Sequent Scientific Limited (NSE: SEQUENT) Q1 2026 Earnings Call dated Aug. 11, 2025
Corporate Participants:
Unidentified Speaker
Abhishek Singhal — Head of Investor Relations
Rajaram Narayanan — Managing Director
Saurav Bhala — Chief Financial Officer
Hari Babu Bodepudi — Non-Executive Director
Analysts:
Unidentified Participant
Shiwani Kumari — Analyst
Vishal Manchanda — Analyst
Amresh Kumar — Analyst
Kaustav Bubna — Analyst
Bharat Sheth — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Sequent Scientific Limited Q1 FY26 earnings conference call. As a reminder of all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek. Thank you. And over to you sir.
Abhishek Singhal — Head of Investor Relations
Thank you Manav. A very good morning to all of you and thank you for joining us today for Sequent Scientific Earnings Conference call for the first quarter of financial year 2026. Today we have with us Mr. Raja Ram, MD and CEO Sequent Scientific Dr. Hari Babu, Whole Time Director and CEO Vash Life Sciences Mr. Sourabh Bhalla, CFO Sequent Scientific and Mr. Ramakant Singh, CFO Vias Life Sciences to share the highlights of the business and financials for the quarter. I hope you’ve gone through our results release and the quarterly investor presentation which have been uploaded on our website as well as the stock exchange website.
The transcript for this call will be available in a week’s time on the company’s website. Please note that today’s discussion may be forward looking in nature and must be viewed in relation to the risks pertaining to our business. After the end of this call in case you have any further questions, please feel free to reach out to the investor relation team. I now hand over the call to Raja Ram to make his opening remarks.
Rajaram Narayanan — Managing Director
Thank you Abhishek and good morning everyone and a very warm welcome to all the participants. Me on the call is Dr. Haribabu who TIME Director and CEO of Vash Life Sciences and I also have with me Sourav Bhala, CFO for Sequent and Mr. Ramakanth, CFO of Vyash. We released the results of the first quarter last Friday and the details are available on our website. I hope you’ve had an opportunity to go through the presentations. The consistent improvement in results over the last few quarters signals that there is more behind the numbers. It signals a transformation in the way we have operated and deliver value.
We have moved beyond consolidation and course correction into a phase of accelerated growth as we shape a future ready company. Coming to the performance for this quarter, I am pleased to announce that we have continued our strong performance in the first quarter of FY26 with revenues at rupees four four one four million reflecting double digit year on year growth of 13.1%. This performance has come in with strong margins. There was nearly a 25% growth in pre SOP EBITDA which touched a new high of Rupees 602 million and at a margin of 13.6% which is in line with the recent performance of of mid teens ebitda.
This improvement in financial performance along with the forthcoming merger provides us ample headroom to support investments in existing segments as well as support new opportunities for growth. We are also seeing a substantial improvement in our profit after tax, underscoring strong control on all line items. While Gaurav will delve deeper into the financials, let me briefly cover the business aspects. Our formulation business, which accounts for 75% of our business continues to deliver broad based growth. It sustained the sales growth of 13% versus last year and 11% on a sequential basis quarter on quarter. This was driven by a strong performance across all key geographies in Europe.
The business year on year grew at 4% despite having having a very high base. Sequentially it was a 20% growth. This upswing in performance was led by a higher companion animal sales and increased exports. Ex Europe we successfully concluded the GMP approval of our Spanish manufacturing facility which now prepares us for introducing new products in the next few quarters in emerging markets. The 25% year on year growth was supported by higher exports along with some judicious price increases changes in the product mix for delivering better margin sales, we’ve also expanded our Mexico business. We now have established front end presence in Mexico which is a large market for animal health.
Our Turkey business continues to grow helped by a stabler macro environment situation and acceleration of exports from Turkey. Our India formulations business has progressed well in a quarter that is relatively subdued due to seasonality. The business delivered a sales growth of 8% over quarter one FY25 on the back of field expansion which was done last year, India remains a key priority for driving our growth ahead and in order to strengthen our presence in this quarter we concluded the second phase of field expansion to support our brand building efforts. This will result in stepped up revenues in India as the full impact of the expansion sets in.
On the API front we are seeing results of all the initiatives taken in the last six quarters. The business gained momentum touching the 100 crore mark for the quarter and delivered growth of 14% year on year and 21% for the sequential quarter. This has been achieved with competitive margins and an improved product mix. The sales of our top 10 customers came in at over 60% and we continue to have most of our sales realization in hard currency. We have received a new EUCEP approval during the quarter in line with our plans to continuously add new markets and new products.
The demand for our high quality WHO grade Albendazole has been very strong. Finally, the proposed merger with Vash Life Sciences is proceeding on track and we will answer any queries during the Q and A session. I would like to take this opportunity to thank the entire team of Sequent in Alvira and all the stakeholders involved for bringing to reality a strong a strong start to this financial year. I will now hand over to Saurav to share the financial details of CQINT and then invite Dr. Hari to share the highlights of the Vash performance Over to you Saurav.
Saurav Bhala — Chief Financial Officer
Thank you Raja Good morning everyone and thanks for joining us today on the call. It is my pleasure to present Sequent Scientific Limited’s financial result highlights for the first first quarter of financial year 2526, a quarter marked by strong execution, strategic progress and sustained momentum. Q1 Financial Year 2526 Key Highlights as follows Total revenue is Rupees 4414 million, delivering a healthy growth of 13% year on year and 10% quarter on quarter basis. Formulation revenue is Rupees 3379 million, growing 13% year on year and 11% quarter on quarter. API revenue is Rupees 1054 million, growing 14% year on year and 21% quarter on quarter basis.
Our gross margin improved by 180 basis points year on year rising from 45.1% to 46.9%. The adjusted EBITDA is Rupees 602 million for the quarter, marking a robust growth of 24.7% year on year basis and a 5.7% on quarter on quarter basis. On a year on year basis, the Q1 adjusted EBITDA margin expanded by 126 basis points from 12.4% to 13.6%. The profit after tax for the first quarter is rupees 176 million, delivering a strong growth of 93.7% year on year basis and 69.7% quarter on quarter basis. Coming to Merger Update on the strategic merger with the Vash Group, I am pleased to share we have cleared key regulatory milestones.
The Competition Commission of Indian Stock Exchanges have provided their approvals and the required NCLT filings are complete. The NCLT has called for a shareholders and creditors meeting which is scheduled on August 30, 2025, keeping us well on track to complete the merger process as per the estimated timelines of 12 to 15 months from the merger announcement date done in September 2024. In conclusion, our strong operational execution and strategic momentum in Q1 financial year 2526 affirms our commitment to profitable growth and value creation for all the stakeholders. The good progress of our merger process With Vyash Group going ahead, we are well positioned to harness and deliver long term sustainable performance.
We remain vigilant to the market dynamics and continue to prioritize innovation, focus on cost efficiency and drive profitable growth. Thank you for your attention. I will now hand over to Dr. Hari for sharing insights into the Vaj Brooks performance. Thank you.
Hari Babu Bodepudi — Non-Executive Director
Thank you Saurabh and Raja and first of all congratulations for your great performance and good morning everyone. So let me take you through Vash and also combined performance now recorded strong performance in Q1 with revenue growth and margin expansion year on year. For Q1 FY26 revenue grew by 4% to 353 crores and adjusted EBITDA grew by 19% year on year to 68 crores. Bhash had EBITDA margins of 19.5% which is improvement of almost 2.4% year on year. The current margins are in line with our medium term aspiration of 20 plus margins in line with previous quarters.
We have generated strong free cash flow in this quarter also. So now our current net EBITDA ratio is less than 0.3 with adequate headroom for growth. So now coming to the key operation updates. We had five regulated inspections last quarter. In fact one day we had two US FDA audits in two sites and one Europe audit in the same month and other few other regulatory inspections all went through very well. I think this shows a strong quality culture of vih. The two sides, both the USFD audits we received eis now both are actually vi. So that means actually the outcome was very good.
In addition to that regulatory audits, we had large number of customer audits which are very important for regulatory markets. We faced almost 30 plus audits in the quarter and coming to the R and D which is most important for our growth. As you guys know we have built based on R and D capability. So we validated three products last quarter and we filed almost 12 products for various countries which includes Europe, US, Korea, Saudi, most of the countries and also we have filed five finish load products in US Coming to the regulatory approvals we received five approvals for API that one US product and three for CEP Certificate of Suitability and one more for Europe and also we received one finished dose product approval in last quarter Coming to the launches, we launched two FDFs in US last quarter and also two APAs in various markets.
R and D Pipeline as you see continuously we have a strong pipeline and currently we have around 20 plus products on the pipeline and we are actually expected 10 to 15 products development as well as filings this year as anticipated. Coming to the combined performance combined both companies have grown very strongly. Last quarter for Q1 FY26 combined revenue of two entities grew by 8.7% year on year and most important EBITDA grew by 21% year on year. The combined business had an adjusted EBITDA of 129 crores with 16.2% margins with the improvement of 1.7%. The combined net debt EBITDA is around 0.6 0.6x lower than actually 1x last previous year Corresponding quarter As updated last quarter we have started to plan for integration of the two companies and realizing synergies of course as Sourabh explained we received CCI approval, SEBI approval.
Now its process is going through the NCLT and we anticipated approval as expected Coming to the synergies whatever we explained in previous call also so the four areas what we focus first main was R and D always as we explained last quarter R and D already integrated, both teams are working together and also we started portfolio discussion combined. So in R and D there are two three important things. One is of course product portfolio is very key for the growth. Second one is cost improvement so third one is manufacturing of course so R and D already we started collaborating working together we initiated portfolio and it’s a lot of improvements.
We can see next few quarters cost improvement Also we initiated last couple of years. Of course it’s the continuous process and UK we already started seeing the margin improvements for both companies. That’s a part of cost improvement and coming to the manufacturing. This is the large synergies we are expecting. Already we started cross qualifying the products wherever the pre capacity couple of products already initiated but you know the regulatory process it takes some time 12 to 24 months. The process is continuing and we are doing very actively on that perspective and procurement synergies already we started negotiating combined wherever there are common materials and it’s working very well on that perspective sales as I explained last quarter also there are synergies for both sides.
Since Sequent is operating most of the API business with innovators that’s where we see opportunity for VAs to improve the business with innovators started working. I think it’s going to materialize in the next few quarters on that. And mostly synergy is I can say it’s happening, it’s better than what we anticipated. But you know the regulatory framework, whatever it allows us, we are working on that but it’s working very smoothly. Both teams are working very closely and also we started working on strategic direction, both organized structure as well as next three to five years combined company.
What do we want to do that I think will come up in next two, three quarters that. Thank you. I’ll hand over back to Abhishek. Thank you guys so much.
Abhishek Singhal — Head of Investor Relations
We are good for Q and A now.
Questions and Answers:
operator
Thank you very much sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch. Don’t telephone. If you wish to withdraw yourself from the question queue you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. We have our first question from the line of Shivani from Monad Network Capital. Please go ahead.
Shiwani Kumari
Hi sir. Am I audible?
Rajaram Narayanan
Yes sir.
Shiwani Kumari
Congratulations on good result. I have two questions, one for Sequent and one for Vyash. So I’ll begin with Sequent question. So my question is that if we see the geographical mix year on year Europe and India has been a single digit growth whereas we see emerging market growth has been around 25% which is good. So wanted to understand what’s happening across the geography and in emerging market I understand that we have added few more markets. So if you can give a sense on how we are seeing the market panning out especially with geopolitical issues also and what is way forward for these markets.
Rajaram Narayanan
And the second question or I’ll take.
Shiwani Kumari
The second question after this one.
Rajaram Narayanan
Okay, fine. Clear. Right, thank you. So thank you Shivani for the question. Yes, overall I think we’ve started hitting good double digit growth and some of the differences are that emerging markets of course the growth is coming because there is an opportunity to expand to new markets. There’s also exports which comes from, you know, one of the things we are doing is that we’ve created export bases both in Turkey as well as some in Spain which is therefore serving other markets which are nearby. So exports is doing it. Emerging markets, we also added Mexico, we are adding new markets.
So that’s in general the momentum which is there in emerging markets. And I think we should expect that business to be keep growing in double digits. I think on Europe it is what you might have seen now is more a function of a large base which was there that the same quarter last year. And that is why you might see a single digit growth. But we have in the recent quarters also delivered double digit growth on Europe as we have added more products, particularly when we started the distribution of vaccines. So we do expect that Europe is more a function of which quarter we end up having a larger disease outbreak or a vaccination season.
But on a full year basis we still think that that’s a market which should come close to double digit growth. In any case, the last bit about India, I think India was prioritized around a year ago and we have begun to see double digit growth even in India. We should be. In fact, there are quarters when we have done over 20%, we have now added field force in India. We had a substantially smaller footprint in India in terms of number of people on the field. We had less than 100 people just a year ago. We now have about nearly 200 people on ground.
And therefore as the quarters sort of begin to realize the full impact of the people we have added, we expect this market also to begin to go into double digits. So I think, and also I think you remember that, you know, there is a seasonality factor which varies quarter to quarter in different countries. So there are some quarters where some country may be on a lower market growth while the other markets may be higher. So but on an average, I think we expect this business to consistently move into double digit growth.
Shiwani Kumari
Sure. Thank you so much. Just a follow up when we say seasonality also mentioned that India business was impacted because of the seasonality factor. So what is the seasonality factor in Q1, if you can clarify that?
Rajaram Narayanan
Typically what happens is that a lot of animal health medicines, you know, in India is largely a dairy cattle business and it tends to get affected to some extent by the rural economy, which is over there. And also the outbreak of diseases depends to some extent on the kind of climatic conditions that might happen in that particular quarter. So you could have a situation where the same quarter last year may have had an outbreak of a disease because of which there was a, you know, substantially higher spike in the sale of medicine. While the same quarter this year may not have seen the same outbreak in disease and that might happen a couple of months later.
So I think there’s a bit of a variation which tends to take place quarter on quarter, but on a full year basis I think the secular trend should be in double digits always.
Shiwani Kumari
Sure, sure. I also have one more question for Sequent which is For API business. You did mention that albendazole sal sales have improved and it’s seeing strong demand as well. What about other APIs? I mean how is the API business performing and what to expect? Because API business have been slower initially.
Rajaram Narayanan
So we’re getting the growth in both. I think we have signaled albendazole because albendazole there is a demand coming in from WHO recently because we were pre qualified for supply to formulators who are supplying for WHO tenders and their requirement. But otherwise, even on some of the other APIs which we make which are non albendazole APIs, there is been this quarter there has been a growth even in those APIs. But I think the most important thing for us is that we need to accelerate our new product introduction and R and D as far as the other APIs are concerned outside of just albendazole and the anthelmetric range.
And that’s the effort which is going on. So it has been a good performance for us driven both by albendazole as well as the non albendazole range. But I think going ahead for us the larger drive will be on the non albendazole range.
Shiwani Kumari
Sure. Thank you.
operator
Can we please request you to rejoin the queue?
Shiwani Kumari
Sure.
operator
Thank you. A reminder to all participants, if you wish to ask any questions you may press star and one on your touch. Don’t telephone. Next question from Lino Vishal Manchanda from Systematics Group. Please go ahead.
Vishal Manchanda
Hi, good morning everyone and thanks for the opportunity. So congratulations on a good set of numbers. Just wanted to understand on the API business after a long time we have exceeded the 100 crores number on a quarterly basis. Can we sustain this? Ranrit?
Rajaram Narayanan
Yeah, I think this is a rate which we’ve been aspiring for. We’ve also done this in the past. We did have some surprises and setbacks in the past which we have spoken about. I think 100 crore is a rate which we would be targeting and with the merger around the corner and more inputs coming in in terms of the R and D pipeline, there’s no reason why in the next few quarters we should not be sticking to this kind of a run rate or more.
Vishal Manchanda
Right. And even on gross margin front there has been an improvement on a YOY basis while there is a drop on a QOQ basis. So could you explain this like the QOQ drop and YOY growth, Is there some seasonality element here?
Rajaram Narayanan
Yes, there is. In general I think we are having a Margin improvement, which is happening on account of initiatives both on the cost line as well as on the product mix. On both these have given us margin improvement both in formulations and on APIs. So that’s why you see a quarter on quarter year, on year growth sequentially. Some of it is also because of product mix. We did have a substantially higher profitability mix which was specific to last quarter and that got a bit reduced. It was not there this quarter. So you will find that the line is still in the area of 48, 49% but you could have some sort of swing between the last quarter and this quarter.
But directionally, if you take it over 3, 4/4, we would continue to be moving towards the 50% line on gross margin.
Vishal Manchanda
And like any focus areas in terms of the animal health formulation business, that. So in terms of whether pet is a more focus area for you and any geographies that you’re specifically focusing on in terms of building the formulation business.
Rajaram Narayanan
Yeah, I think we have looked at that. Companion animal is a priority. We are looking at it in two ways. One is wherever we have a front end presence already, like in Europe, we have begun to distribute for some other companies and also launch some products of our own. But I think if you want to make it bigger, we’ll have to look at a slightly more aggressive move which is always under consideration for us in the next year or so. Having said that, we are also doubling down heavily on India because this is a market for domestic growth, which is very crucial for us.
But for us the big advantage is wherever we have a front end business, which is India. Lots of markets in Europe, Brazil and Turkey. In these markets we would focus on introducing new product range largely in the area of companion animals.
Vishal Manchanda
Okay. And we are still looking for the injectable growth in the injectable business as of as an area to build margins and maybe accelerate top line.
Rajaram Narayanan
So injectables, we have a factory which is there in Turkey. That plant has now got a EU gmp and therefore we will expand supplies from Turkey into European markets also for injectables. These injectables are largely for food production animals and not so much for companion animals, but the injectables obviously are, you know, there are fewer companies which are in injectables and the margins are obviously better in that. So yes, we will be growing injectables fast. We are of course looking at other opportunities and other markets in this area right now.
Vishal Manchanda
And just one final one on, if I can just ask one more on Albendazole we always had a USDMF on Albendaz also. Was that not good enough or this WHO pre qualification is kind of incrementally helping you?
Rajaram Narayanan
I think they’re separate markets. The US VMF is for supplies to the United States. The WHO purchase is largely for supplies which are made to the developing markets for various, you know, donation programs as well as local countries which sort of use it. So these are two completely different market requirements.
Vishal Manchanda
Understood. Okay, thank you very much. Thank you.
operator
Thank you. Minded to all participants, if you wish to ask any questions, you may press Star and one. Anyone willing to ask a question, you may press Star and one. Now our next question from the line of Rajit Kabra from Anandrati, please go ahead.
Unidentified Participant
Hi sir. Thank you for the opportunity. Am I audible?
Rajaram Narayanan
Yes, please.
Unidentified Participant
So like, I would like to know, like, is there any risk of like the input costs rising or going up due to the dollar strengthening?
Rajaram Narayanan
I think I’ll pass this question to Dr. Hari. Maybe if you can give us some color on that.
Hari Babu Bodepudi
No, we don’t see any risk because exports are more than imports, much more than of course, wherever there is a risk, we have coverage. I don’t see any negative impact on that perspective. Yeah.
Unidentified Participant
Okay, thank you. And my next question is like you had earlier said that Turkey would become base for more exports. And can you update on the plan, what the plan has been and how it has been going forward or.
Rajaram Narayanan
Yeah, so when we started doing that, the original sort of requirement was that we wanted to make sure that we were foreign exchange neutral and that’s why we started exports. But now Turkey is becoming, because of the injectable manufacturing plant which we have over there and the fact that we’ve got a EU GMP license which has been given to that plant, the opportunities to export beyond just neighboring markets has increased and we are looking at a couple of launches coming in the next few quarters which will be for supplies into Europe. So yes, that plan continues and it is in fact accelerating now.
Also the economic condition there is a bit more stable than what it was say six quarters ago. And that makes it a bit easier for us to be able to look at, you know, more B2B contracts for that.
Unidentified Participant
Okay. And if I could like continue with one more question.
Rajaram Narayanan
Go ahead, one more.
Unidentified Participant
Yeah, so we have seen a pat improvement substantially compared to the last year. So what, what are you targeting for this year or any ballpark number?
Rajaram Narayanan
I don’t think we’ll give any guidance on pat right now. I mean, we have given you guidance on margins, on the adjusted EBITDA margin, I think we will hold to that. Of course, the attempt is to make sure that it gets converted into, you know, much higher pad. So we expect the PAD growth to be well ahead of the EBITDA growth for both the as we begin to go on. So I think what you should expect is that the PAT growth will be ahead of EBITDA growth. And the EBITDA guidance we have given you already saying that, you know, on the Sequent side it would be closer to the mid teens for this year.
And we were looking, looking at the high teams of the VR side and hopefully by the end of the year we would be able to come back and say that we are on the higher side on both.
Unidentified Participant
Yeah, thank you. Thank you. Questions. I’ll get back to the Q. Thank you.
Rajaram Narayanan
Yeah, thank you.
operator
Thank you. Our next question from the lineup, Amrish Kumar from Geosphere Capital, please go ahead.
Amresh Kumar
Yeah, thank you, sir, for the opportunity. On the gross margin side, sir, you said it can reach or trend towards 80%. So are we building in some, are we building in some merger benefits from this or.
Rajaram Narayanan
Sorry, I don’t know what. Yeah, so on the gross margin line, I think on the Sequent side we have indicated that it will come closer to the 50% as we begin to move on. Vyash is obviously ahead of, well ahead of that already. And yes, we should see some benefits. I will hand over maybe to Dr. Hari to expand a bit more on what can, what are possibilities on the gross margin side. Yeah, Dr. Hari, is Dr. Hari there?
operator
Sir, his line got disturbed, connected. We’ll just connect.
Rajaram Narayanan
Yeah. But yes, just to recap, you know, we have been operating at the 45, 46 kind of a level. We have moved up now to about 48, 49 and our target is to move to the 50s soon. And Vash, of course, is always ahead of much higher than that. So and the benefit while I wait for Dr. To join.
Abhishek Singhal
Meanwhile, can you a sk your next, can you ask your next question and I can.
Amresh Kumar
Yes. And you said that you are in process of introducing or working on some more products. So it would be great if you can kind of expand on this a little bit.
Rajaram Narayanan
Yeah, I will just wait for Dr. Hari got disconnected to sort of. Exactly. Two questions. Dr. Two questions. Dr. Hari, one question. So two questions. One on how the improvement in gross margins may come in the next few quarters after the merger and the synergies. And the second, I think is on what can we look forward to in terms of R and D, new products and Pipeline.
Hari Babu Bodepudi
So as I explained R and D, we are adding lot of products. Both companies is having very strong portfolio. Every quarter we can see approvals as well as new products filing. So we started adding Sequent portfolio also since both R Ds are working together. So now the outcome is much better than what was earlier. But definitely next few quarters it’s going to add a lot of products even for Animal Health Basket. But of course you know the current regulatory scenario. Once you start developing the product development and approval it takes its own time. But we are trying to work as quickly as possible coming to the gross margin improvements.
Of course the entire strategic direction we are working on and as explained last quarter also. So we are going to, we will present maybe next quarters with a detailed investor presentation will come up in next two quarters. But definitely we can see lot of gross margin improvements because of various things. One is definitely network optimization always as we explained, wherever there is a capacity, we are running capacity utilization around 60, 65% whereas Sequent actually the one site is fully occupied, other site is still there is a capacity to add more products. So with the utilization of recapacity definitely there is gross margin improvement and most important our R and D capability of cost improvements, that’s going to play a major role.
It’s going to improve a lot. But whatever we explained earlier, By 27, both companies together definitely will be around 30% that we are on track.
Amresh Kumar
Okay, got it sir. Thank you so much.
operator
Thank you. Next question from the line of Costa from Boundless Management Solutions. Please go ahead.
Kaustav Bubna
Yeah, hi, can you hear me please?
Rajaram Narayanan
Thank you.
Kaustav Bubna
Yeah, hi. My question for Dr. Hari because of the exposure of VH to the US markets wanted to understand, you know, a lot has changed in terms of expectations of opportunities coming from the US because of, let’s say regulatory factors. About a year ago we had this opportunity come the potential opportunity from the US Biosecure Act. Now we move forward here and Trump has come in and you know, he’s talking about these pharma tariffs also a little bit of, you know, lack of clarity in how the distribution would change the impact of pharmaceutical benefit managers.
So how. So how do you look at this? How do you assess the situation and the impact on the combined entity VH plus Sequent together.
Hari Babu Bodepudi
I think our perspective, I see more opportunity than issue. Why? Because and our exposure, of course sequential exposure is not. Is very little for us. And we as API exposure, direct exports are very little. In fact I think 2, 3%. But overall it may impact indirect exports also whatever we supply to Indian Companies where they formulate and export their maybe impact. But all put together it’s around 17, 18% are exposed on the US market today. And other than exports from India, you know we have formulation business in US and manufacturing site also is in US and we see both sides.
It’s opportunity as well as actually the issue. But I still strongly believe we have a great opportunity. Why? Because our exposure is a little less. And most important if you see our regulatory strength. So last 1215 months we were able to manage five US FDA audits. And without any issue. That’s a great asset for us. And also handling the same day two audits. It’s not easy for any company. But our team demonstrated that. And Sequent also whatever we had audits it went through very well. So we see yes definitely there is a more opportunity for us with our RD strength capability to differentiate products.
Whatever you can see from Eash perspective. And also Sequent definitely there is opportunity grow a lot in generic animal health play. You can see generic started penetrating in years. That’s where we can see these are opportunities. But we I strongly believe more than threats we have great opportunity. Of course we’re trying to relocate re strategize even our formulation business. Okay. Since we have US sites if we put tariff that’s a big advantage for us. But that could be the short term. I always see. But long term strategy. Okay. Wherever is a low cost based manufacturing is always good.
So we are working on various aspects especially in the formulation. We’re trying to take out low margin, low volume products which improve margins that you can see this quarter. Whereas our margins EBITDA improved a lot. But top line growth is very less. That’s one of the reason was we’re trying to take out actually low volume, low virgin products which actually substitute with the new products. We are coming up with a lot of new products where the margin profile is much better than matured products. So that’s how we can see opportunity for us Biosecurity, of course all our facilities we are moving towards actually meeting any standards.
That’s also. We see a lot of opportunity with this.
Kaustav Bubna
But, but, but if I could. If I could just interrupt. On the biosecure. Since the government changed. Since the government changed. So what’s the view on biosecurity? Because it’s been shelved. Right?
Hari Babu Bodepudi
The government change of us or you meant to say?
Kaustav Bubna
Yes, yes.
Hari Babu Bodepudi
For the US Is the current government. Whatever is the Trump policies you are talking right? Or the new government comes current from government. Yeah, it’s actually anything Trump, he can actually say another three years, right? Three, three and a half years. All these products, whatever we are talking biocyclo act, it takes its own time. 3 to 5 years. Any product moving here or there. It’s not easy just like that. Actually moving out all Indian products to somewhere, all Chinese product to somewhere. It’s impossible to do that. So there is a regulatory guidelines. There are actually the customer expectations. It’s a process. You know this actually how long it took to move out from China to India some extent still going on last 5, 6 years is working very actively government.
But still the shift is not substantial. So it takes its own time. I don’t think it’s going to change next three, four years drastically on that perspective. And the fact is there’s no alternative for India. The only either China or India. Right. For all these things where there is a large manufacturing, large resource capability to do these things. Only these countries. So they won’t go back to the cena. Right. But still I see there’s a good opportunity for India and also.
Kaustav Bubna
Thank you.
Hari Babu Bodepudi
It answered yes.
Kaustav Bubna
Yes. Thank you. Thank you.
operator
Thank you. Our next question from the line of Bharat Seth from Quest Investment Advisors, please go ahead.
Bharat Sheth
Hi. Congratulations for a super performance. Yeah. I have two questions for Sequent. One is that we like what Haribabu said even in Sequent also we were I mean moving away from low margin product and hence our top line was getting affected. So at current stage where we are in this portfolio and when we really start seeing a larger benefit in terms of top line growth.
Rajaram Narayanan
And your second question Bharat Bhai and.
Bharat Sheth
Sir, I mean second question is now like in Spain we which is making a good margin and profit where we have only 60% holding any plan for consolidating 100%. And third question for our CFO this one of NC ESOP cost. How do we see. Because it is going accelerated pace. So how could we think about the Soap coast in 26 and 27.
Rajaram Narayanan
Okay, so I’ll just take the question by. Thank you for asking. So one is on the top line. I think you know we have completed most of the pruning which was done of low margin. Of course this has to be continuously done. But now you’re seeing that for the last few quarters the growth rate has moved from you know 5, 6% now to almost. We are talking between 12 to 14% and if you look at local currency so we expect this to keep accelerating. But now the growth has to come from to one volume growth of your existing products and by introducing new products.
And the third of course will come from pricing. So these are the three sort of levers which will give you the growth coming. So I don’t think there is much to do now in pruning of products. On the farm formulation side most has been done of course on EPI there is always a pressure on margins because there is always pressure in terms of B2B supplies. But we don’t see that this exercise will be continuing for too long. But in all companies after a couple of years you once more look at your portfolio and then you have to refresh it depending on what has changed in the market.
Second, I think on Spain, yes we have a 60. We have at this point of time no immediate plan. It’s a very well run operation. The 40% is owned by you know the family which currently also runs the company. So they are, you know, trained veterinarians, local experts and therefore we are very happy with what they’re doing. So there’s no urgency for us to sort of get into to that. And the last question coming on to the esops piece I’ll ask Saurabh to reply after this but maybe first I’ll ask if Dr. Hari wants to add anything on the pruning of products and improving.
Bharat Sheth
I have question for Hari Babu also separately.
Rajaram Narayanan
Okay, so then maybe I’ll ask Saurabh to answer one on the ESOPs.
Hari Babu Bodepudi
Let me complete our Sequent Always margin improvements or top line growth is based on two things. One is how efficiently you can run your operations. Second thing is how fast we can bring new products especially API because as Sajaira mentioned formulation actually it’s already 10. Whatever we have, it’s a mostly geography expansion. There’s a lot of opportunities transporting from Turkey to other.
Bharat Sheth
Hello.
operator
Sorry sir, Hari sir got disconnected. I’ll reconnect him.
Bharat Sheth
So meanwhile if so can answer.
Saurav Bhala
Yeah Mr. B. So on two points. First I’ll take on the exceptional item. If you see exceptional. There is no exceptional coming in the first quarter rather than the merger related expense which would continue for next two quarter because as the merger progresses there are milestone based payments which will happen in this year. Apart from that we are not seeing any one time or exceptional kind of expense which is all taken care of on the second part. ESOP. ESOP as I explained in the last call also ESOP we have mostly done the vesting of sequential ESOPs and the base of the last year retains next two years it would be in the similar lines.
It will not increase because of sequential.
Hari Babu Bodepudi
Sorry guys, I lost Again.
Rajaram Narayanan
Yeah. Please continue, Dr. Hari.
Hari Babu Bodepudi
Yeah, so what I was telling Sequent margin improvements and also top line improvements. As Rajaram mentioned, all formulation it’s pretty well streamlined last couple of years. So most important for that is the geographic expansion. That’s what they started doing like exporting from Turkey to other countries and Spain to other countries. So it’s working pretty well on that perspective. When it comes to API especially Sequent, any API business to grow on two fronts. One is efficient utilization of the facilities and efficient process capability. And the third thing is most important continuous adding of those new products.
So that we missed out last couple of years but now we are accelerating that both sides and we can see a lot of improvement in 12 months on that perspective. That’s what I was trying to say.
Bharat Sheth
So same thing on earlier also we were looking for VS also a lot of. I mean pruning the portfolio and hence our top line is not really reflecting but it is reflected in the margin. So where we are in this journey, pruning of the portfolio and moving to same other newer therapeutic like oncology as well as CRDMO opportunity. If you can give some more color.
Hari Babu Bodepudi
Cash perspective. We are very strong. We initiated oncology maybe 18 months back. Within 18 months we come up very strong gold. Now we have almost 15, 16 goals in our portfolio already couple of products we filed on that perspective. So similar lines Sequent. Also we are looking at, you know, couple of even animal pet care especially there’s a lot of oncology products either similar or coming in different way. Since we have facility, we can come up in strong way in that perspective. Yeah. Is the low margin for example? It’s here. Sorry, go ahead.
Bharat Sheth
Sorry. Sorry sir. You go low margin and then top line growth. How do we think about it?
Hari Babu Bodepudi
So low margin, large volume always there is a scope to improve by doing process efficiency or optimizing capabilities. I think that where we have very strong team to do that like large volume, low margin. I can say prefer Albany. There’s the various markets actually where we operated the quality market margins are still reasonably good. But still there is a continuous process to improve high volume, low margin products. We are very much capable to do that. Of course where there are low volume low margin products, that’s where we are trying to prune in. So we have very strong process efficiency team to take care of those things.
We don’t want to drop every product. So we drop only products where there is no opportunities to see the growth. If the overall volume itself is very low in the world market, we can’t See much growth. Those are the projects. We are trying to prune it. But high volume products will continue, will improve as much as possible and definitely we are going to complete those products.
Bharat Sheth
CDMO opportunity.
operator
Sir, sorry to interrupt you. Sir, please request.
Bharat Sheth
Sorry. This is line with the same question of cdamo which I already asked.
Rajaram Narayanan
Can complete that. Can complete the answer for that.
Hari Babu Bodepudi
Yeah, CDM also as I explained last quarter we initiated cdmo. We started doing couple of companies but we are coming up with a complete strategic direction. Next 1, 2 quarters we started building the team on CDMO. If you see our capability, we have fantastic infrastructure. Both analytical EHS and operating. These three are actually core things for any CDM business. And we are already handling Maybe I think 8 out of top 10 innovator companies. The next phase of CDMO business we are trying to do phase one, phase two that we started building the team. We started actually relooking at our R and D expansion this year.
You can see definitely our R and D expansion goes space as well as people. So next year we’ll come up with strong cdm. I don’t want to just come up CDM though, just few things. So we are going to come up very strong on CDM next 12 to 18 months. I can say that we are working on that.
Bharat Sheth
Thank you. Thanks.
Rajaram Narayanan
Thank you.
operator
Thank you. Our next question from line of Harris from Monash Network Capital. Please go ahead.
Unidentified Participant
Yeah, thank you for the opportunity. Can you provide an update on the companion animal health business and where do we see it in the next two years and if you can give us the financials in terms of contribution this quarter?
Rajaram Narayanan
Is that your only question?
Unidentified Participant
Yeah, that is the only question.
Rajaram Narayanan
Okay, thank you. So I think companion animals for us, as we have said before, it reflects at this point of time about 5 odd percent of our total business. We are largely a production animal company, but it’s growing fast for us in some markets. So in Europe, for example, we are beginning to now distribute more and more of companion animal products. And we are also launching the companion animal anesthetic range which will increase the share of this business. Our industry intense plan is that we should double this in the next three years in terms organically on our own products.
On the API side as well, there are companion animal APIs which have now, you know, we started getting inquiries for those. We have started in fact supplying some of those. So I expect some interest to increase over there. But other than that, I think from a financial point of view, because it is, you know, not big enough, I can’t. We don’t sort of report the financials of companion animals separately. Generally they tend to be quite profitable in line with the current margin or slightly higher.
Unidentified Participant
Yeah. Thank you sir. That answers my question. Yeah.
Rajaram Narayanan
Yeah.
operator
Thank you. We have a next question from the line of Rachit Kabra from Anandraji. Please go ahead.
Unidentified Participant
Hi sir. So I, I have a follow up on like you had earlier said that the company would reduce the debt. So is it still holding true?
Rajaram Narayanan
Yeah, yeah.
Hari Babu Bodepudi
Dr. Yeah. Still we are evaluating but we are going to restructure. Okay. Whatever Sequent and debt you see today. So the interest cost is little high. We are going to restructure but we are looking at two things. One is clearing complete date or looking for something. So we are at post merger. We are going to do this as well. As we explained we are looking for growth opportunities. So evaluate and worker work on that doctor post.
Unidentified Participant
Thank you.
operator
Thank you ladies and gentlemen. That was the last question for today and I now hand the conference over to the management for closing comments.
Rajaram Narayanan
Okay. Thank you very much for being on the call. Thank you Dr. Hari. Thank you Sorv. Thank you Ramakant and everybody who’s attended. So I think you would have seen that we’ve taken, we are quite consistent right now in what we indicated a couple of quarters ago when we started doing this call together with Vrsh and Sequent. Our growth continues to be on plan. Our margins are improving like we have guided. We do expect that the synergies of the merger will kick in fast right after we get all the clearances and the work on it however has already started.
So both on the P and L as well as on the balance sheet we should see a substantial improvement within the first few quarters of the merger sort of getting effective. And we look forward to sharing the performance of the next quarter when we meet with you on the call. Thank you very much and have a good week.
Saurav Bhala
Thank you.
Hari Babu Bodepudi
Thank you.
operator
Thank you on behalf of Sequent Scientific Limited, t hat concludes this conference. Thank you for joining us and you may now disconnect your lines.