Key highlights from Sequent Scientific Limited (SEQUENT) Q2 FY23 Earnings Concall
Q&A Highlights:
- [00:17:40] Rishab Jain asked about Tineta Pharma acquisition, the products acquired and the synergies SEQUENT is looking at. Rajaram Narayanan MD said that the products largely cover nutritional supplements and some pharmaceutical formulation for the livestock segment. On synergies, SEQUENT has a animal health business specializing in livestock, so combined business will be about INR190 crores.
- [00:18:24] Rishab Jain also asked about the overall India business outlook over the next 3-4 years. Rajaram Narayanan MD replied that the market is growing 8-10%. SEQUENT’s ambition is to grow much faster than the market.
- [00:23:45] Vishwas Nandwani enquired about API business, and drivers of decline in revenue in 1H23 of 10% YoY. Rajaram Narayanan MD answered that the drivers were the fire incident and pressure on the demand side. 2H23 is expected to be marginally better than 1H23.
- [00:24:35] Vishwas Nandwani asked about new products and if the margin profile of these products are better than existing business margins. Rajaram Narayanan MD answered that margins of new products would be typically lower initially for few quarters and then improve rapidly. Therefore, overall SEQUENT expects sustainable margins without any currency impact.
- [00:30:20] Nikunj Jain with NJ Investments asked about the reason for weakening of the Europe business and when it will recover. Rajaram Narayanan MD replied that it’s due to economic conditions related to war and increase in fertilizer price that resulted in reduction in demand at farmer level. In 4-6 quarters SEQUENT should see topline growth coming back if the economic situation improves.
- [00:37:16] Bhavya Shah of Girik Capital asked about the GM decline of 100 bps in 2Q23 and if the company expects any further declines. P. V. Raghavendra Rao CFO answered that from a business perspective GM is stable. And due to hyperinflationary accounting, SEQUENT had to take some hit on GM of 1.1%. Removing that, GM is stable.
- [00:39:13] Vishal from Systematix enquired if the $10 million API supply order is commercialized from a global top 10 company. Rajaram Narayanan MD said that the $10 million has not yet materialized but the start of the supplies has materialized.
- [00:43:25] Vishal of Systematix asked if there is an incremental change in regulation in terms of usage of antibiotics or these are just old regulations. Rajaram Narayanan MD clarified that the regulations are more than three years old, but it has been staggered in the implementation.
- [00:45:37] Udit Bokaria with Catamaran enquired about Albendazole sales in the API and the peak numbers two, three years ago. Rajaram Narayanan MD answered that the Albendazole business about 3 years ago, used to be in about 15% odd of total business. And today it is down to less than 10%.
- [00:47:24] Anand Trivedi of Nepean Capital asked that given the cost pressure in Europe, if there is an opportunity to move some of the manufacturing to India and benefit from lower cost. Rajaram Narayanan MD replied that in Europe SEQUENT is serving local markets from a manufacturing location there. So it’s not a distinctive advantage to shift it to India.
- [00:48:45] Anand Trivedi of Nepean Capital also enquired that with the stress in European markets, if there is any M&A opportunities opening up in Europe. Rajaram Narayanan MD said that from a full-fledged acquisition point, SEQUENT is open to it. But currently the company is not ready for anything.
- [00:55:34] Aditya Khemka from InCred asked about acquisition and how SEQUENT is going to fund the cash consideration. Rajaram Narayanan MD replied that it’s a combination of issue of preferential equity already declared, internal cash generation and some restructuring of intercompany financing.