SEQUENT - Sequent Scientific Limited Share Price

Viyash Scientific Limited's management provided a robust outlook during the earnings call for Q4 FY26, indicating a transformative year characterized by strong financial performance and operational improvements. Key highlights include:

1. Financial Performance: Q4 FY26 EBITDA exceeded INR 200 crores, marking a significant increase of 59.6% for the fiscal year, while profit after tax (PAT) saw a remarkable rise of 1,324%.

2. Revenue Growth: Total revenue for FY26 reached INR 3,420 crores, a growth of 13.8% year-on-year. Formulations revenue grew by 18% to INR 1,866 crores, whereas API revenue increased by 8% to INR 1,491 crores.

3. Future Growth Plans: Looking ahead to FY27, management is enthusiastic about their product pipeline and growth road map. They aim for a 30-40% growth in their innovator business, targeting a total addressable market of close to $1 billion in the companion animal segment in Europe.

4. Operational Improvements: The company has strengthened operational efficiencies across all business segments and is integrating the teams effectively post-merger. The focus remains on optimizing capacity and enhancing research and development capabilities, particularly for complex and high-potent products.

5. Capital Allocation and Debt Reduction: With a strong balance sheet and healthy liquidity, Viyash is strategically evaluating selective inorganic opportunities alongside organic growth efforts to create long-term value.

6. Synergy Tracking: Management anticipates continued synergy benefits from the merger, estimating that annualized synergies could reach INR 125-150 crores in the next year or so.

Overall, the management remains optimistic about sustaining growth momentum into FY27, driven by an integrated platform, upcoming product launches, and strategic investments in R&D and operational capacities.

1. Question: Could you kind of share some color on the CDMO business? How are we currently placed in terms of clients or products?

Answer: We work with 8 to 10 innovators on life cycle management and specialty products. Our CDMO business is growing, particularly in the last 6-9 months. We're seeing traction again after a challenging period in animal health. I expect about 40% growth in the innovator business in FY27, starting from a base of around INR200-225 crores. While the growth of our complex products is a bit further off, we're actively pursuing joint development agreements that will enhance our pipeline and expedite our market access.

2. Question: Regarding the minority interest, which subsidiary accounts for this? What is their scale in revenue and EBITDA?

Answer: We have two subsidiaries: one in the U.S. focused on human health formulations, with revenue around INR425 crores and majority control, and another in Spain with revenue of INR550 crores. Our control percentages are around 60%. Currently, about 20% of our PAT stems from these minority interests. We're considering options to increase our stake in both subsidiaries over the next couple of years.

3. Question: Can you provide more insight into the animal health portfolio, along with details about your partnership with Boehringer Ingelheim?

Answer: Our animal health portfolio includes APIs primarily focused on mature products. New products coming off patent till 2035 project growth potential. We are expanding significantly into companion animals, leveraging our partnership with BI to distribute their products and develop our portfolio. This partnership will enhance our formulation capabilities, aiming for a significant increase in product launches, particularly differentiated products for dogs and cats, over the next few years.

4. Question: What are your thoughts on the sustainable gross margin profile over the next 3-5 years?

Answer: We aim to maintain our gross margin in the range of 54-55%, optimizing our product mix by shifting towards high-value APIs and avoiding low-margin commoditized products. We also plan to invest in CDMO capabilities that may improve margins. However, achieving significant margin improvements depends on external market factors and operational efficiencies rather than drastic changes in our strategy.

5. Question: How is the company managing raw material availability and price volatility?

Answer: We have sufficient inventory to manage for the next couple of quarters. We anticipate some price fluctuations but have managed to minimize costs through efficient recovery of solvents and price increases. Therefore, for the upcoming quarter, we don't expect any material impact, but we will closely monitor the situation, especially if volatility persists.

6. Question: What growth rate can we expect over the next 5 years?

Answer: We believe a growth rate of 15% is achievable for the next few years as we focus on expanding our market access and product offerings. We are working on a detailed strategic plan to present soon, which outlines our initiatives and targets to meet this growth expectation.

7. Question: What can you say about the synergy benefits from the merger? How much has been accrued so far?

Answer: We are currently realizing around INR50-60 crores in annualized synergies from the merger. We initially targeted similar amounts but anticipate that with operational efficiencies and approvals coming in, we could achieve synergies of around INR125-150 crores over the next 12-18 months.

8. Question: What is your outlook on double-digit growth for the API business?

Answer: Our API business has seen single-digit growth primarily due to the strategic reduction of low-margin intermediates. We aim for double-digit growth by securing more approvals and optimizing our product portfolio. We believe we are well-positioned for that growth trajectory moving forward.