SEQUENT - Sequent Scientific Limited Share Price

Management Outlook and Major Points:

Outlook:

• Growth Trajectory: Management expects sustained growth driven by strong performance in regulated markets (U.S., Europe), recovery in emerging markets (Turkey, Brazil), and expansion in India. Double-digit revenue growth in formulations (16% YoY in H1) and margin improvement (EBITDA up 161% YoY in H1) are projected to continue.
• Strategic Merger with Viyash: The merger is seen as transformative, creating a globally integrated pharma/animal health player. Synergies in R&D (6x larger team), manufacturing (5x capacity), and supply chain are expected to accelerate growth, margin expansion, and debt reduction (combined net debt-to-EBITDA at 1.4x).
• Market Opportunities: Rising demand for animal health (production/pet segments), CDMO potential (U.S. BIOSECURE Act tailwinds), and India's role as a global API/formulations hub are key focus areas.

Major Points:

1. Financial Performance:

   • Revenue: Q2 FY25 consolidated revenue at Rs.368.6 Cr (6.6% YoY); H1 revenue up 11.7% YoY.
   • Margin Expansion: EBITDA pre-ESOP surged 70% YoY in Q2 (Rs.44.7 Cr) and 161% in H1 (Rs.93 Cr), driven by cost optimization, pricing actions, and mix improvement.
   • Debt Reduction: Net debt/EBITDA improved to 2.3x (vs. 3.55x in March 2024).

2. Operational Highlights:

   • Formulations: Strong growth in Europe (5.5% YoY), India (25% YoY), and Turkey (post-EUGMP certification). New companion animal products launched.
   • API Business: Margins improved despite delayed shipments; customer audits/compliance strengthened.
   • Viyash Contribution: Delivered 10% revenue growth (Q2), 33% EBITDA growth (Q2), and Rs.100 Cr free cash flow (H1). 19 new product filings (17 APIs, 2 FDFs) in H1.

3. Merger Synergies:

   • Combined entity to leverage Viyash's API expertise, SeQuent's formulations/animal health reach, and shared infrastructure.
   • Targets include cost savings, expanded customer base, and accelerated R&D (25 products in pipeline, 9 validations in H1).

4. Near-Term Priorities:

   • Ramp up Turkey facility for injectables exports.
   • Expand India formulations via field force expansion.
   • Focus on high-margin APIs and CDMO opportunities.
   • Regulatory approvals for merged entity expected in 12"“15 months.

Management remains confident in delivering consistent, profitable growth with improved leverage and operational efficiency.

Question 1:
"Would you be undertaking any acquisitions in the future? What kind of businesses would that be in? Secondly, what are Carlyle's plans for exit? Third, what is the plan to reduce debt and finance costs?"
Answer:
The company remains open to acquisitions, particularly in animal health (e.g., companion animal segments) or strategic partnerships, provided they align with growth goals. Carlyle, a key promoter, is fully supportive of the merger and long-term growth, with no explicit exit plans disclosed. Debt reduction is progressing, with net debt-to-EBITDA improving to 2.3x (standalone) and 1.4x post-merger, driven by EBITDA growth and disciplined cost management.

Question 2:
"Is there seasonality in formulation numbers? What is driving growth in Indian formulations?"
Answer:
Sequential revenue dip in Q2 was due to a one-time vaccine surge in Q1 (Europe's Blue Tongue disease), not inherent seasonality. India's double-digit growth stems from new product launches (imported from Turkey), aggressive promotions, and field-force expansion, with full impact expected by Q4.

Question 3:
"Why were API sales postponed to Q3? What is the expected quarterly run rate for H2?"
Answer:
API sales shifted due to delayed quarter-end shipments, now expected to normalize in H2. Steady-state API run rate is projected at Rs.85"“95 crore per quarter, reflecting operational continuity and customer audit completions.

Question 4:
"Are there remaining merger-related exceptional costs? Why are ESOP costs higher this quarter?"
Answer:
Merger costs (Rs.43.2 crore in Q2/H1) are largely accounted for, but further expenses may arise during regulatory processes. Higher ESOP costs reflect accelerated vesting due to revised conditions and final grants under the 2020 plan, with expenses expected to decline post-full allocation.

Question 5:
"What operational synergies and CDMO opportunities will the merger unlock?"
Answer:
Synergies include shared R&D (6x larger team), expanded manufacturing (5x capacity), and cross-market sales growth. CDMO opportunities in animal/human health are emerging, with intermediate transfers and backward integration accelerating. Validation for innovator partnerships is underway, targeting medium-term revenue.

Question 6:
"Explain Viyash's business segments, customer markets, and product focus."
Answer:
Viyash focuses on APIs (60+ products) across regulated markets (U.S., Europe, LatAm, China), with ~30% revenue from Europe. Key segments include oncology (50% pipeline), complex generics, and innovator collaborations. Top 10 products (62% revenue) include global leaders like Linezolid, with growth driven by backward integration and R&D (175+ scientists).

Question 7:
"What is the update on the U.S. BIOSECURE Act's impact?"
Answer:
Pending Senate approval, but optimism remains for Indian CDMO growth due to shifting supply chains. Recent trends show increased interest from U.S. firms, irrespective of legislative timing.

Question 8:
"When will EBITDA improvements translate to higher PAT?"
Answer:
PAT turned positive in H1 FY25 (Rs.199 crore vs. -Rs.588 crore YoY), with further accretion expected post-merger. ESOP cost reductions and operational efficiencies will drive FY26 profitability, aligning EBITDA growth with net earnings.