SEQUENT - Sequent Scientific Limited Share Price

In the recent earnings call, management provided a positive outlook for Viyash Scientific Limited, emphasizing strategic growth and financial stability. Highlights include:

1. Financial Performance: For Q3 FY'26, revenue from operations reached INR 858 crores, an 11% year-on-year increase. Adjusted EBITDA was INR 185 crores, marking a significant 64% growth year-on-year with an EBITDA margin of 21%, up by 390 basis points. For the nine-month period, revenue was INR 2,500 crores with a 12% increase, and adjusted EBITDA exceeded INR 500 crores, up 58% year-on-year.

2. One-Time Expenses: The quarter included exceptional items totaling approximately INR 49 crores due to merger-related costs and tax regime changes. Despite these, management expressed confidence in sustaining EBITDA margins above 20%.

3. Growth Strategy: Management plans to leverage a stronger balance sheet, focusing on organic growth and selective acquisitions, especially in the companion animal market, which is anticipated to grow substantially due to rising pet ownership. They highlighted the opportunity presented by a relatively low genericization rate in companion animals, currently at about 15%.

4. Market Expansion: Key growth areas include enhancing presence in Turkey and Brazil for animal formulations and exploring the U.S. market. They confirmed plans for rapid growth in companion animals and are evaluating partnerships and potential acquisitions.

5. Future Projections: Management reiterated a target to achieve INR 4,000 crores in revenue and maintain a 20% EBITDA margin by FY'28, supported by ongoing integration efforts and operational efficiencies.

The optimistic tone from management highlights their commitment to leveraging synergies from the merger and capitalizing on growth opportunities across segments.

Question 1: "Now that this is a merged result, have the synergies been fully captured or is there much more to come? Is this EBITDA margin of 20% sustainable?"

Answer: Yes, the 20% margins are sustainable because we now have four segments to support each other. While synergies are still to be fully factored in, we expect operational synergies from measures like shutting down redundant sites to create savings. This will be reflected more in the coming quarters. Overall, we are confident in maintaining this EBITDA margin.

Question 2: "Could you please share a bit on the future priorities?"

Answer: Our future priorities focus on growing the companion animal segment, CDMO opportunities, and leveraging our strong balance sheet. We aim for both organic and inorganic growth, with strategic initiatives in these areas being pivotal for sustained expansion.

Question 3: "The growth on the API side has been low single digits. Is this just a one-off quarter?"

Answer: The low growth in the API segment this quarter is primarily due to timing issues regarding CDMO contracts that got pushed to the next quarter. Overall, we anticipate steady growth moving forward; this was an anomaly.

Question 4: "Is it possible to give a number regarding CDMO as a percentage of total revenue?"

Answer: This year, we're expecting CDMO revenue, specifically from Animal Health, to range between Rs.70 crores and Rs.90 crores. This growth is projected to accelerate in the coming years as we convert more contracts into commercial activity.

Question 5: "What KPIs will you track for the expected merger synergies?"

Answer: We will closely track network synergies that we expect to reach Rs.50 crores-Rs.60 crores over the next 12-18 months. Additionally, we will monitor operational improvements and debt reduction, which will enhance our financial position and free cash flow generation.

Question 6: "What kind of target revenue mix do you foresee for Animal Health and API/CDMO over the next 3-5 years?"

Answer: We aim to maintain a mix of about 55% formulation and 45% API. We expect our formulation business, especially in Animal Health, to grow significantly, balancing with CDMO contributions to maintain this ratio over time.

Question 7: "Will the recent ban on certain antibiotics and antiparasitics impact your business?"

Answer: The ban affected only a couple of specific products and had a minimal impact on us. Most of our antibiotic production is focused on injectables, which remain compliant and are seeing growth in our Turkish operations, ensuring continued competitiveness.