Sequent Scientific Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from Sequent Scientific Limited (SEQUENT) Q3 FY23 Earnings Concall

Management Update:

• [00:05:37] SEQUENT said that in the API business, the company crossed the INR100 crore revenue mark in 3Q23, with a 16.5% sequential quarter-on-quarter growth.

Q&A Highlights:

• [00:17:59] Rahul Maheshwari enquired about the growth rate targeted for Europe and India going forward. Rajaram Narayanan MD said Europe’s economy has been muted in the past few years due to the Ukraine war and higher costs. However, initiatives have been put in place to restructure the portfolio, allowing for growth in some select markets. India is a priority market with growth varying due to seasonality and feed prices.

• [00:21:44] Rahul Maheshwari asked about the progress of the Tineta business post acquisition. Rajaram Narayanan MD replied that SEQUENT is still completing the formalities of the transaction and would close by the end of March. It is taking a bit longer than expected, but it is still in progress.

• [00:22:29] Rushabh Jain queried that after two quarters of INR100 crore revenue, is the API business sustainable? Narayanan MD answered that there is a certain stability in the run rate for the business now, and moving into FY24, SEQUENT has reached some stable run rate. SEQUENT is focusing on margin improvement and building a portfolio for the future.

• [00:23:00] Rushabh Jain asked what growth initiatives SEQUENT is taking to revamp the business in the next 3 years. Sharat Narasapur Joint MD answered that the customer base is growing and SEQUENT is expecting mid-teens growth over the next 3 years. This growth is due to new businesses, molecules and portfolios that the company is building.

• [00:25:58] Sudarshan Padmanabhan from JM Financial asked how does the company see cost, if there’s a decline in overall cost. P.V. Raghavendra Rao CFO said it’s not particularly declined but it’s stabilized.

• [00:29:26] Sudarshan Padmanabhan from JM Financial enquired about the current utilization, and utilization outlook in India and overseas for next couple of years. Sharat Narasapur Joint MD answered that capacity utilization of SEQUENT has increased from around 60-65% to 70-75% due to backward integration in order to reduce costs. SEQUENT plans to make further investments in order to ensure enough room for new business opportunities.

• [00:31:09] V.P. Rajesh with Banyan Capital enquired about the guidance for the overall business including formulations. Rajaram Narayanan MD said this year the company’s focus will be on margin improvement and profitability. In the future, SEQUENT plans to achieve double-digit top line growth.

• [00:33:16] V.P. Rajesh with Banyan Capital asked about drivers of employee expense going up YoY. Rajaram Narayanan MD replied a large portion of the costs are one-time costs related to restructuring employee numbers overseas.

• [00:34:43] Ninad Sabnis from Sabnis Financials asked if SEQUENT is getting new customers in Europe. Rajaram Narayanan MD said the primary way SEQUENT is increasing its customer base is through geographical expansion and offering new products in regulated markets. SEQUENT is also working to increase its share of wallet with existing customers. For new customers, API is the key business to focus on.

• [00:38:07] Ramandeep Singh of MAS Capital asked that with more Indians opting for pets if SEQUENT expects similar deals in India like the Brazil deal. Rajaram Narayanan MD replied that the company is considering the companion animal’s area as an extension of its current business.

• [00:40:08]  Prashantkumar Hazariwala at Solitaire Financial asked how many quarters SEQUENT will see ESOP provisions and the quantum for the sale. P.V. Raghavendra Rao CFO clarified that it will continue at least for the next six to eight quarters.

• [00:41:42] Prashantkumar Hazariwala at Solitaire Financial queried about the company’s debt position going forward. P.V. Raghavendra Rao CFO said the company is comfortable with the level of debt on the balance sheet. SEQUENT will consider opportunities for expansion and funding when they arise.

• [00:44:29] Shashi Ranjan asked about the drivers of inventories jumping 10 times. P.V. Raghavendra Rao CFO clarified that the inventories have gone down, and the working capital in both numbers and days has gone down marginally. The number of days for sales has decreased significantly to around 9-10 days.

• [00:47:17] Shashi Ranjan enquired if the recent earthquake impacted SEQUENT operations in any way. Rajaram Narayanan MD replied that the earthquake in Turkey did not affect SEQUENT operations since they are located in the North. A few employees were affected but they have been moved to safer places.