Key highlights from Sequent Scientific Limited (SEQUENT) Q4 FY23 Earnings Concall
Q&A Highlights:
- [00:14:02] Vishwas asked about the utilization of the API plant, plans for adding more capacity, products in the pipeline, and potential revenue from new APIs. Rajaram Narayanan MD replied that current utilization is 70-75% and SEQUENT plans to increase API capacity by debottlenecking and investing in capex, and expects to add 1-2 new products immediately and 6-7 in the next 3 years, which will contribute 8-10% of its revenue in the next 2 years.
- [00:16:06] Vishwas enquired about the reasons behind closing a factory in Europe and the expected benefits of the action on SEQUENT’s performance. Rajaram Narayanan MD said SEQUENT closed its injectables plant in Germany due to increased operating costs and the need for investment. It will now outsource its products to more competitive CMOs and third-parties, which will save money in the range of INR22-24 crores annualized and improve efficiency.
- [00:18:23] Vishwas asked about the situation in Turkey and the business prospects there. Rajaram Narayanan MD answered that Turkey is a key market for the company, but economic challenges and inflation have impacted performance. The company is taking steps to remain profitable, including aggressive pricing, cost reduction, and exploring export opportunities.
- [00:23:59] Siddhant enquired why employee costs have remained the same or increased despite the company undergoing restructuring. Rajaram Narayanan MD replied that the company has not had a significant increase in employee costs. Some of the impact of restructuring will trickle into margin improvement in the coming quarters. Some increases in employee costs are due to annualization and hiring. The company’s headcount is directionally going lower.
- [00:25:42] Pranav asked about the company’s plans for future acquisitions for growth and the importance of India in this plan. Rajaram Narayanan MD said that the company is open to acquiring attractive assets that add value to the business and can be responsibly funded. The company is engaged with potential assets for acquisition and is largely interested in India, but also has some interest in one or two assets outside of India.
- [00:26:43] Pranav asked about the management’s expectations for sales and margin growth in the next few years. Rajaram Narayanan MD replied that SEQUENT has started many initiatives for growth and restructuring. In the short term, at FY24 end, the company expects exit margins to begin to come into double digits. In the next 24-36 months, SEQUENT expects margins to come to late teens.
- [00:33:38] Giriraj Daga at Visaria Family Trust enquired what percentage of API goes for the internal consumption. Rajaram Narayanan MD clarified that very little, about 2-3% of the company’s API is used for internal consumption as most of its APIs are for regulated markets in the U.S. and Europe.
- [00:37:28] Giriraj Daga at Visaria Family Trust asked about the details of the INR86 crores capex step up in FY23 and the capex outlook for FY24, FY25. P.V. Raghavendra Rao CFO replied that the capex for FY24 should be similar to FY23 number, with the main investment being in capacity expansion in Vizag.
- [00:38:47] Darshan Shah queried about the growth prospects in Brazil. Rajaram Narayanan MD replied that Brazil is a top five market for animal health and the company has been doing well there in the last couple of years. The company expects double-digit growth in Brazil due to its entry into companion animals and expansion of its range and reach. Brazil is a strategic market for the company going forward.
- [00:39:57] Darshan Shah asked about any update on Nourrie. Rajaram Narayanan MD said the company has integrated and expanded its team to reach more OTC and veterinary doctors. The company is also expanding its portfolio and expects to see results by 4Q24 of Nourrie.
- [00:44:30] Vignesh from Harmoney Wealth asked about the FY24 ESOP cost. P.V. Raghavendra Rao CFO clarified that INR35 crores is for FY23 and for FY24 it will be significantly lower.