SEQUENT - Sequent Scientific Limited Share Price

Management provided a strong outlook during the earnings call for the first quarter of FY '26, emphasizing continued growth and improvement in financial performance. Key highlights include:

1. Revenue Growth: Sequent Scientific reported revenues of INR 4,414 million, achieving a year-on-year growth of 13.1%. This performance was driven primarily by the formulation business, which makes up 75% of total sales, and experienced a sales growth of 13%.

2. EBITDA Performance: The adjusted EBITDA for the quarter was INR 602 million, showing robust growth of 24.7% year-on-year and achieving an EBITDA margin of 13.6%. This reflects a consistent pattern of improvement in margins.

3. Profit After Tax (PAT): The PAT rose significantly, reaching INR 176 million, which corresponds to a year-on-year growth of 93.7%. The management plans to build on this momentum, expecting PAT growth to outpace EBITDA growth.

4. Geographical Contributions: The emerging markets saw substantial growth at 25% year-on-year, attributable to increased exports and price adjustments. European operations also showed improvement, while the Indian business delivered an 8% sales growth, with expectations to grow into double digits as field expansion continues.

5. API Growth: The API segment reached INR 1,054 million, achieving a year-on-year growth of 14%. New EU approvals were received, particularly for albendazole, which underscores strong demand from WHO-grade products.

6. Merger Update: The strategic merger with Viyash Life Sciences is progressing well. Key regulatory approvals have been secured, and the NCLT process is on track for completion within the estimated timeline of 12 to 15 months.

7. Future Strategy: The management highlighted continued focus on innovation, cost efficiency, and enhancing product offerings, especially in companion animal health. They aim to double the companion animal segment over the next three years and expect gross margins to trend towards 50% in the medium term.

Overall, the management expressed confidence in achieving sustained profitable growth and delivered a clear message of positive transformation within the organization.

Question 1: Shiwani: "Can you provide insight into the geographical growth across Europe, India, and emerging markets, especially given the geopolitical issues?"

Answer 1: "Yes, overall, we've been achieving good double-digit growth. The 25% growth in emerging markets is propelled by our expansion into new markets and increased exports from Turkey and Spain. For Europe, while we observe single-digit growth, it's due to a high base last year, but we anticipate it to stabilize near double-digits overall. India was previously subdued but expects to yield better results due to our expanded field force, which has increased nearly two-fold to about 200 people."

Question 2: Rachit Kabra: "Can you provide an update on the companion animal health business? Where do you see it in the next 2 years?"

Answer 2: "Currently, companion animals represent about 5% of our total business, primarily in production animals. We aim to double this within three years with new product launches and growing inquiries for companion animal APIs. Financially, its impact is still small, but it aligns well with our overall margins, which will likely increase as we introduce our anesthetic range and expand distribution in Europe."

Question 3: Vishal Manchanda: "Can we sustain the recent INR100 crores run rate in the API business?"

Answer 3: "Yes, we're targeting to maintain the INR100 crores run rate moving forward. With our ongoing merger and a robust R&D pipeline, we've aligned resources to support sustained growth. The anticipated uptick in product introductions should further reinforce our revenue stability in the API sector."

Question 4: Bharat Sheth: "Now that you're moving away from low-margin products, when do you expect to see improved top-line growth?"

Answer 4: "We've largely completed our low-margin product pruning, resulting in recent growth rates between 12% to 14%. Future top-line growth will derive from existing products, new product introductions, and strategic pricing. We anticipate a stronger performance as geographic expansion and market penetration materialize moving forward."

Question 5: Rachit Kabra: "Does the current company debt reduction strategy still hold true post-merger?"

Answer 5: "Yes, we're evaluating restructuring our current debt for reduced interest costs. Our focus on post-merger growth opportunities will guide our approach. Comprehensive debt strategy reviews will commence once the merger is finalized, enabling us to optimize our financial position effectively."

Question 6: Amresh Kumar: "Any specific focus areas for our animal health formulation business in terms of geographical expansion?"

Answer 6: "Absolutely, our focus is primarily on markets like India and Europe, particularly for companion animals. We are launching new formulations tailored for these regions to leverage our existing operational strengths and distribution channels, thus enhancing our market share and overall growth potential."