer. Some of the information in the document, 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 and uncertainty, which could cause actual outcomes and results to differ materially from the statements, depending upon the economic conditions, government policies, and other influential factors. Such statements should not be regarded by recipients as a substitute for the exercise 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, foreseen, or implied by these forward-looking statements. Thank you.
Soumi, thanks. Thanks for the introduction. Good morning to everybody. Thank you for getting onto the call. It's our very first call after the listing. It's going to be interesting, I'm sure. Welcome to all of you. I hope everyone is staying safe, your families are safe. We are going through this pandemic in as safe a manner as we can. Coming to Glenmark Life Sciences, we have had our challenges with respect to dealing with the pandemic. If I dial back a year ago, we were hit with the first wave. That was the time when we had to deal with a lot of uncertainty, whether it's related to people, their safety, what kind of protocols we need to put in place, how we need to operate the factories efficiently. How the material movement is also going to work out.
I would say that that was a big learning and we spent some time fine-tuning things. Fortunately for us, when the second wave hit us earlier this year, we were much better positioned to take care of the challenges. There were bigger challenges this time. The fact is that we were positioned well because of the learnings of last year. As a result of this, we've kept the operations pretty much under control with respect to people, how we keep our people safe, both at home as well as work, and how that all translates to a smooth operation. With respect to materials as well, there have been challenges both with respect to exports, imports rather, imports, exports as well as internal material movement. That, again, has been dealt with in a very smooth fashion.
Overall, I would say that things have worked well for us in the second wave and we've been able to ride through this difficult period fairly well. Coming to the IPO. You all know the numbers, right? The IPO was oversubscribed many times. We'd like to thank the entire investment community, all the investors, the retail investors, the QIBs, and everybody for participating because it gave us a huge vote of confidence on the business, on our ability to take the company forward. Thank you once again for being there for us, and we'll make sure that we deliver to you as promised and hopefully even better. Let's turn now to the business real quick. Okay. This is the first quarter of FY 2022, and it's our first earnings call with analysts and whoever has joined to the call.
Basically, the quarter has been a very solid quarter. We had 15% growth, like Soumi said. We had this on the back of a very strong generic demand that came from across geographies. Our CDMO business was a little bit lower than what we saw last year. That's something that it's expected. It's not something that we don't expect that will happen. Okay. Because we don't see in any of our businesses a sort of very steady quarter-on-quarter demand. It's a function, I would say, of the business and the way the customers phase in their demand. Overall, the business has been very strong. We believe that given the kind of demand that we're seeing across geographies, this business will continue to remain strong. Coming to execution, let's talk. I would like to split this up into three parts.
We'll talk about short term, long term, and midterm. On the short term, I think our priority for execution is to stay focused on customer service and being able to deliver for the customers. In times like this, that's what the customer expects from us, is to continue to service their demand consistently with good quality and not fail them in any way. That's something that we have, like I said, done to keep control on the way we handle all the issues related to the pandemic. That is something that will continue. When it comes to midterm, there are a couple of priorities. One is related to R&D, and that is that we continue to make sure that our filings happen on time. These are not only the new filings, but even the cost improvement projects that we have taken up.
We continue to deliver on the R&D filings. Apart from that, we need to stay focused on the long term as well. Now, you would know that we have embarked on two projects of capacity expansion. 1 is a brownfield expansion and the other is a greenfield expansion. The brownfield expansion is well underway. We have got 4 modules that are being built as one plant, one independent plant in Dahej and at Dahej facility. This module will become operational in quarter four of this year, and all four modules are expected to become operational by quarter two of next year. The greenfield expansion is something that is going to start after we get clearances October or November of this year. This will basically start getting operational in quarter four of this current year, FY 2023.
These are the two long-term priorities that we stay focused on. The last one is to ensure that our supply chains remain robust and continue to operate in a way that we continue to service our business. I think I will stop there and open it up for questions at this point. Thank you very much again for joining the call and we look forward to taking your questions.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good morning, sir, and thanks for taking the question. Sir, just because this is the first call, and since you talked about near-term, medium-term, and the long-term, if you can help us with some of those key business metrics. Because, for example, ROIC, I find it to be higher, 35%, 33%, which looks to be on the higher side compared to other peers. Similarly, the asset turnover. If you can give us some expectation of what's the sustainable business metrics as we are building on in terms of the return on capital employed, margins, free capital days, and asset turnover.
Okay. Let me hand that over to Bhavesh. He'll give you numbers and also basically explain what is it that we are going to be doing so that we try to keep these numbers as consistent as possible going forward. Because there will be fresh investments, and obviously, that is likely to move things around. Bhavesh, will you please give a sense in terms of how we are going about it?
Sure. Sarvesh, to your first part to your question. I think our nature of business is quite differentiated. Particularly, the API product portfolio is slightly operating. We predominantly deal with high-value APIs. Our revenue to tonnage ratio is relatively higher when you look at some of the other players in the industry group. That means, let's say, on an average, our APIs in the range of INR 200 a kg to almost INR 800-900 a kg. What it does is that it gives us more turnover per unit of investment as well. That is the aspect around the high FATR that you asked about. The second aspect is the combination of high FATR and high EBITDA margins. In turn, leads to a over 32% kind of ROCE for us. That's the mix here.
Our focus is going to be continuing in this space. As we branch out our product portfolio into the complex platform, this will further strengthen the profile. On the middle line front, we continue to focus on working on cost improvement projects. Any pricing pressure that we might encounter is sufficiently offset that has been our track record so far. That's how the entire return and profitability behaviors are stacked out. The working capital cycle, there has been a continuous improvement that you could see from the numbers that we have given in the prospectus, you can see our quarter one results as well. Right now we are operating with a working capital cycle of about 158. Going forward, also we would like to stick to this 150, 155 day kind of range.
As we expand into the form of additional investment, we are going to focus on increasing our R&D capabilities and manufacturing capacity expansion. There might be a slight dip in the momentary dip in the fixed asset turn, but with the working capital cycle improving, I think our ROCE profile should still remain robust at 30%+ level going forward.
Understood. Secondly, with this expansion that we are going to, one of the problems which may occur when we are focusing on these high-margin products is that the scalability might be limited. Now that we are expanding significantly, do you see that there is enough opportunity in the spaces that you operate? Secondly, if you can give some sense of the timeline by which we can get 100% utilization on the brownfield and the greenfield.
Okay. Look, as far as expandability into the new facilities and at the product level, the good part is that our brownfield has already been inspected by the U.S. FDA and other agencies. Anything that comes in these facilities is basically going to be a very simple kind of variation approval that we go through in order to bring these facilities online. That would be relatively straightforward. Now, obviously, coming to the greenfield, like Bhavesh said, there would be a little bit of a time lag. We have a significant emerging markets business also. We would be looking at bringing in, executing that business from the greenfield site.
Yeah. If you could comment on the scalability as we scale further. Will we able to get the same high margin profile that we have for our current business, high margin, high revenue alternative business?
The high margin comes from the fact that our portfolio is pretty well differentiated.
Okay.
The geographies in which we operate, being highly regulated geographies, basically do not bring us into this highly commoditized space that usually happens in markets that are the less regulated markets. As long as we keep our geographic focus in these markets, right, we are likely to see a margin profile that is going to be sustained going forward. Your question probably relates also to taking a higher market share, right? In cases, in products where we are at a lesser market share and want to grow our market share, will we do it in a way that we take market share at the expense of margin? I think we would be judicious, Sarvesh, in doing that other than just jumping and just take market share and then just because we are scaling up.
We've got enough depth on the product pipeline, not to need to do that.
Understood. Thank you and all the best.
Sure. Thanks, Sarvesh.
Thank you.
Operators.
You may mute star and one to ask the question. The next question is on the line of Saha Mody. Please go ahead.
Good morning. Thank you for providing me this opportunity.
Saha, sorry to interrupt you. May I request you to speak louder?
Very good morning. Thank you for providing this opportunity. [audio distortion] , I would like to know what is the percentage of R&D spend vis-a-vis the revenue for first quarter?
It's just under 2%, Saha. R&D spend for this quarter was just under 2%.
Okay. What is the expected future spend?
Typically, we operate between 2%-2.5%. This year is probably going to look like that. We've been operating at around just over 2%. Because of relatively high revenue this quarter, it dipped to about 1.8%. Typically, we would be between 2%-2.5% this year. Going forward, it will probably inch up to around between 2.5%-3%, but it will not exceed that.
Okay. Basically, this quarter had a generic growth of around 38%.
Are you expecting the same trend to later continue for the generic or is it due to the lockdown impact last year, so the figures are a bit higher side?
Okay. See, the lockdown impact of last year, I think you're referring to the thing about people building up inventories and stuff, right? I don't think it has anything to do with the lockdown last year, okay, in terms of this demand being so solid. People don't continue to keep inventory for 4, 5 quarters in a row, right? Obviously, they build this inventory and then they kind of go flat with respect to how they build their demand going forward. With us, we are seeing, like I said, a pretty solid demand across geographies. We hope that this will continue. We believe that there are very good reasons why this should continue, because there is this China plus one that is very real, and we are seeing robust demand on the back of this kind of mindset on the part of the customers.
This will continue, I believe. Again, like I said, we've had pretty solid growth across regions and this demand is likely to stay.
Okay. The last thing I wanted to know about the new customers for the current quarter and the revenue breakup by top 10 customers or for more than 50% revenue contribution.
Yeah, well, new customers, we might have to come back to you on that, right, in terms of what new customers we had this quarter. Right? We do keep adding customers in various geographies, so that would be there, and that does drive our growth. Okay. With respect to the customer concentration, yes. You were talking of product concentration, right? Or customer concentration? Actually, let me tell you both. Right? We do have fair amounts of customer concentration, right? We deal with top customers who take multiple APIs from us, and they are engaged in multiple projects for quite a few years now. Our top 10 customers account for about 65% of our business. Okay. In terms of products, a very similar kind of thing is there where our top 10 products account for about, again, about 65% of our business.
I think that's a good thing because we have a whole lot of customers after these top 10 that also contribute quite significantly. At the product level also, we have a pretty deep pipeline. As newer and newer products come in, a product that is today a top 10 might drop to number 11 or number 12, but then another player will come in and take sixth place. That's the benefit of having a very strong and deep pipeline.
Was the percentage revenue from group company Glenmark for the current quarter?
Yeah. The percentage revenue was 50% this quarter from group company.
All right. All questions are answered. Yeah. Thank you.
Thank you.
Thank you very much. Participants, you may press star and one to ask a question. The next question is from the line of Surjit Pal from Prabhudas Lilladher . Please go ahead.
Thank you. Good morning. What you are saying is that, you have a strong demand traction, and you don't think that last year's basic does not have any reason to believe that the growth of sustainability for three years would grow. Do you like to say in a way, this kind of 50% growth is sustainable for your year-on-year business for the quarters?
I would not give a number. I can say that whatever we have seen, okay, if you look from the time the pandemic started, okay, is that the growth has been good, right? If you go back and look at last year, we did 22% growth. From a demand perspective, things have been very strong. Okay. That we have seen across now four to five quarters, including this quarter. Is it something that will be consistent across quarters in terms of number? I don't know. It's unlikely. In our business, there is a bit of a, I would not say, cyclical, but yeah, the demand does go up and down. It's likely that, in the next quarters, we may not see a 13%, 31% growth.
Over the years, we are looking at a growth of 16%-18% growth in our business.
Yeah. Basically, that is my point is, you know, continuous kind of growth may not be sustainable. Thanks for your time.
Sure.
When you say you have a differentiated product, when you say things, we know that API is pretty easily copyable by the peers and very fast within six months. Every, generally, flooded the market with cheaper version. I just need to understand two things. One thing is that what could be the contribution of top five molecules? I mean, the name of these top five molecules if you can tell us. Second thing is that what could be these molecules change of typical time period to change of Okay.
Let me answer that first question, okay, in terms of anyone being able to make these molecules. In our business, it's not just about making the molecule and the chemistry. It's about positioning yourself in a market. When you look at regulated markets, that's where our concentration is. You not only have to have the technology to make the molecule, there are a whole bunch of other things that go through. You demonstrate to the health authority, like an FDA or European authority, that this molecule, which is an API, can go into the drug of a patient. This is not a simple matter. I'll put it to you in a different way. If you do a Google search on our molecules, you can look at any of our molecules on our website.
If you do a Google search, you'll find 10-1 2 players or even more making these molecules. Are all these players who claim to make these molecules, will they operate in the regulated market space? Very unlikely. Just to give you an idea, to file a single API in a regulated market, you need to make about 60 - 80, sometimes even 100 impurities. Every company cannot do that. I can assure you. It's not a simple matter that you just make the molecule and then you manufacture and then you're able to sell in the market. I mean, maybe it's possible in some markets, but it's obviously not possible in those markets where we operate.
From the stability perspective, our business has got a lot of stability in terms of our customers having that trust on us that, look, we not only will deliver API to them consistently, but it will be of a high quality, a consistent quality, and it will come with all the documentation and all the support which is required to be able to satisfy the health authority of that country, that our API is fit for the drug in that country. I hope, Surjeet, that answers that part of the question. When it comes to molecules, I can tell you what our top five molecules are today. What our top five molecules are today would not be the top five molecules next year, right? There would be newer molecules that I see that will continue to help growth and continue to add.
Just to give you a sense in terms of what are our top molecules. We have rosuvastatin, we have colesevelam, we have eplerenone, we have perindopril, we have telmisartan, we have oxcarbazepine. These are some of our top molecules.
You say that on an average, the top five molecules stay at the top five is generally around a two-year span? Or how long these are the names which you have taken, they're in top five?
No. Can you repeat that? I missed the question.
How long these top five, which you named, have been there in top five gross in your company?
See, that's relative to us, right? Today, what I named have been top five molecules right at this time. Another set of molecules that we know are growing very nicely, right, will, in a matter of six months to a year, become number three, number four, and then what is today number four, number five, will go down to number six, number seven. That's how it happens. Right? See, the molecules that we have commercially even today also keep growing as we expand geographically and the customer base.
See, I clearly understood. No. I just want to have an idea is that there is various kind of companies. The kind of companies which founder pharmacies that the complex molecule have been staying two, three, four years, five years or so in generics, right? Some of the companies where they are churning out very fast. They don't care. Their maximum stay of their top five molecules in top five is generally one year. What could be your average stay of the top five molecules in top five? That I need to understand. I need to understand.
On the line for the participant, dropped .
Okay, sure. I should take the next question.
Yes. Instructions to all the participants. Please restrict to two questions per participant. If time permits, please come back to the session queue for a follow-up question. The next question is from the line of Nitin Agarwal from DAM Capital Advisors. Please go ahead.
Thanks for taking my question. Yasir. Two things. One is A, at a broader level, the management team in GLS, you've been around for a few years now. The management team has also been doing a lot of management changes as you have done recent times. In your own assessment, I mean, what are the changes that the business has seen over the last two or three years, and what implication does it have in terms of future growth trajectory of the business? If you probably just give us that.
Sure, Nitin. Okay. Talking about the management team first, right? Yeah, I've been here since 9 quarters. Okay. I've just finished 9 quarters. This is my 10th quarter. Okay. We needed to build a newer team because we needed to give this business a very strong focus, an outward focus. Okay. In order to do that, I mean, the team was built. Now, what has happened in the last two and a half, three years is. Let's start with R&D. We've sort of got our portfolio, right, to become, I would say, a much more productive portfolio going forward. We had a pretty good portfolio and our R&D team was doing a good job. It was pretty spread out. Okay.
The launches that we would have seen from our portfolio earlier, a lot of them were going to happen in 2021, 2022, 2023. Okay? This is the year 2021, 2022, 2023, and even beyond. That did not make sense to us, right, when we relooked at the whole thing. This is about two and a half years ago. We said, "Okay, let's just go and focus on a portfolio that we will be able to launch in the nearer term." Okay. Let's look at molecules that we can bring in in 2023 - 2026 timeframe, and even earlier, if possible. That's one change we made, right? The other thing that we also did in R&D is got a lot more focus on the cost improvement side.
While launches were slated to happen, our second-generation process was not going to happen soon enough to where the customer would start feeling the competitive price pressure at the front end and would come back to us and ask us for a better generation process. That we did, and we did very effectively, Nitin, I can tell you. So much so that even in the last year, we've been able to supply customers very effectively with second-generation processes. As a result of that, our customers have not only retained their market share but are likely to even grow market share, which obviously means more business for us. That's on the R&D side. Coming to capacity and the utilization. Our capacities, by the way, are all fungible capacities. They're all multipurpose plants.
The two large plants had a lot of gaps in terms of our ability to debottleneck. We did this again very effectively by debottlenecking a lot of products, and we were able to increase capacity with a relatively small CapEx spend in the last two years and make both our dealer sites much more efficient in terms of being able to churn out more API. Bhavesh referred to that in terms of our FATR. Our FATR in the last two years also, two and a half, three years, has also improved much better. That we've done with the current capacities. The third thing that this team has done in the last two and a half years is that we have sharpened our geographic focus to not only work in the regulated market space, which is our forte.
I explained to Mr. Surjeet Pal earlier that we work in the regulated market space and that's a pretty tough market space. It's not anybody's game, okay, to just go to a regulated market and operate there. The point is that while we continue to stay in the regulated market space, what we also identified is a lot of emerging markets are becoming more and more regulated. That's where, if we focus on those markets like Brazil, Mexico, Taiwan, Korea, Russia. We have a lot more business to take because the health authorities of those countries are becoming much, much more demanding and stringent in terms of data. Our ability to satisfy those health authorities essentially means that we are then able to take more and more business with the customers in these markets.
I would say that all in all, this team has been there for two and a half years. It has been extremely impactful in being able to not only impact the business today but also have a very different trajectory for growth for this business in the next five to seven years.
Thanks, Alot. Helpful. I think just kicking off from there, I think earlier in the comments you mentioned that you feel comfortable with the 15%-18% growth over a period of time. In terms of composition of that growth, see what we've seen historically in the different companies that are there in the API business, lot of the growth that we've seen historically has been on the legacy portfolio. That essentially will remain a mainstay for them going forward. Is this the same way our growth confluence is going to look like? How should we look at our growth sort of very broad brush out in terms of what the right growth for us going forward?
Okay, Nitin. See, the thing is that while, like I said, we have a very deep portfolio. Again, it's in a sort of non-commodity space, right? We expect that even this base portfolio will have a pretty healthy growth just on the basis of the geographic expansion that I talked about. Having said that, though, we have newer molecules that are coming up. Every year, we are going to be introducing three to four molecules. These will obviously drive growth. The newer molecules. Add to that, what we are also doing is we will be introducing more complex molecules. Next year we'll be introducing one. There will be a much more rapid introduction of more complex molecules, which are higher value molecules. This is as far as the generic growth is concerned. We do have a CDMO driver.
While it's small today, and it's also a relatively small base. The kind of portfolio overlap that we have, the current generic portfolio and the likely CDMO opportunities is pretty significant. We expect that the CDMO business will grow faster than the generic business. One is because it's smaller. Also because it's got a lot more attention. Because we are talking about a whole new set of customers now in the CDMO. All this put together, I think will help us to drive both the generic business as well as the CDMO business pretty smartly. We have the base, we have the new molecules. On top of the new molecules, we have the complex molecules, and then we'll have the CDMO piece as well.
All this put together, we've got many levers to pull as far as the business is concerned.
Thank you. Original request with another conversation queue for a follow-up question. First call participants, please restrict your discussions to one participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Ashwini Agarwal from Ashmore Investments. Please go ahead.
Hi, team. Good morning. Two other questions from my side. One is that, when you were talking about, I'm taking off from where Nitin was. When you're talking about 16%-18% growth for the year, are you kind of implying that there is some large one-off component to growth in the first quarter? Or are you seeing pressures, given the kind of end product pricing pressures we are seeing, especially in the U.S.?
Okay. Ashwini, you have two questions. One is related to a one-off that gives us a 22% growth. The other is pricing pressure. Let me take the first 1 first. Yes, this quarter we had a significant sale of favipiravir. Favipiravir was quite significant. Even if I take favipiravir away, we are still at around 37% growth. If I take away the effect of favipiravir in quarter 1 this year and quarter 1 last year, our growth without ex-favi is around 27%. That's still pretty significant. Okay. That's one thing. Now, yes, as far as the U.S. is concerned, right, there is pricing pressure, and it always is there. It's not something that we don't have to deal with. The good part about it is, again, it doesn't happen uniformly across all the products of the same time.
While you may have heard of sartans, if you're following this space, right?
Yeah.
The sartans have been under pressure. Right. We have also seen a price pressure. Now, what happened to us, which is good, right, is that we increased the 2nd generation process for only sartan basically, right? We're able to move our customers to the next gen process. While there is a bit of price pressure now, right, and a little bit of margin pressure also. The good part is that we were able to handle the margin pressure because we were also able to negotiate much better deals on our raw material prices and sort of handle that. Longer term, the customers have already taken up our new material to be able to qualify themselves. Then, in a matter of another three to six months, they will move to the new gen process. That will insulate us from this whole sartan story.
The other thing is that we've got only two sartans really that we have to deal with. We don't have a whole bunch of sartans there. To address your larger question that do we deal with pricing pressure? We do. We do. It's a pretty well-calibrated approach that we take handling pricing pressure because we are ready with a second or sometimes even a third-generation process to be able to handle that.
Right. Thank you for elaborating on that. My second question is that, as you look forward, you spoke about CDMO in response to Nitin's question. How should we track this? Are there client engagements which are ongoing? When do you expect these relationships to justify? Will you be sharing with us on an ongoing basis what is your CDMO revenue component and having a new sign, any significant transactions?
See, Ashwini, at this point, right, I'm a little leery, frankly, of getting into a project-level discussion on CDMO. Right? It's a pretty competitive space, right? It won't take a long time for my competition to catch up with me in terms of the customers I'm dealing with. In our CDMO business, right, we are focusing on end-of-life cycle management, right? That has a pretty solid overlap in our portfolio. Okay. Overall, you'd be able to see that we would be chasing quite a few opportunities with the big players, okay, in this business. Where we have to be extremely careful and guarded, right, is on the high-potency opportunities, right? They are pretty specialized opportunities, and they take a while to get the registration period from the time we start the project to when it becomes commercial.
Is a sensitive period because basically we've got to tailor-make the molecule through the customer's requirements, right? Whether it's a different salt, whether it's a free base, whether it's some particular second challenge that we are dealing with in order to circumvent and make sure that the customer is in a, and us, of course, are in a safe zone. At this point, Ashwini, I would say that we would be careful, right, and not share what is in the works. I'm sure you'll understand as an investor or an analyst, you'll understand that this is something that we do need to be careful about. Coming to what is already commercial, right, we can share with you. Look, we have four projects, right? three of them are already commercial, right, and we are generating significant revenues from these. They are still growing, albeit at a lesser rate.
The fourth project is to be added in quarter of this year. That's going to be a significant project, which we are getting geared up to service in quarter four of this year. It may move to quarter one of next year, but we are keeping our fingers crossed because the customer is filing in multiple markets. We expect that some commercial gain will start coming in the second half of this year itself. I think we can share that much, Ashwini. I hope that's something that's okay with you at this point.
Yes, sure. Thank you so much for that. I'll come back with more questions.
Sure.
Thank you very much. The next question is from the line of Vikas Sharda from NT Asset. Please go ahead.
Yeah. Hi, very good morning. One question on the margin side. When I look at the first quarter and the fourth quarter of last year, because now the quarterly financial is reported. These two quarters, your margins are higher than the prior average. This implies that the Q2 and Q3 last year were below your average margin. Maybe you could elaborate on what the reasons are there. Secondly, how do you look at the volatility in margins in your kind of business, and what are the key reasons for that?
Okay, sure. Let me explain, right, how this whole margin game works. Right? I think the second part of the question first, right? That will explain the first part too. Basically what happens, right, is that we have a pretty distributed and diversified portfolio. We've got more mature molecules, right? As a result of competitive pressure getting into next-generation processes, the margin profile tends to dip. Okay. What also happens is the business becomes more mature with less competition easing out and so on. We are dealing with molecules here where we got. They are part of, I would say, the base, and these are molecules that were launched three to five years earlier before that. This forms the base and the margin profile typically of these is lesser than our average margin profile.
You have the newer molecules which we produce. Those typically tend to get us better margins. Because they are newer molecules, we are talking about a first-gen process, and then even the second-gen process takes care of the margin significantly. This is the second lever that basically adds to the better margin profile. It's a newer business. This keeps happening year on year. Where we keep adding newer molecules. Molecules that are three to four years old typically get us better margins. The third is the CDMO business. The CDMO business typically has better margins than the generic business. Even if it doesn't start off with a better margin, eventually we do get to a better margin because we work from the cost side and we don't normally have the customers.
This is how the whole margin game works. Coming to the Q2 and Q3 of last year, I talked about favipiravir in an earlier question where favipiravir was a significant contributor last year and even in Q1 of this year. What happened was in favipiravir, because it was a pandemic situation and we had to very aggressively introduce the API into the market, we did not make any kind of margin play and basically offered the API at relatively subdued margins. The idea here was to scale up and basically give volumes to our customers. As a result of that, volumes on favipiravir, the volumes gave us a better top line. Because of this approach that we took, the margin profile, which is a favipiravir, the overall business we took in Q2 and Q3.
In Q1 and Q4 of last year, we had less favipiravir, and we also had a significant CDMO business in Q1 and Q4 of last year. Basically these two reasons put together essentially give us the kind of margin profile that you have seen, where we had a much higher margin profile in Q1 and Q4, and a subdued margin profile in Q2 and Q3 of last year.
Does it mean that favipiravir had negative impact in this quarter again on the margins?
Not negative because I would not say it was negative.
Yeah, I mean subdued.
It's lesser. Definitely we are making good margins, but compared to our average margin, it's less. Okay. Is that okay?
Yeah, sure. Thank you very much. Ladies and gentlemen, due to time constraint, that will be the last question for today. On behalf of Glenmark Life Sciences Limited, this concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.